UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO |
Commission file number: 001-36054
Sophiris Bio Inc.
(Exact name of registrant as specified in its charter)
British Columbia | 98-1008712 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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1258 Prospect Street, La Jolla, California | 92037 |
(Address of Principal Executive Offices) | (Zip Code) |
858-777-1760
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, no par value | SPHS | The Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of AugustNovember 1, 2019, the registrant had 30,217,14034,472,140 common shares (no par value) outstanding.
TABLE OF CONTENTS
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2 | |||
| Item 1. | 2 | |
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| Condensed Consolidated Statements of Operations and Comprehensive Loss | 3 |
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| Condensed Consolidated Statement of Shareholders’ (Deficit) Equity | 4 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| Item 1A. |
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| Item 6. | 50 | |
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Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
June 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Assets: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 4,972 | $ | 10,998 | $ | 4,251 | $ | 10,998 | ||||||||
Securities available-for-sale | 1,045 | 1,541 | 2,050 | 1,541 | ||||||||||||
Prepaid expenses and other current assets | 305 | 656 | 710 | 656 | ||||||||||||
Total current assets | 6,322 | 13,195 | 7,011 | 13,195 | ||||||||||||
Property and equipment, net | 3 | 4 | 3 | 4 | ||||||||||||
Operating lease right-of-use asset | 116 | — | 85 | — | ||||||||||||
Total assets | $ | 6,441 | $ | 13,199 | $ | 7,099 | $ | 13,199 | ||||||||
Liabilities and shareholders’ (deficit) equity: | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 566 | $ | 1,862 | $ | 431 | $ | 1,862 | ||||||||
Accrued expenses | 1,153 | 1,192 | 745 | 1,192 | ||||||||||||
Current portion of promissory note | 2,649 | 1,920 | 2,665 | 1,920 | ||||||||||||
Current portion of operating lease liability | 116 | — | 85 | — | ||||||||||||
Total current liabilities | 4,484 | 4,974 | 3,926 | 4,974 | ||||||||||||
Long-term promissory note | 3,758 | 5,091 | 3,086 | 5,091 | ||||||||||||
Warrant liability | 575 | 1,399 | 2,848 | 1,399 | ||||||||||||
Total liabilities | 8,817 | 11,464 | 9,860 | 11,464 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Shareholders’ (deficit) equity: | ||||||||||||||||
Common shares, unlimited authorized shares, no par value; 30,217,140 and 30,205,915 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively | 131,247 | 131,247 | ||||||||||||||
Common shares, unlimited authorized shares, no par value; 33,572,140 and 30,205,915 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 131,489 | 131,247 | ||||||||||||||
Contributed surplus | 27,128 | 26,714 | 27,459 | 26,714 | ||||||||||||
Accumulated other comprehensive gain | 99 | 100 | 100 | 100 | ||||||||||||
Accumulated deficit | (160,850 | ) | (156,326 | ) | (161,809 | ) | (156,326 | ) | ||||||||
Total shareholders’ (deficit) equity | (2,376 | ) | 1,735 | (2,761 | ) | 1,735 | ||||||||||
Total liabilities and shareholders’ (deficit) equity | $ | 6,441 | $ | 13,199 | $ | 7,099 | $ | 13,199 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Research and development | $ | 1,089 | $ | 3,591 | $ | 2,644 | $ | 6,920 | $ | 738 | $ | 1,798 | $ | 3,382 | $ | 8,718 | ||||||||||||||||
General and administrative | 1,218 | 1,096 | 2,470 | 2,340 | 1,388 | 1,155 | 3,858 | 3,494 | ||||||||||||||||||||||||
Total operating expenses | 2,307 | 4,687 | 5,114 | 9,260 | 2,126 | 2,953 | 7,240 | 12,212 | ||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest expense | (159 | ) | (172 | ) | (325 | ) | (341 | ) | (145 | ) | (173 | ) | (470 | ) | (514 | ) | ||||||||||||||||
Interest income | 43 | 91 | 104 | 178 | 29 | 80 | 133 | 258 | ||||||||||||||||||||||||
Gain (loss) on revaluation of warrant liability | 270 | (1,365 | ) | 824 | (10 | ) | ||||||||||||||||||||||||||
Gain on revaluation of warrant liability | 1,281 | 153 | 2,105 | 143 | ||||||||||||||||||||||||||||
Other income (expense), net | (11 | ) | 36 | (13 | ) | 7 | 2 | 21 | (11 | ) | 27 | |||||||||||||||||||||
Total other income (expense) | 143 | (1,410 | ) | 590 | (166 | ) | 1,167 | 81 | 1,757 | (86 | ) | |||||||||||||||||||||
Net loss | $ | (2,164 | ) | $ | (6,097 | ) | $ | (4,524 | ) | $ | (9,426 | ) | $ | (959 | ) | $ | (2,872 | ) | $ | (5,483 | ) | $ | (12,298 | ) | ||||||||
Basic and diluted loss per share | $ | (0.07 | ) | $ | (0.20 | ) | $ | (0.15 | ) | $ | (0.31 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.18 | ) | $ | (0.41 | ) | ||||||||
Weighted average number of outstanding shares – basic and diluted | 30,217 | 30,111 | 30,216 | 30,111 | 32,072 | 30,111 | 30,841 | 30,111 | ||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Unrealized income (loss) on securities available-for-sale | 1 | 2 | (1 | ) | — | |||||||||||||||||||||||||||
Unrealized income on securities available-for-sale | 1 | 2 | — | 2 | ||||||||||||||||||||||||||||
Total other comprehensive loss | $ | (2,163 | ) | $ | (6,095 | ) | $ | (4,525 | ) | $ | (9,426 | ) | $ | (958 | ) | $ | (2,870 | ) | $ | (5,483 | ) | $ | (12,296 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Shareholders’ (Deficit) Equity
(In thousands, except share amounts)
Common | Contributed |
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| Common | Contributed |
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Shares | Amount | Surplus | Deficit | Income | (Deficit) Equity | Shares | Amount | Surplus | Deficit | Income | (Deficit) Equity | |||||||||||||||||||||||||||||||||||||
Balance at April 1, 2019 | 30,217,140 | $ | 131,247 | $ | 26,939 | $ | (158,686 | ) | $ | 98 | $ | (402 | ) | |||||||||||||||||||||||||||||||||||
Balance at July 1, 2019 | 30,217,140 | $ | 131,247 | $ | 27,128 | $ | (160,850 | ) | $ | 99 | $ | (2,376 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common shares and pre-funded warrants, net of issuance costs of $43,000 | 3,355,000 | 3,796 | 141 | — | — | 3,937 | ||||||||||||||||||||||||||||||||||||||||||
Initial valuation of warrant liability upon issuance of common share purchase warrants | — | (3,554 | ) | — | — | — | (3,554 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 189 | — | — | 189 | — | — | 190 | — | — | 190 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (2,164 | ) | — | (2,164 | ) | — | — | — | (959 | ) | — | (959 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 1 | 1 | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 30,217,140 | $ | 131,247 | $ | 27,128 | $ | (160,850 | ) | $ | 99 | $ | (2,376 | ) | |||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 33,572,140 | $ | 131,489 | $ | 27,459 | $ | (161,809 | ) | $ | 100 | $ | (2,761 | ) | |||||||||||||||||||||||||||||||||||
Balance at April 1, 2018 | 30,111,153 | $ | 131,247 | $ | 26,085 | $ | (152,876 | ) | $ | 94 | $ | 4,550 | ||||||||||||||||||||||||||||||||||||
Balance at July 1, 2018 | 30,111,153 | $ | 131,247 | $ | 26,274 | $ | (158,974 | ) | $ | 97 | $ | (1,356 | ) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 189 | — | — | 189 | — | — | 257 | — | — | 257 | ||||||||||||||||||||||||||||||||||||
Other | — | — | — | (1 | ) | 1 | — | |||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (6,097 | ) | — | (6,097 | ) | — | — | — | (2,872 | ) | — | (2,872 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 2 | 2 | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 | 30,111,153 | $ | 131,247 | $ | 26,274 | $ | (158,974 | ) | $ | 97 | $ | (1,356 | ) | |||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | 30,111,153 | $ | 131,247 | $ | 26,531 | $ | (161,846 | ) | $ | 99 | $ | (3,969 | ) | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 | 30,205,915 | $ | 131,247 | $ | 26,714 | $ | (156,326 | ) | $ | 100 | $ | 1,735 | 30,205,915 | $ | 131,247 | $ | 26,714 | $ | (156,326 | ) | $ | 100 | $ | 1,735 | ||||||||||||||||||||||||
Issuance of common shares net of issuance costs of $14 | 11,225 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares and pre-funded warrants, net of issuance costs of $43,000 | 3,366,225 | 3,796 | 141 | — | — | 3,937 | ||||||||||||||||||||||||||||||||||||||||||
Initial valuation of warrant liability upon issuance of common share purchase warrants | — | (3,554 | ) | — | — | (3,554 | ) | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 604 | — | — | 604 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (5,483 | ) | — | (5,483 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 33,572,140 | $ | 131,489 | $ | 27,459 | $ | (161,809 | ) | $ | 100 | $ | (2,761 | ) | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2018 | 30,111,153 | $ | 131,247 | $ | 25,854 | $ | (149,548 | ) | $ | 97 | $ | 7,650 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 414 | — | — | 414 | — | — | 677 | — | — | 677 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (4,524 | ) | — | (4,524 | ) | — | — | — | (12,298 | ) | — | (12,298 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (1 | ) | (1 | ) | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 30,217,140 | $ | 131,247 | $ | 27,128 | $ | (160,850 | ) | $ | 99 | $ | (2,376 | ) | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2018 | 30,111,153 | $ | 131,247 | $ | 25,854 | $ | (149,548 | ) | $ | 97 | $ | 7,650 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 421 | — | — | 421 | ||||||||||||||||||||||||||||||||||||||||||
Other | — | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (9,426 | ) | — | (9,426 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 | 30,111,153 | $ | 131,247 | $ | 26,274 | $ | (158,974 | ) | $ | 97 | $ | (1,356 | ) | |||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | 30,111,153 | $ | 131,247 | $ | 26,531 | $ | (161,846 | ) | $ | 99 | $ | (3,969 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended June 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Cash flows used in operating activities | ||||||||||||||||
Net loss | $ | (4,524 | ) | $ | (9,426 | ) | $ | (5,483 | ) | $ | (12,298 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Stock-based compensation | 414 | 421 | 604 | 677 | ||||||||||||
Accretion of debt discount | 70 | 75 | 101 | 113 | ||||||||||||
Amortization of promissory note issuance costs | 26 | 29 | 39 | 43 | ||||||||||||
Depreciation and amortization | 62 | 1 | 93 | 2 | ||||||||||||
Amortization of premium/discount on securities available-for-sale | (16 | ) | (35 | ) | (27 | ) | (44 | ) | ||||||||
Financing issuance cost allocated to warrant liability | 359 | — | ||||||||||||||
Change in fair value warrant liability | (824 | ) | 10 | (2,105 | ) | (143 | ) | |||||||||
Foreign exchange transaction loss | 3 | 2 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Prepaid expenses and other current assets | 352 | (24 | ) | (53 | ) | 143 | ||||||||||
Accounts payable | (1,241 | ) | 436 | (1,459 | ) | (433 | ) | |||||||||
Accrued expenses | 3 | 1,162 | (404 | ) | 599 | |||||||||||
Operating lease liability | (61 | ) | — | (92 | ) | — | ||||||||||
Net cash used in operating activities | (5,736 | ) | (7,349 | ) | (8,427 | ) | (11,341 | ) | ||||||||
Cash flows provided by investing activities | ||||||||||||||||
Cash flows (used in) provided by investing activities | ||||||||||||||||
Purchases of property and equipment | — | (3 | ) | — | (4 | ) | ||||||||||
Maturities of securities available-for-sale | 1,550 | 7,287 | 2,600 | 9,387 | ||||||||||||
Purchases of securities available-for-sale | (1,038 | ) | (2,081 | ) | (3,082 | ) | (2,081 | ) | ||||||||
Net cash provided by investing activities | 512 | 5,203 | ||||||||||||||
Cash flows used in financing activities | ||||||||||||||||
Payment of offering costs | (102 | ) | — | |||||||||||||
Net cash (used in) provided by investing activities | (482 | ) | 7,302 | |||||||||||||
Cash flows provided by financing activities | ||||||||||||||||
Proceeds from the issuance of common shares, pre-funded warrants and common share purchase warrants, net of paid issuance costs | 3,664 | — | ||||||||||||||
Payment of offering costs related to the establishment of the Controlled Equity Sales Agreement | (102 | ) | — | |||||||||||||
Principal payments on note payable | (700 | ) | — | (1,400 | ) | — | ||||||||||
Net cash used in financing activities | (802 | ) | — | |||||||||||||
Net cash provided by financing activities | 2,162 | — | ||||||||||||||
Net decrease in cash and cash equivalents | (6,026 | ) | (2,146 | ) | (6,747 | ) | (4,039 | ) | ||||||||
Cash and cash equivalents at beginning of period | 10,998 | 16,087 | 10,998 | 16,087 | ||||||||||||
Cash and cash equivalents at end of period | $ | 4,972 | $ | 13,941 | $ | 4,251 | $ | 12,048 |
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Valuation of warrant liability upon issuance of purchase warrants | $ | 3,554 | $ | — | ||||
Unpaid issuance costs included in accounts payable | $ | 86 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. | Nature of the business |
Company
Sophiris Bio Inc., or the Company, or Sophiris, is a clinical-stage biopharmaceutical company focused on innovative products for the treatment of urological diseases. The Company is governed by the British Columbia Business Corporations Act. The Company’s operations were initially located in Vancouver, British Columbia until April 2011, when its core activities and headquarters relocated from Vancouver, British Columbia to San Diego, California.
The condensed consolidated financial statements include the accounts of Sophiris and its wholly-owned subsidiaries, Sophiris Bio Corp. and Sophiris Bio Holding Corp., both of which are incorporated in the State of Delaware.
Liquidity
The condensed consolidated financial statements have been prepared onassuming the Company will continue as a going concern, basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred net losses from operations since inception, including $5.5 million in the nine months ended September 30, 2019 and has an accumulated deficit of $161.8 million as of September 30, 2019. On August 29, 2019, the Company completed a registered direct financing with a private institutional investor whereby it received $3.6 million, net of underwriters’ discounts and offering costs. At JuneSeptember 30, 2019, the Company had cash, cash equivalents and securities available-for-sale of $6.3 million. As of September 30, 2019, the future principal and final fee payments under the Loan and Security Agreement with Silicon Valley Bank, or SVB, total $6.0 million. The maturity date of the loan is September 1, 2021. The Company is currently paying monthly installments of principal and interest under the Loan and Security Agreement. However, if the Company fails to make principal and interest payments when due or another event of default occurs under the loan, SVB may accelerate the loan and foreclose on the Company’s pledged assets if the Company is unable to repay the loan in full. Events of default include the occurrence of a material adverse change as defined in the Loan and Security Agreement. As of the date of filing of this Form 10-Q, the Company is not in default under any of the provisions of the Loan and Security Agreement. The Company expects that its cash, cash equivalents and securities available-for-sale will be sufficient to fund its operations and debt service through November 2019March 2020 (assuming no acceleration of the loan) and, as a result, there is substantial doubt exists over the Company’sabout its ability to continue as a going concern fromfor one year from the date of the issuance of its condensed consolidated financial statements.statements for the nine months ended September 30, 2019.
The Company is currently evaluating options to further advance the clinical development of topsalysin. The Company will require significant additional funding to advance topsalysin in clinical development. The Company could use dilutive funding options such as an equity financing and/or non-dilutive funding options such as a partnering arrangement to fund future clinical development of topsalysin. On June 19, 2019, the Company announced that it hadhas received formal scientific advice from the European Medicines Agency, or EMA, and reached an agreement with the U.S. Food and Drug Administration, or FDA, regarding a proposed design offor a single Phase 3 clinical trial to evaluate the potential of topsalysin as a targeted focal therapy to treat patients with intermediate risk localized prostate cancer. Based upon feedback from the EMA and the FDA, the Company believes that data from a single Phase 3 trial, if successful, should be sufficient to support market approval in Europe. The Company is now actively engaged in discussions withboth the U.S. Food and Drug Administration, or FDA, on the design of the proposed Phase 3 clinical trial. The goal is to conduct a single Phase 3 trial, which if successful, will provide the clinical data for approval in both the US and Europe. The scope of any additional trial in localized prostate cancer, including whether it will be a Phase 3 trial or an additional Phase 2 trial, will be dependent upon feedback from the FDA and securing funding to finance such clinical trial. At this point in time, the Company does not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in benign prostatic hyperplasia, or BPH, unless the Company secures a development partner to fund such new clinical trials or obtainit obtains the necessary financing. The Company is currently evaluating options to further advance the clinical development of topsalysin. The Company will require significant additional funding to advance topsalysin in clinical development. The Company could use dilutive funding options such as an equity financing in excessand/or non-dilutive funding options such as a partnering arrangement or other strategic arrangements to fund future clinical development of topsalysin. Any significant future public financing will most likely require the financing required for our prostate cancer development program,use of a Form S-1 registration statement. The process of getting a Form S-1 registration statement filed and declared effective can take an extended period of time which is our development priority.could delay the timing of any future significant financing. There can be no assurance that such funding will be secured in a timely manner or on favorable terms, if at all or that a development partner will be available on acceptable terms or if at all.
If the Company is unable to raise additionalsufficient capital to fund its development program efforts in sufficient amounts or on terms acceptable to it,operations, the Company may havecould be required to significantly delay, scale backreduce expenses, sell assets (potentially at a loss), cease operations altogether, file for bankruptcy or discontinue the developmentseek other protection from creditors, or liquidate all of its assets. The Company is also exploring partnership arrangements and commercialization of topsalysin. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Any new clinical development efforts and our ongoing operations will require significant funding.other strategic alternatives which could include a merger or acquisition.
On March 7, 2019, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC, or Nasdaq, notifying the Company that for the last 30 consecutive business days prior to the date of the letter, the market value of the Company’s listed securities was less than $35 million and therefore the Company did not meet the requirement for continued listing on The Nasdaq Capital Market as required by Nasdaq Listing Rule 5550(b)(2), or the Market Value Rule, or the alternative requirements under Nasdaq Listing Rules 5550(b)(1) and 5550(b)(3). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company hashad 180 calendar days, or until September 3, 2019, to regain compliance with the Market Value Rule. The Company will regain compliance with the Market Value Rule if the market value of the Company’s listed securities closes at or above $35 million for a minimum of 10 consecutive business days anytime during the 180 day compliance period. As of the date of this filing the Company has not regained compliance with the Market Value Rule.
On June 4, 2019, the Company received a letter from the Listing Qualifications Staff of Nasdaq notifying the Company that the closing bid price of the Company’s common shares had been below $1.00 per share for 30 consecutive business days and that the Company was therefore not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2). Nasdaq stated in its June 4th4th letter that, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a grace period of 180 calendar days, or until December 2, 2019, to regain compliance with the minimum closing bid price requirement for continued listing. The Company will regain compliance if the Company’s closing bid price of the Company’s common shares is at or above $1.00 for at least 10 consecutive business days anytime during the 180-day grace period.
On September 6, 2019, the Company received a letter from the Nasdaq notifying the Company that it had not regained compliance with Market Value Rule by September 3, 2019 and as a result the Company’s securities will be delisted from the Nasdaq unless the Company requests an appeal of this determination. The Company formally requested an appeal of this determination on September 12, 2019. On October 17, 2019, the Company met with the Nasdaq Hearings Panel regarding the Company’s potential delisting from The Nasdaq Stock Market as a result of its failure to maintain a market value of the Company’s listed securities of at least $35 million or in the alternative to have more than $2.5 million in stockholders’ equity. On October 21, 2019, the Company received the Nasdaq Hearings Panel decision which granted the Company until January 24, 2020 to regain compliance with the listing standards of the Nasdaq Capital Market, by either having the market value of the Company’s listed securities be at least $35 million during the preceding ten consecutive trading days before January 24, 2020 or having more than $2.5 million in stockholders’ equity by January 24, 2020. The Company will also be required to have a closing bid price of at least $1.00 per share during the preceding ten consecutive trading days before January 24, 2020. If the Company is unable to regain compliance with the listing standards of the Nasdaq Capital Market by January 24, 2020, the Company’s securities may be delisted from The Nasdaq Stock Market. As of the date of this filing the Company has not regained compliance with this rule. any of these listing rules.
2. | Summary of significant accounting policies |
Basis of consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sophiris Bio Corp. and Sophiris Bio Holding Corp.Corp, both of which are incorporated in the State of Delaware. All intercompany balances and transactions have been eliminated for purposes of consolidation.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP, for the interim financial information and the rules and regulations of the Securities and Exchange Commission, or SEC, related to quarterly reports on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by GAAP for annual audited financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K, or Annual Report, filed with the SEC on March 13, 2019. The accompanying year-end condensed balance sheet data was derived from the audited consolidated financial statements but does not include all disclosures required by GAAP. In the opinion of management, these condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any future period, including the full year.
During the sixnine months ended JuneSeptember 30, 2019, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, except as described below.
Leases
The Company currently leases its corporate headquarters. When the Company enters into a lease, it determines whether the agreement is a lease or contains a lease and at commencement it evaluates each lease agreement to determine whether the lease is an operating or financing lease. The Company will evaluate the lease to determine if the lease contains renewal options, tenant improvement allowances, rent holidays and rent escalation clauses. The Company adopted the Financial Accounting Standards Board Accounting Standards Update, or ASU, "Leases," or ASU 2016-02, using the modified retrospective approach with an effective date as of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting standard originally in effect for such periods.
Pursuant to ASU 2016-02, the Company’s office facility lease continued to be classified as operating leases. With the adoption of ASU 2016-02, the Company recorded an operating lease right-of-use asset and an operating lease liability on its balance sheet. Right-of-use lease assets represents its right to use the underlying asset for the lease term and the lease obligation represents its commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. The Company combines lease and non-lease components. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Prior to the Company’s adoption of ASU 2016-02, when the lease agreement contained renewal options and rent escalation clauses, the Company recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the statements of operations over the term of each lease.
3. | Net loss per common share |
Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common shares equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method.
The following diluted securities have been excluded from the computation of diluted weighted-average shares outstanding as of JuneSeptember 30, 2019 and 2018 as the Company recorded a net loss in both periods and therefore, they would be anti-dilutive (in thousands):
June 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Options to purchase common shares | 2,963 | 2,940 | 2,963 | 2,940 | ||||||||||||
Common share purchase warrants | 5,798 | 5,825 | 11,131 | 5,798 |
Reconciliation of shares utilized in the weighted average outstanding number of shares for basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Weighted average number of common shares outstanding during the period | 31,384 | 30,111 | 30,609 | 30,111 | ||||||||||||
Weighted average number of pre-funded warrants outstanding during the period | 688 | — | 232 | — | ||||||||||||
32,072 | 30,111 | 30,841 | 30,111 |
Even through the impact of the inclusion of the pre-funded warrants in the earnings per shares calculation is anti-dilutive, the Company has included the pre-funded warrants issued in its August 2019 offering in the calculation of weighted average outstanding number of shares for both basic and diluted EPS for the three and nine months ended September 30, 2019 as these warrants were issued with an exercise price of $0.01 which the Company believes is nonsubstantive in relation to the fair value of the common shares to be issued upon exercise of the warrants. On October 25, 2019, 900,000 of these outstanding pre-funded warrants were exercised.
4. | Securities Available-for-Sale |
Securities available-for-sale consisted of the following as of JuneSeptember 30, 2019 (in thousands):
June 30, 2019 | ||||||||||||||||
Amortized | Unrealized | Estimated | ||||||||||||||
Cost | Gain | Loss | Fair Value | |||||||||||||
Commercial paper | $ | 1,045 | $ | — | $ | — | $ | 1,045 | ||||||||
$ | 1,045 | $ | — | $ | — | $ | 1,045 |
September 30, 2019 | ||||||||||||||||
Amortized | Unrealized | Estimated | ||||||||||||||
Cost | Gain | Loss | Fair Value | |||||||||||||
Commercial paper | $ | 1,547 | $ | — | $ | — | $ | 1,547 | ||||||||
U.S. government sponsored enterprise securities | 503 | — | — | 503 | ||||||||||||
$ | 2,050 | $ | — | $ | — | $ | 2,050 |
As of JuneSeptember 30, 2019, all of the Company’s securities available-for-sale have a maturity date of less than one year.
Securities available-for-sale consisted of the following as of December 31, 2018 (in thousands):
December 31, 2018 | ||||||||||||||||
Amortized | Unrealized | Estimated | ||||||||||||||
Cost | Gain | Loss | Fair Value | |||||||||||||
Commercial paper | $ | 892 | $ | — | $ | — | $ | 892 | ||||||||
U.S. government sponsored enterprise securities | 649 | — | — | 649 | ||||||||||||
$ | 1,541 | $ | — | $ | — | $ | 1,541 |
As of December 31, 2018, all of the Company’s securities available-for-sale have a maturity date of less than one year.
5. | Fair value measurement and financial instruments |
As of JuneSeptember 30, 2019, the Company had $5.6$5.5 million of securities consisting of money market funds, and commercial paper securities and U.S. government sponsored enterprise securities with maturities that range from one dayfour days to threefive months with an overall average time to maturity of approximately one month. The Company has the ability to liquidate these investments without restriction. The Company determines the fair value for securities with Level 1 inputs through quoted market prices. The Company determines the fair value for securities with Level 2 inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The Company’s Level 2 securities have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other observable market data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. The Company’s Level 3 inputs are unobservable inputs based on the Company’s assessment that market participants would use in pricing the instruments.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis for the periods presented (in thousands):
June 30, 2019 | Level 1 | Level 2 | Level 3 | September 30, 2019 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Money market funds | $ | 582 | $ | 582 | $ | — | $ | — | $ | 410 | $ | 410 | $ | — | $ | — | ||||||||||||||||
Commercial paper | 5,015 | — | 5,015 | — | 2,796 | — | 2,796 | — | ||||||||||||||||||||||||
U.S. government sponsored enterprise securities | 2,250 | — | 2,250 | — | ||||||||||||||||||||||||||||
Total assets | $ | 5,597 | $ | 582 | $ | 5,015 | $ | — | $ | 5,456 | $ | 410 | $ | 5,046 | $ | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Warrant liability | $ | 575 | $ | — | $ | — | $ | 575 | $ | 2,848 | $ | — | $ | — | $ | 2,848 | ||||||||||||||||
Total liabilities | $ | 575 | $ | — | $ | — | $ | 575 | $ | 2,848 | $ | — | $ | — | $ | 2,848 |
December 31, 2018 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 20 | $ | 20 | $ | — | $ | — | ||||||||
Commercial paper | 9,729 | — | 9,729 | — | ||||||||||||
U.S. government sponsored enterprise securities | 2,198 | — | 2,198 | — | ||||||||||||
Total assets | $ | 11,947 | $ | 20 | $ | 11,927 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Warrant liability | $ | 1,399 | $ | — | $ | — | $ | 1,399 | ||||||||
Total liabilities | $ | 1,399 | $ | — | $ | — | $ | 1,399 |
December 31, 2018 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 20 | $ | 20 | $ | — | $ | — | ||||||||
Commercial paper | 9,729 | — | 9,729 | — | ||||||||||||
U.S. government sponsored enterprise securities | 2,198 | — | 2,198 | — | ||||||||||||
Total assets | $ | 11,947 | $ | 20 | $ | 11,927 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Warrant liability | $ | 1,399 | $ | — | $ | — | $ | 1,399 | ||||||||
Total liabilities | $ | 1,399 | $ | — | $ | — | $ | 1,399 |
Warrant liability
In connection with the offering completed on May 11, 2016, the Company issued 1,785,714 warrants to purchase its common shares. These warrants may require the Company to pay the warrant holder cash under certain provisions of the warrant and therefore the Company is accounting for these warrants as a liability. As a result of these warrants being classified as a liability, the Company is required to calculate their fair value at each reporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. The Company calculated the initial fair value of these warrants on May 11, 2016, the date the warrants were issued. As of JuneSeptember 30, 2019, only 10,000 of these warrants remain outstanding for which the fair value was remeasured as of JuneSeptember 30, 2019. The following inputs were utilized in the Black-Scholes pricing model:
June 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Stock price | $ | 0.85 | $ | 0.83 | $ | 0.59 | $ | 0.83 | ||||||||
Exercise price | $ | 1.40 | $ | 1.40 | $ | 1.40 | $ | 1.40 | ||||||||
Risk-free interest rate | 1.77 | % | 2.46 | % | 1.67 | % | 2.46 | % | ||||||||
Volatility | 85.66 | % | 82.47 | % | 90.83 | % | 82.47 | % | ||||||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Expected life in years | 1.86 | 2.36 | 1.61 | 2.36 | ||||||||||||
Calculated fair value per warrant | $ | 0.26 | $ | 0.29 | $ | 0.13 | $ | 0.29 |
In connection with the offering completed on August 26, 2016, the Company issued 5,606,250 warrants to purchase its common shares. These warrants may require the Company to pay the warrant holder cash under certain provisions of the warrant and therefore the Company is accounting for these warrants as a liability. As a result of these warrants being classified as a liability, the Company is required to calculate the fair value of these warrants at each reporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. The Company calculated the initial fair value of these warrants on August 26, 2016, the date the warrants were issued. As of JuneSeptember 30, 2019, all of these warrants remain outstanding for which the fair value was remeasured. The following inputs were utilized in the Black-Scholes pricing model:
June 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Stock price | $ | 0.85 | $ | 0.83 | $ | 0.59 | $ | 0.83 | ||||||||
Exercise price | $ | 4.00 | $ | 4.00 | $ | 4.00 | $ | 4.00 | ||||||||
Risk-free interest rate | 1.74 | % | 2.45 | % | 1.64 | % | 2.45 | % | ||||||||
Volatility | 83.71 | % | 104.52 | % | 86.81 | % | 104.52 | % | ||||||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Expected life in years | 2.16 | 2.65 | 1.90 | 2.65 | ||||||||||||
Calculated fair value per warrant | $ | 0.10 | $ | 0.25 | $ | 0.04 | $ | 0.25 |
In connection with the offering completed on August 29, 2019, the Company issued 5,333,334 warrants to purchase its common shares. These warrants may require the Company to pay the warrant holder cash under certain provisions of the warrant and therefore the Company is accounting for these warrants as a liability. As a result of these warrants being classified as a liability, the Company is required to calculate the fair value of these warrants at each reporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. The Company calculated the initial fair value of these warrants on August 29, 2019, the date the warrants were issued. As of September 30, 2019, all of these warrants remain outstanding for which the fair value was remeasured. The following inputs were utilized in the Black-Scholes pricing model:
Initial Fair Value Assessment August 29, 2019 | September 30, 2019 | |||||||
Stock price | $ | 0.78 | $ | 0.59 | ||||
Exercise price | $ | 0.95 | $ | 0.95 | ||||
Risk-free interest rate | 1.41 | % | 1.56 | % | ||||
Volatility | 126.36 | % | 130.31 | % | ||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected life in years | 5.51 | 5.42 | ||||||
Calculated fair value per warrant | $ | 0.67 | $ | 0.49 |
The following table presents a reconciliation of the warrant liability measured at fair value using unobservable inputs (Level 3) (in thousands):
Warrant Liability | ||||
Liabilities: | ||||
Balance at January 1, 2019 | $ | 1,399 | ||
Change in the fair value of warrant liability | (824 | ) | ||
Balance at June 30, 2019 | $ | 575 |
Warrant Liability | ||||
Liabilities: | ||||
Balance at January 1, 2019 | $ | 1,399 | ||
Issuance of warrants on August 29, 2019 | 3,554 | |||
Change in the fair value of warrant liability | (2,105 | ) | ||
Balance at September 30, 2019 | $ | 2,848 |
The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers of assets or liabilities between the fair value measurement classifications.
6. | Prepaid expenses and other current assets |
Prepaid expenses and other current assets as of JuneSeptember 30, 2019 and December 31, 2018 consisted of the following (in thousands):
June 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Prepaid insurance | $ | 48 | $ | 245 | $ | 507 | $ | 245 | ||||||||
Prepaid research and development expenses | 71 | 256 | 116 | 256 | ||||||||||||
Other prepaid expenses and other current assets | 186 | 155 | 87 | 155 | ||||||||||||
Prepaid expenses and other current assets | $ | 305 | $ | 656 | $ | 710 | $ | 656 |
As of JuneSeptember 30, 2019 and December 31, 2018, prepaid research and development expenses includes $38,000$34,000 and $0.2 million, respectively, for upfront fees paid to the Company’s third-party manufacturing vendors for the development of topsalysin. The upfront fees will be relieved in future periods based upon work completed.
7. | Accrued expenses |
Accrued expenses as of JuneSeptember 30, 2019 and December 31, 2018 consisted of the following (in thousands):
June 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Accrued personnel related costs | $ | 238 | $ | 209 | $ | 221 | $ | 209 | ||||||||
Accrued interest | 36 | 41 | 31 | 41 | ||||||||||||
Accrued research and development expenses | 355 | 586 | 211 | 586 | ||||||||||||
Accrued audit and tax services | 378 | 168 | 238 | 168 | ||||||||||||
Other accrued expenses | 146 | 188 | 44 | 188 | ||||||||||||
Accrued expenses | $ | 1,153 | $ | 1,192 | $ | 745 | $ | 1,192 |
8. | Promissory notes |
On September 8, 2017, the Company entered into a new Loan and Security Agreement with Silicon Valley Bank, or SVB. Under the terms of the agreement, the Company borrowed $7.0 million which bears fixed interest of 6.75% per annum. The Company has the option to prepay the outstanding balance of the loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. Upon the final repayment of the loan on the maturity date of September 1, 2021, by prepayment, or upon acceleration, the Company will pay SVB an additional fee of 5% of the principal amount of $7.0 million. This additional fee was recorded as a debt discount and is being recognized as interest expense over the life of the loan utilizing the effective interest method.
Under the terms of the agreement, the Company had the option to request an additional $3.0 million of principal. The Company decided to not exercise the option to drawdown the additional $3.0 million of principal and this option expired at December 31, 2018.
In September 2018, the Company announced that it had met the requirements within its existing Loan and Security Agreement with SVB to extend the interest only periods to March 31, 2019. The Company began making interest and principal payments on April 1, 2019, with the final payment due on September 1, 2021.
Pursuant to the first tranche of the loan, the Company issued warrants to SVB to purchase an aggregate of up to 99,526 of the Company’s common shares at an exercise price of $2.11 per share. The warrants expire on September 8, 2024. The fair value of $0.2 million for this equity component was derived using the Black-Scholes pricing model utilizing the following inputs: risk-free interest rate – 1.9%, volatility – 113.9%, dividend yield – 0% and expected life in years – 7. The $7.0 million proceeds were allocated to equity and the debt based on their relative fair values. The equity component was recognized as a debt discount and will be amortized to interest expense over the life of the debt. Interest on the loan, consisting of the stated interest rate, final payment fee and amortization of the discount, is being recognized under the effective interest method.
The third party issuance costs incurred related to the loan of $0.1 million are being amortized under the effective interest method over the life of the loan and have been recorded as a reduction to the loan balance.
In connection with the loan, the Company granted to SVB a security interest in all of the Company’s personal property now owned or hereafter acquired, excluding intellectual property and certain other assets.
The Company is not subject to any financial covenants under the loan. As of JuneSeptember 30, 2019, the Company was not in compliance with all covenantsdefault under any of the provisions under the loan. The loan agreement contains customary affirmative and negative covenants, indemnification provisions and events of default. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintain certain intellectual property rights. The negative covenants include, among others, restrictions on transferring or licensing our assets, changing our business, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, and creating other liens on our assets, in each case subject to customary exceptions. If the Company defaults under the loan, SVB may accelerate all of our repayment obligationsthe loan and take control of ourforeclose on the Company's pledged assets.assets if the Company is unable to repay the loan in full. SVB could declare a default under the loan upon the occurrence of any event that SVB interprets as a material adverse change as defined under the loan agreement, thereby requiring us to repay the loan immediately.
As of JuneSeptember 30, 2019, the future contractual principal and final fee payments on our debt obligations are as follows (in thousands):
Remainder of 2019 | $ | 1,400 | $ | 700 | ||||
2020 | 2,800 | 2,800 | ||||||
2021 | 2,450 | 2,450 | ||||||
Total | $ | 6,650 | $ | 5,950 |
The following table shows actual interest expense, amortization of the debt discount and amortization of the issuance costs that was charged to interest expense (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Simple interest | $ | 112 | $ | 119 | $ | 229 | $ | 237 | $ | 101 | $ | 121 | $ | 330 | $ | 358 | ||||||||||||||||
Accretion of debt discount | 34 | 38 | 70 | 75 | 32 | 38 | 101 | 113 | ||||||||||||||||||||||||
Amortization of promissory note issuance costs | 13 | 15 | 26 | 29 | 12 | 14 | 39 | 43 | ||||||||||||||||||||||||
Total | $ | 159 | $ | 172 | $ | 325 | $ | 341 | $ | 145 | $ | 173 | $ | 470 | $ | 514 |
The Company calculated the fair value of the secured promissory notes as $6.1$5.5 million (Level 3) as of JuneSeptember 30, 2019. The fair value of long-term debt is based on the net present value of calculated interest and principal payments, using an interest rate of 6.75%, which takes into consideration the financial position of the Company and the recent interest rate environment for new debt issuances for comparable companies. The fair value of this equity component was derived using the Black-Scholes valuation model. The Company calculated the promissory notes’ fair value by allocating to equity and the debt based on their respective fair values.
9. | Operating Lease |
In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2016-02, "Leases." ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the balance sheet. The Company elected to adopt ASU 2016-02 retrospectively at January 1, 2019 using a simplified transition option that allows companies to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have also elected to adopt the package of practical expedients permitted in Accounting Standards Codification Topic 842, or ASC 842. Accordingly, the Company is continuing to account for our existing operating lease as operating leases under the new guidance, without reassessing whether the contracts contain a lease under ASC 842 or whether classification of the operating lease would be different under ASC Topic 842. The Company’s lease at the adoption date was an operating lease for our corporate headquarters.
As a result of the adoption of ASU 2016-02, on January 1, 2019, the Company recognized (a) a lease liability of approximately $53,000, which represents the present value of our remaining lease payments using an estimated incremental borrowing rate of 6.75% and (b) a right-of-use asset of approximately $53,000. Due to the adoption of the standard using the retrospective cumulative-effect adjustment method, there are no changes to our previously reported results prior to January 1, 2019.
Effectively January 31, 2019, the Company elected to extend its existing facility lease for an additional 12 months which resulted in the extension of the Company’s lease term from May 31, 2019 to May 31, 2020. As a result of this lease term extension the Company recognized a lease modification resulting in an increase to (a) a lease liability of approximately $124,000, which represents the present value of our remaining lease payments using an estimated incremental borrowing rate of 6.75% and (b) a right-of-use asset of approximately $124,000. As of JuneSeptember 30, 2019, the Company's lease liability and right-of-use assets was $116,000.$85,000.
Total operating lease cost for the three and sixnine ended JuneSeptember 30, 2019 was $33,000 and $64,000,$98,000, respectively. For the three and sixnine months ended JuneSeptember 30, 2019, $11,000 and $21,000$32,000 was included as a component of research and development expense and $22,000 and $43,000$66,000 was included as a component of general and administrative expense, respectively.
Maturity of the Company's lease liability is as follows (in thousands):
June 30, 2019 | September 30, 2019 | |||||||
Remainder of 2019 | $ | 65 | $ | 33 | ||||
2020 | 54 | 54 | ||||||
Total | 119 | 87 | ||||||
Less interest | (3 | ) | (2 | ) | ||||
Present value of lease liability | $ | 116 | $ | 85 |
The remaining life of the Company’s operating lease as of JuneSeptember 30, 2019 is eleveneight months.
The discount rate of the Company's operating lease as of JuneSeptember 30, 2019 is 6.75%.
Future minimum lease payments under non-cancelable operating lease at December 31, 2018 was as follows (in thousands):
December 31, 2018 | ||||
2019 | $ | 130 | ||
2020 | 54 | |||
Total | $ | 184 |
10. | Shareholders’ equity |
On August 29, 2019, the Company completed a registered direct financing with a private institutional investor whereby it issued 3,355,000 common shares at a price of $0.75 per share and 1,978,334 pre-funded warrants to purchase common shares at an total price of $0.75 per share ($0.74 paid to the Company upon the closing of the offering and $0.01 to be paid upon exercise of the pre-funded warrants). In addition, the Company has also agreed to sell and issue warrants to purchase up to 5,333,334 common shares at an exercise price of $0.95 per share. The purchase warrants will be exercisable beginning on the six month anniversary of the date of issuance (the “Initial Exercise Date”) and will expire on the fifth anniversary of the Initial Exercise Date. The Company received $3.6 million, net of underwriters’ discounts and offering cost.
As multiple securities were issued in this transaction the proceeds from the transaction were allocated to each security based upon the calculated fair value of each security. The proceeds were first allocated to the calculated fair value of the common share purchase warrants. The remaining proceeds were then allocated to the common shares and pre-funded warrants based upon the relative fair value of each security. The pre-funded warrants are recorded as equity warrants and are included in contributed surplus. The common share purchase warrants are recorded as a liability and then marked to market each period through earnings in other income (expense) each period as the purchase warrants included in this transaction contain a “fundamental transaction” provision, which may in certain circumstances allow the common share purchase warrants to be redeemed for cash at an amount equal to the Black-Scholes Value, as defined by the warrant agreements. In addition, the warrants include a “failure to timely deliver shares” provision, which may require the Company to pay cash to the warrant holder in certain circumstances as defined by the warrant agreements. See a discussion on the calculation of the fair value associated with these warrants at Note 5.
In connection with this offering the Company incurred offering costs of approximately $0.4 million. The Company allocated these offering costs between the fair value of the common shares, the fair value of the pre-funded warrants and the fair value of the purchase warrants on the date of the closing. The Company allocated approximately $27,000 to the common shares and approximately $16,000 to the pre-funded warrants which was recorded as a reduction to shareholders equity. The remaining $0.4 million was allocated to the purchase warrants and expensed as a component of general and administrative expenses for the three and nine months ended September 30, 2019 as the purchase warrants are classified as liabilities.
On December 7, 2018, the Company entered into a Controlled Equity OfferingSM Sales Agreement, or Sales Agreement, with Cantor Fitzgerald & Co., or Cantor Fitzgerald, as sales agent pursuant to which the Company may offer and sell from time to time, through Cantor Fitzgerald, common shares of the Company. On December 7, 2018, pursuant to the ATM Offering, the Company filed a prospectus supplement pursuant to which the Company may offer and sell, from time to time, Common Shares having an aggregate offering price of up to $20.0 million.million through Cantor, or the “ATM Prospectus Supplement”. The Company will pay Cantor Fitzgerald an amount equal to 3.0% of the aggregate gross proceeds from each sale of common shares. No shares were issued under the Sales Agreement during the three months ended JuneSeptember 30, 2019. The Company terminated the ATM Prospectus Supplement on August 26, 2019, but the Sales Agreement remains in full force and effect.
11. | Stock-based compensation plan |
The Company’s Amended and Restated 2011 Stock Option plan, or the Plan, provides for the granting of options for the purchase of common shares of the Company at the fair value of the Company’s common shares on the date of the option grant. Options are granted to employees, directors and non-employees. The board of directors or a committee appointed by the board of directors administers the Plan and has discretion as to the number, vesting period and expiry date of each option award. Historically the Company granted options with an exercise price denominated in Canadian dollars prior to the Company’s U.S. IPO. Following the Company’s U.S. IPO the Company has granted options with an exercise price denominated in U.S. dollars.
As of JuneSeptember 30, 2019, the Company has 59,000approximately 394,000 common shares which were available for issuance under the Plan.
The Company recognized stock-based compensation expense as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Research and development | $ | 60 | $ | 47 | $ | 127 | $ | 105 | $ | 55 | $ | 38 | $ | 182 | $ | 142 | ||||||||||||||||
General and administrative | 129 | 143 | 287 | 316 | 135 | 219 | 422 | 535 | ||||||||||||||||||||||||
Total | $ | 189 | $ | 190 | $ | 414 | $ | 421 | $ | 190 | $ | 257 | $ | 604 | $ | 677 |
As of JuneSeptember 30, 2019, there was $0.6$0.4 million of total unrecognized compensation expense related to non-vested stock awards, which is expected to be recognized over a weighted average period of 1.21.1 years.
The following table summarizes stock option activity, including options issued to employees directors and non-employeesdirectors (in thousands, except per share):
Options | Weighted Average | Options | Weighted Average | |||||||||||||
Outstanding at January 1, 2019 | 2,950 | $ | 1.60 | 2,950 | $ | 1.60 | ||||||||||
Options granted | 80 | 0.78 | 80 | 0.78 | ||||||||||||
Options expired | (67 | ) | 2.65 | (67 | ) | 2.65 | ||||||||||
Outstanding at June 30, 2019 | 2,963 | $ | 1.56 | |||||||||||||
Outstanding at September 30, 2019 | 2,963 | $ | 1.56 |
The fair values of options granted during the sixnine months ended JuneSeptember 30, 2019 and 2018 were estimated at the date of grant using the following weighted-average assumptions:
Six Months Ended June 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Expected life of the option term (years) | 5.1 | 4.7 | 5.1 | 4.7 | ||||||||||||
Risk-free interest rate | 1.76 | % | 2.67 | % | 1.76 | % | 2.67 | % | ||||||||
Dividend rate | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Volatility | 133.9 | % | 126.2 | % | 133.9 | % | 126.2 | % |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes as of and for the year ended December 31, 2018 included with our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 13, 2019. Operating results are not necessarily indicative of results that may occur in future periods.
This discussion and analysis contains forward-looking statements that involve a number of risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us as of the time we file this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.
All dollar amounts are expressed in U.S. dollars unless otherwise noted. All amounts that are expressed on an as-converted from Canadian dollar to U.S. dollar basis are calculated using the conversion rate as of June 30, 2019 unless otherwise noted.
Overview
We are a clinical-stage biopharmaceutical company focused on developing innovative products for the treatment of urological diseases. We are headquartered in San Diego, California and our common shares currently trade on The Nasdaq Capital Market. We are currently developing topsalysin (PRX302) as a treatment for clinically significant localized prostate cancer and as a treatment for the lower urinary tract symptoms of BPH, commonly referred to as an enlarged prostate. Topsalysin, a first-in-class, pore-forming protein, is a highly ablative agent that is selective and targeted in that it is only activated by enzymatically active prostate specific antigen, or PSA, which is found in high concentrations around prostate tumor cells and in the transition zone of the prostate. In 2004, we licensed exclusive rights to topsalysin from UVIC Industry Partnerships Inc., or UVIC, and The Johns Hopkins University, or Johns Hopkins, for the treatment of prostate cancer and in 2009, we licensed exclusive rights to topsalysin from UVIC and Johns Hopkins for the treatment of the symptoms of BPH. In April 2010, we entered into an exclusive license agreement with Kissei Pharmaceuticals Co., Ltd., or Kissei, pursuant to which we granted Kissei the right to develop and commercialize topsalysin in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitis or other diseases of the prostate.
Topsalysin, a genetically modified recombinant protein, is delivered via ultrasound-guided injection directly into the prostate. This membrane-disrupting protein is selectively activated by enzymatically active PSA, which is found in high concentrations around prostate tumor cells and in the transition zone of the prostate, leading to localized cell death and tissue disruption without damage to neighboring tissue and nerves. This targeted method of administration limits the potential for systemic exposure of topsalysin, together with the specific mechanism of action, (topsalysin, is only activated by enzymatically active PSA which is found within the prostate, PSA in circulation is no longer enzymatically active) is thought to contribute the tolerability and safety profile observed to date.
We have recently completed a multicenter, open-label Phase 2b clinical trial to confirm the dose and optimize the delivery of topsalysin for the treatment of clinically significant localized prostate cancer. A total of 38 patients with a pre-identified clinically significant lesion, received a single administration of topsalysin at eight clinical trial sites located in the United Kingdom and United States. A review of the safety data from 38 patients, indicates that a single administration of topsalysin continues to appear safe and well-tolerated by patients. Adverse events considered related to topsalysin were typically mild and typically occurred and were resolved on the day of the administration. In addition, urine function was preserved, no sexual dysfunction, no hypersensitivity reactions or other serious systemic reactions to topsalysin were observed after a single administration.
A secondary objective of the trial was to evaluate the efficacy of a single administration of topsalysin to selectively target and focally ablate a pre-identified lesion. Six months after the administration of topsalysin, 37 out of 38 patients underwent a targeted biopsy of the treated lesion with one patient having been lost to follow-up following re-location. The six-month biopsy results demonstrated that, 27% of patients (10/37) achieved a clinical response, defined in this trial as no detectable tumor on targeted biopsy of the treated lesion or a sufficient reduction to deem the lesion clinically-insignificant (cancer lesion of Gleason Score 6 (pattern 3+3) and a maximum cancer core length, or MCCL, of less than 6 millimeters).
On June 19, 2019, we announced that we had received formal scientific advice from the European Medicines Agency, or EMA regarding a proposed design of a Phase 3 clinical trial to evaluate the potential of topsalysin as a targeted focal therapy to treat patients with intermediate risk localized prostate cancer. The Phase 3 trial design agreedagree upon by the EMA would enroll patients with a confirmed diagnosis of intermediate risk disease. Approximately 700 men who meet the eligibility criteria will be equally randomized to receive a single administration of either topsalysin or placebo. The primary endpoint for the trial is the proportion of patients at 12 months who have failed treatment, defined as histological progression of disease, resulting in the need for alternative intervention, per an independent central adjudication panel. Based upon the feedback from the EMA, we believe that data from a single Phase 3 trial, if successful, should be sufficient to support market approval in Europe. We are now actively engaged in discussions
On October 21, 2019, we announced that following an End of Phase 2/ Pre-Phase 3 meeting with the United States Food and Drug Administration, or FDA, there is agreement regarding the design of a single Phase 3 clinical trial to evaluate the potential of topsalysin as a targeted focal therapy to treat patients with intermediate risk localized prostate cancer. The Phase 3 study design agreed upon with the FDA onis consistent with the design previously agreed upon with the EMA. In addition, the FDA has indicated that in order to receive approval, we will need to evaluate all patients that progress to alternative treatments for an additional 12 months, for a total of 24 months of data, post the administration of the proposed Phase 3 clinical trial. Thestudy drug.
Our goal is to conduct a single Phase 3 trial, which if successful, will provide the clinical data for approval in both the USUnited States and Europe.
any additional trial in localized prostate cancer, including whether it will be a Phase 3 trial or an additional Phase 2 trial, will be dependent upon securing funding to finance such clinical trial. At this point in time, we do not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in benign prostatic hyperplasia, or BPH, unless we secure a development partner to fund such new clinical trials or we obtain the necessary financing. We are currently evaluating options to further advance the clinical development of topsalysin. We will require significant additional funding to advance topsalysin in clinical development. We could use dilutive funding options such as an equity financing and/or non-dilutive funding options such as a partnering arrangement or other strategic arrangements to fund future clinical development of topsalysin. Any significant future public financing will most likely require the use of a Form S-1 registration statement. The scopeprocess of getting a Form S-1 registration statement filed and declared effective can take an extended period of time which could delay the timing of any additional trial in localized prostate cancer, including whether it will be a Phase 3 trial or an additional Phase 2 trial, will be dependent upon feedback from the FDA and securing sufficient funding to finance such clinical trial. At this point in time we do not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in BPH, unless we obtain additional financing or secure a development partner.future significant financing. There can be no assurance that such funding will be secured in a timely manner or on favorable terms, if at all or that a development partner will be available on acceptable terms or if at all.
If we are unable to raise sufficient capital to fund our operations, we could be required to significantly reduce expenses, sell assets (potentially at a loss), cease operations altogether, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. We are also exploring partnership arrangements and other strategic alternatives which could include a merger or acquisition. See the Liquidity and Capital Resource section below for further details.
Further, we cannot currently estimate when the clinical development required to seek the regulatory approvals needed to commercialize topsalysin for the treatment of clinically significant localized prostate cancer or the treatment of the symptoms of BPH will be completed.
On August 29, 2019, we completed a registered direct financing whereby we issued 3,355,000 common shares at a price of $0.75 per share and 1,978,334 pre-funded warrants to purchase common shares at an total price of $0.75 per share ($0.74 paid to us upon the closing of the offering and $0.01 to be paid upon exercise of the pre-funded warrants). In addition, we have also agreed to sell and issue warrants to purchase up to 5,333,334 common shares at an exercise price of $0.95 per share. The purchase warrants will be exercisable beginning on the six-month anniversary of the date of issuance, or the “Initial Exercise Date” and will expire on the fifth anniversary of the Initial Exercise Date. We received $3.6 million, net of underwriters’ discounts and offering cost.
On March 7, 2019, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC, or Nasdaq, notifying us that for the last 30 consecutive business days prior to the date of the letter, the market value of our listed securities was less than $35 million and therefore we did not meet the requirement for continued listing on The Nasdaq Capital Market as required by Nasdaq Listing Rule 5550(b)(2), or the Market Value Rule, or the alternative requirements under Nasdaq Listing Rules 5550(b)(1) and 5550(b)(3). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we had 180 calendar days, or until September 3, 2019, to regain compliance with the Market Value Rule.
On June 4, 2019, we received a letter from the Listing Qualifications Staff of Nasdaq notifying us that the closing bid price of our common shares had been below $1.00 per share for 30 consecutive business days and that we were therefore not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2). Nasdaq stated in its June 4th letter that, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a grace period of 180 calendar days, or until December 2, 2019, to regain compliance with the minimum closing bid price requirement for continued listing. We will regain compliance if the closing bid price of our common shares is at or above $1.00 for at least 10 consecutive business days anytime during the 180-day grace period.
On September 6, 2019, we received a letter from the Nasdaq notifying us that we had not regained compliance with Market Value Rule by September 3, 2019 and as a result our securities will be delisted from the Nasdaq unless we requested an appeal of this determination. We formally requested an appeal of this determination on September 12, 2019. On October 17, 2019, we met with the Nasdaq Hearings Panel regarding our potential delisting from The Nasdaq Stock Market as a result of our failure to maintain a market value of our listed securities of at least $35 million or in the alternative to have more than $2.5 million in stockholders’ equity. On October 21, 2019, we received the Nasdaq Hearings Panel decision which granted us until January 24, 2020 to regain compliance with the listing standards of the Nasdaq Capital Market either by having the market value of our listed securities be at least $35 million during the preceding ten consecutive trading days before January 24, 2020, or having more than $2.5 million in stockholders’ equity by January 24, 2020. We will also be required to have a closing bid price of at least $1.00 per share during the preceding ten consecutive trading days before January 24, 2020. If we are unable to regain compliance with the listing standards of the Nasdaq Capital Market by January 24, 2020, our securities may be delisted from The Nasdaq Stock Market. As of the date of this filing we have not regained compliance with any of these listing rules.
Financial Operations Overview
Revenues
Our cumulative revenues to date consist of a $3.0 million up-front payment received from Kissei in 2010 and a $5.0 million non-refundable milestone payment for our achievement of certain development activities in 2013. We have no products approved for sale, and we have not generated any revenues from product sales.
Other than potential development milestones from Kissei, we do not expect to receive any revenues from topsalysin until we obtain regulatory approval and commercialize such product or until we potentially enter into additional collaborative agreements with third parties for the development and commercialization of topsalysin, which additional agreements will not likely occur until we complete the development of topsalysin. If our development efforts for topsalysin, or the efforts of Kissei or any future collaborator, result in clinical success and regulatory approval or collaboration agreements with other third parties, we may generate revenues from topsalysin. However, we may never generate revenues from topsalysin as we or any collaborator may never succeed in obtaining regulatory approval or commercializing this product.
Research and Development Expenses
Research and development expenses can be driven by a number of factors including: (a) the scope of clinical development and research programs pursued; (b) the type and size of clinical trials undertaken; (c) the number of clinical trials that are active during a particular period of time; (d) the rate of patient enrollment; (e) regulatory activities to support the clinical programs; and (f) Chemistry, Manufacturing and Controls, or CMC, activities associated with process development, scale-up and manufacture of drugs used in clinical trials; and such expenses are ultimately a function of decisions made to continue the development and testing of a product candidate based on supporting safety and efficacy results from clinical trial.
The majority of our operating expenses to date have been incurred in research and development activities related to topsalysin. Research and development expenses include:
● | external research and development expenses incurred under agreements with clinical research organizations, or CROs, and investigative sites and clinical trial costs, as well as payments to consultants; |
● | third-party manufacturing expenses; |
● | employee related expenses, including salaries, benefits, travel and stock-based compensation expense; and |
● | facilities, depreciation and other allocated expenses. |
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been consumed.
At this time, due to the risks inherent in the clinical trial process and given the stage of our product development program, we are unable to estimate with any certainty the costs we will incur in the continued development of topsalysin for potential approval and commercialization in two indications. Clinical development timelines, the probability of success and development costs can differ materially from expectations. However, we do expect our research and development expenses to continue for the foreseeable future as we advance topsalysin through clinical development assuming we are able to obtain additional financing or secure a development partner to fund such clinical development. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. Any failure by us or delay in completing clinical trials, or in obtaining regulatory approvals, could lead to increased research and development expenseexpenses and, in turn, have a material adverse effect on our results of operations.
Essentially all of our research and development expenses were related to topsalysin during the three and sixnine months ended JuneSeptember 30, 2019 and 2018. We recognized research and development expenses as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Clinical research and development | $ | 301 | $ | 1,320 | $ | 840 | $ | 2,423 | $ | 383 | $ | 710 | $ | 1,223 | $ | 3,133 | ||||||||||||||||
Manufacturing | 728 | 2,224 | 1,677 | 4,392 | 300 | 1,050 | 1,977 | 5,443 | ||||||||||||||||||||||||
Stock-based compensation expense | 60 | 47 | 127 | 105 | 55 | 38 | 182 | 142 | ||||||||||||||||||||||||
$ | 1,089 | $ | 3,591 | $ | 2,644 | $ | 6,920 | $ | 738 | $ | 1,798 | $ | 3,382 | $ | 8,718 |
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses, market research expenses and professional fees for auditing, tax, investor relations and legal services. We expect general and administrative expenses to remain fairly consistent over the next year. However, if we were to move our drug candidate towards commercialization in future periods we would expect that general and administrative expenses would increase.
Interest Expense
Interest expense represents interest payable, amortization of our debt discount and issuance costs on our outstanding promissory notes.
Interest Income
We earn interest income from interest-bearing cash and investment accounts.
Gain (Loss) on Revaluation of Warrant Liability
In connection with the offerings completed in 2016 and our recently completed registered direct financing on August 29, 2019, we issued warrants to purchase our common shares. These warrants may require us to pay the warrant holder cash under certain provisions of the warrant and therefore we account for these warrants as a liability. As a result of these warrants being classified as a liability, we are required to calculate the fair value of these warrants at each reporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. We calculated the initial fair value of these warrants at the date the warrants were issued. At each reporting date, we are required to remeasure the fair value of the warrant liability and any corresponding increase or decrease to the warrant liability is recorded as a gain (loss) on revaluation of warrant liability. In addition, if a warrant holder exercises warrants, we are required to revalue the fair value of the underlying warrants on the date of exercise and reclassify the change in the fair value from the warrant liability to contributed surplus.
Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of our control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our condensed consolidated statement of operations and comprehensive loss.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign exchange gains and losses and on occasion income or expense of an unusual nature. Foreign exchange gains and losses result from the settlement of foreign currency transactions and from the remeasurement of monetary assets and liabilities denominated in currencies other than our functional currency.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates.
Results Of Operations
Comparison of the three months ended June 30September ,30, 2019 and 2018
The following table summarizes the results of our operations for the three months ended JuneSeptember 30, 2019 and 2018, together with the changes in those items in dollars (in thousands):
Three Months Ended June 30, | Change | Three Months Ended September 30, | Change | |||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | |||||||||||||||||||
Research and development expenses | 1,089 | 3,591 | (2,502 | ) | 738 | 1,798 | (1,060 | ) | ||||||||||||||||
General and administrative expenses | 1,218 | 1,096 | 122 | 1,388 | 1,155 | 233 | ||||||||||||||||||
Interest expense | (159 | ) | (172 | ) | 13 | (145 | ) | (173 | ) | 28 | ||||||||||||||
Interest income | 43 | 91 | (48 | ) | 29 | 80 | (51 | ) | ||||||||||||||||
Gain (loss) on revaluation of warrant liability | 270 | (1,365 | ) | 1,635 | ||||||||||||||||||||
Other expense | (11 | ) | 36 | (47 | ) | |||||||||||||||||||
Gain on revaluation of warrant liability | 1,281 | 153 | 1,128 | |||||||||||||||||||||
Other income (expense) | 2 | 21 | (19 | ) |
Research and development expenses. Research and development expenses were $1.1$0.7 million in the three months ended JuneSeptember 30, 2019 compared to $3.6$1.8 million in the three months ended JuneSeptember 30, 2018. The decrease in research and development costs is attributable to the following:
● | a |
● | a |
Research and development expenses included non-cash stock-based compensation expenses of $60,000$55,000 for the three months ended JuneSeptember 30, 2019 as compared to $47,000$38,000 for the three months ended JuneSeptember 30, 2018.
General and administrative expenses. General and administrative expenses were $1.2$1.4 million in the three months ended JuneSeptember 30, 2019 as compared to $1.1$1.2 million for the three months ended JuneSeptember 30, 2018. Included as a component of general and administrative expense for the three months ended September 30, 2019 was $0.4 million of offering costs which were allocated to the common share purchase warrants issued in our August 2019 financing. These offering costs were allocated to general and administrative expense as the common share purchase warrants were classified as liabilities. General and administrative expenses included non-cash stock-based compensation expense of $0.1 million for the three months ended JuneSeptember 30, 2019 andas compared to $0.2 million for the three months ended September 30, 2018.
Interest expense. Interest expense was $0.2$0.1 million in the three months ended JuneSeptember 30, 2019 andas compared to $0.2 million for the three months ended September 30, 2018. The interest expense is related to theour Silicon Valley Bank Loan and Security Agreement.
Interest income. Interest income was $43,000$29,000 for the three months ended JuneSeptember 30, 2019 as compared to $91,000$80,000 for the three months ended JuneSeptember 30, 2018. The decrease is due to the decrease in ourthe average balances of interest-bearing cash and investment accounts from period to period.
Gain (loss) on revaluation of warrant liability. Gain on revaluation of the warrant liability was $0.3$1.3 million for the three months ended JuneSeptember 30, 2019 as compared to a loss of $1.4$0.2 million for the three months ended JuneSeptember 30, 2018. The non-cash gain is associated with the change in the fair value of our warrant liability which is calculated using a Black-Scholes pricing model.
Comparison of the six nine months ended June September 30, 2019 and 2018
The following table summarizes the results of our operations for the sixnine months ended JuneSeptember 30, 2019 and 2018, together with the changes in those items in dollars (in thousands):
Six Months Ended June 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | |||||||||||||||||||
Research and development expenses | 2,644 | 6,920 | (4,276 | ) | 3,382 | 8,718 | (5,336 | ) | ||||||||||||||||
General and administrative expenses | 2,470 | 2,340 | 130 | 3,858 | 3,494 | 364 | ||||||||||||||||||
Interest expense | (325 | ) | (341 | ) | 16 | (470 | ) | (514 | ) | 44 | ||||||||||||||
Interest income | 104 | 178 | (74 | ) | 133 | 258 | (125 | ) | ||||||||||||||||
Gain (loss) on revaluation of warrant liability | 824 | (10 | ) | 834 | ||||||||||||||||||||
Gain on revaluation of warrant liability | 2,105 | 143 | 1,962 | |||||||||||||||||||||
Other income (expense) | (13 | ) | 7 | (20 | ) | (11 | ) | 27 | (38 | ) |
Research and development expenses. Research and development expenses were $2.6$3.4 million for the sixnine months ended JuneSeptember 30, 2019 compared to $6.9$8.7 million for the sixnine months ended JuneSeptember 30, 2018. The decrease in research and development costs is attributable to the following:
● | a |
● | a |
Research and development expenses included non-cash stock-based compensation expenses of $0.2 million for the nine months ended September 30, 2019 as compared to $0.1 million for the sixnine months ended JuneSeptember 30, 2019 and 2018.
General and administrative expenses. General and administrative expenses were $2.5$3.9 million for the sixnine months ended JuneSeptember 30, 2019 compared to $2.3$3.5 million for the sixnine months ended JuneSeptember 30, 2018. Included as a component of general and administrative expense for the nine months ended September 30, 2019 was $0.4 million of offering costs which were allocated to the common share purchase warrants issued in our August 2019 financing. These offering costs were allocated to general and administrative expense as the common share purchase warrants were classified as liabilities. General and administrative expenses included non-cash stock-based compensation expense of $0.3$0.4 million for the sixnine months ended JuneSeptember 30, 2019 andas compared to $0.5 million for the nine months ended September 30, 2018.
Interest expense. Interest expense was $0.3$0.5 million for the sixnine months ended JuneSeptember 30, 2019 and 2018. Interest expense is related to our Silicon Valley Bank Loan and Security Agreement.
Interest income. Interest income was $0.1 million for the sixnine months ended JuneSeptember 30, 2019 compared to $0.2$0.3 million for the sixnine months ended JuneSeptember 30, 2018. The decrease is due to the decrease in the average balances of interest-bearing cash and investment accounts from period to period.
Gain (loss) on revaluation of warrant liability. Gain on revaluation of the warrant liability was $0.8$2.1 million for the sixnine months ended JuneSeptember 30, 2019 as compared to a loss of $10,000$0.1 million for the sixnine months ended JuneSeptember 30, 2018. The non-cash gain (loss) is associated with the change in the fair value of our warrant liability which is calculated using a Black-Scholes pricing model.
Liquidity and Capital Resources
Overview
Since our inception, our operations have been primarily financed through public and private equity sales, debt financings and payments from Kissei. Since inception, we have devoted our resources to funding and conducting research and development programs, including discovery research, preclinical studies and clinical trial activities.
On August 29, 2019, we completed a registered direct financing whereby we issued 3,355,000 common shares at a price of $0.75 per share and 1,978,334 pre-funded warrants to purchase common shares at an total price of $0.75 per share ($0.74 paid to us upon the closing of the offering and $0.01 to be paid upon exercise of the pre-funded warrants). In addition, we have also agreed to sell and issue warrants to purchase up to 5,333,334 common shares at a price of $0.95 per share. The purchase warrants will be exercisable beginning on the six-month anniversary of the date of issuance, or the “Initial Exercise Date” and will expire on the fifth anniversary of the Initial Exercise Date. We received $3.6 million, net of underwriters’ discounts and offering cost.
The condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We have incurred net losses from operations since inception, including $5.5 million in the nine months ended September 30, 2019 and has an accumulated deficit of $161.8 million as of September 30, 2019. At JuneSeptember 30, 2019, we had cash, cash equivalents and securities available-for-sale of $6.3 million. As of September 30, 2019, the future principal and final fee payments under the Loan and Security Agreement with SVB total $6.0 millionmillion. The maturity date of the loan is September 1, 2021. We are currently paying monthly installments of principal and working capitalinterest under the Loan and Security Agreement. However, if we fail to make principal and interest payments when due or another event of $1.8 million.default occurs under the loan, SVB may accelerate the loan and foreclose on our pledged assets if we are unable to repay the loan in full. Events of default include the occurrence of a material adverse change as defined in the Loan and Security Agreement. As of the date of filing of this Form 10-Q, we are not in default under any of the provisions of the Loan and Security Agreement. We expect that our cash, cash equivalents and securities available-for-sale will be sufficient to fund our operations and debt service through November 2019,March 2020 (assuming no acceleration of the loan) and, as a result, there is substantial doubt exists overabout our ability to continue as a going concern fromfor one year from the date of the issuance of our condensed consolidated financial statements. The accompanying financial statements for the nine months ended September 30, 2019.
We announced that we have been prepared onreceived formal scientific advice from the EMA and reached an agreement with the FDA regarding a basis which assumes we aredesign for a going concern, and does not include any adjustmentssingle Phase 3 clinical trial to reflectevaluate the possible future effects on the recoverability and classificationpotential of assets or the amounts and classifications of liabilities that may result from any uncertainty related to our ability to continuetopsalysin as a going concern. Iftargeted focal therapy to treat patients with intermediate risk localized prostate cancer. Based upon feedback from the EMA and the FDA, we are unablebelieve that data from a single Phase 3 trial, if successful, should be sufficient to maintain sufficient financial resources, our business, financial conditionsupport market approval in both the U.S. and resultsEurope. The scope of operationsany additional trial in localized prostate cancer, including whether it will be materially and adversely affected. There can be no assurance that wea Phase 3 trial or an additional Phase 2 trial, will be abledependent upon securing funding to obtainfinance such clinical trial. At this point in time, we do not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in benign prostatic hyperplasia, or BPH, unless we secure a development partner to fund such new clinical trials or it obtains the needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders. These factors raise substantial doubt about our ability to continue as a going concern.
necessary financing. We are currently evaluating options to further advance the clinical development of topsalysin. We will require significant additional funding to advance topsalysin in clinical development. We could use dilutive funding options such as an equity financing and/or non-dilutive funding options such as a partnering arrangement or other strategic arrangements to fund future clinical development of topsalysin. Any significant future public financing will most likely require the use of a Form S-1 registration statement. The scopeprocess of getting a Form S-1 registration statement filed and declared effective can take an extended period of time which could delay the timing of any additional trial in localized prostate cancer, including whether it will be a Phase 3 trial or an additional Phase 2 trial, will be dependent upon feedback from the FDA and securing sufficient funding to finance such clinical trial. At this point in time we do not plan on pursuing new clinical trials, including an additional trial in localized prostate cancer or a second Phase 3 trial in BPH, unless we obtain additional financing or secure a development partner.future significant financing. There can be no assurance that such funding will be secured in a timely manner or on favorable terms, if at all or that a development partner will be available on acceptable terms or at all. Further, we cannot currently estimate when the clinical development required to seek the regulatory approvals needed to commercialize topsalysin for the treatment of clinically significant localized prostate cancer or the treatment of the symptoms of BPH will be completed. There can be no assurance that such funding or development partner will be available on acceptable terms orif at all.
If we are unable to raise sufficient capital to fund our operations, we could be required to significantly reduce expenses, sell assets (potentially at a loss), cease operations altogether, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. We are also exploring partnership arrangements and other strategic alternatives which could include a merger or acquisition.
On March 7, 2019, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC, or Nasdaq, notifying us that for the last 30 consecutive business days prior to the date of the letter, the market value of our listed securities was less than $35 million and therefore we did not meet the requirement for continued listing on The Nasdaq Capital Market as required by Nasdaq Listing Rule 5550(b)(2), or the Market Value Rule, or the alternative requirements under Nasdaq Listing Rules 5550(b)(1) and 5550(b)(3). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we havehad 180 calendar days, or until September 3, 2019, to regain compliance with the Market Value Rule. We will regain compliance with the Market Value Rule if the market value of our listed securities closes at or above $35 million for a minimum of 10 consecutive business days anytime during the 180-day180 day compliance period. As of the date of this filingprospectus supplement we have not regained compliance with the Market Value Rule.
On June 4, 2019, we received a letter from the Listing Qualifications Staff of Nasdaq notifying us that the closing bid price of our common shares had been below $1.00 per share for 30 consecutive business days and that we were therefore not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2). Nasdaq stated in its June 4th letter that, in accordance with MarketplaceNasdaq Listing Rule 5810(c)(3)(A), we have been provided a grace period of 180 calendar days, or until December 2, 2019, to regain compliance with the minimum closing bid price requirement for continued listing. We will regain compliance if ourthe closing bid price of our common shares is at or above $1.00 for at least 10 consecutive business days anytime during the 180-day grace period. As of the date of this filing we have not regained compliance with this rule.
On September 6, 2019, we received a letter from the Nasdaq notifying us that we had not regained compliance with Market Value Rule by September 3, 2019 and as a result our securities will be delisted from the Nasdaq unless we requested an appeal of this determination. We formally requested an appeal of this determination on September 12, 2019. On October 17, 2019, we met with the Nasdaq Hearings Panel regarding our potential delisting from The Nasdaq Stock Market as a result of our failure to maintain a market value of our listed securities of at least $35 million or in the alternative to have more than $2.5 million in stockholders’ equity. On October 21, 2019, we received the Nasdaq Hearings Panel decision which granted us until January 24, 2020 to regain compliance with the listing standards of the Nasdaq Capital Market either by having the market value of our listing securities of at least $35 million during the preceding ten consecutive trading days or having more than $2.5 million in stockholders’ equity. We will also be required to have a closing bid price of at least $1.00 per share during the preceding ten consecutive trading days before January 24, 2020. If we are unable to regain compliance with the listing standards of the Nasdaq Capital Market by January 24, 2020, our securities may be delisted from The Nasdaq Stock Market. As of the date of this filing we have not regained compliance with any of these listing rules.
Future Operations
We have devoted substantial resources to developing topsalysin, protecting and enhancing our intellectual property and providing general and administrative support for these activities. We have not generated any revenue from product sales and, to date, have funded our operations primarily through public and private equity security sales, debt financings and payments from Kissei.
We will require significant additional capital to fund our operations and complete development of topsalysin and there is no assurance that we will obtain additional capital.
Our future capital requirements will depend on, and could increase significantly as a result of many factors, including:
● | progress in, and the costs of, our future clinical trials, preclinical studies and other research and development activities for topsalysin; | |
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● | the costs and timing of regulatory approvals; | |
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● | our ability to maintain our strategic license with Kissei and its ability to achieve applicable milestones and establish and maintain additional strategic collaborations, including licensing and other arrangements; | |
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● | the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; | |
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● | the costs of obtaining and securing manufacturing supply for clinical or commercial production of product candidates; and | |
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● | the costs of establishing, or contracting for, sales and marketing capabilities if we obtain regulatory approvals to market topsalysin. |
Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through private and public sales of our securities, debt financings, by establishing additional strategic collaborations for topsalysin or from exercise of outstanding common share purchase warrants and stock options.
Cash Flows
The following table shows a summary of our cash flows for the sixnine months ended JuneSeptember 30, 2019 and 2018 (in thousands):
Six Months Ended June 30 | Nine Months Ended September 30 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net cash provided by (used in): | ||||||||||||||||
Operating activities | $ | (5,736 | ) | $ | (7,349 | ) | $ | (8,427 | ) | $ | (11,341 | ) | ||||
Investing activities | 512 | 5,203 | (482 | ) | 7,302 | |||||||||||
Financing activities | (802 | ) | — | 2,162 | — | |||||||||||
Net (decrease) increase in cash and cash equivalents | $ | (6,026 | ) | $ | (2,146 | ) | $ | (6,747 | ) | $ | (4,039 | ) |
Operating Activities
Net cash used in operating activities decreased to $5.7$8.4 million for the sixnine months ended JuneSeptember 30, 2019 compared to $7.3$11.3 million for the sixnine months ended JuneSeptember 30, 2018. The decrease in net cash used in operating activities of $1.6$2.9 million was primarily due to the decrease in our net loss from period to period which was offset by an increase in funds used for the payment of accounts payable and accrued expenses in the sixnine months period ended JuneSeptember 30, 2019. The decrease in the net loss is due to a reduction in costs associated with our manufacturing activities for topsalysin, and a reduction in our clinical trial costs associated with our completed Phase 2b localized prostate cancer clinical trial.trial and the increase in the non-cash gain recorded for the revaluation of our warrant liability from period to period.
Investing Activities
Net cash provided byused in investing activities was $0.5 million for the sixnine months ended JuneSeptember 30, 2019, compared to $5.2 million for the six months ended June 30, 2018. The net cash provided by investing activities of $7.3 million for the nine months ended September 30, 2018. The net cash (used in) and provided by investing activities during the sixnine months ended JuneSeptember 30, 2019 and 2018 represents the use of securities classified as available-for-sale or proceeds from the maturity of securities classified as available-for-sale.
Financing Activities
Net cash used inprovided by financing activities was $0.8$2.2 million for the sixnine months ended JuneSeptember 30, 2019, which represents2019. The net cash provided by financing activities is primarily related to our registered direct financing with a private institutional investor. We received $3.7 million of proceeds, net of paid issuance costs. This increase is offset by principal payments on our Silicon Valley Bank loanLoan and Security Agreement and payments for offering costs associated with the issuanceestablishment of common stock under our equity sales agreementControlled Equity and Sales AgreementSM with Cantor Fitzgerald.Fitzgerald & Co.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
| Qualitative and Quantitative Disclosures About Market Risk |
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.
| Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As of JuneSeptember 30, 2019, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of JuneSeptember 30, 2019.
Changes in Internal Control Over Financial Reporting
An evaluation was also performed under the supervision and with the participation of our management, including our chief executive officer and our principal financial officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during the quarter ended JuneSeptember 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Risk Factors |
You should consider carefully the following risk factors, together with all of the other information included or incorporated in this Quarterly Report, before making your decision whether to purchase or sell shares of our common stock. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results, growth prospects and financial condition, as well as adversely affect the value of an investment in our common shares. If that were to happen, the trading price of our common stock could decline. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position. We have marked with an asterisk (*) those risk factors that reflect changes from the risk factors included in our Annual Report on Form 10-K filed with the SEC on March 13, 2019.
Risks Related to Our Business and Industry
*We will require significant funding to fund our operations, and there is substantial doubt about our ability to continue as a going concern.
Our Annual Report on Form 10-K for the year ended December 31, 2018 includes disclosures regarding management’s assessment of our ability to continue as a going concern and a report from our independent registered public accounting firm that includes an explanatory paragraph regarding going concern, as there is substantial doubt about our ability to continue as a going concern due to our current liquidity position and recurring losses from operations since inception and negative cash flows from operating activities raiseactivities.
The condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We have incurred net losses from operations since inception, including $5.5 million in the nine months ended September 30, 2019, and have an accumulated deficit of $161.8 million as of September 30, 2019. On August 29, 2019, we completed a registered direct financing with a private institutional investor whereby we received $3.6 million, net of underwriters’ discounts and offering costs. At September 30, 2019, we had cash, cash equivalents and securities available-for-sale of $6.3 million. As of September 30, 2019, the future principal and final fee payments under the Loan and Security Agreement with Silicon Valley Bank, or SVB, totaled $6.0 million. The maturity date of the loan is September 1, 2021. We are currently paying monthly installments of principal and interest under the Loan and Security Agreement. However, if we fail to make principal and interest payments when due or another event of default occurs under the loan, SVB may accelerate the loan and foreclose on our pledged assets if we are unable to repay the loan in full. Events of default include the occurrence of a material adverse change as defined in the Loan and Security Agreement. As of the date of filing of this Form 10-Q, we are not in default under any of the provisions of the Loan and Security Agreement. We expect that our cash, cash equivalents and securities available-for-sale will be sufficient to fund our operations and debt service through March 2020 (assuming no acceleration of the loan) and, as a result, there is substantial doubt about our ability to continue as a going concern.concern for one year from the date of the issuance of our condensed consolidated financial statements for the nine months ended September 30, 2019.
Our operations have consumed substantial amounts of cash since inception. Since inception, we have raised approximately $146$149 million from the sale of equity securities in private placements and public offerings, $28 million from the issuance of debt securities and $11 million from the exercise of common share purchase warrants. We will need to continue to spend substantial amounts to continue clinical development of topsalysin. At this point in timeWe announced that we are planninghad received formal scientific advice from the European Medicines Agency, or EMA, and reached an agreement with the U.S. Food and Drug Administration, or FDA, regarding a design for an additionala single Phase 3 clinical trial to evaluate the potential of topsalysin for the treatment ofas a targeted focal therapy to treat patients with clinically significantintermediate risk localized prostate cancer subject to regulatorycancer. Based upon feedback from the FDAEMA and obtaining additional financing or securing a development partner. We are now actively engaged in discussions with the FDA, on the design of the proposed Phase 3 clinical trial. The goal is to conductwe believe that data from a single Phase 3 trial, which if successful, will provide the clinical data forshould be sufficient to support market approval in both the USU.S. and Europe. The outcome of these discussions may change our assessment of the required clinical trials and our development plans. In addition, the scope of any additional trial in localized prostate cancer, including whether it will be a Phase 3 clinical trial or an additional Phase 2 trial, will be dependent upon feedback from the FDA and securing sufficient funding to finance such clinical trial. Any delayAt this point in the finalization of the design and funding of the nexttime, we do not plan on pursuing new clinical study would delay our development of topsalysin for the treatment oftrials, including an additional trial in localized prostate cancer We are not planning on pursuing other clinical trials, includingor a second Phase 3 trial for the treatment of patients with the lower urinary tract symptoms ofin benign prostatic hyperplasia, or BPH, unless we secure a development partner to fund such new clinical trials or we obtain the necessary financing. We are currently evaluating options to further advance the clinical development of topsalysin. We will require significant additional funding to advance topsalysin in clinical development. We could use dilutive funding options such as an equity financing in excessand/or non-dilutive funding options such as a partnering arrangement or other strategic arrangements to fund future clinical development of topsalysin. Any significant future public financing will most likely require the financing required for our prostate cancer development program,use of a Form S-1 registration statement. The process of getting a Form S-1 registration statement filed and declared effective can take an extended period of time which is our development priority.could delay the timing of any future significant financing. There can be no assurance that such funding will be secured in a timely manner or on favorable terms, if at all or that a development partner will be available on acceptable terms or if at all.
We expect that our existing cash, cash equivalents and securities available-for-sale, together with interest thereon, will beIf we are unable to raise sufficient capital to fund our operations, we could be required to significantly reduce expenses, sell assets (potentially at a loss), cease operations altogether, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. We are also exploring partnership arrangements and debt service through November 2019, assuming we do not conduct any new clinical trials. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Any new clinical development efforts and our ongoing operations will require significant funding.
We expect to finance future cash needs through publicother strategic alternatives which could include a merger or private equity offerings, debt financings or strategic partnerships and alliances or licensing arrangements. We cannot be certain that additional funding will be available on acceptable terms, or at all.acquisition. Furthermore, if there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. Subject to limited exceptions, our Loan and Security Agreement with Silicon Valley Bank, or SVB, prohibits us from incurring indebtedness without the prior written consent of SVB. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will need to significantly delay, scale back or discontinue the development or commercialization of topsalysin. We could also be required to seek collaborators for our product candidate on terms that are less favorable than might otherwise be available, relinquish or license on unfavorable terms our rights to our technology or product candidate that we otherwise would seek to develop or commercialize ourselves, significantly reduce expenses, sell assets (potentially at a loss), cease operations altogether, pursue an acquisition of our company at a price that may result in up to a total loss on investment for our shareholders, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets. In addition, if we default under the Loan and Security Agreement with SVB, SVB could foreclose on substantially all of our assets.
Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common shares to decline.
*We are a development stage company with no approved products and no revenue from commercialization of any products.
We have not completed the development of any product candidates and, accordingly, have not begun to commercialize, or generate any product revenues from any product candidate. Topsalysin requires significant additional clinical testing and investment prior to seeking marketing approval for either the treatment of localized prostate cancer or as a treatment for the lower urinary tract symptoms of BPH. On November 10, 2015, we announced final results from our Phase 3 "PLUS-1" study of topsalysin as a treatment for lower urinary tract symptoms of BPH. However, in order to seek regulatory approval for the treatment of the symptoms of BPH, we would be required to conduct a second Phase 3 clinical trial in this indication. At this point in time we have no immediate plans to conduct a second Phase 3 trial in BPH unless we secure a development partner to fund such new clinical trials or obtain financing in excess of the financing required for our prostate cancer development program, which is our development priority.
We are planning a clinical trial of topsalysin for the treatment of patients with clinically significant localized prostate cancer. There have been limited development efforts in the United States for a targeted focal therapeutic for patients with clinically significant localized prostate cancer and, therefore, there is significant uncertainty regarding the Phase 3 clinical trial design, including primary endpoint(s), that will be required by the FDA. We are now actively engaged in discussions with the FDA on the design of the proposed Phase 3 clinical trial. TheOur goal is to conduct a single Phase 3 trial, which if successful, will provide the clinical data for approval in both the US and Europe. The outcome of these discussions may change our assessment of the required clinical trials and our development plans. In addition, the scope of any additional trial in localized prostate cancer, including whether it will be a Phase 3 clinical trial or an additional Phase 2 trial will be dependent upon feedback from the FDA and securing sufficient funding to finance such clinical trial. Any delay in the finalization of the design and funding of the next clinical study would delay our development of topsalysin for the treatment of localized prostate cancer.
A commitment of substantial resources by us and potential partners will be required to conduct additional clinical trials for topsalysin to meet applicable regulatory standards, obtain required regulatory approvals, and to successfully commercialize this product candidate for the treatment in either indication. Topsalysin is not expected to be commercially available for either indication for several years, if at all, and any projected timelines for commercialization are subject to a number of factors that are outside our control. There is no assurance that we will be able to commercialize topsalysin within the time periods we expect or that our clinical trials will support the regulatory approvals needed to commercialize topsalysin at all.
We are highly dependent on the success of our sole product candidate, topsalysin, and we may not be able to successfully obtain regulatory or marketing approval for, or successfully commercialize, this product candidate.
To date, we have expended significant time, resources and effort on the development of topsalysin for the treatment of clinically significant localized prostate cancer and for the treatment of lower urinary tract symptoms of BPH, including conducting preclinical and clinical trials. We have no product candidates in our clinical development pipeline other than topsalysin, which we are developing for those two potential indications. Our ability to generate product revenues and to achieve commercial success in the near term will initially depend almost entirely on our ability to successfully raise capital to fund our topsalysin program and to develop, obtain regulatory approval for and then successfully commercialize topsalysin for either of these indications in the United States and the European Economic Area, or EEA. Before we can market and sell topsalysin in the United States or foreign jurisdictions for any indication, we will need to commence and complete additional clinical trials, manage clinical, preclinical, and manufacturing activities, obtain necessary regulatory approvals from the FDA in the United States and from similar foreign regulatory agencies in other jurisdictions, obtain manufacturing supply, build a commercial organization or enter into a marketing collaboration with a third party, and in some jurisdictions, obtain reimbursement authorization, among other things. We cannot assure you that we will be able to successfully complete the necessary clinical trials and/or obtain regulatory approvals and sufficient commercial manufacturing supply for topsalysin in either indication. If we do not receive regulatory approvals, our business, prospects, financial condition and results of operations will be adversely affected. Even if we obtain the regulatory approvals to market and sell topsalysin, we may never generate significant revenues from any commercial sales of topsalysin for several reasons, including because the market for topsalysin may be smaller than we anticipate, topsalysin may not be adopted by physicians and payors or because topsalysin may not be as efficacious or safe as other treatment options. If we fail to successfully commercialize topsalysin, we may be unable to generate sufficient revenues to sustain and grow our business and our business, prospects, financial condition and results of operations will be adversely affected.
Topsalysin may cause undesirable side effects or have other properties that may delay or prevent its regulatory approval or commercialization or limit its commercial potential.
Undesirable side effects caused by topsalysin could cause us or regulatory authorities to interrupt, delay, suspend or terminate clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or other regulatory authorities. This, in turn, could limit or prevent us from commercializing topsalysin and generating revenues from its sale. The most common adverse events observed in patients who received topsalysin in our initial Phase 3 clinical trial for the treatment of lower urinary tract symptoms of BPH that were potentially attributable to topsalysin included painful urination, the presence of red blood cells in urine, frequent urination and urinary urgency, fever, and perineal pain. Each of the foregoing adverse events occurred in greater than 5% of the topsalysin population. Further, the incidence of serious AEs, or SAEs, was similar in patients treated with topsalysin and vehicle. There were two SAEs assessed by the investigator as at least possibly related to treatment for topsalysin and one such SAE for vehicle. The topsalysin-related SAEs were moderate events of “acute non-infectious prostatitis” and “fever following prostate procedure” not unexpected manifestations of the intraprostatic cellular destruction and resultant inflammation integral to the topsalysin mechanism of action. The vehicle-related SAE was a mild event of “urinary tract infection.” Although the SAEs were moderate and not unexpected, they may not be fully indicative of the adverse events that would be encountered in commercial use or in larger trials. In our completed Phase 2b localized prostate cancer trial a single administration of topsalysin continues to appear safe and well tolerated by patients. No hypersensitivity reactions or other serious systemic reactions to topsalysin were observed after a single administration. Adverse events considered related to topsalysin and occurring in more than one patient were: dysuria (3 patients), urinary retention (3 patients), proctalgia (2 patients), perineal pain (2 patients), nocturia (2 patients), micturition urgency (2 patients) and strangury (2 patients). All adverse events were considered mild and typically resolved within the same day. One event of micturition urgency was considered severe and resolved the same day, two events were considered moderate in severity, one event of perineal pain which resolved within a day and one event of urinary retention was considered moderate and the event was considered resolved after the patient underwent a transurethral resection of the prostate. One of the topsalysin related mild events of strangury was reported as a serious adverse event (SAE) because the patient was hospitalized overnight for monitoring as was the practice at the site in the United Kingdom where the patient had been treated. The event of strangury resolved the next day and the patient was released from the hospital.
In August 2018, we announced that we had completed an investigation into the death of a patient in the Phase 2b trial for the treatment of localized prostate cancer. It was concluded that the patient death was unlikely to be related to either topsalysin or the injection procedure. On December 17, 2018, we announced the interim safety and tolerability results from the 10 patients who received a second administration of topsalysin from our completed Phase 2b localized prostate cancer trial. A second administration of topsalysin appears to be both safe and well-tolerated by patients. There were no adverse events considered related to topsalysin that were experienced by more than one patient following the second administration. The adverse events that were considered related to topsalysin were typically mild and resolved within two days. Importantly, no hypersensitivity reaction or other serious systemic reactions to topsalysin were observed. Urine function was preserved and there were no reports of sexual dysfunction related to topsalysin.
Results from our future clinical trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of topsalysin for its targeted indication. Further, such side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. Any of these occurrences may have a material and adverse impact on our business, prospects, financial condition and results of operations.
In addition, if topsalysin receives marketing approval for the treatment of the symptoms of BPH or localized prostate cancer, or both, and we or others later identify undesirable side effects caused by topsalysin, a number of significant negative consequences could result, including:
● | regulatory authorities may withdraw their approval of topsalysin; | |
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● | regulatory authorities may require that we demonstrate a larger clinical benefit by conducting additional clinical trials for approval to offset the risk; | |
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● | regulatory authorities may require the addition of labeling statements or warnings that could diminish the usage of the product or otherwise limit the commercial success of topsalysin; | |
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● | we may be required to change the way topsalysin is administered; | |
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● | we may choose to recall, withdraw or discontinue sale of topsalysin; |
● | we could be sued and held liable for harm caused to patients; |
Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing topsalysin, which in turn could delay or prevent us from generating any revenues from the sale of the product, which could significantly harm our business, prospects, financial condition and results of operations.
*The clinical trial protocol and design for our completed and any additional future Phase 3 clinical trials of topsalysin may not be sufficient to allow us to submit a BLA to the FDA in the indication of either lower urinary tract symptoms of BPH or clinically significant localized prostate cancer or demonstrate safety or efficacy at the level required by the FDA for product
Our initial Phase 3 clinical trial for the treatment of lower urinary tract symptoms of BPH and any additional Phase 3 clinical trial of topsalysin in this indication use the International Prostate Symptom Score, or IPSS, outcome measure evaluated at total change from baseline over 52 weeks as the primary endpoint. Secondary endpoints include Qmax (maximum urine flow) change from baseline (maximum urine flow) over 52 weeks. The IPSS outcome measure, which is a validated primary efficacy endpoint used to assess the treatment benefit in BPH clinical trials, is a patient recorded, composite assessment that takes into account factors such as ability to empty the bladder, frequency of urination, intermittency of urination and the urgency of urination. The IPSS outcome measure is subjective in nature and requires patients in the trial to accurately and retroactively assess numerous symptoms. The subjective nature of the IPSS outcome measure may make efficacy more difficult to demonstrate than for clinical trials for therapies that can show objective measures of efficacy.
We have received formal scientific advice from the EMA and reached an agreement with FDA regarding a design for a single Phase 3 clinical trial to evaluate the potential of topsalysin as a targeted focal therapy to treat patients with intermediate risk localized prostate cancer. Based upon feedback from the EMA and the FDA,we believe that data from a single Phase 3 trial, if successful, should be sufficient to support market approval in both the U.S. and Europe. However, this advice and agreement are not binding on the regulatory agencies, and we have not requested a special protocol assessment, or SPA, which drug development companies sometimes use to obtain an agreement with the FDA concerning the design and size of a clinical trial intended to form the primary basis of an effectiveness claim. Without the concurrence of the FDA on an SPA or otherwise, we cannot be certain that the design, conduct and data analysis approach for our initial Phase 3 Specifically, with respect to our development of topsalysin for the treatment of BPH symptoms, the FDA has not agreed upon the amount of IPSS treatment effect that must be demonstrated in our Phase 3 clinical trials of topsalysin in order for it to grant marketing approval
Our clinical trials may fail to adequately demonstrate safety and efficacy of topsalysin for either indication being pursued which would prevent or delay regulatory approval and commercialization.
Clinical development is expensive, takes many years to complete and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and topsalysin is subject to the risks of failure inherent in drug development. Success in early clinical trials does not mean that later clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing, even at statistically significant levels. We will be required to demonstrate through well-controlled clinical trials of topsalysin that our product candidate is safe and effective for use in its target indication before we can obtain regulatory approvals for its commercial sale. Companies frequently suffer significant setbacks in late-stage clinical trials, even after earlier clinical trials have shown promising results. Any future clinical trials of topsalysin may not be successful for a variety of reasons, including faults in the clinical trial designs, the failure to enroll a sufficient number of patients, undesirable side effects and other safety concerns and the inability to demonstrate sufficient efficacy. If topsalysin fails to demonstrate sufficient safety or efficacy, we would experience potentially significant delays in, or be required to abandon our development of, topsalysin, which would have a material and adverse impact on our business, prospects, financial condition and results of operations.
*We rely on third parties to manufacture topsalysin and we intend to rely on third parties to manufacture commercial supplies of topsalysin, if and when it is approved. The development and commercialization of topsalysin could be stopped or delayed if any such third party fails to provide us with sufficient quantities of topsalysin or the diluent or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.
We do not currently have, nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture topsalysin on a commercial scale. Instead, we rely on our third-party manufacturing partners. Although we have entered into agreements for the manufacture of clinical supplies of topsalysin, our third party manufacturing partners may not perform as agreed, may be unable to comply with cGMP requirements and with FDA, state and foreign regulatory requirements or may terminate their agreements with us. We do not control the manufacturing processes of our third party manufacturers and we are completely dependent on our third party manufacturers for the production of topsalysin in accordance with cGMPs, which include, among other things, quality control, quality assurance and the maintenance of records and documentation. Our purchase orders under our manufacturing contracts either cannot be cancelled or can only be cancelled with the payment of financial penalties.
We have entered into an agreement with Boehringer Ingelheim RCV GmbH & Co KG, or BI, to manufacture topsalysin drug substance. We have completed scale-up up to the commercial scale for topsalysin drug substance. In addition, we recently completed a project to optimize the formulation of topsalysin drug product. We have incurred significant costs to ensure that the optimised drug product formulation is biochemically and biophysically comparable to our previous drug product formulation. There is no guarantee that the new drug product formulation will obtain the same clinical results as our old drug formulation.
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BI historically procured an ingredient used in our former diluent formulation for use with topsalysin drug product from a multinational industrial biotech company which is a single source supplier, on a purchase order basis. Our new drug product formulation does not use this single source provider ingredient in the diluent formulation. If we are required to revert back to our old drug product formulation and if our single source provider is unable to or decides to no longer supply BI or us with an ingredient for the diluent, we could experience delays in obtaining product for clinical trials until we procured another source or until we reformulate the product and we may be required to contract with another source in order to assure adequate commercial supply.
If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities’ strict regulatory requirements, or pass regulatory inspection, they will not be able to secure or maintain regulatory approval for the manufacturing facilities. In addition, we have no control over the ability of any third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any other applicable regulatory authorities do not approve these facilities for the manufacture of our products or if they withdraw any such approval in the future, or if our suppliers or third-party manufacturers decide they no longer want to supply our biologic or manufacture our products, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products.
The facilities used by our third-party manufacturers to manufacture topsalysin and any other potential product candidates that we may develop in the future must be approved by the applicable regulatory authorities, including the FDA, pursuant to inspections that will be conducted after we submit our BLA to the FDA. Further, manufacturers are subject to ongoing periodic unannounced inspection by the FDA and other governmental authorities to ensure strict compliance with government regulations. Currently, our contract manufacturers are located outside the United States and the FDA has recently increased the number of foreign drug manufacturers which it inspects. As a result, these third-party manufacturers may be subject to increased scrutiny.
Topsalysin is manufactured by starting with cells which are stored in a cell bank. We have one master cell bank and multiple working cell banks and believe we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that we could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks. Also, if we were to experience an unexpected loss of topsalysin supply, we could experience delays in our future clinical trials as our third party manufacturers would need to manufacture additional topsalysin and would need sufficient lead time to schedule a manufacturing slot. This is due to the fact that, given its nature, topsalysin cannot be manufactured in a facility at the same time as other biologics.
The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with cGMP regulations and guidelines. Manufacturers of biopharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator
Any adverse developments affecting clinical or commercial manufacturing of our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, the need to reformulate our product or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our products or product candidates and could have a material adverse effect on our business, prospects, financial condition and results of operations.
We may seek a partner for the continued development and commercialization of topsalysin. If we seek a partner and are unable to find a partner or such partnership is unsuccessful, we may be unable to commercialize topsalysin.
We may seek a third-party partner for financial and scientific resources for the further clinical development and commercialization of topsalysin. There is no assurance that we will be able to find such a partner and, if we do, we may have to relinquish a significant portion of the future economic value of topsalysin to such partner. Also, a partner will likely significantly limit our control over the course of clinical development and/or commercialization of topsalysin. Our ability to recognize revenue from a successful partnering arrangement of the sort we are contemplating may be impaired by several factors, including:
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