UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
  
(Mark One)
 
ý     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended SeptemberJune 30, 20172019
or
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                   
Commission File Number 001-36845
Bellerophon Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 47-3116175
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
184 Liberty Corner Road, Suite 302
Warren, New Jersey
(Address of principal executive offices)
 
07059
(Zip Code)
(908) 574-4770
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareBLPHThe Nasdaq Global 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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer oý(Do not check if a smaller reporting company)Smaller reporting company ý
    Emerging growth company ý

If an emerging growth company, indicate by a 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. ý



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý
 
The number of shares outstanding of the registrant’s common stock as of November 1, 2017:  55,179,788August 7, 2019:  68,906,765


TABLE OF CONTENTS
 
  Page No.
PART I. FINANCIAL INFORMATION
56
   
Item 1.Financial Statements
56
   
 Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172019 (Unaudited) and December 31, 2016 (Unaudited)2018
56
   
 Condensed Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 (Unaudited)
67
   
 Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 (Unaudited)
78
   
 Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ninethree and six months ended SeptemberJune 30, 20172019 and 2018 (Unaudited)
89
   
 Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 (Unaudited)
910
   
 Notes to Condensed Consolidated Financial Statements (Unaudited)
1011
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
2021
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk
2931
   
Item 4.Controls and Procedures
2931
   
PART II. OTHER INFORMATION
3032
   
Item 1.Legal Proceedings
3032
   
Item 1A.Risk Factors
3032
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
3032
   
Item 3.Defaults Upon Senior Securities
3032
   
Item 4.Mine Safety Disclosures
3032
   
Item 5.Other Information
3032
   
Item 6.Exhibits
3032
   
 Signatures
3133




REFERENCES TO BELLEROPHON
 
In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires references to the “Company,” “Bellerophon,” “we,” “us” and “our” refer to Bellerophon Therapeutics, Inc. and its consolidated subsidiaries.



FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
 
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
 
the timing of the ongoing and expected clinical trials of our product candidates, including statements regarding the timing of completion of the trials and the respective periods during which the results of the trials will become available;
our ability to obtain adequate financing to meet our future operational and capital needs;
the timing of and our ability to obtain marketing approval of our product candidates, and the ability of our product candidates to meet existing or future regulatory standards;
our ability to comply with government laws and regulations;
our commercialization, marketing and manufacturing capabilities and strategy;
our estimates regarding the potential market opportunity for our product candidates;
the timing of or our ability to enter into partnerships to market and commercialize our product candidates;
the rate and degree of market acceptance of any product candidate for which we receive marketing approval;
our intellectual property position;
our estimates regarding expenses, future revenues, capital requirements and needs for additional funding;
the success of competing treatments;
our competitive position; and
our expectations regarding the time during which we will be an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
 
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
 
This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties.  Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.


PART I. FINANCIAL INFORMATION
 
Item 1.        Financial Statements.


 
BELLEROPHON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands except share and per share data)
 
 As of As of
 As of As of June 30, 2019
December 31, 2018
 September 30, 2017
December 31, 2016 (Unaudited)  
Assets  
  
  
  
Current assets:  
  
  
  
Cash and cash equivalents $32,283
 $14,453
 $16,798
 $16,645
Restricted cash —
 150
 102
 101
Marketable securities 3,178
 5,571
Prepaid expenses and other current assets 3,934
 6,331
 825
 650
Total current assets 39,395
 26,505
 17,725
 17,396
Restricted cash, non-current 300
 307
 300
 300
Other non-current assets 59
 1,491
Right of use asset, net 2,065
 —
Property and equipment, net 1,116
 1,399
 488
 664
Total assets $40,870
 $29,702
 $20,578
 $18,360
Liabilities and Stockholders’ Equity  
  
  
  
Current liabilities:  
  
  
  
Accounts payable $2,755
 $2,807
 $2,822
 $2,755
Accrued research and development 1,873
 2,573
 2,580
 3,771
Accrued expenses 1,784
 1,115
 752
 1,013
Current portion of operating lease liability 556
 —
Total current liabilities 6,412
 6,495
 6,710
 7,539
Long term operating lease liability $1,739
 $—
Common stock warrant liability 18,784
 5,215
 667
 6,965
Total liabilities 25,196
 11,710
 9,116
 14,504
Commitments and contingencies 

 

 

 

Stockholders’ equity:  
  
  
  
Common stock, $0.01 par value per share; 125,000,000 shares authorized, 54,960,068 and 31,702,624 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 550
 317
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized, zero shares issued and outstanding at September 30, 2017 and December 31, 2016 —
 —
Common stock, $0.01 par value per share; 200,000,000 shares authorized and 68,906,765 and 58,679,492 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively 689
 587
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized, zero shares issued and outstanding at June 30, 2019 and December 31, 2018 —
 —
Additional paid-in capital 170,275
 142,167
 192,169
 179,765
Accumulated other comprehensive income (loss) —
 —
Accumulated deficit (155,151) (124,492) (181,396) (176,496)
Total stockholders’ equity 15,674
 17,992
 11,462
 3,856
Total liabilities and stockholders’ equity $40,870
 $29,702
 $20,578
 $18,360
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



BELLEROPHON THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands except share and per share data)
 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,		  Three Months Ended
June 30,		 Six Months Ended
June 30,
 2017 2016 2017
2016  2019 2018 2019
2018
Operating expenses:  
  
  
  
   
  
  
  
Research and development $4,438
 $2,472
 $12,464
 $11,539
  $2,629
 $5,815
 $4,934
 $12,195
General and administrative 1,746
 1,745
 4,826
 4,926
  1,596
 2,058
 3,633
 4,170
Total operating expenses 6,184
 4,217
 17,290
 16,465
  4,225
 7,873
 8,567
 16,365
Loss from operations (6,184) (4,217) (17,290) (16,465)  (4,225) (7,873) (8,567) (16,365)
Change in fair value of common stock warrant liability (1,435) —
 (13,455) —
  673
 (3,689) 2,289
 3,361
Warrant amendment charge (674) —
 (674) —
Interest and other income, net 33
 22
 86
 74
  121
 91
 251
 190
Pre-tax loss (7,586) (4,195) (30,659) (16,391)  (4,105) (11,471) (6,701) (12,814)
Income tax benefit (expense) —
 —
 —
 —
 
Income tax benefit —
 —
 1,801
 5,439
Net loss $(7,586) $(4,195) $(30,659) $(16,391)  $(4,105) $(11,471) $(4,900) $(7,375)
Weighted average shares outstanding:  
  
  
  
   
  
  
  
Basic and diluted 34,989,831
 13,854,188
 33,505,444
 13,335,358
 
Basic 68,159,901
 57,229,259
 66,683,967
 57,145,041
Diluted 68,159,901
 57,229,259
 66,683,967
 66,289,414
Net loss per share:  
  
  
  
   
  
  
  
Basic and diluted $(0.22) $(0.30) $(0.92) $(1.23) 
Basic $(0.06) $(0.20) $(0.07) $(0.13)
Diluted $(0.06) $(0.20) $(0.07) $(0.16)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



BELLEROPHON THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)
 
 Three Months Ended September 30, Nine Months Ended September 30,  Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017
2016  2019 2018 2019
2018
Net loss $(7,586) $(4,195) $(30,659)
$(16,391)  $(4,105) $(11,471) $(4,900)
$(7,375)
Other comprehensive income  
  
  
  
   
  
  
  
Unrealized (losses) gains on available-for-sale marketable securities —
 (3) —
 18
 
Total other comprehensive (loss) income —
 (3) —
 18
 
Unrealized gain on available-for-sale marketable securities —
 2
 —
 1
Total other comprehensive income —
 2
 —
 1
Comprehensive loss $(7,586) $(4,198) $(30,659) $(16,373)  $(4,105) $(11,469) $(4,900) $(7,374)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



BELLEROPHON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands except share and per share data) 

  Common Stock Additional 
Accumulated
Other
Comprehensive
 Accumulated 
Total
Stockholders’ 
  Shares Amount Paid in Capital Income (Loss) Deficit Equity
December 31, 2016 31,702,624
 $317
 $142,167
 $—
 $(124,492) $17,992
Net loss —
 —
 —
 —
 (30,659) (30,659)
Other comprehensive income —
 —
 —
 —
 —
 —
Sale of common stock and warrants in PIPE Offering, net of offering expenses of $677 19,449,834
 195
 22,565
 —
 —
 22,760
Sale of common stock in Direct Offering, net of offering expenses of $187 2,000,000
 20
 1,675
 —
 —
 1,695
Warrant exercises 934,300
 9
 1,743
 —
 —
 1,752
Stock-based compensation 873,310
 9
 2,125
 —
 —
 2,134
September 30, 2017 54,960,068
 $550
 $170,275
 $—
 $(155,151) $15,674
For the three and six months ended June 30, 2019:
  Common Stock Additional 
Accumulated
Other
Comprehensive
 Accumulated 
Total
Stockholders’ 
  Shares Amount Paid in Capital Loss Deficit Equity
March 31, 2019 68,906,765
 $689
 $186,907
 —
 $(177,291) $10,305
Net loss —
 —
 —
 —
 (4,105) (4,105)
Warrant amendment —
 —
 4,683
 —
 —
 4,683
Stock-based compensation —
 —
 579
 —
 —
 579
June 30, 2019 68,906,765
 $689
 $192,169
 —
 $(181,396) $11,462
             
December 31, 2018 58,679,492
 $587
 $179,765
 $—
 $(176,496) $3,856
Net loss —
 —
 —
 —
 (4,900) (4,900)
Warrant amendment —
 —
 4,683
 —
 —
 4,683
Public offering 10,000,000
 100
 6,136
 —
 —
 6,236
Stock-based compensation 227,273
 2
 1,585
 —
 —
 1,587
June 30, 2019 68,906,765
 $689
 $192,169
 —
 $(181,396) $11,462

For the three and six months ended June 30, 2018:
  Common Stock Additional 
Accumulated
Other
Comprehensive
 Accumulated 
Total
Stockholders’ 
  Shares Amount Paid in Capital Loss Deficit Equity
March 31, 2018 57,369,165
 $574
 $176,862
 $(5) $(175,214) $2,217
Net loss —
 $—
 $—
 $—
 $(11,471) $(11,471)
Other comprehensive income —
 $—
 $—
 $2
 $—
 $2
Warrant exercises 206,491
 $2
 $576
 

 

 $578
Exercise of stock options 5,875
 $—
 $4
 $—
 $—
 $4
Stock-based compensation 183,773
 $2
 $893
 $—
 $—
 $895
June 30, 2018 57,765,304
 $578
 $178,335
 $(3) $(186,685) $(7,775)
             
December 31, 2017 56,899,353
 $569
 $176,151
 $(4) $(179,310) $(2,594)
Net loss —
 —
 —
 —
 (7,375) (7,375)
Other comprehensive income —
 —
 —
 1
 —
 1
Warrant exercises 495,760
 5
 573
 —
 —
 578
Exercise of stock options 5,875
 —
 4
 —
 —
 4
Stock-based compensation 364,316
 4
 1,607
 —
 —
 1,611
June 30, 2018 57,765,304
 $578
 $178,335
 $(3) $(186,685) $(7,775)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



BELLEROPHON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 Nine Months Ended September 30, Six Months Ended June 30,
 2017
2016 2019
2018
Cash flows from operating activities:  
  
  
  
Net loss $(30,659) $(16,391) $(4,900) $(7,375)
Adjustments to reconcile net loss to net cash used in operating activities:  
  
Adjustments to reconcile net income (loss) to net cash used in operating activities:  
  
Change in fair value of common stock warrant liability 13,455
 —
 (2,289) (3,361)
Warrant amendment charge 674
 —
Accretion and amortization of discounts and premiums on marketable securities, net —
 (1)
Stock based compensation 2,134
 2,148
 1,587
 1,611
Depreciation 283
 301
 176
 181
Issuance costs attributable to common stock warrant liability 111
 —
Accretion and amortization of discounts and premiums on marketable securities, net —
 29
Changes in operating assets and liabilities:  
  
  
  
Prepaid expenses and other current assets 2,397
 (980) (175) 868
Restricted cash held as security deposit 157
 —
Other non-current assets 1,432
 3,397
 —
 28
Accounts payable, accrued research and development, and accrued expenses (552) (3,298) (1,155) 1,988
Net cash used in operating activities (11,242) (14,794) (6,082) (6,061)
Cash flows from investing activities:  
  
  
  
Capital expenditures —
 (22)
Purchase of marketable securities (2,982) —
Proceeds from sale of marketable securities 5,375
 10,566
 —
 502
Net cash provided by investing activities 2,393
 10,544
 —
 502
Cash flows from financing activities:  
  
  
  
Proceeds from sale of Units in PIPE Offering 23,437
 —
Proceeds from sale of Units in Direct Offering, net of commissions and offering expenses 2,730
 —
Proceeds from sale of Units in PIPE Offering, net of offering expenses —
 (28)
Proceeds received from exercise of warrants 747
 —
 —
 165
Proceeds from sale of common stock in ATM Offering, net of commissions and offering expenses —
 2,048
Tax withholding payments for stock compensation —
 (128)
Payment of offering expenses related to the 2016 secondary offering (235) —
Proceeds from issuance of common stock in Public Offering 6,236
 —
Proceeds received from exercise of stock options —
 4
Net cash provided by financing activities 26,679
 1,920
 6,236
 141
        
Net change in cash and cash equivalents 17,830
 (2,330)
Cash and cash equivalents at beginning of period 14,453
 6,260
Cash and cash equivalents at end of period $32,283
 $3,930
Net change in cash, cash equivalents and restricted cash 154
 (5,418)
Cash, cash equivalents and restricted cash at beginning of period 17,046
 29,375
Cash, cash equivalents and restricted cash at end of period $17,200
 $23,957
  
  
  
  
Non-cash financing activities:  
  
  
  
Conversion of warrant liability to common stock upon exercise of warrants $1,005
 $—
 $—
 $413
Unpaid expenses related to offerings $720
 $35
Non-cash investing activities:  
  
Change in unrealized holding gains on marketable securities, net $—
 $18
Reclassification of warrant liability to equity on amendment of warrant agreements $4,009
 $—
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



BELLEROPHON THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1) Organization and Nature of the Business
 
Bellerophon Therapeutics, Inc., or the Company, is a clinical-stage therapeutics company focused on developing innovative products at the intersection of drugs and devices that address significant unmet medical needs in the treatment of cardiopulmonary diseases. The focus of the Company’s clinical program is the continued development of its nitric oxide therapy for patients with pulmonary hypertension, or PH, using its proprietary delivery system, INOpulse, with pulmonary arterial hypertension, or PAH, representing the lead indication.INOpulse. The Company has three wholly-owned subsidiaries: Bellerophon BCM LLC, a Delaware limited liability company; Bellerophon Pulse Technologies LLC, a Delaware limited liability company; and Bellerophon Services, Inc., a Delaware corporation.

The Company’s business is subject to significant risks and uncertainties, including but not limited to:

The risk that the Company will not achieve success in its research and development efforts, including clinical trials conducted by it or its potential collaborative partners.

The expectation that the Company will experience operating losses for the next several years.

Decisions by regulatory authorities regarding whether and when to approve the Company’s regulatory applications as well as their decisions regarding labeling and other matters which could affect the commercial potential of the Company’s products or product candidates.

The risk that the Company will fail to obtain adequate financing to meet its future operational and capital needs.

The risk that the Company will be unable to obtain additional funds on a timely basis and hence there will be substantial doubt about its ability to continue as a going concern.

The risk that key personnel will leave the Company and/or that the Company will be unable to recruit and retain senior level officers to manage its business.
 
(2) Summary of Significant Accounting Policies
 
(a) Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission, or the SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America, or U.S. GAAP, can be condensed or omitted. The Company operates in one reportable segment and solely within the United States. Accordingly, no segment or geographic information has been presented.
 
The Company is responsible for the unaudited condensed consolidated financial statements. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position, results of operations, comprehensive lossincome (loss) and its cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016,2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172019 for the Company are not necessarily indicative of the results expected for the full year.
 
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of costs and expenses during the reporting period, including right of use asset and operating lease liability, accrued expenses, accrued research and development expenses, stock-based compensation, common stock warrant liabilities and income taxes. Actual results could differ from those estimates.
 





(b) Cash and Cash Equivalents
 


The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. All investments with maturities of greater than three months from date of purchase are classified as available-for-sale marketable securities.
 
(c) Stock-Based Compensation
 
The Company accounts for its stock-based compensation in accordance with applicable accounting guidance which establishes accounting for share-based awards, including stock options and restricted stock, exchanged for services and requires companies to expense the estimated fair value of these awards over the requisite service period.  The Company recognizes stock-based compensation expense in operations based on the fair value of the award on the date of the grant net of estimated forfeitures.grant. The resulting compensation expense, less estimated forfeitures, is recognized on a straight-line basis over the requisite service period or sooner if the awards immediately vest.  The Company determines the fair value of stock options issued using a Black-Scholes-Merton option pricing model. Certain assumptions used in the model include expected volatility, dividend yield, risk-free interest rate, estimated forfeitures and expected term. For restricted stock, the fair value is the closing market price per share on the grant date. See Note 87 - Stock-Based Compensation for a description of these assumptions.

(d) Common Stock Warrants and Warrant Liability
The Company accounts for common stock warrants issued as freestanding instruments in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. The Company classifies warrant liabilities on the consolidated balance sheet based on theirthe warrants' terms as long-term liabilities, which are revalued at each balance sheet date subsequent to the initial issuance. Changes in the fair value of the warrants are reflected in the consolidated statement of operations as “Change in fair value of common stock warrant liability.” The Company uses the Black-Scholes-Merton pricing model to value the related warrant liabilities.liability. Certain assumptions used in the model include expected volatility, dividend yield and risk-free interest rate, and expected term.rate. See Note 6 - Fair Value Measurements for a description of these assumptions.
 
(e) Income Taxes
 
The Company uses the asset and liability approach to account for income taxes as required by applicable accounting guidance, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized, on a more likely than not basis. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position.  These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
 
(f) Marketable Securities
The Company’s marketable securities consist of federally insured certificates of deposit classified as available-for-sale that are recorded at amortized cost, which approximates fair value, and corporate or agency bonds classified as available-for-sale that are recorded at fair value. Unrealized gains and losses are reported as accumulated other comprehensive income (loss), except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net loss and are included in interest income, at which time the average cost basis of these securities are adjusted to fair value. Fair values are based on quoted market prices at the reporting date. Interest on available-for-sale securities are included in interest income.
(g) Research and Development Expense
 
Research and development costs are expensed as incurred. These expenses include the costs of the Company’s proprietary research and development efforts, as well as costs incurred in connection with certain licensing arrangements. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties upon or subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. The Company also expenses the


cost of purchased technology and equipment in the period of purchase if it believes that the technology or equipment has not demonstrated technological feasibility and it does not have an alternative future use. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and are recognized as research and development expense as the related goods are delivered or the related services are performed.

(h) Reclassification
Certain prior year balances have been reclassified to conform to the current period presentation.

(i)



(g) Recently Issued Accounting Pronouncements

Adopted

In MarchFebruary 2016, the Financial Accounting Standards Board, or FASB issued ASU 2016-09, "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting"No. 2016-02, “Leases” (ASU 2016-02) which along with subsequent ASUs, was codified as Accounting Standards Codification 842 (ASC 842) and provides accounting guidance for simplification of several aspects related to theboth lessee and lessor accounting for share-based payment transactions.models. The provisions of ASU 2016-09 that are currently applicable tonew standard became effective for the Company are as follows: (a) forfeitures and (b) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.January 1, 2019. The Company adopted ASU 2016-09 during the quarter ended March 31, 2017.standard using the effective date method at the beginning of the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their financial statements. The recognition of lease liabilities and corresponding ROU assets had a material impact on our consolidated balance sheet. Upon adoption, as of January 1, 2019, we recognized a $2.6 million operating lease liability and a $2.3 million ROU asset. The adoption of this standard did not have a material impact on the Company’sCompany's consolidated financial statements. The Company will continue to use its current methodstatements of estimated forfeitures each period rather than accounting for forfeitures as they occur. ASU 2016-09 requires the presentation ofoperations, stockholders’ equity or cash paid by an employer when directly withholding shares for tax-withholding purposes as a financing activity in the cash flow statement. The Company’s historical accounting treatment is consistent with such guidance.flows.
Not Yet Adopted

In January 2016,August 2018, the FASB issued ASU 2016-01, "Financial Instruments2018-13, “Fair Value Measurement (Topic 820) - OverallDisclosure Framework - RecognitionChanges to the Disclosure Requirements for Fair Value Measurement”, which eliminates, modifies and Measurement of Financial Assets and Financial Liabilities," which addressesadds certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.on fair value measurements. This standard will be effective for fiscal years beginning after December 15, 2017,2019, including interim periods within those fiscal years. The Company is assessing ASU 2016-01’s2018-03’s impact and will adopt it when effective.
In February 2016, the FASB issued ASU 2016-02, "Leases," which is intended to improve financial reporting about leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing ASU 2016-02’s impact and will adopt it when effective.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments”, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is assessing ASU 2016-15’s impact and will adopt it when effective.
In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows: Restricted Cash", which eliminates the diversity in practice related to the inclusion of restricted cash in the statement of cash flows by requiring that a statement of cash flows include the change during the period in restricted cash when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-18 provides for retrospective application for all periods presented. The Company is assessing ASU 2016-18’s impact and will adopt it when effective.
In May 2017, the FASB issued ASU 2017-09, "Stock Compensation - Scope of Modification Accounting", guidance that clarifies that all changes to share-based payment awards are not necessarily accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this guidance should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods. This guidance will apply to any future modifications. The Company will adopt ASU 2017-09 when effective.
 
(3) Liquidity



In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years.losses. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future as it continues the development andto develop, conduct clinical trials of, and seeksseek regulatory approval for, its product candidates. The Company's primary uses of capital are, and it expects will continue to be, compensation and related expenses, third-party clinical research and development services, contract manufacturing services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs.

The Company had cash and cash equivalents of $32.3 million and marketable securities of $3.2$16.8 million as of SeptemberJune 30, 2017.
2019. The Company's existing cash and cash equivalents and marketable securities as of SeptemberJune 30, 20172019 will be used primarily to fundcomplete the first of two INOpulse for PAH Phase 3 trials, a portion of the second of two INOpulse for PAH Phase 3 trials, and a Phase 2b trial of INOpulse for PH-ILD. In addition, asPH-ILD and to complete the dose escalation study for PH-Sarc. The Company expects to complete these trials during the second half of September 30, 2017, the Company had $3.2 million prepayments of research and development expenses related to its amended drug supply agreement with Ikaria, Inc. (a subsidiary of Mallinckrodt plc), or Ikaria and the clinical research organization it has partnered with for the first of the two Phase 3 clinical trials for INOpulse for PAH. The corresponding prepayments balance as of December 31, 2016 was $7.2 million. These prepayment amounts are presented on the respective consolidated balance sheets as follows (in thousands):2019.
 September 30, 2017 December 31, 2016
Prepaid expenses and other current assets3,163
 5,842
Other non-current assets—
 1,406
 3,163
 7,248

On May 5, 2016,June 25, 2018, the Company filed a shelf registration statement on Form S-3 with the SEC, on Form S-3, which as amended became effective on May 23, 2016.July 6, 2018. The shelf registration will allowallows the Company to issue, from time to time at prices and on terms to be determined prior to the time of any such offering, up to $30.0$100 million of any combination of the Company’s common stock, preferred stock, debt securities, warrants and rights, purchase contracts or units, either individually or in units. As of September 30, 2017, the Company had sold 1,025,793 shares of its common stock for gross and net proceeds of $2.2 million and $2.1 million, respectively, under the Company’s effective shelf registration statement on Form S-3 and the related prospectus supplement dated May 27, 2016 and filed with the SEC on May 27, 2016.

On OctoberJanuary 25, 2016, the Company filed a registration statement on Form S-1 with the SEC, which as amended became effective on November 22, 2016. On November 29, 2016,2019, the Company completed the sale of 17,142,858 Class A Units consisting of an aggregate of 17,142,858 shares of its common stock and warrants exercisable for up to 17,142,85810,000,000 shares of its common stock at a public offering price of $0.70 per Unit, or the Secondary Offering,share, resulting in net proceeds of $10.9$6.2 million, after deducting placement fees of $0.8$0.5 million and other offering costs of $0.3 million. Each warrant has an exercise price per full share of common stock equal to $0.80, is immediately exercisable and expires five years from the date on which such warrant becomes exercisable. The warrants require cash settlement by the Company under certain situations. During the nine months ended September 30, 2017, the Company received proceeds of $0.7 million for the exercise of 934,300 warrants. Refer to Note 5 - Common Stock Warrant Liability for further details on the warrants.

On May 9, 2017, the Company entered into a Securities Purchase Agreement, or the Purchase Agreement, with a single institutional investor, or the investor, for the sale of 2,000,000Such shares of its common stock at a purchase price of $1.50 per share and warrants to purchase up to an aggregate of 1,000,000 shares of its common stock, or the Direct Offering. The warrants will be initially exercisable commencing six months from the issuance date at an exercise price equal to $1.50 per full share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. In addition, the Company issued the placement agent of the Direct Offering, warrants to purchase up to 60,000 shares. The placement agent warrants have substantially the same terms as the warrants issuedwere sold pursuant to the investor, except that the placement agent warrants have an exercise price equal to $1.875 and will be exercisable for five years from the date of the closing of this offering. The closing of the sales of these securities under the Purchase Agreement occurred on May 15, 2017. The aggregate gross and net proceeds for the Direct Offering were $3.0 million and $2.7 million, respectively.

On September 26, 2017, the Company entered into a Securities Purchase Agreement, or the PIPE Purchase Agreement, pursuant to which the Company sold an aggregate of 19,449,834 shares of its common stock at a purchase price of $1.205 per share and warrants to purchase up to an aggregate of 19,449,834 shares of its common stock, or the PIPE Offering. The warrants will be initially exercisable commencing six months from the issuance date at an exercise price equal to $1.2420 per full share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. The closing of the sales of these securities under the PIPE Purchase Agreement


occurred on September 29, 2017. The aggregate gross and net proceeds for the PIPE Offering were $23.4 million and $22.8 million, respectively.

In connection with the PIPE Offering, the Company entered into a Registration Rights Agreement, pursuant to which the Company timely filed aCompany's effective shelf registration statement on Form S-3 declared effective by the SEC on November 6, 2017 and is obligated to maintain the registration until all registrable securities may be sold pursuant to Rule 144 under the Securities Act, without restriction as to volume. The Registration Rights Agreement provides for cash penalties of up to 3% of the gross proceeds of the PIPE Offering for the Company’s failure to satisfy specified filing and effectiveness time periods. As of September 30, 2017, no liability had been recorded under the Registration Rights Agreement.S-3.

The Company has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q.

Based on such evaluation and the Company's current plans, management believes that following the closing of the PIPE Offering in September 2017, substantial doubt about the Company’s ability to continue as a going concern has been alleviated and the Company's existing cash and cash equivalents and marketable securities as of SeptemberJune 30, 2017 will2019 and proceeds expected to become available upon sale of state net operating losses, or NOLs, and research and development (R&D) tax credits under the State of New Jersey’s Technology Business Tax Certificate Transfer Program may not be sufficient to satisfy the Company's operating cash needs for at least one year after the filing of this Quarterly Report on Form 10-Q. In addition, the Company expects to have proceeds that become available upon the sale ofThese factors raise substantial doubt about the Company's state net operating losses, or NOLs,ability to continue as a going concern. The Company's ability to continue as a going concern is related to the further implementation of its current business


plan. Advances and R&D tax credits underchanges in the Company's business plans and clinical programs may offer alternative utilization of its capital resources including shifting resources between programs as well as various strategic financing opportunities. The Company continues to pursue potential sources of funding, including equity financing.
The State of New Jersey's Technology Business Tax Certificate Transfer Program.Program enables qualified, unprofitable New Jersey based technology or biotechnology companies to sell a percentage of NOL and R&D tax credits to unrelated profitable corporations, subject to meeting certain eligibility criteria. Based on consideration of various factors, including application processing time and past trend of benefits made available under the program, the Company believes that it is probable that its plans to sell its NOLs can be effectively implemented to address its short term financial needs. The Company has sold $61.5 million of its 2015 and 2016 state NOLs and $0.2 million of its 2016 Research and Development credits under the State of New Jersey’s Technology Business Tax Certificate Transfer Program in February 2018 for net proceeds of $5.3 million and has sold an additional $20.0 million of its 2017 state NOLs for net proceeds of $1.7 million in January 2019. Subject to state approval and program availability, the Company plans to sell additional NOLs and credits under the same program later in 2019 or early 2020. The proceeds from such sales are recorded as Income tax benefit when sales occur or proceeds are received.

The Company’s estimates and assumptions may prove to be wrong, and the Company may exhaust its capital resources sooner than expected. The process of testing product candidates in clinical trials is costly, and the timing of progress in clinical trials is uncertain. Because the Company’s product candidates are in clinical development and the outcome of these efforts is uncertain, the Company may not be able to accurately estimate the actual amounts that will be necessary to successfully complete the development and commercialization, if approved, of its product candidates or whether, or when, the Company may achieve profitability.

Until such time, if ever, as the Company can generate substantial product revenues, itsit expects to finance its cash needs through a combination of equity and debt offerings, sales of state NOLs and R&D credits subject to program availability and approval, existing working capital and funding from potential future collaboration arrangements. To the extent that the Company raises additional capital through the future sale of equity or debt, the ownership interest of its existing stockholders will be diluted, and the terms of such securities may include liquidation or other preferences or rights such as anti-dilution rights that adversely affect the rights of the Company'sits existing stockholders. If the Company raises additional funds through strategic partnerships in the future, it may have to relinquish valuable rights to its technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to it. If the Company is unable to raise additional funds through equity or debt financings when needed or is unable to sell its state NOLs and R&D credits, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself. In addition, the timing of when existing and new capital resources are used and received may not align with the period of time evaluated by management for going concern purposes such that management may be required to conclude that substantial doubt about the Company’s ability to continue as a going concern in accordance with relevant accounting guidance may exist in future periods.

(4) Marketable SecuritiesLeases

The Company considers allhas an operating lease for the use of its investmentsan office and research facility in Warren, NJ. The Warren NJ lease is for a term of four years with a term date of March 31, 2023, with the Company's right to be available-for-sale. Marketable securitiesextend the original term for one period of five years. The office and research facility operating lease in is included in “Right of use asset, net” on the Company's June 30, 2019 consolidated balance sheet and represents the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in “Current portion of operating lease liability” and “Long term operating lease liability” on the Company's June 30, 2019 consolidated balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term.

We do not recognize right of use assets or related lease liabilities with a lease term of twelve months or less on our Consolidated Balance Sheet. Short-term lease costs are recorded in our consolidated statements of operations in the period in which the obligation for those payments was incurred. Short-term lease costs for the three and six months ended June 30, 2019 were de minimis.


Information related to the Company's right-of-use asset and related lease liability were as of September 30, 2017 consist of the following (infollows ($ amounts in thousands):

 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Certificates of deposit1,677
 —
 —
 1,677
Agency bonds1,501
 —
 —
 1,501
Total3,178
 —
 —
 3,178
  Three Months Ended
June 30, 2019		 Six Months Ended
June 30, 2019
   
Cash paid for operating lease liability $164
 $325
Operating lease expenses 153
 306
Remaining lease term   3.75 years
Discount rate   4.98%
     
Maturities of the lease liability as of June 30, 2019 were as follows :    
2019   $328
2020   664
2021   674
2022   685
2023   172
    2,523
Less imputed interest   (228)
Total operating lease liability   2,295

Marketable securities as of December 31, 2016, consist ofRent expense for the following (in thousands):three and six months ended June 30, 2018 were $0.1 million and $0.3 million, respectively.     



 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Certificates of deposit3,619
 —
 —
 3,619
Corporate bonds1,952
 —
 —
 1,952
Total5,571
 —
 —
 5,571


Maturities of marketable securities classified as available-for-sale were as follows at September 30, 2017 and December 31, 2016 (in thousands):
 September 30, 2017 December 31, 2016
Due within one year3,178
 5,571
Due after one year—
 —
 3,178
 5,571

(5) Common Stock Warrants and Warrant Liability

On November 29, 2016, the Company issued warrants to purchase 17,142,858 shares (the “2016 Warrants”) that were immediately exercisable and willset to expire five years from issuance at an exercise price of $0.80 per share. AsOn June 28, 2019, the Company entered into a warrant amendment (the “Warrant Amendment”) with certain holders (the “Holders”) of 12,598,572 of the 2016 Warrants to purchase shares. Pursuant to the Warrant Amendment, the Company and the Holders have agreed to eliminate provisions that had previously precluded equity classification treatment on the Company’s balance sheets. In consideration of such amendment, the 2016 Warrants were extended by two (2) additional years (until November 29, 2023). The difference in fair market value of the warrants under certain situations,before and after the amendment, of $0.7 million, was recorded in the statement of operations as a warrant amendment charge. The fair market value of the amended warrants was reclassified from warrant liability to stockholders' equity. The balance of the 2016 Warrants that were not amended could require cash settlement the warrants wereunder certain circumstances, and therefore continue to be classified as liabilities and to be recorded at estimated fair value using a Black-Scholes-Merton pricing model. As of SeptemberJune 30, 2017, 16,208,5582019, 13,741,180 2016 Warrants were outstanding, of these warrantswhich 12,598,572 were outstandingequity classified and 1,142,608 were liability classified.

On May 15, 2017, the Company issued to an investor a warrant to purchase 1,000,000 shares that will be initiallybecame exercisable commencing six months from their issuance and will expire five years from the initial exercise date at an exercise price of $1.50 per share. In addition, the Company issued to the placement agent warrants to purchase 60,000 shares that were immediately exercisable and will expire five years from issuance at an exercise price of $1.875 per share. As the warrants, under certain situations, could require cash settlement, the warrants were classified as liabilities and recorded at estimated fair value using a Black-Scholes-Merton pricing model. As of SeptemberJune 30, 2017,2019, all of these warrants were outstanding.

On September 29, 2017, the Company issued warrants to purchase 19,449,834 shares that will be initiallybecame exercisable commencing six months from their issuance and will expire five years from the initial exercise date at an exercise price of $1.2420 per share. As the warrants could not require cash settlement, the warrants were classified as equity. As of SeptemberJune 30, 2017,2019, all of these warrants were outstanding.





The following table summarizes warrant activity for the ninesix months ended SeptemberJune 30, 20172019 (fair value amount in thousands):
  Equity Classified Liability Classified
  Warrants Warrants Estimated Fair Value
Beginning balance —
 17,142,858
 $5,215
Exercises —
 (934,300) (1,005)
Additions 19,449,834
 1,060,000
 1,119
Change in fair value of common stock warrant liability recognized in consolidated statement of operations —
 —
 13,455
Ending balance 19,449,834
 17,268,558
 $18,784
  Equity Classified Liability Classified
  Warrants Warrants Estimated Fair Value
Warrants outstanding as of December 31, 2018 19,449,834
 14,801,180
 $6,965
Reclassification of warrants to equity on amendment of warrant agreements 12,598,572
 (12,598,572) (4,009)
Change in fair value of common stock warrant liability recognized in consolidated statement of operations —
 —
 (2,289)
Warrants outstanding as of June 30, 2019 32,048,406
 2,202,608
 $667
There was noThe following table summarizes warrant activity for the ninesix months ended SeptemberJune 30, 2016. 2018 (fair value amount in thousands):
  Equity Classified Liability Classified
  Warrants Warrants Estimated Fair Value
Warrants outstanding as of December 31, 2017 19,449,834
 15,041,004
 $32,325
Exercises —
 (206,491) (413)
Change in fair value of common stock warrant liability recognized in consolidated statement of operations —
 —
 (3,361)
Warrants outstanding as of June 30, 2018 19,449,834
 14,834,513
 $28,551
See Note 6 for determination of the fair value of the common stock warrant liability.    


(6) Fair Value Measurements


 
Assets and liabilities recorded at fair value on the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value.  Level inputs are as follows:
 
Level 1 — Values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date.

Level 2 — Values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

Level 3 — Values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.
 
The following table summarizes fair value measurements by level at SeptemberJune 30, 20172019 for assets and liabilities measured at fair value on a recurring basis (in thousands):
 
  Level 1 Level 2 Level 3 Total
Marketable securities $—
 $3,178
 $—
 $3,178
Common stock warrant liability —
 —
 18,784
 18,784
  Level 1 Level 2 Level 3 Total
Common stock warrant liability —
 —
 667
 667

 The following table summarizes fair value measurements by level at December 31, 20162018 for assets and liabilities measured at fair value on a recurring basis (in thousands):
 
  Level 1 Level 2 Level 3 Total
Marketable securities $—
 $5,571
 $—
 $5,571
Common stock warrant liabilities —
 —
 5,215
 5,215
  Level 1 Level 2 Level 3 Total
Common stock warrant liabilities —
 —
 6,965
 6,965



The Company uses a Black-Scholes-Merton option pricing model to value its liability classified common stock warrants. The significant unobservable inputs used in calculating the fair value of common stock warrants represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. For volatility, the Company usesconsiders comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants dueand transitions to its limitedown volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. Any significant changes in the inputs may result in significantly higher or lower fair value measurements. 

The following are the weighted average assumptions used in estimating the fair value of warrants issuedoutstanding as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
September 30, 2017 December 31, 2016June 30, 2019 December 31, 2018
Valuation assumptions:      
Risk-free interest rate1.79% 1.91%1.72% 2.45%
Expected volatility95.80% 83.73%102.60% 93.61%
Expected term (in years)4.2
 4.9
2.9
 3.0
Dividend yield—% —%—% —%
 
(7) Restructuring Charges
On July 27, 2015, the Company announced that its PRESERVATION I clinical trial for its BCM product candidate did not meet its primary or secondary endpoints.  Following these results, on September 11, 2015, the Board of Directors of the Company approved a staff reduction plan in order to reduce operating expenses and conserve cash resources, or the Restructuring.
The following table summarizes changes to the related accrued restructuring costs for the nine months ended September 30, 2017 (in thousands): 


 September 30, 2017
Opening balance (a)$110
Cash payments(110)
Ending balance$—
(a) Included in Accrued expenses.


(8)(7) Stock-Based Compensation
  
Bellerophon 2015 and 2014 Equity Incentive Plans
 
During 2014, the Company adopted the 2014 Equity Incentive Plan, or the 2014 Plan, which provided for the grant of options. Following the effectiveness of the Company's registration statement filed in connection with its initial public offering, no options may be granted under the 2014 plan. The awards granted under the 2014 Plan generally have a vesting period of between one to four years.

During 2015, the Company adopted the 2015 Equity Incentive Plan, or the 2015 Plan, which provides for the grant of options, restricted stock and other forms of equity compensation. On May 4, 2017, the Company’s stockholders approved an amendment to the 2015 Plan to increase the aggregate number of shares available for the grant of awards to 5,000,000 and to increase the maximum number of shares available under the annual increase to 3,000,000 shares. On May 14, 2019, the Company's stockholders approved an additional amendment to the 2015 Plan to increase the aggregate number of shares reserved for issuance under the 2015 plan from 5,000,000 to 12,500,000.

As of June 30, 2019, the Company had 10,047,425 shares available for grant under the 2015 Plan.
 
As of SeptemberJune 30, 2017,2019, there was approximately $2.3$2.6 million of total unrecognized compensation expense related to unvested stock awards. This expense is expected to be recognized over a weighted-average period of 1.62.6 years.
 
No tax benefit was recognized during the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 related to stock-based compensation expense since the Company incurred operating losses and has established a full valuation allowance to offset all the potential tax benefits associated with its deferred tax assets.
 
Options
 
The weighted average grant-date fair values of options issued during the ninesix months ended SeptemberJune 30, 20172019 and 20162018 were $0.84$0.60 and $1.52,$1.55, respectively. The following are the weighted average assumptions used in estimating the fair values of options issued during the ninesix months ended SeptemberJune 30, 20172019 and 2016.2018:
 


Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016Six Months Ended June 30, 2019Six Months Ended June 30, 2018
Valuation assumptions: 
  
 
 
Risk-free rate1.98% 1.34%2.45%2.50%
Expected volatility90.98% 81.80%83.26%89.13%
Expected term (years)6.0
 6.1
6.0
6.0
Dividend yield—
 —
—
—


A summary of option activity under the 2015 and 2014 Plans for the ninesix months ended SeptemberJune 30, 20172019 is presented below: 
 Bellerophon 2015 and 2014 Equity Incentive Plans
 Options 
Range of
Exercise
Price
 
Weighted
Average
Price
 
Weighted Average
Remaining
Contractual
Life (in years)
Options outstanding as of December 31, 20163,189,881
 $0.49
-13.28
 $3.08
 9.4
Granted80,800
 1.12
-1.38
 1.12
  
Forfeited(20,900) 0.49
-12.00
 1.58
  
Options outstanding as of September 30, 20173,249,781
 $0.49
-13.28
 $3.04
 8.7
Options vested and exercisable as of September 30, 2017540,908
 $1.40
-13.28
 $11.19
 7.0
 Bellerophon 2015 and 2014 Equity Incentive Plans
 Options 
Range of
Exercise
Price
 
Weighted
Average
Price
 
Weighted Average
Remaining
Contractual
Life (in years)
Options outstanding as of December 31, 20186,769,232
 $0.49
-13.28
 $2.16
 8.6
Granted239,680
 0.59
-0.88
 0.85
  
Expired(1,995) 12.00 12.00
  
Forfeited(13,487) 0.49
-12.00
 5.60
  
Options outstanding as of June 30, 20196,993,430
 $0.49
-13.28
 $2.11
 8.1
Options vested and exercisable as of June 30, 20192,888,364
 $0.49
-13.28
 $3.61
 7.4
 
The intrinsic value of options outstanding, vested and exercisable as of SeptemberJune 30, 20172019 was zero.$0.1 million.


Restricted Stock
 
All restricted stock awards granted under the 2015 Plan during the ninesix months ended SeptemberJune 30, 20172019 were in relation to 2016 incentives for employees or director compensation and vestvested in full less than one year fromon the grant date.
 
A summary of restricted stock activity under the 2015 Plan for the ninesix months ended SeptemberJune 30, 20172019 is presented below: 


 Bellerophon 2015 Equity Incentive Plan Bellerophon 2015 Equity Incentive Plan
 Shares 
Weighted
Average
Fair Value
 
Aggregate
Grant Date
Fair Value
(in millions)
 
Weighted Average
Remaining
Contractual
Life (in years)
 Shares 
Weighted
Average
Fair Value
 
Aggregate
Grant Date
Fair Value
(in millions)
 
Weighted Average
Remaining
Contractual
Life (in years)
Restricted stock outstanding as of December 31, 2016 155,846
 $2.05
 $0.3
 0.0
Restricted stock outstanding as of December 31, 2018 965,618
 $1.23
 $1.2
 0.3
Granted 873,310
 1.45
 1.3
   227,273
 0.88
 0.2
  
Vested (374,981) (1.70) (0.6)   (589,153) (1.26) (0.7)  
Restricted stock outstanding as of September 30, 2017 654,175
 $1.45
 $0.9
 0.2
Restricted stock outstanding as of June 30, 2019 603,738
 $1.07
 $0.6
 0.4
 

Ikaria Equity Incentive Plans prior to February 12, 2014
 
Options
 
A summary of option activity under Ikaria incentive plans assumed in 2014 for the ninesix months ended SeptemberJune 30, 2017,2019, is presented below:
 


  Ikaria Equity Incentive Plans
  Options 
Range of
Exercise
Price
 
Weighted
Average
Price
 
Weighted Average
Remaining
Contractual
Life (in years)
Options outstanding as of December 31, 2016 87,369
 $7.77
-17.92 $9.14
 4.3
Forfeited (10,530) 7.77
-14.91 8.88
  
Options outstanding as of September 30, 2017 76,839
 $7.77
-17.92 $9.17
 4.0
Options vested and exercisable as of September 30, 2017 76,839
 $7.77
-17.92 $9.17
 4.0
  Ikaria Equity Incentive Plans
  Options 
Range of
Exercise
Price
 
Weighted
Average
Price
 
Weighted Average
Remaining
Contractual
Life (in years)
Options outstanding as of December 31, 2018 69,619
 $7.77
-17.92 $9.12
 3.2
Forfeited (11,055) 7.77-14.91 8.66
 —
Options outstanding as of June 30, 2019 58,564
 $7.77
-17.92 $9.20
 2.6
Options vested and exercisable as of June 30, 2019 58,564
 $7.77
-17.92 $9.20
 2.6
 
The intrinsic value of options outstanding, vested and exercisable as of SeptemberJune 30, 20172019 was zero.
 


 Stock-Based Compensation Expense, Net of Estimated Forfeitures
 
The following table summarizes the stock-based compensation expense by the unaudited condensed consolidated statement of operations line items for the ninethree and six months ended SeptemberJune 30, 20172019 and 20162018 (in thousands): 
 
 Three Months Ended September 30, Nine Months Ended September 30,  Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016  2019 2018 2019 2018
Research and development $188
 $203
 $661
 $656
  $196
 $184
 $508
 $382
General and administrative 568
 576
 1,473
 1,492
  383
 712
 1,079
 1,229
Total expense $756
 $779
 $2,134
 $2,148
  $579
 $896
 $1,587
 $1,611

(9)
(8) Income Taxes
 
TheExcluding the impact of the sale of state net operating losses and research and development credits during the first quarter of 2019 and 2018, the effective tax rate for each of the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 was 0.0%. For the three and nine months ended September 30, 2017 and 2016, the effective rate which was lower than the federal statutory ratesrate primarily due to the losses incurred and the full valuation allowance on deferred tax assets. 

The Company’s estimated tax rate for 20172019 excluding any benefits from any sales of net operating losses or research and development, or R&D, tax credits is expected to be zero because the Company expects to generate additional losses and currently has a full valuation allowance.  The deferred tax assets balance before valuation allowance as of September 30, 2017 was approximately $60.0 million. The valuation allowance is required until the Company has sufficient positive evidence of taxable income necessary to support realization of its deferred tax assets. In addition, the Company may be subject to certain limitations in its annual utilization of NOL carry forwards to off-setoffset future taxable income (and of tax credit carry forwards to


off-set offset future tax expense) pursuant to Section 382 of the Internal Revenue Code, which could result in tax attributes expiring unused.

In January 2019, the Company sold $20.0 million of its 2017 state NOLs for net proceeds of $1.7 million under the State of New Jersey's Technology Business Tax Certificate Transfer Program, which resulted in the reversal of the valuation allowance and a tax benefit of $1.8 million for the six months ended June 30, 2019. In February 2018, the Company sold $61.5 million of its 2015 and 2016 state NOLs and $0.2 million of its 2016 research and development credits under the same program for net proceeds of $5.3 million which resulted in the reversal of the valuation allowance and a tax benefit of $5.4 million for the six months ended June 30, 2018. Subject to state approval, the Company plans to sell additional NOLs and credits under the same program in 2019 as well. The Company did not have material uncertainproceeds from such sales are recorded as Income tax positions as of September 30, 2017.benefit when sales occur or proceeds are received.

As of SeptemberJune 30, 2017,2019, there were no material uncertain tax positions. There are no tax positions for which a material change in any unrecognized tax benefit liability is reasonably possible in the next 12 months.
 

(10)

(9) Net Loss Per Share

The Company reported a net loss for
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2019 2018 2019 2018
Net loss$(4,105) $(11,471) $(4,900) $(7,375)
Weighted-average shares:       
Basic68,159,901
 57,229,259
 66,683,967
 57,145,041
Effect of dilutive securities:       
Warrants—
 —
 —
 9,144,373
Diluted68,159,901
 57,229,259
 66,683,967
 66,289,414
Net loss per share:       
Basic$(0.06) $(0.20) $(0.07) $(0.13)
Diluted$(0.06) $(0.20) $(0.07) $(0.16)


For the three and ninesix months ended SeptemberJune 30, 20172019, the total number of potential shares of common stock excluded from the diluted earnings per shares computation because their inclusion would have been anti-dilutive was 42.0 million which include 7.1 million options to purchase shares, 0.6 million restricted shares and 2016, therefore34.3 million warrants to purchase shares.

For the six months ended June 30, 2018, the total number of potential shares of common stock excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 30.0 million which included 4.7 million options to purchase shares, 0.1 million restricted shares and 25.1 million warrants to purchase shares.

For the three months ended June 30, 2018, the total number of potential shares of common stock excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 39.1 million which included 4.7 million options to purchase shares, 0.1 million restricted shares and 34.3 million warrants to purchase shares.

Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of shares outstanding during the period, as applicable. Diluted net loss per share is calculated by dividing net (loss) income, adjusted to reflect the same asimpact of dilutive warrants, by the basic net loss per share.
Asweighted average number of September 30, 2017, the Company had 3,326,620 options to purchase shares, 654,175 restricted shares and warrants to purchase 36,718,392 shares outstanding, that have been excluded fromadjusted to reflect potentially dilutive securities using the computation of diluted weighted average shares outstanding, because such securities had an anti-dilutive impact due totreasury stock method, except when the loss reported.effect would be anti-dilutive.

    
(11)(10) Commitments and Contingencies
 
Legal Proceedings
 
The Company periodically becomes subject to legal proceedings and claims arising in connection with its business. The ultimate legal and financial liability of the Company in respect to all proceedings, claims and lawsuits, pending or threatened, cannot be estimated with any certainty.

As of this report, the Company is not aware of any proceeding, claim or litigation, pending or threatened, that could, individually or in the aggregate, have a material adverse effect on the Company’s business, operating results, financial condition and/or liquidity.
 


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section in Part II—Item 1A. of this Quarterly Report on Form 10-Q and in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162018 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
 
Overview
 
Business
 
We are a clinical-stage therapeutics company focused on developing innovative products at the intersection of drugs and devices that address significant unmet medical needs in the treatment of cardiopulmonary diseases. Our focus is the continued development of our nitric oxide therapy for patients with pulmonary hypertension, or PH, using our proprietary delivery system, INOpulse, with pulmonary arterial hypertension, or PAH, representing the lead indication. Our INOpulse platform is based on our proprietary pulsatile nitric oxide delivery device.platform, INOpulse.

In February 2016, we announced positive data from the final analysis of our Phase 2 long-term extension clinical trial ofbegan developing INOpulse for PAH,the treatment of pulmonary hypertension associated with interstitial lung disease (PH-ILD), which was Part 2includes PH associated with idiopathic pulmonary fibrosis (PH-IPF) as well as other pulmonary fibrosing diseases. During May 2017, we announced the completion of our Phase 2 clinical trial of INOpulse for PAH. The data indicates a sustainability of benefit to PAH patients who received INOpulse therapy at the 75 mcg/kg of ideal body weight/hour dose for an average of greater than 12 hours per day and were on long-term oxygen therapy, or LTOT. After reaching agreement with the U.S. Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA, on our Phase 3 protocol, we are moving forward with Phase 3 development. In September 2015, the FDA issued a Special Protocol Assessment, or SPA, for our Phase 3 PAH program for INOpulse, which will include two confirmatory clinical trials. The first of the two Phase 3 trials, or INOvation-1, has been initiated. During January 2017, we received confirmation from the FDA of its acceptance of all of our proposed modifications to our Phase 3 program. Under the newly modified Phase 3 program, the ongoing INOvation-1 study, and a second confirmatory randomized withdrawal study with approximately 40 patients who will be crossing over from the INOvation-1 study, can serve as the two adequate and well-controlled studies to support a NDA filing for INOpulse in PAH


subjects on LTOT. Both studies include an interim analysis approximately half-way through each study to assess for efficacy and futility. The interim analysis for the INOvation-1 study also includes a potential sample size reassessment.
We completed a randomized, placebo-controlled, double-blind, dose-confirmation Phase 2 clinical trial of INOpulse for PH-COPD in July 2014. We received results from this trial, and completed further Phase 2 testing to demonstrate the potential benefit on exercise capacity. In September 2015, an oral presentation of late-breaking data from a clinical trial sponsored by us was presented at the European Respiratory Society International Congress 2015 in Amsterdam. The data showed that INOpulse improved vasodilation in patients with PH-COPD. In July 2016, the results were published in the International Journal of COPD in an article titled "Pulmonary vascular effects of pulsed inhaled nitric oxide in COPD patients with pulmonary hypertension." In September 2017, we shared results of our Phase 2 PH-COPD study designed to evaluate the acute effects of pulsed inhaled nitric oxide, or iNO, on vasodilation as well as the chronic effect on hemodynamics and exercise tolerance. The data results showed a statistically significant and clinically meaningful increase in six-minute walk distance, or 6MWD, and a statistically significant and clinically meaningful decrease in systolic pulmonary arterial pressure, or sPAP. The therapy was well tolerated with no related safety concerns.

We have begun our clinical program in interstitial lung disease, based on feedback from the medical community and the large unmet medical need. During May 2017, we announced completion of our Phase 2 study using INOpulse therapy to treat PH associated with idiopathic pulmonary fibrosis, or PH-IPF. The clinical data showed that INOpulse was associated with clinically meaningful improvements in hemodynamics and exercise capacity in difficult-to-treat PH-IPF patients. The PH-IPF studytrial was a proof of concept study (n=4) designed to evaluate the ability of pulsed inhaled nitric oxide, (iNO)or iNO, to provide selective vasodilation as well as to assess the potential for improvement in hemodynamics and exercise capacity in PH-IPF patients. The studyclinical trial met its primary endpoint showing an average of 15.3% increase in blood vessel volume (p<0.001) during acute inhalation of iNO as well as showing a significant association between ventilation and vasodilation, demonstrating the ability of INOpulse to provide selective vasodilation to the better ventilated areas of the lung. The studytrial showed consistent benefit in hemodynamics with a clinically meaningful average reduction of 14% in systolic pulmonary arterial pressure (sPAP) with acute exposure to iNO. The study also assessed the chronic effects of iNO on exercise capacity showing an average 75 meter improvement in 6-minute walk distance, or 6MWD, and consistent improvement of approximately 80 m% in composite endpoints of 6MWD and oxygen saturation with four weeks of treatment. The study assessed both the iNO 75 and iNO 30 dose, supporting iNO 30 as a potentially safe and effectiveefficacious dose. During August 2017, we announced FDAFood and Drug Administration (“FDA”) acceptance of our investigation new drug applicationIND for our Phase 2b study(iNO-PF) clinical trial using INOpulse therapy in a broad population of patients with pulmonary fibrosis, or PF, at both low and intermediate/high risk of PH. In January 2018, we announced the first patient enrollment in our iNO-PF Phase 2b trial. In October 2018, we announced the enrollment completion of the planned 40 subjects, or cohort 1, in our iNO-PF study. In addition, we announced the expansion of the trial with the addition of cohort 2 and without PH.cohort 3, to evaluate higher doses as well as a longer 16 week evaluation period.

In January 2019, we announced top-line results from cohort 1 of our iNO-PF study. The results showed statistically significant improvements in multiple clinically meaningful activity parameters as measured by a wearable medical-grade activity monitor:
subjects on iNO demonstrated an increase of 8% in moderate activity versus a 26% decrease for subjects on placebo (p=0.04);
subjects on iNO showed no decline in their overall activity levels versus a 12% decline for subjects on placebo (p=0.05);
Clinically meaningful improvements were also demonstrated in the following key areas:
subjects on iNO showed an increase of 15% in NT-ProBNP versus a 42% increase for subjects on placebo (NT-ProBNP is a peptide marker of right ventricular failure, with higher levels indicative of disease worsening);
subjects on iNO demonstrated improved oxygen saturation by 9% versus a worsening of 11% for placebo.
In addition, iNO was well-tolerated with no safety concerns supporting the continuation into cohort 2.

In April 2019, we announced that we reached an agreement with the FDA on modifying the ongoing Phase 2b trial into a Phase 2/3 trial, with cohort 3 serving as the pivotal study, as well as an agreement on the primary endpoint of change in moderate to vigorous activity from baseline to week 16, measured by Actigraphy. Actigraphy (medical wearable continuous activity monitoring) provides highly sensitive objective real-world physical activity data that correlates to clinically meaningful patient functional abilities and health outcomes. In addition to the primary endpoint, we are currently utilizing Actigraphy to evaluate multiple clinically meaningful activity parameters in the iNO-PF study. Actigraphy is currently being utilized as the primary endpoint in multiple late-stage clinical programs in various cardiopulmonary diseases such as heart failure and COPD.



In May 2019, we presented additional positive data from cohort 1 at the American Thoracic Society 115th International Conference:
•23% of subjects on iNO had a clinically significant improvement in Moderate to Vigorous Physical Activity (MVPA), compared to 0% of subjects on placebo. This represents a placebo corrected difference of 23% - a clinically significant improvement is > 15% increase in MVPA from baseline;
•39% of subjects on iNO had a clinically significant decline in MVPA, compared to 71% of subjects on placebo. This represents a placebo corrected difference of 32% - a clinically significant improvement is >15% decrease in MVPA from baseline;
Proportion of awake time spent in MVPA improved by 38% (16% increase on iNO vs. 22% decrease on placebo; p=0.04);
Calorie expenditure improved by 12% (6% decrease on iNO vs. 18% decrease on placebo; p=0.05);
Subjects on open-label extension demonstrated consistent improvements in MVPA and overall activity, with subjects transitioning from placebo to open-label experiencing a reversal from worsening to improving.

In August 2019, we announced that we completed enrollment of 44 patients and randomized the last patient into cohort 2 of our iNO-PF study. We anticipate to complete cohort 2 in the second half of 2019 and to initiate the phase 3 cohort in the first quarter of 2020.

We completed a randomized, placebo-controlled, double-blind, dose-confirmation Phase 2 clinical trial of INOpulse for pulmonary hypertension associated with chronic obstructive pulmonary disease, or PH-COPD, in July 2014. The results from this trial showed that iNO 30 was a potentially safe and effective dose for treatment of PH-COPD. Based on the results of this trial, we completed further Phase 2 testing to assess the targeted vasodilation provided by INOpulse in this patient population. We presented the results of this trial in September 2015 at the European Respiratory Society International Congress 2015 in Amsterdam. The data showed that INOpulse improved vasodilation in patients with PH-COPD. In July 2016, the results were published in the International Journal of COPD in an article entitled “Pulmonary vascular effects of pulsed inhaled nitric oxide in COPD patients with pulmonary hypertension.” During September 2017, we shared the results of our Phase 2a PH-COPD study designed to evaluate the acute effects of pulsed inhaled nitric oxide, or iNO, on vasodilation as well as the chronic effect on hemodynamics and exercise tolerance. The trial showed a statistically significant increase (average 4.2%) in blood vessel volume on iNO compared to baseline (p=0.03), and a statistically significant correlation in Ventilation-Vasodilation (p=0.01). The chronic results demonstrated a statistically significant and clinically meaningful increase in 6MWD of 50.7m (p=0.04) as well as a decrease of 19.9% in systolic pulmonary arterial pressure (p=0.02), as compared to baseline. The therapy was well tolerated with no related safety concerns. In May 2018, we announced that the FDA concurred with the design of our planned Phase 2b study of INOpulse for treatment of PH-COPD. The study will assess the effect of INOpulse on various parameters including exercise capacity, right ventricular function and oxygen saturation, as well as other composite endpoints. We are currently evaluating alternatives for the funding and timing of this program.

We also initiated development of INOpulse for the treatment of PH associated with Sarcoidosis (PH-Sarc). The study is a Phase 2a dose escalation design that will utilize right heart catheterization to assess the hemodynamic effect of INOpulse from a dose of iNO 30 to iNO 125 in PH-Sarc subjects, with results expected in the second half of 2019.

We initiated a Phase 3 clinical trial of INOpulse for PAH in June 2016. As agreed upon with the FDA, a pre-specified interim analysis was conducted by the Data Monitoring Committee, or DMC, in August 2018, after half of the planned subjects completed 16 weeks of blinded treatment. The data showed INOpulse provided clinically meaningful improvements in pulmonary vascular resistance (18%), cardiac output (0.7 L/min) and NT Pro-BNP. In addition, subjects on PAH background mono-therapy showed a 23 meter improvement in 6MWD, while subjects that were not on prostanoid background therapy showed a 17 meter improvement in 6MWD. However, the DMC determined that the overall change in 6MWD, the primary endpoint of the trial, was insufficient to support the continuation of the study. Accordingly, based on the DMC's recommendation, we have discontinued the trial. The trial results showed 6MWD was improved when subjects were on less background therapies and more patients deteriorated in 6MWD on placebo as compared to iNO. In addition, INOpulse was well tolerated and there were no safety concerns.

In addition, other opportunitiespotential indications for the application of our INOpulse platform include the following indications:include: chronic thromboembolic PH, or CTEPH PH associated with sarcoidosis and PH associated with pulmonary edema from high altitude sickness.

We have devoted all of our resources to our therapeutic discovery and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and the general and administrative support of these operations. We have devoted significant time and resources to developing and optimizing our drug delivery system, INOpulse,


which operates through the administration of nitric oxide as brief, controlled pulses that are timed to occur at the beginning of a breath.
To date, we have generated no revenue from product sales. We expect that it will be several years before we commercialize a product candidate, if ever.

Financial Operations Overview
 
Revenue
 
To date, we have not generated any revenue from product sales and may not generate any revenue from product sales for the next several years, if ever. In the future, we may generate revenue from a combination of product sales, license fees and milestone payments in connection with strategic partnerships, and royalties from the sale of products developed under licenses of our intellectual property. Our ability to generate revenue and become profitable depends primarily on our ability to successfully develop and commercialize or partner our product candidates as well as any product candidates we may advance in the future. We expect that any revenue we may generate will fluctuate from quarter to quarter as a result of the timing and amount of any payments we may receive under future partnerships, if any, and from sales of any products we successfully develop and commercialize, if any. If we fail to complete the development of any of our product candidates currently in clinical development or any future product candidates in a timely manner, or to obtain regulatory approval for such product candidates,


our ability to generate future revenue, and our business, results of operations, financial condition and cash flows and future prospects would be materially adversely affected.

Research and Development Expenses
 
Research and development expenses consist of costs incurred in connection with the development of our product candidates, including upfront and development milestone payments, related to in-licensed product candidates and technologies.
Research and development expenses primarily consist of:
•employee-related expenses, including salary, benefits and stock-based compensation expense;
expenses incurred under agreements with contract research organizations, investigative sites that conduct our clinical trials and consultants that conduct a portion of our pre-clinical studies;
•expenses relating to vendors in connection with research and development activities;
•the cost of acquiring and manufacturing clinical trial materials;
•facilities, depreciation and allocated expenses;
lab supplies, reagents, active pharmaceutical ingredients and other direct and indirect costs in support of our pre-clinical and clinical activities;
•device development and drug manufacturing engineering;
•license fees related to in-licensed products and technology; and
•costs associated with non-clinical activities and regulatory approvals.

We expense research and development costs as incurred.

Conducting a significant amount of research and development is central to our business model. Product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of late-stage clinical trials. Subject to the availability of requisite financing, we plan to increase our research and development expenses for ongoing clinical programs for the foreseeable future as we seek to continue multiple clinical trials for our product candidates, including a Phase 3 trial for PH-ILD, potentially advance INOpulse for PH-COPD and PH-Sarc, and seek to identify additional early-stage product candidates.

We track external research and development expenses and personnel expenses on a program-by-program basis. We use our employee and infrastructure resources, including regulatory, quality, clinical development and clinical operations, across our clinical development programs and have included these expenses in research and development infrastructure. Research and


development laboratory expenses are also not allocated to a specific program and are included in research and development infrastructure. Engineering activities related to INOpulse and the manufacture of cylinders related to INOpulse are included in INOpulse engineering.
INOpulse for PAH
We completed a randomized, placebo-controlled, double-blind Phase 2 clinical trial of INOpulse for PAH in October 2014. In February 2016, we performed the final analysis of our Phase 2 long-term extension clinical trial of INOpulse for PAH, which is Part 2 of our Phase 2 clinical trial of INOpulse for PAH. After reaching agreement with the FDA and the EMA on our Phase 3 protocol, we initiated and are currently conducting the first of two Phase 3 trials.
INOpulse for PH-COPD
We completed and received results from a randomized, placebo-controlled, double-blind, dose-confirmation Phase 2 clinical trial of INOpulse for PH-COPD in July 2014. During September 2017, we shared results of our Phase 2 PH-COPD study designed to evaluate the acute effects of pulsed inhaled nitric oxide, or iNO, on vasodilation as well as the chronic effect on hemodynamics and exercise tolerance.
INOpulse for PH-ILD
We initiated our clinical program in PH associated with interstitial lung disease, or PH-ILD, in 2016. During May 2017, we announced completion of our Phase 2 study using INOpulse therapy to treat PH associated with idiopathic pulmonary fibrosis, or PH-IPF.
Drug and Delivery System Costs
Drug and delivery system costs include cartridge procurement, cartridge filling, delivery system manufacturing and delivery system servicing. These costs relate to all indications that utilize the INOpulse delivery system. During the three months ended September 2017, we began to incur drug and delivery system costs for our Phase 2b study using INOpulse


therapy in a broad population of patients with PF. Historically, drug and deliver system costs were primarily for our studies of INOpulse for PAH.
BCM
In December 2011, we initiated a clinical trial of BCM and completed enrollment in December 2014. Top-line results from the clinical trial were announced in July 2015. Following the results, we are considering further exploratory work but we do not intend to proceed with further clinical development of BCM at this point until and unless we can determine an alternative path forward.
Research and Development Infrastructure
We invest in regulatory, quality, clinical development and clinical operations activities, which are expensed as incurred. These activities primarily support our clinical development programs.
INOpulse Engineering
We have invested a significant amount of funds in INOpulse, which is configured to be highly portable and compatible with available modes of LTOT via nasal cannula delivery. Our Phase 2 clinical trials of INOpulse for PAH and INOpulse for PH-COPD utilized the first generation INOpulse DS device. We believe our second generation INOpulse device, as well as a custom triple-lumen cannula, will significantly improve several characteristics of our INOpulse delivery system. We have also invested in design and engineering technology, through Ikaria, for the manufacture of our drug cartridges. In February 2015, we entered into an agreement with Flextronics Medical Sales and Marketing Ltd., a subsidiary of Flextronics International Ltd., or Flex, to manufacture and service the INOpulse devices that we are using in our ongoing clinical trials of INOpulse for PAH, PH-COPD and PH-ILD.
It is difficult to determine with certainty the duration and completion costs of our current or any future pre-clinical programs and any of our current or future clinical trials and any future product candidates we may advance, or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of any future clinical trials and pre-clinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of a product candidate could significantly change significantly the costs and timing associated with the development of that product candidate. For example, if the FDA or otheranother regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time with respect to the development of that product candidate. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as make an assessment of each product candidate’s commercial potential, including the likelihood of regulatory approval on a timely basis.

INOpulse for PH-ILD
We initiated our clinical program in PH-ILD in 2016. During May 2017, we announced the completion of our Phase 2 study using INOpulse therapy to treat PH-IPF. After reaching an agreement with the FDA, we initiated and are currently conducting our Phase 2b trial in PH-ILD. In January 2018, we announced the first patient enrollment in our iNO-PF Phase 2b trial. In October 2018, we announced the enrollment completion of the planned 40 subjects, or cohort 1, in our iNO-PF study. In addition, we announced the expansion of the trial with the addition of cohort 2 and cohort 3, to evaluate higher doses of iNO as well as a longer 16 week evaluation period. In January 2019, we announced top-line results from cohort 1 of our iNO-PF study. The results showed statistically significant improvements in multiple clinically meaningful activity parameters as measured by a wearable medical-grade activity monitor. In April 2019, we announced that we reached an agreement with the FDA on modifying the ongoing Phase 2b trial into a Phase 2/3 trial. In August 2019, we announced that we completed enrollment and randomized the last patient into cohort 2 of our iNO-PF study. We anticipate to complete cohort 2 in the second half of 2019 and to initiate the phase 3 cohort in the first quarter of 2020.

INOpulse for PH-COPD
We completed and received results from a randomized, placebo-controlled, double-blind, dose-confirmation Phase 2a clinical trial of INOpulse for PH-COPD in July 2014. During September 2017, we shared results of our Phase 2a PH-COPD study designed to evaluate the acute effects of pulsed inhaled nitric oxide, or iNO, on vasodilation as well as the chronic effect on hemodynamics and exercise tolerance. In May 2018, we announced that we reached an agreement with the FDA on the design of our planned Phase 2b study of INOpulse for treatment of PH-COPD. We are currently evaluating alternatives for the funding and timing of this program.

INOpulse for PH-Sarc
We initiated the development of INOpulse for the treatment of PH-Sarc. The study is a Phase 2a dose escalation design that will utilize right heart catheterization to assess the hemodynamic effect of INOpulse from a dose of iNO 30 to iNO 125 in PH-Sarc subjects, with results expected in the second half of 2019.

INOpulse for PAH
We initiated a Phase 3 clinical trial of INOpulse for PAH in June 2016. As agreed upon with the FDA, a pre-specified interim analysis was conducted by the Data Monitoring Committee, or DMC, in August 2018, after half of the planned subjects completed 16 weeks of blinded treatment. The data showed INOpulse provided clinically meaningful improvements in pulmonary vascular resistance (18%), cardiac output (0.7 L/min) and NT Pro-BNP. In addition, subjects on PAH background mono-therapy showed a 23 meter improvement in 6MWD, while subjects that were not on prostanoid background therapy


showed a 17 meter improvement in 6MWD. However, the DMC determined that the overall change in 6MWD, the primary endpoint of the trial, was insufficient to support the continuation of the study. Accordingly, based on the DMC's recommendation, we discontinued the trial in August 2018. The trial results showed 6MWD was improved when subjects were on less background therapies and more patients deteriorated in 6MWD on placebo as compared to iNO. In addition, INOpulse was well tolerated and there were no safety concerns.

Drug and Delivery System Costs
Drug and delivery system costs include cartridge procurement, cartridge filling, delivery system manufacturing and delivery system servicing. These costs relate to all indications that utilize the INOpulse delivery system.

Research and Development Infrastructure
We invest in regulatory, quality, clinical development and clinical operations activities, which are expensed as incurred. These activities primarily support our clinical development programs.
INOpulse Engineering
We have invested a significant amount of funds in INOpulse, which is configured to be highly portable and compatible with available modes of LTOT via nasal cannula delivery. Our Phase 2 clinical trials of INOpulse for PAH and INOpulse for PH-COPD utilized the first generation INOpulse DS/DS-C device. We believe our second generation INOpulse device, as well as a custom triple-lumen cannula, have significantly improved several characteristics of our INOpulse delivery system. We have also invested in design and engineering technology, through Ikaria, for the manufacture of our drug cartridges. We manufacture and service the INOpulse devices that we are using in our ongoing clinical trials of INOpulse for PH-ILD and PH-Sarc by third party turnkey manufacturers.
General and Administrative Expenses
General and administrative expenses include salaries and costs related to executive, finance, and administrative support functions, patent filing, patent prosecution, professional fees for legal, insurance, consulting, investor relations, human resources, information technology and auditing and tax services not otherwise included in research and development expenses.









 Results of Operations
 
Comparison of Three Months Ended SeptemberJune 30, 20172019 and 20162018
 
The following table summarizes our results of operations for the three months ended SeptemberJune 30, 20172019 and 2016.2018.
 



 Three Months Ended
September 30,		     Three Months Ended
June 30,		    
(Dollar amounts in thousands) 2017 2016 $ Change % Change 2019 2018 $ Change % Change
Research and development expenses:                
PH-ILD, PH-Sarc and PH-COPD $782
 $393
 $389
 99 %
PAH $1,705
 $475
 $1,230
 259 % 1
 2,120
 (2,119) (100)%
BCM 7
 16
 (9) (56)% —
 10
 (10) (100)%
PH-COPD and PH-ILD 48
 11
 37
 336 %
Drug and delivery system costs 1,174
 381
 793
 208 % 542
 1,648
 (1,106) (67)%
Clinical programs 2,934
 883
 2,051
 232 % 1,325
 4,171
 (2,846) (68)%
Research and development infrastructure 1,232
 1,106
 126
 11 % 1,061
 1,328
 (267) (20)%
INOpulse engineering 272
 483
 (211) (44)% 243
 316
 (73) (23)%
Total research and development expenses 4,438
 2,472
 1,966
 80 % 2,629
 5,815
 (3,186) (55)%
General and administrative expenses 1,746
 1,745
 1
 — % 1,596
 2,058
 (462) (22)%
Total operating expenses 6,184
 4,217
 1,967
 47 % 4,225
 7,873
 (3,648) (46)%
Loss from operations (6,184) (4,217) (1,967) 47 % (4,225) (7,873) 3,648
 (46)%
Change in fair value of common stock warrant liability (1,435) —
 (1,435) n.a.
 673
 (3,689) 4,362
 (118)%
Warrant amendment charge (674) —
 (674) N/A
Interest and other income, net 33
 22
 11
 50 % 121
 91
 30
 33 %
Net loss $(7,586) $(4,195) $(3,391) 81 % $(4,105) $(11,471) $7,366
 (64)%

Total Operating Expenses.  Total operating expenses for the three months ended SeptemberJune 30, 20172019 were $6.2$4.2 million compared to $4.2$7.9 million for the three months ended SeptemberJune 30, 2016, an increase2018, a decrease of $2.0$3.7 million, or 47%(46)%. This increasedecrease was primarily due to increaseddecreased research and development expenses pertaining to our PAH clinical trial as well as drug and delivery system costs and development of INOpulse for PAH.costs.
 
Research and Development Expenses.  Total research and development expenses for the three months ended SeptemberJune 30, 20172019 were $4.4$2.6 million compared to $2.5$5.8 million for the three months ended SeptemberJune 30, 2016, an increase2018, a decrease of $2.0$3.2 million, or 80%(55)%. Total research and development expenses consisted of the following:

• PH-ILD, PH-Sarc and PH-COPD expenses for the three months ended June 30, 2019 were $0.8 million, compared to $0.4 million for the three months ended June 30, 2018, an increase of $0.4 million, or 99%. The increase was primarily due to increased spending on the PH-ILD Phase 2b trial.

•           PAH research and development expenses for the three months ended June 30, 2019 were $1.7de minimis, compared to $2.1 million for the three months ended SeptemberJune 30, 2017, compared to $0.5 million for the three months ended September 30, 2016, an increase of $1.2 million, or 259%.2018. The increasedecrease was primarily driven by increased spending on the discontinuation of our PAH Phase 3 trial in 2017 and the closure in 2016 of the Phase 2 trial.August 2018.

• Drug and delivery system costs were $1.2$0.5 million for the three months ended SeptemberJune 30, 2017,2019, compared to $0.4$1.6 million for the three months ended SeptemberJune 30, 2016, an increase2018, a decrease of $0.8$1.1 million, or 208% (67)%. The increase was driven byDrug and delivery system costs are recorded at the bulk purchasetime of cartridges in 2017 and an increase in cartridge fills for the PAH Phase 3 trial.procurement from our suppliers.

General and Administrative Expenses.  General and administrative expenses were $1.6 million for each of the three months ended SeptemberJune 30, 2017 and 2016 were $1.7 million.2019, compared to $2.1 million for the three months ended June 30, 2018, a decrease of $0.5 million, or (22)%. The decrease was primarily due to a decrease in stock based compensation expenses.





Change in fair value of common stock warrant liability. Change in fair value of common stock warrant liability for the three months ended SeptemberJune 30, 20172019 was $1.4a gain of $0.7 million, and we had no change in fair valuecompared to a loss of common stock warrant liability$(3.7) million for the three months ended SeptemberJune 30, 2016 as the2018. The warrants were issued in November 2016 and May 2017.2017 and the change in the liability fair value was primarily due to a change in our stock price.

Warrant amendment charge. On June 28, 2019, we entered into a warrant amendment (the “Warrant Amendment”) with certain holders (the “Holders”) of the November 2016 warrants to purchase 12,598,572 shares. Pursuant to the Warrant Amendment, we and the Holders agreed to eliminate provisions that had previously precluded equity classification treatment on our balance sheets. In consideration of such amendment, the November 2016 warrants were extended by two (2) additional years (or until November 29, 2023). The difference in fair market value of the warrants before and after the amendment, of $0.7 million, was recorded in our statement of operations as a warrant amendment charge.
Comparison of NineSix Months Ended SeptemberJune 30, 20172019 and 20162018
 
The following table summarizes our results of operations for the ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.
 



 Nine Months Ended
September 30,		 
 
 Six Months Ended
June 30,		    
(Dollar amounts in thousands) 2017 2016 $ Change % Change 2019 2018 $ Change % Change
Research and development expenses: 
 
 
 
        
PH-ILD, PH-Sarc and PH-COPD $1,391
 $894
 $497
 56 %
PAH $4,333
 $4,647
 $(314) (7)% 95
 4,377
 $(4,282) (98)%
BCM 46
 371
 (325) (88)% —
 16
 (16) (100)%
PH-COPD and PH-ILD 85
 65
 20
 31 %
Drug and delivery system costs 3,423
 1,620
 1,803
 111 % 667
 3,448
 (2,781) (81)%
Clinical programs 7,887
 6,703
 1,184
 18 % 2,153
 8,735
 (6,582) (75)%
Research and development infrastructure 3,766
 3,346
 420
 13 % 2,246
 2,821
 (575) (20)%
INOpulse engineering 811
 1,490
 (679) (46)% 535
 639
 (104) (16)%
Total research and development expenses 12,464
 11,539
 925
 8 % 4,934
 12,195
 (7,261) (60)%
General and administrative expenses 4,826
 4,926
 (100) (2)% 3,633
 4,170
 (537) (13)%
Total operating expenses 17,290
 16,465
 825
 5 % 8,567
 16,365
 (7,798) (48)%
Loss from operations (17,290) (16,465) (825) 5 % (8,567) (16,365) 7,798
 (48)%
Change in fair value of common stock warrant liability (13,455) —
 (13,455) n.a.
 2,289
 3,361
 (1,072) (32)%
Warrant amendment charge (674) —
 (674) N/A
Interest and other income, net 86
 74
 12
 16 % 251
 190
 61
 32 %
Pre-tax loss $(6,701) $(12,814) 6,113
 (48)%
Income tax benefit $1,801
 $5,439
 (3,638) (67)%
Net loss $(30,659) $(16,391) $(14,268) 87 % $(4,900) $(7,375) 2,475
 (34)%

Total Operating Expenses.  Total operating expenses for the ninesix months ended SeptemberJune 30, 20172019 were $17.3$8.6 million compared to $16.5$16.4 million for the ninesix months ended SeptemberJune 30, 2016, an increase2018, a decrease of $0.8$(7.8) million, or 5%(48)% . This increasedecrease was primarily due to increases indecreased research and development expenses pertaining to our PAH clinical trial, drug and delivery system costs.costs, as well as general and administrative expenses.
 
Research and Development Expenses.  Total research and development expenses for the ninesix months ended SeptemberJune 30, 20172019 were $12.5$4.9 million compared to $11.5$12.2 million for the ninesix months ended SeptemberJune 30, 2016, an increase2018, a decrease of $0.9$7.3 million, or 8%(60)%. Total research and development expenses consisted of the following:

• PH-ILD, PH-Sarc and PH-COPD expenses for the six months ended June 30, 2019 were $1.4 million, compared to $0.9 million for the six months ended June 30, 2018, an increase of $0.5 million, or 56%. The increase was primarily due to increased spending on the PH-ILD Phase 2b trial.



•           PAH research and development expenses for the six months ended June 30, 2019 were $4.3$0.1 million, compared to $4.4 million for the ninesix months ended SeptemberJune 30, 2017, compared to $4.6 million for the nine months ended September 30, 2016,2018, a decrease of $0.3$4.3 million, or 7%. The decrease was primarily driven by reduced costs due to the completion of the Phase 2 clinical trial in 2016 offset in part by an increase in costs associated with the Phase 3 clinical trial.

•BCM research and development expenses for the nine months ended September 30, 2017 were $46.0 thousand compared to $0.4 million for the nine months ended September 30, 2016, a decrease of $0.3 million, or 88%(98)%. The decrease was driven by a reductionthe discontinuation of our PAH Phase 3 trial in spending on manufacturing costs.August 2018.

• Drug and delivery system costs were $3.4 millionfor the ninesix months ended SeptemberJune 30, 2017,2019 were $0.7 million, compared to $1.6$3.4 million for the ninesix months ended SeptemberJune 30, 2016, an increase2018, a decrease of $1.8$2.7 million, or 111%(81)%. The increase was driven byDrug and delivery system costs are recorded at the bulk purchasetime of cartridges in 2017 and an increase in cartridge fills for the PAH Phase 3 trial.procurement from our suppliers.

•Research and development infrastructure expenses for the nine months ended September 30, 2017 were $3.8 million compared to $3.3 million for the nine months ended September 30, 2016, an increase of $0.4 million, or 13%. The increase was primarily due to increased personnel costs.

•INOpulse engineering expenses for the nine months ended September 30, 2017 were $0.8 million compared to $1.5 million for the nine months ended September 30, 2016, a decrease of $0.7 million, or 46%. The decrease was primarily the result of a reduction in development costs for the INOpulse device and triple-lumen cannula.

General and Administrative Expenses.  General and administrative expenses for the ninesix months ended SeptemberJune 30, 20172019 were $4.8$3.6 million, compared to $4.9$4.2 million for the ninesix months ended SeptemberJune 30, 2016,2018, a decrease of $0.1$0.6 million, or 2%(13)%. The decrease was primarily due to lower consulting expenses as well as a decrease in stock based compensation expenses.

Income Tax Benefit. Income tax benefit for the six months ended June 30, 2019 was $1.8 million, compared to $5.4 million for the six months ended June 30, 2018, a decrease of $3.6 million, or (67)%. The benefit in the first half of 2019 was from the sale of $20.0 million of our 2017 state NOLs under the State of New Jersey's Technology Business Tax Certificate Transfer Program for net proceeds of $1.7 million. The benefit in the first half of 2018 was from the sale of $61.5 million of our 2015 and 2016 state NOLs and $0.2 million of our 2016 research and development credits under the same program for net proceeds of $5.3 million.

Change in fair value of common stock warrant liability. Change in fair value of common stock warrant liability for the ninesix months ended SeptemberJune 30, 20172019 was $13.5a gain of $2.3 million, and we had no change in fair valuecompared to a gain of common stock warrant liability$3.4 million for the ninesix months ended SeptemberJune 30, 2016 as the2018. The warrants were issued in November 2016 and May 2017.2017 and the change in the liability fair value was primarily due to a change in our stock price.

Warrant amendment charge. On June 28, 2019, we entered into a warrant amendment (the “Warrant Amendment”) with certain holders (the “Holders”) of the November 2016 warrants to purchase 12,598,572 shares. Pursuant to the Warrant Amendment, we and the Holders agreed to eliminate provisions that had previously precluded equity classification treatment on our balance sheets. In consideration of such amendment, the November 2016 warrants were extended by two (2) additional years (or until November 29, 2023). The difference in fair market value of the warrants before and after the amendment, of $0.7 million, was recorded in our statement of operations as a warrant amendment charge.
    
Liquidity and Capital Resources

In the course of our development activities, we have sustained operating losses and expect such losses to continue over the next several years.losses. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to develop, conduct clinical trials and seek regulatory approval for our product candidates. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, contract manufacturing services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs.

If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses. We do not have a sales, marketing, manufacture or distribution infrastructure for a pharmaceutical product. To develop a commercial infrastructure, we will have to invest financial and management resources, some of which would have to be deployed prior to having any certainty of marketing approval.

We had cash and cash equivalents of $32.3 million and marketable securities of $3.2$16.8 million as of SeptemberJune 30, 2017.2019. Our existing cash and cash equivalents and marketable securities as of SeptemberJune 30, 20172019 will be used primarily to fundcomplete the first of two INOpulse for PAH Phase 3 trials, a portion of the second of two INOpulse for PAH Phase 3 trials, and a Phase 2b trial of INOpulse for PH-ILD. AsPH-ILD and to complete the dose escalation study for PH-Sarc. We expect to complete these trials during the second half of September 30, 2017, we had $3.2 million prepayments of research and development expenses related to our amended drug supply agreement with Ikaria and the clinical research organization we have partnered with for the first of the two Phase 3 clinical trials for INOpulse for PAH. The corresponding prepayments balance as of December 31, 2016 was $7.2 million.2019.

On May 5, 2016,June 25, 2018, we filed a shelf registration statement on Form S-3 with the SEC, on Form S-3, which as amended became effective on May 23, 2016.July 6, 2018. The shelf registration will allow the Companyallows us to issue, from time to time at prices and on terms to be determined prior to the time of any such offering, up to $30.0$100 million of any combination of the Company’s common stock, preferred stock, debt securities, warrants and rights, purchase contracts or units, either individually or in units. As of September 30, 2017, the Company had sold 1,025,793 shares of its common stock for gross and net proceeds of $2.2 million and $2.1 million, respectively, under the Company’s effective shelf registration statement on Form S-3 and the related prospectus supplement dated May 27, 2016 and filed with the SEC on May 27, 2016.



On OctoberJanuary 25, 2016, we filed a registration statement on Form S-1 with the SEC, which as amended became effective on November 22, 2016. On November 29, 2016,2019, we completed the sale of 17,142,858 Class A Units consisting of an aggregate of 17,142,858 shares of our common stock and warrants exercisable for up to 17,142,85810,000,000 shares of our common stock at a public offering price of $0.70 per Unit, or the Secondary Offering,share, resulting in net proceeds of $10.9$6.2 million, after deducting placement fees of $0.8$0.5 million and other offering costs of $0.3 million. Each warrant has an exercise price per full share of common stock equal to $0.80, is immediately exercisable and expires five years from the date on which such warrant becomes exercisable. The warrants require cash settlement by us under certain situations. During the nine months ended September 30, 2017, we received proceeds of $0.7 million for the exercise of 934,300 warrants.

On May 9, 2017, we entered into a Securities Purchase Agreement, or the Purchase Agreement, with a single institutional investor for the sale of 2,000,000Such shares of our common stock at a purchase price of $1.50 per share and warrants to purchase up to an aggregate of 1,000,000 shares of our common stock, or the Direct Offering. The warrants are initially exercisable commencing six months from the issuance date at an exercise price equal to $1.50 per full share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. In addition, the Company issued the placement agent of the Direct Offering, warrants to purchase up to 60,000 shares. The placement agent warrants have substantially the same terms as the warrants issued to the investor, except that the placement agent warrants have an exercise price equal to $1.875 and will be exercisable for five years from the date of the closing of this offering. The closing of the sales of these securities under the Purchase Agreement occurred on May 15, 2017. The aggregate gross and net proceeds for the Direct Offering were $3.0 million and $2.7 million, respectively.

On September 26, 2017, we entered into a Securities Purchase Agreement, or the PIPE Purchase Agreement,sold pursuant to which we sold an aggregate of 19,449,834 shares of our common stock at a purchase price of $1.205 per share and warrants to purchase up to an aggregate of 19,449,834 shares of our common stock, or the PIPE Offering. The warrants will be initially exercisable commencing six months from the issuance date at an exercise price equal to $1.2420 per full share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the


initial exercise date. The closing of the sales of these securities under the Purchase Agreement occurred on September 29, 2017. The aggregate gross and net proceeds for the PIPE Offering were $23.4 million and $22.8 million, respectively.
In connection with the PIPE Offering, we entered into a Registration Rights Agreement, pursuant to which we timely filed aeffective shelf registration statement on Form S-3 declared effective by the SEC on November 6, 2017 and are obligated to maintain the registration until all registrable securities may be sold pursuant to Rule 144 under the Securities Act, without restriction as to volume. The Registration Rights Agreement provides for cash penalties of up to 3% of the gross proceeds of the PIPE Offering for our failure to satisfy specified filing and effectiveness time periods. As of September 30, 2017, no liability had been recorded under the Registration Rights Agreement.S-3.

We have evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q.

Based on such evaluation following the close of the PIPE Offering in September 2017, substantial doubt about the Company’s abilityand our current plans, which are subject to continuechange as a going concern has been alleviated anddiscussed below, we believe that our existing cash and cash equivalents and marketable securities as of SeptemberJune 30, 2017 will2019 and proceeds expected to become available upon sale of our state net operating losses, or NOLs, and research and development (R&D) tax credits under the State of New Jersey’s Technology Business Tax Certificate Transfer Program may not be sufficient to satisfy our operating cash needs for at least one year after the filing of this Quarterly Report on Form 10-Q. In addition, we expectThese factors raise substantial doubt about our ability to have proceeds that become available uponcontinue as a going concern. Our ability to continue as a going concern is related to the salefurther implementation of the Company's state net operating losses, or NOLs,our current business plan. Advances and R&D tax credits under thechanges in our business plans and clinical programs may offer alternative utilization of our capital resources including shifting resources between programs as well as various strategic financing opportunities. We continue to pursue potential sources of funding, including equity financing.

The State of New Jersey's Technology Business Tax Certificate Transfer Program.Program enables qualified, unprofitable New Jersey based technology or biotechnology companies to sell a percentage of NOL and R&D tax credits to unrelated profitable corporations, subject to meeting certain eligibility criteria. Based on consideration of various factors, including application processing time and past trend of benefits made available under the program, we believe that it is probable that our plans to sell our NOLs can be effectively implemented to address our short term financial needs. We have sold $61.5 million of our 2015 and 2016 state NOLs and $0.2 million of our 2016 Research and Development credits under the State of New Jersey’s Technology Business Tax Certificate Transfer Program in February 2018 for net proceeds of $5.3 million and have sold an additional $20.0 million of our 2017 state NOLs for net proceeds of $1.7 million in January 2019. Subject to state approval and program availability, we plan to sell additional NOLs and credits under the same program later in 2019 or early 2020. The proceeds from such sales are recorded as Income tax benefit when sales occur or proceeds are received.

We have based our estimates on assumptions that may prove to be wrong, and we may exhaust our capital resources sooner than we expect. In addition, the process of testing product candidates in clinical trials is costly, and the timing of progress in clinical trials is uncertain. Because our product candidates are in clinical development and the outcome of these efforts is uncertain, we may not be able to accurately estimate the actual amounts that will be necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including:
progress and cost of our clinical trials and other research and development activities;
our ability to manufacture sufficient supply of our product candidates and the costs thereof;
the cost and timing of seeking regulatory approvals;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution for any of our product candidates for which we receive marketing approval;
the number and development requirements of any other product candidates we pursue;
our ability to enter into collaborative agreements and achieve milestones under those agreements;
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
the cost of filing, prosecuting, defending and enforcing patent applications, claims, patents and other intellectual property rights; and
the extent to which we acquire or in-license other products and technologies.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt offerings, sales of state NOLNOLs and R&D credits, subject to program availability and approval, existing working capital and funding from potential future collaboration arrangements. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our existing stockholders will be diluted, and the terms of such securities may include liquidation or other preferences or rights such as anti-dilution rights that adversely affect


the rights of our existing stockholders. If we raise additional funds through strategic partnerships in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed or are unable to sell our state NOLs and R&D credits, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, the timing of when existing and new capital resources are used and received may not align with the period of time evaluated by management for going concern purposes such that management may be required to conclude that substantial doubt about our ability to continue as a going concern in accordance with relevant accounting guidance may exist in future periods.

Cash Flows
 


The following table summarizes our cash flows for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
 
 Nine Months Ended
September 30,		 Six Months Ended
June 30,
(Dollar amounts in thousands) 2017 2016 2019 2018
Operating activities $(11,242) $(14,794) $(6,082) $(6,061)
Investing activities 2,393
 10,544
 —
 502
Financing activities 26,679
 1,920
 6,236
 141
Net change in cash and cash equivalents $17,830
 $(2,330)
Net change in cash, cash equivalents and restricted cash $154
 $(5,418)
 
Net Cash Used in Operating Activities
 
Cash used in operating activities for the ninesix months ended SeptemberJune 30, 20172019 and June 30, 2018 was $11.2 million compared to $14.8 million for the nine months ended September 30, 2016, a decrease of $3.6 million, or 24%. The decrease in cash$6.1 million. Cash used in operating activities was flat primarily due to changeschange in operating assets and liabilities.liabilities that was offset by a decrease in our operating expenses.
 
Net Cash Provided by Investing Activities

Cash provided by investing activities for the ninesix months ended SeptemberJune 30, 20172018 was $2.4$0.5 million compared to $10.5 million for the nine months ended September 30, 2016 primarily due to reduced proceeds from the sale of marketable securities offset by the purchase of marketable securities in the current year.securities.

Net Cash Provided by Financing Activities
 
Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20172019 was $26.7$6.2 million, which primarily included the proceeds from the PIPE Offering and Direct Offering and warrant exercises. ForJanuary 2019 Public Offering. Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 2016, the Company received $2.02018 was $0.1 million primarily representingand mainly included proceeds from the sale of common stock in ATM offering.warrant exercises.

Contractual Obligations and Commitments
 
There were no material changes in our outstanding contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.

In the course of our normal business operations, we also enter into agreements with contract service providers and others to assist in the performance of our research and development and manufacturing activities. We can elect to discontinue the work under these contracts and purchase orders at any time with notice, and such contracts and purchase orders do not contain minimum purchase obligations.
 
Off-Balance Sheet Arrangements
 
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
 
Critical Accounting Policies and Significant Judgments and Estimates
 
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principlesU.S. generally accepted in the United States.accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we


evaluate our estimates and judgments, including those related to research and development expense, stock-based compensation and fair value of liability classified warrants. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 


During the ninesix months ended SeptemberJune 30, 2017,2019, there were no material changes to our critical accounting policies. Our critical accounting policies are described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2018.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
 
We are exposed to market risk related to changes in interest rates. As of SeptemberJune 30, 2017,2019, we had cash and cash equivalents of $32.3$16.8 million, consisting primarily of demand deposits with U.S. banking institutions and marketable securities of $3.2 million.institutions. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in cash and cash equivalents, federally insured certificates of deposit and corporate or agency bonds rated A or better.equivalents. Due to the nature of our deposits and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our deposits.

Item 4.         Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2017,2019, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 
Changes in Internal Control Over Financial Reporting
 
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter ended SeptemberJune 30, 20172019 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.



PART II.  OTHER INFORMATION

Item 5.Other Information.
None.

PART II.  OTHER INFORMATION

Item 1.     Legal Proceedings.
We are currently not a party to any material legal proceedings.

Item 1A.   Risk Factors.
 
There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2018. For a further discussion of our Risk Factors, refer to the “Risk Factors” discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.

Item 3. Defaults Upon Senior Securities.
    None.

Item 4. Mine Safety Disclosures.
    Not applicable.

Item 5. Other Information.

None.

Item 6.  Exhibits.
 
The exhibits listed in the Exhibit Index to this Quarterly Report on Form 10-Q are incorporated herein by reference.



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BELLEROPHON THERAPEUTICS, INC.
Date: 11/7/2017By:/s/ Fabian Tenenbaum
Fabian Tenenbaum
Chief Executive Officer
(Principal Executive Officer)
Date: 11/7/2017By:/s/ Megan Schoeps
Megan Schoeps
Controller
(Principal Financial Officer)



Exhibit Index
 
Exhibit
Number
 Description
4.1
Form of Warrant Amendment, dated June 28, 2019 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36845) filed with the SEC on July 1, 2019)
31.1
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2
 
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
32
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BELLEROPHON THERAPEUTICS, INC.
Date: August 8, 2019By:/s/ Fabian Tenenbaum
Fabian Tenenbaum
Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 2019By:/s/ Assaf Korner
Assaf Korner
Chief Financial Officer
(Principal Financial Officer)


3233