Ocuphire Pharma, Inc.
Form 10-Q
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and notes included in Part I “Financial Information”, Item I “Financial Statements” of this Quarterly Report on Form 10-Q (the “Report”) and the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Forward-Looking Statements
Certain statements contained in this Report are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “we expect,” “we anticipate,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements.
These forward-looking statements reflect our management’s beliefs and views with respect to future events, are based on estimates and assumptions as of the date of this Report and are subject to risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in these forward-looking statements. We discuss many of these risks in greater detail under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent reports filed with or furnished to the Securities and Exchange Commission (the “SEC”). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Any forward-looking statement made by us in this Report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable laws or regulations.
Overview
We are a clinical-stage ophthalmic biopharmaceutical company focused on developing novel therapies for the treatment of unmet needs of patients with retinal and refractive eye disorders.
APX3330
Our lead retinal product candidate, APX3330, is a first-in-class small-molecule inhibitor of Ref-1 (reduction oxidation effector factor-1 protein). Ref-1 is a regulator of transcription factors such as HIF-1α and NF-kB. Inhibiting REF-1 reduces levels of vascular endothelial growth factor (“VEGF”) and inflammatory cytokines which are known to play key roles in ocular angiogenesis and inflammation. Through inhibition of Ref-1, APX3330 normalizes the levels of VEGF to physiologic levels, unlike biologics that deplete VEGF below the levels required for normal function. APX3330 is an oral tablet administered twice per day for the treatment of diabetic retinopathy (“DR”).
DR affects approximately 10 million people with diabetes and is projected to impact over 14 million Americans by 2050. DR is classified as Non-Proliferative Diabetic Retinopathy (“NPDR”), the early stage of the disease in which symptoms may be mild or nonexistent or Proliferative Diabetic Retinopathy (“PDR”) which is the more advanced stage of diabetic eye disease that can be highly symptomatic with loss of vision. Approximately 80% of the DR patients have NPDR that will progress to PDR if left untreated. Despite the risk for visual loss associated with this disease, over 90% of NPDR patients currently receive no course of treatment apart from observation by their eye care specialist until they develop sight-threatening complications. This is due to the treatment burden of the frequent eye injections required with currently approved therapies for this disease. APX3330 as an oral tablet has the potential to be an early, non-invasive treatment for the 8 million NPDR patients in the US.
In January 2023, we reported top-line efficacy and safety results from the ZETA-1 Phase 2 trial conducted in 103 subjects (51 treated with 600 mg daily dose of APX3330) in DR, including moderately severe and severe NPDR and mild PDR, as well as patients with diabetic macular edema without loss of central vision. Although administration of APX3330 daily did not meet the study’s primary endpoint of percentage of patients with a ≥ 2-step improvement in Early Treatment of Diabetic Retinopathy Study (“ETDRS”) diabetic retinopathy severity scale (“DRSS”) in the study eye at week 24 compared to placebo, efficacy was seen on the FDA agreed upon registration endpoint of ≥3-step worsening on a binocular DRSS Person Scale. Prevention or slowing of progression of DR to vision-threatening complication such as PDR is a clinically meaningful endpoint. APX3330 also demonstrated favorable safety and tolerability in diabetic patients. A successful End-of-Phase 2 (“EOP2”) meeting with the U.S. Food and Drug Administration (the “FDA”) was held in October 2023 at which we obtained agreement on the Phase 3 registration endpoint supporting the advancement of APX3330 into Phase 3. Ocuphire plans to submit a Special Protocol Assessment (“SPA”) to agree on the clinical trial protocol and statistical analysis plan for the Phase 3 trials.
Prior to Ocuphire in-licensing the APX3330 product candidate, it had been studied by other sponsors in a total of 11 clinical trials (6 Phase 1 and 5 Phase 2) in a total of over 420 healthy volunteers or patients (with over 340 APX3330-treated) for inflammatory (hepatic) and oncology indications, and had demonstrated evidence of target engagement, consistent pharmacokinetics, durability, and favorable safety and tolerability. Treatment-related adverse events were uncommon, and most were mild in severity. No clinically significant changes were observed in liver, kidney, or heart function. There were no treatment-related effects on hematologic or blood chemistry evaluations. APX3330 demonstrated favorable safety and tolerability in the ZETA-1 trial, consistent with the safety data from the prior 11 clinical trials.
We also in-licensed APX2009 and APX2014, which are second-generation analogs of APX3330. The unique mechanism of action of these Ref-1 inhibitors of reducing angiogenesis and inflammation could potentially be beneficial in treating other retinal diseases such as age-related macular degeneration (“AMD”), and geographic atrophy (“GA”).
We are currently evaluating local delivery routes of APX3330 and its second-generation analogs in addition to the systemic (oral) route as part of its pipeline expansion in retinal therapies.
Phentolamine Ophthalmic Solution 0.75% (POS)
In November 2022, we entered into a license and collaboration agreement (the “Nyxol License Agreement”) with FamyGen Life Sciences, Inc. (acquired by Viatris, Inc. (“Viatris”) in January 2023) pursuant to which we granted Viatris an exclusive license to develop, manufacture, import, export and commercialize our refractive product candidate Phentolamine Ophthalmic Solution 0.75%, formerly known as Nyxol (“POS”) for treating (a) reversal of pharmacologically-induced mydriasis, (b) night vision disturbances or dim light vision (“DLD”), and (c) presbyopia, and (ii) POS and low dose pilocarpine for treating presbyopia (together, the “Nyxol Products”) worldwide except for certain countries and jurisdictions in Asia (the “Viatris Territory”).
Under the terms of the Nyxol License Agreement, Ocuphire in partnership with Viatris, will develop the Nyxol Products in the United States. Viatris will reimburse us for budgeted costs related to the development of the Nyxol Products through FDA approval. Viatris will be responsible for developing the Nyxol Products in countries and jurisdictions in the Viatris Territory outside of the United States.
POS is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. POS can potentially be used across multiple indications such as treatment of pharmacologically-induced mydriasis (“RM”) (dilation of the pupil), presbyopia (age-related blurry near vision) and DLD (halos, glares and starbursts). Our management believes these multiple indications potentially represent a significant market opportunity. POS has been studied in a total of 12 clinical trials (3 Phase 1, 5 Phase 2 and 4 Phase 3) in a total of over 1100 patients (with over 650 POS-treated) and has demonstrated promising clinical data across the three targeted refractive indications.
We submitted a new drug application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) in November 2022 under the 505(b)(2) pathway for POS for RM; the FDA approved the NDA in September 2023 under the brand name RYZUMVI™, which triggered a $10 million milestone payment under the Nyxol License Agreement.
We reported positive top-line data from multiple late-stage clinical trials for POS in RM, presbyopia and DLD. We reported positive top-line data from Phase 3 trials in RM: MIRA-2 in March 2021, MIRA-3 in March 2022 and MIRA-4 in April 2022. We also reported positive top-line data from a Phase 2 trial of POS for treatment of presbyopia, both as monotherapy and with low-dose pilocarpine (pilocarpine hydrochloride ophthalmic solution 0.4%, “LDP”) as adjunctive therapy (VEGA-1). We reported top-line data from a Phase 3 trial in DLD in May 2022 (LYNX-1). The VEGA-2 Phase 3 study in presbyopia achieved its primary endpoint and Viatris, our development and commercial partner, is expected to continue Phase 3 development in the first half of 2024. For DLD, a SPA has been submitted and Viatris is also expected to continue Phase 3 development in the first half of 2024 following FDA agreement.
Strategic Outlook
We will continue to explore opportunities to acquire additional ophthalmic assets, expand current pipeline to other retinal indications with APX3330, APX2009 and APX2014, and to seek strategic partners for late-stage development, regulatory preparation and commercialization of APX3330 in key global markets. To date, our primary activities have been conducting research and development activities, planning clinical trials, performing business and financial planning, recruiting personnel and raising capital. We have only one product, RYZUMVI™, approved for sale that may generate royalties based on sales by Viatris, and we do not expect to consistently generate significant revenues, other than license and collaborations revenue, until, and unless, the FDA or other regulatory authorities approve, and we successfully commercialize, APX3330. Until such time, if ever, as we can consistently generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings as well as through collaborations, strategic alliances and licensing arrangements.
Through September 30, 2023, we have funded our operations primarily through equity financings that totaled $59.6 million in gross proceeds, of which $21.15 million was received in connection with the merger (“Merger”) with Rexahn Pharmaceuticals, Inc. (“Rexahn”) and through the issuance of convertible notes in private placements that totaled $8.5 million in gross proceeds net cash. In addition, we have received license fee and milestone payments of $45.0 million in the aggregate and reimbursement for costs related to development, all in connection with the Nyxol License Agreement.
Our net loss was $5.2 million for the nine months ended September 30, 2023 as compared to a net loss of $16.1 million for the nine months ended September 30, 2022. As of September 30, 2023, we had an accumulated deficit of $76.7 million. Furthermore, we anticipate that our expenses will increase as we:
| • | continue clinical trials for APX3330, POS and for any other product candidate in our future pipeline; |
| • | continue nonclinical studies for APX3330, APX2009 and APX2014, POS and for any other product candidate in our future pipeline; |
| • | develop additional product candidates that we identify, in-license or acquire; |
| • | seek regulatory approvals for any product candidates that successfully complete clinical trials; |
| • | contract to manufacture our product candidates; |
| • | maintain, expand and protect our intellectual property portfolio; |
| • | hire additional staff, including clinical, scientific, operational and financial personnel, to execute our business plan; |
| • | add operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts; |
| • | continue to operate as a public company; and |
| • | establish on our own or with partners, a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval. |
Our net income (loss) will likely continue to fluctuate significantly from quarter to quarter and year to year, depending on the timing of our nonclinical studies, clinical trials, expenditures on other research and development activities (and reimbursement thereof), and from potential milestone payments received from and revenue earned under the Nyxol License Agreement or any other license and collaboration agreements that we enter into, and potential payments that may become payable from time to time under the Apexian Sublicense Agreement.
Recent Developments
Clinical Milestones
APX3330
In January 2023, we announced top-line efficacy and safety results from ZETA-1, a Phase 2b trial of APX3330 in diabetic retinopathy patients. In ZETA-1, APX3330 demonstrated favorable safety and tolerability and exhibited efficacy in slowing or prevention of DR worsening on a binocular DRSS Person Scale. The FDA agreed this was an approvable registration endpoint at our EOP2 meeting.
Phentolamine Ophthalmic Solution 0.75% (POS)
In January 2023, we announced the initiation of the VEGA-2 Phase 3 pivotal trial, the first of two Phase 3 registration trials intended to support a presbyopia indication for POS alone and POS with LDP. The VEGA-2 Phase 3 study achieved its primary endpoint and Viatris, our development and commercial partner, is expected to continue Phase 3 development in the first half of 2024.
Regulatory Update
In September 2023, we announced FDA approval of POS under the brand name RYZUMVI™ for the treatment of RM; for this approval we received a $10 million milestone payment under the Nyxol License Agreement.
In October 2023, a SPA was submitted to the FDA for DLD and Viatris, our development and commercial partner, is expected to continue Phase 3 development in the first half of 2024 following FDA agreement.
In November 2023, we announced the successful outcome of the EOP2 meeting with the FDA, at which we obtained agreement on the registration endpoint supporting the advancement of APX3330 into Phase 3. Ocuphire plans to submit a SPA to agree on the clinical trial protocol and statistical analysis plan for the Phase 3 trials and will share specifics on the study design parameters and anticipated timing once agreed with the FDA.
CEO Transition
On April 19, 2023, the Company terminated the employment of Mina Sooch, the former President and Chief Executive Officer of the Company, and appointed Richard Rodgers as the Company’s interim President and Chief Executive Officer. On June 8, 2023, the Company entered into a Separation and Release Agreement with Ms. Sooch.
On November 1, 2023, the Company announced the appointment of George Magrath, M.D., M.B.A., M.S., as Chief Executive Officer and member of the Board of Directors. As a result of such appointment, Richard Rodgers, who was serving as Interim President and Chief Executive Officer, resigned from such positions and remains on the Board.
Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”)
On August 10, 2023, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Ocuphire has the sole right, but not the obligation, to direct Lincoln Park to purchase up to $50 million of shares of our common stock, par value $0.0001 (the “Common Stock”), from time to time over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, Ocuphire also entered into a registration rights agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which we agreed to register the resale of the shares of our Common Stock that have been and may be issued to Lincoln Park under the Purchase Agreement pursuant to a registration statement. Upon the execution of the Purchase Agreement, we issued 246,792 shares of Common Stock to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement. Lincoln Park has agreed not to cause or engage in any manner whatsoever in any direct or indirect short selling or hedging of our Common Stock.
Global Economic Conditions
Generally, worldwide economic conditions remain uncertain, particularly due to the effects of the conflict between Russia and Ukraine and potentially between Israel and Hamas, disruptions in the banking system and financial markets, lingering COVID-19 pandemic, increased inflation and increased interest rates. The general economic and capital market conditions, both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected our access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected.
Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflicts in Ukraine and the Middle East, disruptions in the banking system and financial markets, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates.
Financial Operations Overview
License and Collaborations Revenue
License and collaborations revenue to date was derived from a one-time non-refundable payment related to a license transfer, an additional milestone payment and reimbursement of expenses earned under the Nyxol License Agreement, and to a much lesser degree, from license agreements with BioSense Global LLC (“BioSense”) and Processa Pharmaceuticals, Inc. (“Processa”) in connection with the Rexahn RX-3117 drug compound. We anticipate that we will recognize revenue as we earn reimbursement for research and development services in connection with the Nyxol License Agreement and we may earn additional revenues from potential milestone and royalty payments from the agreements with Viatris, BioSense, Processa, or from other license agreements entered into the future; however, the attainment of milestones or level of sales required to earn royalty payments is highly uncertain for the reasons explained below.
To date, outside of the license and collaborations revenue referenced above, we do not expect to generate significant revenue unless or until our partner, Viatris, commercializes RYZUMVI™, or regulatory approval is obtained and commercialization begins for APX3330 or POS for indications other than RM. If we fail to complete the development of APX3330, POS, or any other product candidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, our ability to generate significant revenue would be compromised.
Operating Expenses
Ocuphire’s operating expenses are classified into two categories: general and administrative and research and development.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation costs, for personnel in functions not directly associated with research and administrative activities. Other significant costs include insurance coverage for directors and officers and other property and liability exposures, legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, other services provided by business consultants and legal settlements.
Research and Development Expenses
To date, our research and development expenses have related primarily to the clinical stage development of APX3330 and POS. Research and development expenses consist of costs incurred in performing research and development activities, including compensation and benefits for research and development employees and costs for consultants, costs associated with nonclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of overhead expenses.
Pursuant to the Nyxol License Agreement, our budgeted research and development expenses related to the development of POS are fully reimbursed by Viatris. However, all research and development costs, including those related to POS, are expensed as incurred, and costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the study or project, and as the invoices are received from our external service providers. We adjust our accrual as actual costs become known. Research and development activities are central to our business model.
We expect that APX3330 and POS will have higher development costs during the later stages of clinical development, as compared to costs incurred during their earlier stages of development, primarily due to the increased size and duration of the later-stage clinical trials and associated nonclinical studies. We expect our research and development expenses to increase over the next several years. However, it is difficult for us to determine with certainty the duration, costs and timing to complete our current or future nonclinical programs and clinical trials of APX3330, POS, and other product candidates. The duration, costs and timing of clinical trials and development of APX3330, POS and other product candidates will depend on a variety of factors that include, but are not limited to, the following:
| • | the conduct of nonclinical studies; |
| • | the design of clinical studies; |
| • | per-patient trial costs; |
| • | the number of patients that participate in the trials; |
| • | the number of sites included in the trials; |
| • | the countries in which the trials are conducted; |
| • | the length of time required to enroll eligible patients; |
| • | the number of doses that patients receive; |
| • | the drop-out or discontinuation rates of patients; |
| • | potential additional safety monitoring or other studies requested by regulatory agencies; |
| • | the duration of patient follow-up; |
| • | the phase of development of the product candidate; |
| • | arrangements with contract research organizations and other service providers; and |
| • | the efficacy and safety profile of the product candidates. |
Financing costs
Financing costs consist of issuance costs attributed to an equity line financing with Lincoln Park discussed further below.
Interest Expense
Interest expense consists of interest costs on principal related to a short-term loan (related to financing an insurance policy) during the period it was outstanding. The short-term loan had an annual interest rate of 5.5%. The short-term loan was fully repaid in May 2022.
Fair value change in derivative liability
The fair value change in derivative liability consists of the fair value change of the derivative liability associated with our equity line financing during the periods the derivative liability is outstanding.
Other Income (Expense), net
Other income (expense), net reflected in this line item includes interest earned from cash and cash equivalent investments, realized and unrealized gains (losses) from equity investments and reimbursements in connection with grants and other sources when they occur. In addition, other income (expense), net also includes payments when made by us in connection with the Contingent Value Rights Agreement (the “CVR Agreement”) with former Rexahn shareholders.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance has been provided on the net deferred tax assets as of September 30, 2023 and December 31, 2022.
Results of Operations
Comparison of Three Months Ended September 30, 2023 and 2022
The following table summarizes Ocuphire’s operating results for the periods indicated (in thousands):
| | For the Three Months Ended September 30, | |
| | 2023 | | | 2022 | | | Change | |
| | | | | | | | | | |
| License and collaborations revenue | | $ | 11,935 | | | $ | — | | | $ | 11,935 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 2,055 | | | | 1,703 | | | | 352 | |
| Research and development | | | 3,494 | | | | 2,835 | | | | 659 | |
| Total operating expenses | | | 5,549 | | | | 4,538 | | | | 1,011 | |
| Income (loss) from operations | | | 6,386 | | | | (4,538 | ) | | | 10,924 | |
| Financing costs | | | (1,328 | ) | | | — | | | | (1,328 | ) |
| Fair value change in derivative liability | | | 61 | | | | — | | | | 61 | |
| Other income, net | | | 456 | | | | 7 | | | | 449 | |
| Income (loss) before income taxes | | | 5,575 | | | | (4,531 | ) | | | 10,106 | |
| Provision for income taxes | | | (14 | ) | | | — | | | | (14 | ) |
| Net income (loss) | | $ | 5,561 | | | $ | (4,531 | ) | | $ | 10,092 | |
License and Collaborations Revenue
License and collaborations revenue was 11.9 million for the three months ended September 30, 2023. There was no license and collaborations revenue during the three months ended September 30, 2022. Revenue during the third quarter of 2023 was derived from the achievement of a $10.0 million milestone attributed to the FDA’s approval of POS, for reversal of mydriasis, and from the reimbursement of research and development services under the Nyxol License Agreement in the amount of $1.9 million.
General and Administrative
General and administrative expenses for the three months ended September 30, 2023 were $2.1 million compared to $1.7 million for the three months ended September 30, 2022. The increase period over period of $0.4 million was primarily attributable to professional services of $0.2 million, personnel related and other costs of $0.2 million on a net basis. General and administrative expenses included $0.3 million in stock-based compensation expense during both three months ended September 30, 2023 and 2022.
Research and Development
The following table illustrates the components of our research and development expenses for the periods presented (in thousands):
| | For the Three Months Ended September 30, | |
| | | 2023 | | | 2022 | | | Change | |
| | | | | | | | | | |
| External costs: | | | | | | | | | |
| Phentolamine Ophthalmic Solution 0.75% (“POS”) | | $ | 1,561 | | | $ | 1,637 | | | $ | (76 | ) |
| APX3330 | | | 1,294 | | | | 692 | | | | 602 | |
| Unallocated | | | 158 | | | | 173 | | | | (15 | ) |
| Total external cost | | | 3,013 | | | | 2,502 | | | | 511 | |
| Internal costs: | | | | | | | | | | | | |
| Employee related expenses | | | 469 | | | | 324 | | | | 145 | |
| Facilities, supplies and other | | | 12 | | | | 9 | | | | 3 | |
| Total internal costs | | | 481 | | | | 333 | | | | 148 | |
| Total research and development expenses | | $ | 3,494 | | | $ | 2,835 | | | $ | 659 | |
Research and development expenses for the three months ended September 30, 2023 were $3.5 million compared to $2.8 million for the three months ended September 30, 2022. The $0.7 million increase in the current period was primarily attributable to increased drug manufacturing of $0.4 million and toxicology services of $0.3 million related to APX3330 and increased payroll and consulting related costs of $0.2 million, offset partially by decreases in regulatory and clinical activities of approximately $0.3 million on a net basis. Pursuant to the Nyxol License Agreement, our budgeted research and development expenses related to the development of POS, are fully reimbursed by Viatris. Research and development expenses also included $0.2 million in stock-based compensation expense during both three months ended September 30, 2023 and 2022.
Financing costs
Financing costs for the three months ended September 30, 2023 of $1.3 million was comprised of issuance costs attributed to the equity line financing with Lincoln Park described further below. We did not incur any financing costs during the three months ended September 30, 2022.
Fair value change in derivative liability
The fair value change in derivative liability attributed to the equity line financing with Lincoln Park, described further below, was a gain of $0.1 million for the three months ended September 30, 2023 attributed to the fluctuations in our common stock fair value and the number of potential shares of common stock issuable at the various discount tiers under the equity line financing.
Other Income, net
During the three months ended September 30, 2023, Ocuphire had other income, net of $0.5 million related primarily to interest income in connection with our cash and cash equivalents on-hand.
During the three months ended September 30, 2022, Ocuphire had other income, net of $7,000 which consisted of interest income related to cash and cash equivalents of $34,000, offset in part by unrealized losses from our short-term investments of $25,000 and from realized foreign currency exchange losses of $2,000.
Comparison of Nine Months Ended September 30, 2023 and 2022
The following table summarizes Ocuphire’s operating results for the periods indicated (in thousands):
| | For the Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | | | Change | |
| | | | | | | | | | |
| License and collaborations revenue | | $ | 17,358 | | | $ | — | | | $ | 17,358 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 8,680 | | | | 5,215 | | | | 3,465 | |
| Research and development | | | 13,812 | | | | 10,769 | | | | 3,043 | |
| Total operating expenses | | | 22,492 | | | | 15,984 | | | | 6,508 | |
| Loss from operations | | | (5,134 | ) | | | (15,984 | ) | | | 10,850 | |
| Financing costs | | | (1,328 | ) | | | — | | | | (1,328 | ) |
| Interest expense | | | — | | | | (9 | ) | | | 9 | |
| Fair value change in derivative liability | | | 61 | | | | — | | | | 61 | |
| Other income (expense), net | | | 1,224 | | | | (60 | ) | | | 1,284 | |
| Loss before income taxes | | | (5,177 | ) | | | (16,053 | ) | | | 10,876 | |
| Provision for income taxes | | | (14 | ) | | | — | | | | (14 | ) |
| Net loss | | $ | (5,191 | ) | | $ | (16,053 | ) | | $ | 10,862 | |
License and Collaborations Revenue
License and collaborations revenue was $17.4 million for the nine months ended September 30, 2023. There was no license and collaboration revenue during the nine months ended September 30, 2022. Revenue during the nine month period ended September 30, 2023 was derived from the achievement of a $10.0 million milestone attributed to the FDA’s approval of POS, for reversal of mydriasis, and from the reimbursement of research and development services under the Nyxol License Agreement in the amount of $7.4 million.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2023 were $8.7 million compared to $5.2 million for the nine months ended September 30, 2022. The increase period over period of $3.5 million was primarily attributable to severance costs associated with the departure of our former Chief Executive Officer in the amount of $1.2 million, stock-based compensation of $1.1 million, professional services of $0.4 million, legal support of $0.2 million, other personnel related costs of $0.3 million and business development activities and other costs of $0.3 million on a net basis. General and administrative expenses totaled $2.0 million and $0.9 million in stock-based compensation expense during the nine months ended September 30, 2023 and 2022, respectively.
Research and Development
The following table illustrates the components of our research and development expenses for the periods presented (in thousands):
| | For the Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | | | Change | |
| | | | | | | | | | |
| External costs: | | | | | | | | | |
| Phentolamine Ophthalmic Solution 0.75% (“POS”) | | $ | 8,732 | | | | 6,516 | | | | 2,216 | |
| APX 3330 | | | 2,947 | | | | 2,631 | | | | 316 | |
| Unallocated | | | 536 | | | | 446 | | | | 90 | |
| Total external cost | | | 12,215 | | | | 9,593 | | | | 2,622 | |
| Internal costs: | | | | | | | | | | | | |
| Employee related expenses | | | 1,578 | | | | 1,099 | | | | 479 | |
| Facilities, supplies and other | | | 19 | | | | 77 | | | | (58 | ) |
| Total internal costs | | | 1,597 | | | | 1,176 | | | | 421 | |
| Total research and development expenses | | $ | 13,812 | | | | 10,769 | | | | 3,043 | |
Research and development expenses for the nine months ended September 30, 2023 were $13.8 million compared to $10.8 million for the nine months ended September 30, 2022. The $3.0 million increase was primarily attributable to increased clinical costs of $2.6 million for the POS VEGA-2 trial, increased manufacturing and toxicology activities of approximately $1.3 million for APX3330, offset by decreased clinical costs for the APX3330 ZETA-1 trial and other research and development activities period over period. Additionally, higher payroll, including stock-based compensation, and consulting costs of $0.8 million and other operating expenses of $0.1 million, on net basis, contributed to the expense increase during the current nine-month period. Pursuant to the Nyxol License Agreement, our budgeted research and development expenses related to the development of POS are fully reimbursed by Viatris. Research and development expenses also included $0.8 million and $0.5 million in stock-based compensation expense during the nine months ended September 30, 2023 and 2022, respectively.
Financing costs
Financing costs for the nine months ended September 30, 2023 of $1.3 million was comprised of issuance costs attributed to the equity line financing with Lincoln Park described further below. We did not have any financing costs during the nine months ended September 30, 2022.
Interest Expense
Interest expense for the nine months ended September 30, 2022 of $9,000 was comprised of interest on principal related to a short-term loan (related to financing an insurance policy). We did not have any interest expense during the nine months ended September 30, 2023.
Fair value change in derivative liability
The fair value change in derivative liability attributed to the equity line financing, described further below, was a gain of $0.1 million for the nine months ended September 30, 2023 attributed to the fluctuations in our common stock fair value and the number of potential shares of common stock issuable at the various discount tiers under the equity line financing.
Other Income (Expense), net
During the nine months ended September 30, 2023, Ocuphire had other income (expense), net of $1.2 million related primarily to interest income in connection with our cash and cash equivalents on-hand.
During the nine months ended September 30, 2022, Ocuphire had other expense, net of $60,000 stemming from net unrealized losses from our short-term investments of $118,000 and realized currency losses of approximately $1,000, offset in part by interest income of $59,000 related to cash and cash equivalents.
Liquidity and Capital Resources
Capital Resources
As of September 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $42.4 million. We believe that our cash on hand will be sufficient to fund our operations for at least twelve months beyond the date of this filing. As of September 30, 2023, our cash and cash equivalents on-hand were held at two large financial institutions.
Historical Capital Resources
Our primary source of cash to fund our operations has been various equity offerings in the amount of $59.6 million and the issuance of convertible notes in the amount of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire convertible notes (the “Ocuphire Convertible Notes”). In addition, we received a one-time non-refundable cash payment of $35.0 million during the fourth quarter of 2022, a $10.0 million milestone payment during the third quarter of 2023, and have received reimbursement for costs related to development since the fourth quarter of 2022, all in connection with the Nyxol License Agreement.
Lincoln Park Purchase Agreement
On August 10, 2023, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) for an equity line financing (the “Purchase Agreement”). The Purchase Agreement provides that, subject to the terms and conditions set forth therein, we have the sole right, but not the obligation, to direct Lincoln Park to purchase up to $50 million of shares of the Company’s common stock from time to time over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, we also entered into a Registration Rights Agreement, pursuant to which we agreed to register the resale of the shares of our common stock that have been and may be issued to Lincoln Park under the Purchase Agreement pursuant to a registration statement. Upon the execution of the Purchase Agreement, we issued 246,792 shares of the Company’s common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. Lincoln Park has agreed not to cause or engage in any manner whatsoever in any direct or indirect short selling or hedging of our common stock. In addition to the commitment shares referenced above, a total of 800,000 shares of common stock were sold under the Purchase Agreement for net proceeds through September 30, 2023 in the amount of $3.1 million. No shares of common stock were sold under the Purchase Agreement prior to the third quarter of 2023.
At-The-Market Program
On February 4, 2021, we filed a Form S-3 shelf registration under the Securities Act which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer and sell, from time to time in our sole discretion, securities having an aggregate offering price of up to $125 million. In connection with the 2021 Shelf, on March 11, 2021, we entered into a sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”) under which we may offer and sell, from time to time at our sole discretion, to or through JonesTrading, acting as agent and/or principal, shares of our common stock having an aggregate offering price of up to $40 million (the “ATM”). A total of 5,205,425 shares of common stock were sold under the ATM since its inception for net proceeds through September 30, 2023 in the amount of $19.6 million.
Registered Direct Offering
On June 4, 2021, we entered into a placement agency agreement with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the placement agency agreement, AGP on June 8, 2021, sold an aggregate of 3,076,923 shares of our common stock and warrants to purchase 1,538,461 shares of our common stock (the “RDO Warrants”) at an offering price of $4.875 per share and 0.50 RDO Warrants, for gross proceeds of $15.0 million, before deducting AGP’s fees and related offering expenses in the amount of $1.1 million. The purchase agreement contains customary representations, warranties and agreements by Ocuphire, customary conditions to closing, indemnification obligations of Ocuphire, other obligations of the parties and termination provisions.
The RDO Warrants have an exercise price of $6.09 per share, are exercisable upon the initial issuance date of June 8, 2021, and will expire five years following the initial exercise date. Subject to limited exceptions, a holder of a RDO Warrant will not have the right to exercise any portion of its RDO Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of a holder prior to the date of issuance, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise; provided, however, that upon prior notice to us, the holder may increase or decrease the beneficial ownership limitation, provided further that in no event shall the beneficial ownership limitation exceed 9.99%. As of September 30, 2023, 1,538,461 RDO Warrants were still outstanding. The offering of the securities was made pursuant to our effective shelf registration statement on Form S-3.
Pre-Merger Financing
Securities Purchase Agreement
On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by directors of Ocuphire Pharma, Inc. prior to the Merger, and one director of Rexahn, upon closing of the Merger (the “Pre-Merger Financing”). Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold to the investors shares of common stock of Ocuphire Pharma, Inc. prior to the Merger (the “Initial Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of 1,249,996 shares (the “Converted Initial Shares”) of common stock, (ii) Ocuphire deposited into escrow, for the benefit of the investors, additional shares of common stock of Ocuphire Pharma, Inc. prior to the Merger (the “Additional Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of 3,749,992 shares of common stock (the “Converted Additional Shares”), which Converted Additional Shares were delivered (or became deliverable) to the investors on November 19, 2020, and (iii) we agreed to issue to each investor on the tenth trading day following the consummation of the Merger (x) Series A Warrants representing the right to acquire shares of common stock equal to the sum of (A) the Converted Initial Shares purchased by the investor, (B) the Converted Additional Shares delivered or deliverable to the investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement and (C) the initial number of shares of common stock, if any, underlying the Series B Warrants issued to the investor and (y) additional warrants to purchase shares of common stock.
Waiver Agreements
Effective February 3, 2021, each investor that invested in the Pre-Merger Financing (each, a “Holder”) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the Holders and Ocuphire agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate certain financing restrictions, extend the term of certain leak-out agreements, and, in the case of certain Holders, grant certain registration rights for the shares underlying the warrants.
The Waiver Agreements provide for the permanent waiver of the full ratchet anti-dilution provisions, contained in the Series A Warrants (as certain of the anti-dilution provisions had previously caused liability accounting treatment for the Series A Warrants). Upon the effective date of the Waiver Agreement, the Series A Warrants were reclassified to equity.
Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed to 1,708,335 in the aggregate with respect to all Holders.
Series A Warrants
The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein). As of September 30, 2023, 5,665,838 Series A Warrants were still outstanding.
At issuance, the Series A Warrants contained certain provisions that could have resulted in a downward adjustment of the initial exercise price and an upward adjustment in the number of shares underlying the warrants if Ocuphire were to have issued or sold, or made an agreement to issue or sell, any shares of common stock for a price lower than the exercise price then in effect. Pursuant to the terms of the Waiver Agreements, these provisions are no longer in effect.
Series B Warrants
The Series B Warrants had an exercise price of $0.0001, were exercisable upon issuance and would have expired on the day following the later to occur of (i) the Reservation Date (as defined therein) or (ii) the date on which the investor’s Series B Warrants would have been exercised in full (without giving effect to any limitation on exercise contained therein). The Series B Warrants were initially exercisable for 665,836 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and ultimately became exercisable for 1,708,335 shares of common stock upon execution of the Waiver Agreements. As of September 30, 2023, none of the Series B Warrants remained outstanding.
At issuance, the Series B Warrants contained certain provisions that could have resulted in the issuance of additional Series B Warrants depending on the dollar volume-weighted average prices of a share of Common Stock during a 45-trading day reset period. Pursuant to the terms of the Waiver Agreements, those provisions were no longer in effect.
Ocuphire Convertible Notes
From May 2018 through March 2020, we issued the Ocuphire Convertible Notes for aggregate gross proceeds of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire Convertible Notes. The final closing of the Ocuphire Convertible Notes occurred on March 10, 2020. The Ocuphire Convertible Notes had an interest rate of 8% per annum. On November 4, 2020, all of Ocuphire’s outstanding notes were converted into 977,128 shares of Ocuphire common stock in connection with the completion of the Merger.
Cash Flows
The following table summarizes Ocuphire’s cash flows for the periods indicated (in thousands):
| | For the Nine Months Ended | |
| | 2023 | | | 2022 | |
| | | | | | | |
| Net cash used in operating activities | | $ | (5,660 | ) | | $ | (14,477 | ) |
| Net cash provided by (used in) investing activities | | | — | | | | — | |
| Net cash provided by financing activities | | | 5,376 | | | | 3,798 | |
| Net decrease in cash and cash equivalents | | $ | (284 | ) | | $ | (10,679 | ) |
Cash Flow from Operating Activities
For the nine months ended September 30, 2023, cash used in operating activities of $5.7 million was attributable to a net loss of $5.2 million, partially offset by $4.1 million in non-cash operating expenses and a net change cash use of $4.6 million in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted principally of stock-based compensation of $2.8 million, non-cash financing costs of $1.2 million in connection with the equity line financing and $0.2 million of issuance costs reclassified to financing activities, offset by a fair value gain attributed to the derivative liability of $0.1 million. The change in operating assets and liabilities was primarily attributable to an overall net increase in Ocuphire’s accounts receivable attributed to the milestone receivable associated with the FDA’s approval of POS, for reversal of mydriasis. Net cash used for the period was partially offset by decreases in our contract assets/unbilled receivables, prepaid expenses and increases in our accounts payable, all associated with Ocuphire’s operating expenses under the normal course of business.
For the nine months ended September 30, 2022, cash used in operating activities of $14.5 million was attributable to a net loss of $16.1 million, partially offset by $1.5 million in non-cash operating expenses, and attributable to a net cash increase of approximately $0.1 million stemming from the change in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted principally of stock-based compensation of $1.4 million and unrealized loss on short-term investments of $0.1 million. The change in operating assets and liabilities was primarily attributable to a net cash source of $0.7 million attributed to a decrease in prepaid expenses, offset largely by a decrease in accounts payable and accrued expense associated with the fluctuations of Ocuphire’s operating expenses.
Cash Flow from Investing Activities
There were no sources or uses from investing activities during the periods presented.
Cash Flow from Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2023 was $5.4 million that consisted of net proceeds received from both the 2021 ATM and the equity line financing in the aggregate of $5.4 million.
Net cash provided by financing activities during the nine months ended September 30, 2022 was $3.8 million that consisted principally of proceeds received from the 2021 ATM net of issuance costs in the amount of $4.3 million, offset in part by payments made on the short-term loan of $0.5 million.
Liquidity and Capital Resource Requirements
As of September 30, 2023, we had cash and cash equivalents of $42.4 million. This does not include the $10 million license agreement milestone payment received in October 2023 under the Nyxol License Agreement for the NDA approval of RYZUMVI™ for the treatment of RM. License and collaborations revenue inception to date was derived from a one-time non-refundable payment of $35 million, a milestone payment of $10 million and reimbursement and expected reimbursement of expenses earned under the Nyxol License Agreement, and to a much lesser degree, from license agreements with BioSense Global LLC (“BioSense”) and Processa Pharmaceuticals, Inc. (“Processa”) in connection with the Rexahn RX-3117 drug compound. We anticipate that we will recognize revenue as we earn reimbursement for research and development services in connection with the Nyxol License Agreement and we may earn additional revenues from future potential milestone and royalty payments from the agreements with Viatris, BioSense, Processa, or from other license agreements entered into the future; however, the attainment of milestones or level of sales required to earn royalty payments is highly uncertain for the reasons explained below.
To date, outside of the license and collaborations revenue referenced above, we do not expect to generate significant revenue unless or until our partner, Viatris, commercializes RYZUMVI™, or regulatory approval is obtained and commercialization begins for APX3330 or POS for indications other than RM. If we fail to complete the development of APX3330, POS, or any other product candidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, our ability to generate significant revenue would be compromised.
In addition, on August 10, 2023, we entered into the Purchase Agreement with Lincoln Park, which provides that we have the sole right, but not the obligation, to direct Lincoln Park to purchase up to $50 million of shares of our common stock, from time to time over the 30-month term of the Purchase Agreement. The Purchase Agreement was executed to compliment the ATM. Concurrently with entering into the Purchase Agreement, we also entered into a Registration Rights Agreement with Lincoln Park, pursuant to which we agreed to register the resale of the shares of our common stock that have been and may be issued to Lincoln Park under the Purchase Agreement pursuant to a registration statement. We filed a prospectus supplement to our Registration Statement (File No. 333-252715) on August 11, 2023 with the SEC. Per the terms of the Purchase Agreement, we will be unable to sell shares of our common stock to Lincoln Park if the sale price falls below $0.25 per share. Therefore, there is no assurance that we will have full access to the facility during the term of the Purchase Agreement.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation, warrants or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through future collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams 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 or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our product development, future commercialization efforts, or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.
Future Capital Requirements
Pursuant to the Nyxol License Agreement, our budgeted research and development expenses related to the development of POS are fully reimbursed by Viatris. The development of APX3330 is subject to numerous uncertainties, and we have based these estimates on assumptions that may prove to be substantially different than what we currently anticipate and could result in cash resources being used sooner than what we currently expect. Additionally, the process of advancing early-stage product candidates and testing product candidates in clinical trials is costly, and the timing of progress in these clinical trials is uncertain. Our ability to successfully transition to profitability will be dependent upon achieving a level of product sales adequate to support our cost structure. We cannot give any assurance that we will ever be profitable or generate positive cash flow from operating activities.
Contractual Obligations and Commitments
Facility Lease
We lease a facility under a non-cancellable operating lease that expires on December 31, 2023, as amended, for a base rent in the amount of $3,000 per month.
Apexian Sublicense Agreement
On January 21, 2020, we entered into the Apexian Sublicense Agreement, pursuant to which we obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which we intend to develop as an oral tablet therapeutic to treat NPDR. The unique, dual mechanism of action of Ref-1 inhibitors (e.g., APX3330, APX2009 and APX2014) of reducing angiogenesis and inflammation could potentially be beneficial in treating other retinal diseases such as AMD and GA. Ocuphire is currently evaluating local delivery routes in addition to the systemic (oral) route as part of its pipeline expansion into retina.
In connection with the Apexian Sublicense Agreement, we issued 843,751 shares of our common stock to Apexian and certain of Apexian’s affiliates.
We agreed to make one-time milestone payments under the Apexian Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial (if such trial meets a primary endpoint) and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, each of which net sales milestone payments is payable once, upon the first achievement of such milestone.
Lastly, we also agreed to make royalty payments equal to a single-digit percentage of our net sales of products covered by the patents under the Apexian Sublicense Agreement. None of the milestone or royalty payments were triggered as of the date of this Report.
Other Commitments
In the course of normal operations, we entered into cancellable purchase commitments with our suppliers for various key research, clinical and manufacturing services. The purchase commitments covered by these arrangements are subject to change based on our research and development efforts.
Other Funding Requirements
As noted above, certain of our cash requirements relate to the funding of our ongoing research and development of APX3330, inclusive of any potential milestone and royalty obligations under our intellectual property licenses. See “Part I, Item 1— Business—APX3330 Clinical Experience Summary —Ocuphire Clinical Development Plan —Potential Clinical Plans for APX3330—Future In-Licensing and Acquisition Opportunities—Manufacturing—Apexian Sublicense Agreement— Review and Approval of Drugs in the United States” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of design, development, pre-clinical and clinical activities that we may conduct in the future, including expected cash expenditures required for some of those activities, to the extent we are able to estimate such costs.
Our other cash requirements within the next twelve months include accounts payable, accrued expenses, purchase commitments and other current liabilities. Our other cash requirements greater than twelve months from various contractual obligations and commitments may include operating leases and contractual agreements with third-party service providers for clinical research, product development, manufacturing, commercialization, supplies, payroll, equipment maintenance, and audits for periods into calendar year 2024. Refer to Note 3 – Commitments and Contingencies included in “Part 1, Item 1 – Financial Statements” of this Report for further detail of our lease obligation and license agreements with regard to the timing of expected future payments.
We expect to satisfy our short-term and long-term obligations through cash on hand, from future equity and debt financings, and from reimbursement payments, potential milestone and royalty payments under the Nyxol License Agreement and any future collaborations and license agreements, until we generate an adequate level of revenue from commercial sales to cover expenses, if ever.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonably based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.
Our significant accounting policies are discussed in Note 1 — Company Description and Summary of Significant Accounting Policies, included in “Part I, Item 1 – Financial Statements” of this Report. We believe that the following accounting policies and estimates are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates require our most difficult, subjective, or complex judgments because they relate to matters that are inherently uncertain. We have reviewed these critical accounting policies and estimates and related disclosures with the Audit Committee of our Board of Directors. We have not made any material changes to date, nor do we believe there is a reasonable likelihood of a material future change to the accounting methodologies for the areas described below.
License and Collaborations Revenue
We account for license and collaborations revenue in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The guidance provides a unified model to determine how revenue is recognized. We have entered into license and collaboration agreements which have revenue recognition implications. We recognize license and collaborations revenue by first allocating the transaction price of a contract to each performance obligation under the contract based on its stand-alone price. The stand-alone price of each performance obligation is based on its fair value utilizing a discounted cash flow approach, taking into consideration assumptions, including projected worldwide net profit for each of the respective programs based on probability assessments, projections based on internal forecasts, industry data, and information from other guideline companies within the same industry and other relevant factors. We do not expect to have in the future, significant variable consideration adjustments related to our existing license and collaborations revenue recognized. For discussion about the determination of license and collaborations revenue, see Note 9 — License and Collaboration Agreements included in “Part 1, Item 1 – Financial Statements” of this Report.
Stock-based Compensation
Ocuphire accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation — Stock Compensation. Accordingly, compensation costs related to equity instruments granted are recognized at the grant date fair value which is not subject to remeasurement. We record equity instrument forfeitures when they occur. For discussions about the application of grant date fair value associated with our stock-based compensation, see Note 7 — Stock-based Compensation included in “Part 1, Item 1 – Financial Statements” of this Report.
Income Tax Assets and Liabilities
A full valuation allowance has been provided on our net deferred tax assets given the uncertainty of future taxable income and other related factors impacting the realizability of our remaining net deferred tax assets. For additional information, see Note 12 — Income Taxes included in “Part II, Item 8 – Consolidated Financial Statements and Supplementary Data” in our Annual Report filed on Form 10-K for the year ended December 31, 2022, and see Note 11 — Income Taxes included in “Part 1, Item 1 – Financial Statements” of this Report.
Contingencies
We are subject to numerous contingencies arising in the ordinary course of business, including obligations related to certain license agreements. For additional information, see Note 3 — Commitments and Contingencies included in “Part 1, Item 1 – Financial Statements” of this Report.
Recent Accounting Pronouncements
Refer to Note 1— “Company Description and Summary of Significant Accounting Policies” to our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report for a discussion of recently issued accounting pronouncements.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We designed and evaluated our disclosure controls and procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired control objectives. Also, the design of a control system must reflect the fact that there are resource constraints and that the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15(d)- 15(e) promulgated under the Exchange Act as of September 30, 2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
There have been no material changes in our risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully read and consider the risks and uncertainties described therein.
| 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 to our Company.
None.
EXHIBIT NUMBER | | DESCRIPTION OF DOCUMENT |
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| | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 101.INS | | Inline XBRL Instance Document. |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| + | Indicates management contract or compensatory plan. |
| * | Documents are furnished not filed. |
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.
Ocuphire Pharma, Inc.
| By: | /s/ George Magrath |
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| | George Magrath |
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| | Chief Executive Officer |
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| | (Principal Executive Officer) |
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| By: | /s/ Amy Rabourn | |
| | Amy Rabourn | |
| | Senior Vice President of Finance | |
| | (Principal Financial Officer) | |
