10-Q 1 acer-10q_20190630.htm 10-Q acer-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

or

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: 001-33004

Acer Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   

One Gateway Center, Suite 351

300 Washington Street

32-0426967

(State or other jurisdiction of   

Newton, MA 02458

(I.R.S. Employer

Incorporation or organization)  

(Address of principal executive    

Identification No.)

 

offices and zip code)

 

(844) 902-6100

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.0001 par value per share

ACER

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 

As of August 1, 2019, there were 10,095,176 shares of the issuer’s Common Stock outstanding.

 


ACER THERAPEUTICS INC.

For the three and six months ended June 30, 2019

INDEX

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

1

 

 

 

 

Condensed Consolidated Statements of Operations: For the three and six months ended June 30, 2019 and 2018

2

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity: For the three and six months ended June 30, 2019 and 2018

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows: For the six months ended June 30, 2019 and 2018

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

21

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

22

 

 

 

Item 1A.

Risk Factors

22

 

 

 

Item 6.

Exhibits

55

 

 

 

Signatures

56

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,488,195

 

 

$

41,671,284

 

Prepaid expenses and other current assets

 

 

792,230

 

 

 

1,075,021

 

Total current assets

 

 

24,280,425

 

 

 

42,746,305

 

Property and equipment, net

 

 

186,034

 

 

 

130,867

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

7,647,267

 

 

 

7,647,267

 

In-process research and development

 

 

118,600

 

 

 

118,600

 

Other non-current assets

 

 

568,965

 

 

 

20,380

 

Total assets

 

$

32,801,291

 

 

$

50,663,419

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,538,832

 

 

$

1,033,829

 

Accrued expenses

 

 

3,171,983

 

 

 

4,546,432

 

Other current liabilities

 

 

226,421

 

 

 

 

Total current liabilities

 

 

4,937,236

 

 

 

5,580,261

 

Other non-current liabilities

 

 

311,544

 

 

 

 

Total liabilities

 

 

5,248,780

 

 

 

5,580,261

 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized 10,000,000 shares;

   none issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; authorized 150,000,000 shares;

   10,095,176 and 10,087,363 shares issued and outstanding at

   June 30, 2019 and December 31, 2018, respectively

 

 

1,010

 

 

 

1,009

 

Additional paid-in capital

 

 

93,394,256

 

 

 

91,914,692

 

Accumulated deficit

 

 

(65,842,755

)

 

 

(46,832,543

)

Total stockholders’ equity

 

 

27,552,511

 

 

 

45,083,158

 

Total liabilities and stockholders’ equity

 

$

32,801,291

 

 

$

50,663,419

 

 

See notes to unaudited condensed consolidated financial statements.

1


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,246,244

 

 

$

2,688,159

 

 

$

8,192,464

 

 

$

4,762,130

 

General and administrative

 

 

6,919,476

 

 

 

2,227,947

 

 

 

11,150,174

 

 

 

4,144,977

 

Total operating expenses

 

 

11,165,720

 

 

 

4,916,106

 

 

 

19,342,638

 

 

 

8,907,107

 

Loss from operations

 

 

(11,165,720

)

 

 

(4,916,106

)

 

 

(19,342,638

)

 

 

(8,907,107

)

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

143,884

 

 

 

36,555

 

 

 

329,027

 

 

 

67,245

 

Foreign currency transaction (loss) gain

 

 

(19,671

)

 

 

44,061

 

 

 

3,399

 

 

 

20,768

 

Total other income, net

 

 

124,213

 

 

 

80,616

 

 

 

332,426

 

 

 

88,013

 

Net loss

 

$

(11,041,507

)

 

$

(4,835,490

)

 

$

(19,010,212

)

 

$

(8,819,094

)

Net loss per share - basic and diluted

 

$

(1.09

)

 

$

(0.64

)

 

$

(1.88

)

 

$

(1.18

)

Weighted average common shares outstanding - basic and diluted

 

 

10,090,883

 

 

 

7,497,433

 

 

 

10,089,133

 

 

 

7,497,433

 

 

See notes to unaudited condensed consolidated financial statements.

 


2


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 

 

 

Three and Six Months Ended June 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

10,087,363

 

 

$

1,009

 

 

$

91,914,692

 

 

$

(46,832,543

)

 

$

45,083,158

 

Stock-based compensation

 

 

 

 

 

 

 

 

671,927

 

 

 

 

 

 

671,927

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,968,705

)

 

 

(7,968,705

)

Balance March 31, 2019

 

 

10,087,363

 

 

 

1,009

 

 

 

92,586,619

 

 

 

(54,801,248

)

 

 

37,786,380

 

Stock-based compensation

 

 

 

 

 

 

 

 

715,366

 

 

 

 

 

 

715,366

 

Issuance of stock in connection with stock option exercises

 

 

7,813

 

 

 

1

 

 

 

92,271

 

 

 

 

 

 

92,272

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,041,507

)

 

 

(11,041,507

)

Balance, June 30, 2019

 

 

10,095,176

 

 

$

1,010

 

 

$

93,394,256

 

 

$

(65,842,755

)

 

$

27,552,511

 

 

 

 

Three and Six Months Ended June 30, 2018

 

 

 

Common stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

7,497,433

 

 

$

74,974

 

 

$

47,812,215

 

 

$

(25,551,652

)

 

$

22,335,537

 

Costs associated with common

   stock issuance

 

 

 

 

 

 

 

 

(38,747

)

 

 

 

 

 

(38,747

)

Stock-based compensation

 

 

 

 

 

 

 

 

252,374

 

 

 

 

 

 

252,374

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,983,604

)

 

 

(3,983,604

)

Balance, March 31, 2018

 

 

7,497,433

 

 

 

74,974

 

 

 

48,025,842

 

 

 

(29,535,256

)

 

 

18,565,560

 

Reallocation for change in par value

 

 

 

 

 

(74,224

)

 

 

74,224

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

326,428

 

 

 

 

 

 

326,428

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,835,490

)

 

 

(4,835,490

)

Balance, June 30, 2018

 

 

7,497,433

 

 

$

750

 

 

$

48,426,494

 

 

$

(34,370,746

)

 

$

14,056,498

 

 

See notes to unaudited condensed consolidated financial statements.

3


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(19,010,212

)

 

$

(8,819,094

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,387,293

 

 

 

578,802

 

Depreciation

 

 

27,075

 

 

 

11,041

 

Loss on disposal of property and equipment

 

 

52,718

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

282,791

 

 

 

310,714

 

Accounts payable

 

 

505,003

 

 

 

765,198

 

Accrued expenses

 

 

(1,374,449

)

 

 

(66,484

)

Other non-current assets

 

 

(10,620

)

 

 

(26,880

)

Net cash used in operating activities

 

 

(18,140,401

)

 

 

(7,246,703

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(134,960

)

 

 

(15,132

)

Net cash used in investing activities

 

 

(134,960

)

 

 

(15,132

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Costs associated with the issuance of common stock

 

 

 

 

 

(38,747

)

Proceeds from the exercise of stock options

 

 

92,272

 

 

 

 

Net cash provided by (used in) financing activities

 

 

92,272

 

 

 

(38,747

)

Net decrease in cash and cash equivalents

 

 

(18,183,089

)

 

 

(7,300,582

)

Cash and cash equivalents, beginning of period

 

 

41,671,284

 

 

 

15,644,355

 

Cash and cash equivalents, end of period

 

$

23,488,195

 

 

$

8,343,773

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


 

ACER THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(Unaudited)

 

1.

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Business

Acer Therapeutics Inc., a Delaware corporation (the “Company”), formerly known as Opexa Therapeutics, Inc. (the “Registrant”), is a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for serious rare and life-threatening diseases with significant unmet medical needs. The Company’s pipeline includes three clinical-stage candidates: EDSIVO™ (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”) in patients with a confirmed type III collagen (COL3A1) mutation; ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for the treatment of various inborn errors of metabolism, including urea cycle disorders (“UCD”) and Maple Syrup Urine Disease (“MSUD”); and osanetant for the treatment of induced vasomotor symptoms (“iVMS”) where hormone replacement therapy (“HRT”) is likely contraindicated. The Company’s product candidates are believed to present a comparatively de-risked profile, having one or more of a favorable safety profile, clinical proof-of-concept data, mechanistic differentiation, and/or accelerated paths for development through specific programs and procedures established by the United States Food and Drug Administration (“FDA”).

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has not generated any product revenue to date and may never generate any product revenue in the future.

The Company believes that its existing cash and cash equivalents of approximately $23.5 million at June 30, 2019, will be sufficient to allow the Company to fund its current operating plan through the end of 2020 and, as a result, through at least twelve months from the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company. Until the Company can generate a sufficient amount of product revenue to finance its cash requirements, which would require the Company to obtain regulatory approval for and successfully commercialize one or more of its product candidates, the Company expects to finance its future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances.

On June 24, 2019, the Company received a Complete Response Letter from the FDA regarding its new drug application (“NDA”) for EDSIVOTM (celiprolol) for the treatment of vEDS. The Complete Response Letter stated that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with vEDS. The Company had previously devoted a substantial majority of its research, development, clinical, and pre-commercial efforts and financial resources towards the development of EDSIVO™. In order to reduce operating expenses and conserve cash resources while it continues to dialogue with the FDA to fully understand its response and work toward the goal of approval of EDSIVO™, on June 28, 2019, the Company implemented a corporate restructuring which included a reduction of approximately 60% of its full-time workforce of 48 employees and halted pre-commercial activities of EDSIVOTM. Depending on its progress in discussions with the FDA, which may include a formal dispute resolution request to appeal the Complete Response Letter, as well as our available resources and needs, the Company may decide at any time not to continue development of EDSIVO™, which could have a material adverse effect on its business operations and financial prospects.

Merger and Reverse Stock Split

On September 19, 2017, the Registrant completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer.

5


 

Delaware Reincorporation and Subsidiary Merger

On May 15, 2018, the Company changed its state of incorporation from the State of Texas to the State of Delaware pursuant to a plan of conversion, dated May 15, 2018. As a result of this reincorporation, the par value of the Company’s preferred stock was changed to $0.0001 from no par value and the par value of the Company’s common stock was reduced to $0.0001 from $0.01. Immediately following the Reincorporation, the holding company structure was eliminated by merging wholly-owned subsidiary Private Acer with and into the Company (the “Subsidiary Merger”). The Company was the surviving corporation in connection with the Subsidiary Merger.

Basis of Presentation

Accounting principles generally accepted in the United States (“GAAP”) require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the Merger was accounted for as a reverse acquisition whereby Private Acer was treated as the acquirer for accounting and financial reporting purposes. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer Therapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The accompanying unaudited condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position, results of operations, stockholders’ equity and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2018, included herein, was derived from the audited consolidated financial statements as of that date but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018.

2.

SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in its Annual Report on Form 10-K for the year ended December 31, 2018.

Leases

In the first quarter of 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The Company assesses its contracts at inception to determine whether the contract contains a lease, including evaluation of whether the contract conveys the right to control an explicitly or implicitly identified asset for a period of time. The Company has recognized right-of-use assets and lease liabilities that represent the net present value of future operating lease payments utilizing a discount rate corresponding to the Company’s incremental borrowing rate and amortizing over the remaining terms of the leases. See the Recently Adopted Accounting Pronouncements below for additional information related to the adoption of this guidance.

Stock-Based Compensation

The Company records stock-based payments at fair value. The measurement date for compensation expense related to awards is generally the date of the grant. The fair value of awards is recognized as an expense in the statement of operations over the requisite service period, which is generally the vesting period. The fair value of options is calculated using the Black-Scholes option pricing model. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate.

 

 

6


 

The following assumptions were used to estimate the fair value of stock options granted during the six-month period ending June 30, 2019 and 2018 using the Black-Scholes option pricing model:

 

 

2019

 

2018

 

 

Risk-free interest rate

1.88% - 2.57%

 

2.35% – 2.98%

 

 

Expected life (years)

6.25

 

6.25

 

 

Volatility

60%

 

60%

 

 

Dividend rate

0%

 

0%

 

 

 

Use of Estimates

The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the condensed financial statements and reported amounts of revenues and expenses during the reporting period. Estimates having relatively higher significance include the accounting for acquisitions, stock-based compensation, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.

Income Taxes

The Company recorded no income tax expense or benefit during the three and six months ended June 30, 2019 and 2018, due to a full valuation allowance recognized against its net deferred tax assets.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net loss in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of stock-based awards, were not included in the calculation of the diluted loss per share because to do so would be anti-dilutive.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, which establishes new accounting and disclosure requirements for leases. ASU No. 2016-02 requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. The Company adopted ASU 2016-02 in the first quarter of 2019 using the effective date approach to recognize and measure leases as of the adoption date. The Company has elected to utilize the available practical expedient to not separate lease components from non-lease components as well as the package of practical expedients that allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. As a result of the adoption of this guidance, the Company recorded a non-cash transaction to recognize on January 1, 2019 lease liabilities totaling $0.4 million and right-of-use-assets totaling $0.4 million, which will be amortized over the remaining terms of the leases.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). This new guidance expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. Equity-classified nonemployee awards are measured on the grant date, rather than on the earlier of (1) the performance commitment date or (2) the date at which the nonemployee’s performance is complete. Awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. Entities may use the expected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis. The Company adopted ASU 2018-07 in the first quarter of 2019. There was no impact on the Company’s financial statements as a result of the adoption of this guidance.

7


 

3.

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30, 2019 and December 31, 2018:

 

 

 

June 30,

2019

 

 

December 31, 2018

 

Computer hardware and software

 

$

77,565

 

 

$

58,868

 

Leasehold improvements

 

 

7,648

 

 

 

7,648

 

Furniture and fixtures

 

 

145,487

 

 

 

96,013

 

Subtotal property and equipment, gross

 

 

230,700

 

 

 

162,529

 

Less accumulated depreciation

 

 

(44,666

)

 

 

(31,662

)

Property and equipment, net

 

$

186,034

 

 

$

130,867

 

 

4.

ACCRUED EXPENSES

Accrued expenses consisted of the following at June 30, 2019 and December 31, 2018:

 

 

 

June 30,

2019

 

 

December 31, 2018

 

Accrued pre-commercial costs

 

$

1,045,962

 

 

$

85,000

 

Accrued payroll and payroll taxes

 

 

1,035,482

 

 

 

1,302,728

 

Accrued contract manufacturing

 

 

385,000

 

 

 

1,079,314

 

Accrued miscellaneous expenses

 

 

281,246

 

 

 

119,861

 

Accrued consulting

 

 

230,000

 

 

 

49,940

 

Accrued legal

 

 

87,622

 

 

 

111,543

 

Accrued accounting, audit, and tax fees

 

 

87,000

 

 

 

102,000

 

Accrued license fees

 

 

19,671

 

 

 

1,567,368

 

Accrued contract research and regulatory consulting

 

 

 

 

 

128,678

 

Total accrued expenses

 

$

3,171,983

 

 

$

4,546,432

 

 

5.

LEASES

On March 6, 2018, the Company entered into a lease agreement (the “Newton Lease”) commencing on October 1, 2018 for certain premises which consist of 2,760 square feet of office space located in Newton, Massachusetts (the “Newton Premises”) to serve as its corporate headquarters. On March 5, 2019, the Company entered into a lease agreement to amend the Newton Lease and to lease an additional 1,600 square feet of office space, commencing on June 1, 2019, located in Newton, Massachusetts (the “Additional Newton Premises”) to serve as additional space for its corporate headquarters. The term of the lease for the Newton Premises and the Additional Newton Premises expires on May 31, 2022. In addition, the Company is required to share in certain taxes and operating expenses of the Newton Premises and the Additional Newton Premises.

The Company entered into a Triple Net Lease (the “Bend Lease”) effective April 1, 2018 for certain premises consisting of 2,288 square feet of office space located in Bend, Oregon (the “Bend Premises”) to serve as a satellite facility. The term of the Bend Lease commenced on April 1, 2018 and expires on March 31, 2021 (the “Bend Term”). The Company has an option to extend the Bend Term for up to two additional periods of three years and a right of first refusal to lease an additional suite in the same building.

The leases for the Newton Premises, the Additional Newton Premises, and the Bend Premises are classified as operating leases. In the first quarter of 2019, the Company adopted ASU 2016-02 and recorded a non-cash transaction to recognize a right-of-use asset of $0.4 million in other non-current assets, as well as a lease liability of $0.2 million in other current liabilities and $0.2 million in other non-current liabilities. In the second quarter of 2019, the Company recognized an additional right-of-use asset of $0.2 million as well as an additional lease liability of $0.1 million in other current liabilities and $0.1 million in other non-current liabilities in conjunction with the commencement of the lease for the Additional Newton Premises. The Company’s lease liability represents the net present value of future lease payments utilizing a discount rate of 8%, which corresponds to the Company’s incremental borrowing rate. As of June 30, 2019, the weighted average remaining lease term was 2.7 years. For the three and six months ended June 30, 2019, the Company recorded expense of $46 thousand and $86 thousand, respectively, related to the leases. For the three and six months ended June 30, 2018, the Company recorded lease expense of $23 thousand and $60 thousand, respectively. During the three and six months ended June 30, 2019, the Company made cash payments of $50 thousand and $78 thousand, respectively, for amounts included in the measurement of lease liabilities.

8


 

The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2019:

Undiscounted lease liabilities for years ending December 31,:

 

 

 

   2019 (remaining)

$

112,615

 

   2020

 

229,323

 

   2021

 

186,784

 

   2022

 

72,400

 

      Total undiscounted lease liabilities

$

601,122

 

Less effects of discounting

 

(63,157

)

   Total lease liabilities

$

537,965

 

 

 

 

 

Reported as of June 30, 2019:

 

 

 

Other current liabilities

$

226,421

 

Other non-current liabilities

 

311,544

 

   Total lease liabilities

$

537,965

 

Future minimum lease payments at December 31, 2018 were as follows:

Years Ending December 31:

Minimum Lease Payments

 

2019

$

151,579

 

2020

 

155,813

 

2021

 

93,204

 

Total

$

400,596

 

 

6.

COMMITMENTS AND CONTINGENCIES

License Agreements

In April 2014, Private Acer obtained exclusive rights to intellectual property relating to ACER-001 and preclinical and clinical data, through a license agreement with Baylor College of Medicine (“BCM”). Under the terms of the agreement, as amended, the Company has worldwide exclusive rights to develop, manufacture, use, sell and import licensed products as defined in the agreement. The license agreement requires the Company to make certain upfront and annual payments to BCM, as well as reimburse certain legal costs, make payments upon achievement of defined milestones, and pay royalties in the low single-digit percent range on net sales of any developed product over the royalty term.

In August 2016, Private Acer signed an agreement with Assistance Publique—Hôpitaux de Paris, Hôpital Européen Georges Pompidou (“AP-HP”) (via its Department of Clinical Research and Development) granting the Company the exclusive worldwide rights to access and use data from a randomized, controlled clinical study of celiprolol. The Company used this pivotal clinical data to support a new drug application regulatory filing for EDSIVOTM for the treatment of vEDS. The agreement requires the Company to make certain upfront payments to AP-HP, as well as reimburse certain costs and make payment of royalties in the low single-digit range on net sales of celiprolol over the royalty term.

In September 2018, the Company entered into a License Agreement for Development and Exploitation with AP-HP to acquire the exclusive worldwide intellectual property rights to three European patent applications relating to certain uses of celiprolol including (i) the optimal dose of celiprolol in treating vEDS patients, (ii) the use of celiprolol during pregnancy and (iii) the use of celiprolol to treat kyphoscoliotic Ehlers-Danlos syndrome (type VI). Pursuant to the agreement, the Company will reimburse AP-HP for certain costs and will pay annual maintenance fee payments. Subject to a minimum royalty amount, the Company will also pay royalty payments on annual net sales of celiprolol during the royalty term in the low single digit percent range, depending upon whether there is a valid claim of a licensed patent. Under the agreement, the Company will control and pay the costs of ongoing patent prosecution and maintenance for the licensed applications. The Company may terminate the agreement in its sole discretion upon written notice to AP-HP, and AP-HP may terminate the agreement in the event the Company fails to make the required payments after notice and opportunity to cure. Additionally, the agreement will terminate if the Company terminates clinical development, marketing approval is withdrawn by the health or regulatory authorities in all countries, the Company ceases to do business or there is a procedure of winding-up by court decision against the Company. The Company subsequently filed three United States patent applications on this subject matter in October 2018.

In December 2018, the Company entered into an exclusive license agreement with Sanofi granting the Company worldwide rights to osanetant, a clinical-stage, selective, non-peptide tachykinin NK3 receptor antagonist. The agreement required the

9


 

Company to make a certain upfront payment to Sanofi, make payments upon achievement of defined development and sales milestones and pay royalties on net sales of osanetant over the royalty term. The Company plans to initially pursue development of osanetant as a potential treatment for iVMS where HRT is likely contraindicated.

Litigation

From time to time, the Company may become involved in litigation or proceedings relating to claims arising out of its operations.

In addition, on September 27, 2017, Piper Jaffray & Co. (“Piper”) filed a lawsuit against Private Acer, Piper Jaffray & Co. v. Acer Therapeutics Inc., Index No. 656055/2017, in the Supreme Court of the State of New York, County of New York. The complaint alleges that Private Acer breached its obligations to Piper pursuant to an August 30, 2016 engagement letter between the parties and an April 28, 2017 addendum thereto by failing to pay Piper (i) a fee of $1,097,207 in connection with the financing which closed on September 19, 2017 for aggregate consideration of approximately $15.7 million and (ii) $67,496 in reimbursement for expenses incurred by Piper pursuant to the engagement letter. On November 10, 2017, Private Acer filed an answer and counterclaim in the lawsuit, denying Piper’s breach of contract allegation, asserting several defenses, and bringing several counterclaims, including claims for breach of contract and breach of the duty of good faith and fair dealing. Piper filed a reply to the counterclaims denying the essential allegations, and discovery has commenced. On February 22, 2019, Piper filed a motion for summary judgment. In response, Private Acer filed its opposition to Piper's motion on March 22, 2019. Piper subsequently filed its reply to Private Acer's opposition on April 5, 2019. Piper's motion is currently pending before the Court and oral argument on the summary judgment motion is scheduled for August 28, 2019. The Company has not recorded a liability as of June 30, 2019 because a potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.

In addition, on July 1, 2019, plaintiff Tyler Sell filed a putative class action lawsuit, Sell v. Acer Therapeutics Inc., against the Company, Chris Schelling and Harry Palmin, in the United States District Court for the Southern District of New York. The complaint alleges that prior to the receipt of the Complete Response Letter from the FDA, Acer made material false and misleading statements or omissions which allegedly constitute securities fraud. The Company believes the suit is without merit and intends to defend itself vigorously. No activity has occurred in the suit thus far. The Company has not recorded a liability as of June 30, 2019 because a potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.

7.

STOCKHOLDERS’ EQUITY

Underwritten Public Offering

On August 3, 2018, the Company completed an underwritten public offering of 2,555,555 shares of common stock, including 333,333 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares to cover over-allotments, at a public offering price of $18.00 per share. The Company received aggregate net proceeds of approximately $42.7 million, after deducting underwriting discounts, commissions and offering-related expenses of approximately $3.3 million.

At-the-Market Facility

On November 9, 2018, the Company entered into a sales agreement (the “Agreement”) with Roth Capital Partners, LLC. The Agreement provides a facility for the offer and sale of shares of common stock from time to time having an aggregate offering price of up to $50,000,000 depending upon market demand, in transactions deemed to be an “at-the-market” offering. The Company has no obligation to sell any shares of common stock pursuant to the Agreement and may at any time suspend sales pursuant to the Agreement. Either party may terminate the Agreement at any time without liability.

2018 Stock Incentive Plan

The Company’s 2018 Stock Incentive Plan (the “2018 Plan”), adopted on May 14, 2018, provides for the grant of up to 500,000 shares of common stock as stock options, restricted stock, stock appreciation rights, restricted stock units, performance-based awards and cash-based awards that may be settled in cash, stock or other property to employees, executive officers, directors, and consultants.

In addition to the 500,000 shares, the total number of shares reserved for issuance under the 2018 Plan also consists of the sum of the number of shares subject to outstanding awards under the Company’s 2010 Stock Incentive Plan, as amended and restated (the “2010 Plan”), and the 2013 Stock Incentive Plan, as amended (the “2013 Plan”), as of the effective date of the 2018 Plan that are subsequently forfeited or terminated for any reason prior to being exercised or settled, plus the number of shares subject to vesting restrictions under the 2010 Plan and the 2013 Plan on the effective date of the 2018 Plan that are subsequently forfeited, plus the number of shares reserved but not issued or subject to outstanding grants under the 2010 Plan and the 2013 Plan as of the effective date of the 2018 Plan, up to a maximum of 635,170 shares in aggregate. In addition, the number of shares authorized for issuance under the 2018 Plan is automatically increased (the “evergreen provision”) on the first day of each fiscal year beginning on January 1, 2019, and

10


 

ending on (and including) January 1, 2028, in an amount equal to the lesser of (i) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (ii) another amount (including zero) determined by the Company’s Board of Directors. Any shares subject to awards granted under the 2018 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2018 Plan. Shares withheld to satisfy the grant, exercise price or tax withholding obligation related to an award will again become available for issuance under the 2018 Plan.

The 2018 Plan is administered by the Company’s Board of Directors, which may in turn delegate authority to administer the plan to a committee such as the Compensation Committee, referred to herein as the 2018 Plan administrator. Subject to the terms of the 2018 Plan, the 2018 Plan administrator will determine recipients, the number of shares or amount of cash subject to awards to be granted, whether an option is to be an incentive stock options or non-incentive stock options and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the 2018 Plan administrator will also determine the exercise price of options granted under the 2018 Plan. The 2018 Plan expressly provides that, without the approval of the stockholders, the 2018 Plan administrator does not have the authority to reduce the exercise price of any outstanding stock options or stock appreciation rights under the 2018 Plan (except in connection with certain corporate transactions, such as stock splits, certain dividends, recapitalizations, reorganizations, mergers, spin-offs and the like), or cancel any outstanding underwater stock options or stock appreciation rights in exchange for cash or new stock awards under the 2018 Plan.

Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years. Stock options granted to executive officers and employees generally vest over a four-year period, with 25% vesting on the one-year anniversary of the grant date and the remaining 75% vesting quarterly over the remaining three years, assuming continued service, and with vesting acceleration in full immediately prior to a change in control. Restricted stock units generally vest and are settled upon the first anniversary of the grant date. At June 30, 2019, after the authorization on January 1, 2019 of 403,495 additional shares according to the evergreen provision, 485,973 shares of common stock remained available for the grant of future awards under the 2018 Plan.

2013 Stock Incentive Plan

Private Acer’s 2013 Plan, which was assumed by the Company in connection with the Merger, provided for the issuance of up to 165,000 shares of common stock as incentive or non-qualified stock options and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards were generally granted with an exercise price equal to the fair value of the common stock at the date of grant and had contractual terms of 10 years. At June 30, 2019, all shares available under the 2013 Plan were subject to outstanding equity awards, and no new awards may be granted under the 2013 Plan.

2010 Stock Incentive Plan

The Company’s 2010 Plan, as amended and restated, provided for the grant of up to 470,170 shares of common stock as incentive or non-qualified stock options, stock appreciation rights, restricted stock units and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards were generally granted with an exercise price equal to the fair value of the common stock at the date of grant and had contractual terms of 10 years. At June 30, 2019, all shares available under the 2010 Plan were subject to outstanding equity awards, and no new awards may be granted under the 2010 Plan. 

A summary of option activity under the 2018 Plan, 2013 Plan, and 2010 Plan for the six months ended June 30, 2019, is as follows:

 

Year-to-Date Activity

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

(in millions)

 

Options outstanding at December 31, 2018

 

 

781,725

 

 

$

16.34

 

 

 

9.0

 

 

 

 

 

Granted

 

 

563,150

 

 

 

23.10

 

 

 

 

 

 

 

 

 

Exercised

 

 

(7,813

)

 

 

11.81

 

 

 

 

 

 

 

 

 

Cancelled/forfeited

 

 

(353,556

)

 

 

23.51

 

 

 

 

 

 

 

 

 

Options outstanding at June 30, 2019

 

 

983,506

 

 

 

17.42

 

 

 

8.0

 

 

$

0.1

 

Options exercisable at June 30, 2019

 

 

314,635

 

 

$

11.62

 

 

 

7.2

 

 

$

0.1

 

 

A summary of restricted stock unit activity under the 2018 Plan for the six months ended June 30, 2019, is as follows:

 

11


 

Year-to-Date Activity

 

Number

of Shares

 

 

Weighted

Average

Grant Date Fair Value Per Share

 

 

Aggregate

Intrinsic

Value

(in millions)

 

Non-vested outstanding at December 31, 2018

 

 

 

 

 

 

 

 

 

 

Granted

 

 

15,000

 

 

$

23.60

 

 

 

 

 

Non-vested outstanding at June 30, 2019

 

 

15,000

 

 

$

23.60

 

 

$

0.1

 

 

At June 30, 2019, there was approximately $7.4 million of unrecognized compensation expense related to the stock-based compensation arrangements granted under all plans and the average remaining vesting period was 3.0 years. The weighted average grant date fair value of options granted during the six months ended June 30, 2019 was $13.42. The amount of stock-based compensation expense recorded to research and development and to general and administrative is detailed in table below:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

317,148

 

 

$

182,919

 

 

$

619,134

 

 

$

335,654

 

General and administrative

 

 

398,218

 

 

 

143,508

 

 

 

768,159

 

 

 

243,148

 

 

 

$

715,366

 

 

$

326,427

 

 

$

1,387,293

 

 

$

578,802

 

 

Warrants

On January 23, 2018, all outstanding and unexercised Series J warrants to purchase an aggregate of 2,942 shares of common stock expired. On January 29, 2018, all outstanding and unexercised Series K warrants to purchase an aggregate of 2,262 shares of common stock expired. On April 9, 2018, all outstanding and unexercised Series M warrants to purchase an aggregate of 301,452 shares of common stock expired. At June 30, 2019 and December 31, 2018, there were no warrants outstanding.

8.

NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net loss per share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive.

As of June 30, 2019 and 2018, the number of shares of common stock underlying potentially dilutive securities are comprised of:

 

 

June 30,

 

 

 

2019

 

 

2018

 

Warrants

 

 

 

 

 

10,974

 

Options to purchase common stock and unvested, unsettled restricted stock units

 

 

998,506

 

 

 

666,100

 

Total

 

 

998,506

 

 

 

677,074

 

 

9.

RESTRUCTURING

On June 24, 2019, the Company received a Complete Response Letter from the FDA regarding its New Drug Application for EDSIVOTM (celiprolol) for the treatment of vEDS. The Complete Response Letter stated that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with vEDS. In order to reduce operating expenses and conserve cash resources, on June 28, 2019, the Company initiated a corporate restructuring, which included a reduction of approximately 60% of its full-time workforce of 48 employees and halted pre-commercial activities of EDSIVOTM. The Company recorded a one-time severance-related charge of approximately $1.5 million associated with the workforce reduction in the quarter ended June 30, 2019, of which approximately $1.0 million was included in general and administrative expenses and approximately $0.5 million was included in research and development expenses. As of June 30, 2019, approximately $1.0 million of the one-time severance related-charge was included in accrued expenses on the Company’s unaudited condensed consolidated balance sheet.

12


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition is as of June 30, 2019. Our results of operations and cash flows should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and the audited consolidated financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2018.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report, other than statements of historical fact, constitute “forward-looking statements.” The words “expects,” “believes,” “hopes,” “anticipates,” “estimates,” “may,” “could,” “intends,” “exploring,” “evaluating,” “progressing,” “proceeding” and similar expressions are intended to identify forward-looking statements.

These forward-looking statements do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly historical statements, including, without limitation, statements regarding current or future financial payments, costs, returns, royalties, performance and position, plans and objectives for future operations, plans and objectives for product development, plans and objectives for present and future clinical trials and results of such trials, plans and objectives for regulatory approval, litigation, intellectual property, product development, manufacturing plans and performance, management’s initiatives and strategies, and the development of our product candidates, including EDSIVO™ (celiprolol), ACER-001, and osanetant, constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to, those risks discussed in “Risk Factors,” as well as, without limitation, risks associated with:

 

the strategies, prospects, plans, expectations and objectives of management for future operations, including the anticipated timing of regulatory submissions or actions;

 

the progress, scope or duration of the development of product candidates or programs;

 

the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication;

 

our ability to protect our intellectual property rights;

 

our anticipated operations, financial position, costs or expenses;

 

statements regarding future economic conditions or performance;

 

statements concerning proposed new products, services or developments;

 

the substantial costs and diversion of management’s attention and resources which could result from securities class action litigation; and

 

statements of belief and any statement of assumptions underlying any of the foregoing.

These forward-looking statements speak only as of the date made. We assume no obligation or undertaking to update any forward-looking statements to reflect any changes in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in the reports we file with the Securities and Exchange Commission (“SEC”).

Overview

We are a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for serious rare and life-threatening diseases with significant unmet medical needs. Our pipeline includes three clinical-stage candidates: EDSIVO™ (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”); ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for the treatment of various inborn errors of metabolism, including urea cycle disorders (“UCD”) and Maple Syrup Urine Disease (“MSUD”); and osanetant for the treatment of induced vasomotor symptoms (“iVMS”) where hormone replacement therapy (“HRT”) is likely contraindicated. Our product candidates are believed to present a comparatively de-risked profile, having one or more of a favorable safety profile, clinical proof-of-concept data, mechanistic differentiation, and/or accelerated paths for development through specific programs and procedures established by the United States Food and Drug Administration (“FDA”).

13


 

Merger and Reverse Stock Split

On September 19, 2017, Acer Therapeutics Inc., a Texas corporation, formerly known as Opexa Therapeutics, Inc. (the “Registrant”), completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). This transaction was approved by the Registrant’s stockholders on September 19, 2017. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers in this report have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer.

For accounting and financial reporting purposes, Private Acer was considered to have acquired the Registrant in the Merger. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer Therapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

Delaware Reincorporation

On May 15, 2018, we changed our state of incorporation from the State of Texas to the State of Delaware (the “Reincorporation”) pursuant to a plan of conversion, dated May 15, 2018. The Reincorporation was approved by our stockholders at our annual meeting on May 14, 2018.

Restructuring

On June 24, 2019, we received a Complete Response Letter from the FDA regarding our New Drug Application (“NDA”) for EDSIVOTM (celiprolol) for the treatment of vEDS. The Complete Response Letter stated that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with vEDS. In order to reduce operating expenses and conserve cash resources, on June 28, 2019, we initiated a corporate restructuring, which included a reduction of approximately 60% of our full-time workforce of 48 employees and halted pre-commercial activities of EDSIVOTM. We recorded a one-time severance-related charge of approximately $1.5 million associated with the workforce reduction in the quarter ended June 30, 2019. We expect the restructuring to align the resources needed for us to conduct our planned business operations and maintain our liquidity through the end of 2020.

Revenue

We have no products approved for commercial sale and have not generated any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates.

In the future, we may generate revenue by entering into licensing arrangements or strategic alliances. To the extent we enter into any license arrangements or strategic alliances, we expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of achievement of pre-clinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount of payments relating to such milestones, as well as the extent to which any products are approved and successfully commercialized.

If our product candidates are not developed in a timely manner, if regulatory approval is not obtained for them, or if such product candidates are not commercialized, our ability to generate future revenue, and our results of operations and financial position, would be adversely affected.

14


 

Research and Development Expenses

Research and development expenses consist of costs associated with the development of our product candidates. Our research and development expenses include:

 

 

employee-related expenses, including salaries, benefits, and stock-based compensation;

 

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, consultants, and our scientific advisors; and

 

license fees and other direct costs of acquiring intellectual property.

We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

At any time, we are working on multiple programs, primarily within our therapeutic areas of focus. Our internal resources, employees, and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not generate meaningful information regarding the costs incurred for these early stage research and drug discovery programs on a specific project basis. However, we had been spending the vast majority of our research and development resources on our two lead development programs.

Since our inception in December 2013, we have spent a total of approximately $36.6 million in research and development expenses through June 30, 2019. Of that amount, approximately $29.9 million was directly related to EDSIVOTM and approximately $5.9 million was directly related to ACER-001.

We expect our research and development expenses to be substantial for the foreseeable future as we continue to conduct our ongoing regulatory activities, initiate new preclinical and clinical trials, and build upon our pipeline. The process of conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval, preparing to seek regulatory approval, and preparing for commercialization in the event of regulatory approval, is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates.

Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each product candidate, the timing and ability to obtain regulatory approval for our product candidates (if any), and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates and pursue regulatory approval.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and stock-based compensation; pre-commercial costs that had been associated with preparing for the commercial launch of EDSIVOTM for the treatment of vEDS, if approved by the FDA, and professional fees for legal, business consulting, auditing, and tax services. We expect that general and administrative expenses will be substantial in the future as we modify our operating activities.

Other income, net

Other income, net consists primarily of interest income. We earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents. Additionally, we record as part of other income, net, transactional gains and losses on foreign currency denominated assets and liabilities when they are revalued each period due to changes in underlying exchange rates.

Critical Accounting Polices and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires our management

15


 

to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates. Other than those noted within Note 2 to our unaudited condensed consolidated financial statements, there have been no material changes to our critical accounting policies during the six months ended June 30, 2019. Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2018 for a discussion of our critical accounting policies and significant judgments and estimates.

Goodwill

Goodwill represents the excess of cost over fair value of net assets acquired in the Merger and in our prior acquisition of Anchor Therapeutics, Inc. (“Anchor”). We evaluate according to Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350), which we adopted in the fourth quarter of 2018, the recoverability of goodwill annually, or more frequently, if events or changes in circumstances indicate that the carrying value of goodwill might be impaired. We may opt to perform a qualitative assessment or a quantitative impairment test to determine whether goodwill is impaired. If we were to determine based on a qualitative assessment that it was more likely than not that the fair value of the reporting unit was less than its carrying value, a quantitative impairment test would then be performed. The quantitative impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit were less than its carrying amount, a goodwill impairment would be recognized for the difference.

In-process Research and Development

In-process research and development (“IPRD”) represents the value of the three G-protein-coupled receptor targets from the GPCR Target Pools of Anchor that we obtained the rights to in the March 20, 2015 acquisition of Anchor by Private Acer. IPRD was recorded at fair value in conjunction with the Anchor acquisition during 2015 and is an indefinite-lived intangible asset. As such, it is tested at least annually for impairment.

Stock-Based Compensation

We account for stock-based compensation expense related to stock options under our 2018 Stock Incentive Plan, our 2013 Stock Incentive Plan, as amended, and our 2010 Stock Incentive Plan, as amended and restated, by estimating the fair value of each stock option on the date of grant using the Black-Scholes model. We recognize stock-based compensation expense for stock options and restricted stock units on a straight-line basis over the vesting term.

Research and Development

Research and development costs are expensed as incurred and include compensation and related benefits, license fees and outside contracted research and manufacturing consultants. We often make nonrefundable advance payments for goods and services that will be used in future research and development activities. These payments are capitalized and recorded as an expense in the period that we receive the goods or when the services are performed.

Clinical Trial and Pre-Clinical Study Expenses

We make estimates of prepaid and/or accrued expenses as of each balance sheet date in our consolidated financial statements based on certain facts and circumstances at that time. Our accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred for services provided by contract research organizations (“CRO”), manufacturing organizations, and for other trial-related activities. Payments under our agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change. As these activities are generally material to our overall financial statements, subsequent changes in estimates may result in a material change in our accruals. No material changes in estimates were recognized in the three and six months ended June 30, 2019.

16


 

Results of Operations

Comparison of the three months ended June 30, 2019 and 2018

The following table summarizes our results of operations for the three months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Research and development

 

$

4,246,244

 

 

$

2,688,159

 

 

$

1,558,085

 

 

 

58

%

General and administrative

 

 

6,919,476

 

 

 

2,227,947

 

 

 

4,691,529

 

 

 

211

%

Loss from operations

 

 

(11,165,720

)

 

 

(4,916,106

)

 

 

(6,249,614

)

 

 

127

%

Total other income, net

 

 

124,213

 

 

 

80,616

 

 

 

43,597

 

 

 

54

%

Net loss

 

$

(11,041,507

)

 

$

(4,835,490

)

 

$

(6,206,017

)

 

 

128

%

Research and Development Expenses

Research and development expenses were approximately $4.2 million during the three months ended June 30, 2019, as compared to approximately $2.7 million during the three months ended June 30, 2018. This increase of approximately $1.5 million was principally due to a $1.1 million increase in employee-related expenses, which included expense of $0.5 million related to the restructuring. The remaining increase in research and development expenses was primarily due to increases in expenses related to manufacturing services, partially offset by decreases in spending for research services. Research and development expenses for the three months ended June 30, 2019 were primarily comprised of approximately $3.0 million related to EDSIVOTM and approximately $1.0 million related to ACER-001.

General and Administrative Expenses

General and administrative expenses were approximately $6.9 million for the three months ended June 30, 2019, as compared to approximately $2.2 million for the three months ended June 30, 2018. This increase of approximately $4.7 million was principally due to a $2.7 million increase in employee-related expenses, which included expense of $1.0 million related to the restructuring. The remaining increase in general and administrative expenses was primarily due to increases in expenses related to pre-commercial activities and professional services.

Other Income, Net

Other income, net of approximately $0.1 million during each of the three months ended June 30, 2019 and 2018 was primarily attributable to interest income, partially offset by foreign exchange transaction loss.

Comparison of the six months ended June 30, 2019 and 2018

The following table summarizes our results of operations for the six months ended June 30, 2019 and 2018:

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Research and development

 

$

8,192,464

 

 

$

4,762,130

 

 

$

3,430,334

 

 

 

72

%

General and administrative

 

 

11,150,174

 

 

 

4,144,977

 

 

 

7,005,197

 

 

 

169

%

Loss from operations

 

 

(19,342,638

)

 

 

(8,907,107

)

 

 

(10,435,531

)

 

 

117

%

Total other income, net

 

 

332,426

 

 

 

88,013

 

 

 

244,413

 

 

 

278

%

Net loss

 

$

(19,010,212

)

 

$

(8,819,094

)

 

$

(10,191,118

)

 

 

116

%

Research and Development Expenses

Research and development expenses were approximately $8.2 million during the six months ended June 30, 2019, as compared to approximately $4.8 million during the six months ended June 30, 2018. This increase of approximately $3.4 million was principally due to a $1.6 million increase in employee-related expenses, which included expense of $0.5 million related to the restructuring. The remaining increase in research and development expenses was primarily due to expenses related to manufacturing services and regulatory and filing fees, partially offset by a decrease in spending for contract research services. Research and development expenses for the six months ended June 30, 2019 were primarily comprised of approximately $6.3 million related to EDSIVOTM and approximately $1.6 million related to ACER-001.

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General and Administrative Expenses

General and administrative expenses were approximately $11.2 million for the six months ended June 30, 2019 as compared to approximately $4.1 million for the six months ended June 30, 2018. This increase of approximately $7.1 million was primarily due to a $3.8 million increase in employee-related expenses, which included expense of $1.0 million related to the restructuring. The remaining increase in general and administrative expenses was primarily due to increases in expenses related to pre-commercial activities.

Other Income, Net

Other income, net of approximately $0.3 million during the six months ended June 30, 2019 and of approximately $0.1 million during the six months ended June 30, 2018 was primarily attributable to interest income.

Liquidity and Capital Resources

We have never been profitable and have incurred operating losses in each year since inception. From inception to June 30, 2019, we have raised net cash proceeds of approximately $81.7 million, primarily from common stock offerings, private placements of convertible preferred stock, and debt financings. On August 3, 2018, we completed an underwritten public offering of 2,555,555 shares of common stock at a public offering price of $18.00 per share. We received aggregate net proceeds of approximately $42.7 million, after deducting underwriting discounts, commissions and offering-related expenses of approximately $3.3 million. As of June 30, 2019, we had approximately $23.5 million in cash and cash equivalents. Our net loss was approximately $11.0 million for the three months ended June 30, 2019. As of June 30, 2019, we had an accumulated deficit of approximately $65.8 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

The following table shows a summary of our cash flows for the six months ended June 30, 2019 and 2018:

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

Operating activities

 

$

(18,140,401

)

 

$

(7,246,703

)

Investing activities

 

 

(134,960

)

 

 

(15,132

)

Financing activities

 

 

92,272

 

 

 

(38,747

)

Net decrease in cash and cash

   equivalents

 

$

(18,183,089

)

 

$

(7,300,582

)

Operating Activities

Cash used in operating activities was approximately $18.1 million for the six months ended June 30, 2019, as compared to approximately $7.2 million for the six months ended June 30, 2018. The increase of approximately $10.9 million was principally the result of an increase in net loss due to increased operating expense adjusted for non-cash items such as stock-based compensation, as well as of a decrease in accrued expenses.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2019 and 2018 related primarily to purchases of computer equipment and furniture and fixtures.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2019 consisted of approximately $92 thousand of proceeds from the exercise of stock options. Net cash used in financing activities during the six months ended June 30, 2018 consisted of approximately $39 thousand of residual costs related to our offering of common stock in December 2017.

18


 

Future Capital Requirements

We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates. At the same time, we expect to continue to incur significant expenses in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates and thereafter successfully commercializing any such product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.

On June 28, 2019, in order to reduce operating expenses and conserve cash resources while we continue to dialogue with the FDA to fully understand its Complete Response Letter regarding our NDA for EDSIVO™, we implemented a corporate restructuring which included a reduction of approximately 60% of our full-time workforce of 48 employees and halted pre-commercial activities of EDSIVO™. We recorded a one-time severance-related charge of approximately $1.5 million associated with the workforce reduction. As of June 30, 2019, we had approximately $23.5 million in cash and cash equivalents. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our currently anticipated operating and capital requirements through the end of 2020.

Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:

 

any continued development of EDSIVOTM we may or may not decide to pursue in light of the FDA’s June 24, 2019 Complete Response Letter;

 

our ability to obtain adequate levels of financing to meet our operating plan;

 

the costs associated with filing, outcome, and timing of regulatory approvals;

 

the terms and timing of any strategic alliance, licensing and other arrangements that we may establish;

 

the cost and timing of hiring any new employees to support our business operations;

 

the costs and timing of having clinical supplies of our product candidates manufactured;

 

the initiation and progress of ongoing pre-clinical studies and clinical trials for our product candidates;

 

the costs involved in patent filing, prosecution, and enforcement; and

 

the number of programs we pursue.

We will continue to require substantial additional capital to continue our clinical development and pursuit of regulatory approval activities. Accordingly, we may need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development, regulatory and commercialization efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop and potentially commercialize (if approved) our product candidates.

We expect to incur significant expenses and operating losses for at least the next year as we initiate and continue the clinical development of, seek regulatory approval for, and potentially commercialize (if approved) our product candidates. In addition, operating as a publicly-traded company involves upgrading financial information systems and incurring costs associated with operating as a public company. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to the timing of clinical development programs, efforts to achieve regulatory approval, and planning for potential commercialization (if approved) of our product candidates.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which would require us to obtain regulatory approval for and successfully commercialize one or more of our product candidates, we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances. We do not maintain any lines of credit or have any sources of debt or equity capital committed for funding, other than the sales agreement entered into on November 9, 2018 with Roth Capital Partners, LLC. This agreement provides a facility for the offer and sale of shares of common stock from time to time depending upon market demand, in transactions deemed to be an “at-the-market” (“ATM”) offering. We will need to keep current our shelf registration statement and the offering prospectus relating to the ATM facility, in addition to providing certain periodic deliverables under the sales agreement, in order to use such facility.

To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants

19


 

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 marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs 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, we may be required to delay, limit, reduce or terminate our product development or pursuit of regulatory approval efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and, if applicable, market ourselves.

Contractual Commitments

License Agreements

In April 2014, we obtained exclusive rights to patents and certain other intellectual property relating to ACER-001 and preclinical and clinical data, through an exclusive license agreement with Baylor College of Medicine (“BCM”). Under the terms of the agreement, as amended, we have worldwide exclusive rights to develop, manufacture, use, sell and import products incorporating the licensed intellectual property. The license agreement requires us to make upfront and annual payments to BCM, reimburse certain of BCM’s legal costs, make payments upon achievement of defined milestones, and pay low single-digit percent royalties on net sales of any developed product over the royalty term.

In June 2016, we entered into an agreement with Aventis Pharma SA (now Sanofi) granting us the exclusive access and exclusive right to use the data included in the marketing authorization application dossier filed with and approved by the MHRA in 1986 for the treatment of mild to moderate hypertension pursuant to the UK regulatory approval procedure, for the sole purpose of allowing us to further develop, manufacture, register and commercialize celiprolol in the United States and Brazil for the treatment of EDS, Marfan syndrome and Loeys-Dietz syndrome. We have paid in full for the exclusive access and right to use the data. Subsequently we amended our agreement with Sanofi to provide the same rights to data access and use for potential marketing approval in all of North and South America.

In August 2016, we entered into an agreement with AP-HP granting us the exclusive worldwide rights to access and use data from a multicenter, prospective, randomized, open trial related to the use of celiprolol for the treatment of vEDS. The agreement requires us to make certain upfront payments to AP-HP, reimburse certain of AP-HP’s costs, make payments upon achievement of defined milestones and pay low single-digit percent royalties on net sales of celiprolol over the royalty term.

In September 2018, we entered into an additional agreement with AP-HP to acquire the exclusive worldwide intellectual property rights to three European patent applications relating to certain uses of celiprolol including (i) the use of celiprolol during pregnancy, (ii) the optimal dose of celiprolol in treating vascular Ehlers-Danlos syndrome (“vEDS”) patients and (iii) the use of celiprolol to treat kyphoscoliotic Ehlers-Danlos syndrome (type VI). Pursuant to the agreement, we will reimburse AP-HP for certain costs and will pay annual maintenance fee payments. Subject to a minimum royalty amount, we will also pay royalty payments on annual net sales of celiprolol during the royalty term in the low single digit percent range, depending upon whether there is a valid claim of a licensed patent. Under the agreement, we will control and pay the costs of ongoing patent prosecution and maintenance for the licensed applications. We subsequently filed three United States patent applications on this subject matter in October 2018.

In December 2018, we entered into an exclusive license agreement with Sanofi granting us worldwide rights to osanetant, a clinical-stage, selective, non-peptide tachykinin NK3 receptor antagonist. The agreement requires us to make certain upfront payments to Sanofi, make payments upon achievement of defined development and sales milestones and pay royalties on net sales of osanetant over the royalty term. We plan to initially pursue development of osanetant as a potential treatment for iVMS where HRT is likely contraindicated.

Off-Balance Sheet Arrangements

None.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

20


 

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of June 30, 2019, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of June 30, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21


 

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

From time to time, the Company may become involved in litigation or proceedings relating to claims arising out of its operations.

See Note 6 to our unaudited condensed consolidated financial statements included in this report for a description of our litigation with Piper Jaffray & Co. and a putative securities class action complaint filed against us.

Item 1A.

Risk Factors.

Investing in our securities involves a high degree of risk. You should consider the following risk factors, as well as other information contained or incorporated by reference in this report, before deciding to invest in our securities. The following factors affect our business, our intellectual property, the industry in which we operate and our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our business. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected, the market price of our securities could decline and you could lose all or part of your investment in our securities.

Risks Related to Our Business and Financial Condition

Our recent business priority has been premised upon on the approval and commercial success of EDSIVO™ (celiprolol). In light of the United States Food and Drug Administration’s (“FDA’s”) June 24, 2019 Complete Response Letter regarding our New Drug Application (“NDA”) for EDSIVO™, we halted pre-commercial activities for EDSIVO™ while we continue our dialogue with the FDA and work toward our goal of approval for EDSIVO™. However, there can be no assurance that any appeal or dialogue with the FDA would be successful, and we may decide at any time not to continue development of EDSIVO™.

On June 24, 2019, we received a Complete Response Letter from the FDA regarding our NDA for EDSIVOTM (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”). The Complete Response Letter stated that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with vEDS. We had previously devoted a substantial majority of our research, development, clinical, and pre-commercial efforts and financial resources towards the development of EDSIVO™. In order to reduce operating expenses and conserve cash resources while we continue to dialogue with the FDA to fully understand its response and work toward our goal of approval of EDSIVO™, on June 28, 2019, we implemented a corporate restructuring which included a reduction of approximately 60% of our full-time workforce of 48 employees and halted pre-commercial activities of EDSIVOTM. Depending on our progress in discussions with the FDA, which may include a formal dispute resolution request to appeal the Complete Response Letter, as well as our available resources and needs, we may decide at any time not to continue development of EDSIVO™, which could have a material adverse effect on our business operations and financial prospects.

We have a limited operating history and have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may never achieve or maintain profitability. The absence of any commercial sales and our limited operating history make it difficult to assess our future viability.

We are a development-stage pharmaceutical company with a limited operating history. On September 19, 2017, we completed the reverse merger (the “Merger’) with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among Private Acer, ourselves and Opexa Merger Sub, Inc. Also, on September 19, 2017, in connection with, and prior to the completion of, the Merger, we effected a 1-for-10.355527 reverse stock split of our common stock and changed our name to “Acer Therapeutics Inc.”

Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are focused principally on repurposing and/or reformulating existing drugs for serious rare and life-threatening diseases with significant unmet medical needs. We are not profitable and Private Acer had incurred losses in each year since its inception in 2013. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. We have not generated any revenue to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the six months ended June 30, 2019 was $19.0 million. As of June 30, 2019, we had an accumulated deficit of $65.8 million. We expect to continue to incur losses for the foreseeable future as we continue our development of, and seek marketing approvals for, our product candidates.

22


 

We have devoted substantially all of our financial resources to identify, acquire, and develop our product candidates, including providing general and administrative support for our operations. To date, we have financed our operations primarily through the sale of equity securities and convertible promissory notes. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect losses to increase as we conduct clinical trials and continue to develop our product candidates. We expect to invest significant funds into the research and development of our current product candidates to determine the potential to advance these product candidates to regulatory approval. We may also invest in acquiring or in-licensing additional product candidates to expand our pipeline.

If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets. Even if we obtain adequate market share for our product candidates, because the potential markets in which our product candidates may ultimately receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of our products.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and our expenses will increase substantially if and as we:

 

seek regulatory and marketing approvals and reimbursement for our product candidates;

 

continue the clinical development of our product candidates;

 

continue efforts to discover new product candidates;

 

undertake the manufacturing of our product candidates or increase volumes manufactured by third parties;

 

advance our programs into larger, more expensive clinical trials;

 

initiate additional pre-clinical, clinical, or other trials or studies for our product candidates;

 

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval and market for ourselves;

 

seek to identify, assess, acquire and/or develop other product candidates;

 

make milestone, royalty or other payments under third-party license agreements;

 

seek to maintain, protect and expand our intellectual property portfolio;

 

seek to attract and retain skilled personnel; and

 

experience any delays or encounter issues with the development and potential for regulatory approval of our clinical candidates such as safety issues, clinical trial enrollment delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses we incur will fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

We currently have no source of product sales revenue and may never be profitable.

We have not generated any revenues from commercial sales of any of our current product candidates: EDSIVOTM (for vEDS), ACER-001 (for urea cycle disorders (“UCD”) and Maple Syrup Urine Disease (“MSUD”)), and osanetant (for the treatment of induced vasomotor symptoms where hormone replacement therapy is likely contraindicated). Our ability to generate product revenue depends upon our ability to successfully identify, develop and commercialize these product candidates or other product candidates that we may develop, in-license or acquire in the future. Our ability to generate future product revenue from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

successfully complete research and clinical development of current and future product candidates;

 

establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of product candidates;

 

obtain regulatory approval from relevant regulatory authorities in jurisdictions where we intend to market our product candidates;

 

launch and commercialize future product candidates for which we obtain marketing approval, if any, and if launched independently, successfully establish a sales force and medical affairs, marketing and distribution infrastructure;

23


 

 

obtain coverage and adequate product reimbursement from third-party payors, including government payors;

 

achieve market acceptance for our approved products, if any;

 

establish, maintain and protect our intellectual property rights; and

 

attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with clinical product development, including that our product candidates may not successfully advance through development or achieve regulatory approval, we are unable to predict the timing or amount of any potential future product sales revenues. Our expenses also could increase beyond expectations if we decide to or are required by the FDA, or comparable foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. On June 24, 2019, we received a Complete Response Letter from the FDA regarding our NDA for EDSIVO™ for the treatment of vEDS. The Complete Response Letter states that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with vEDS. In light of the Complete Response Letter, we have currently halted pre-commercial activities for EDSIVO™ as part of a corporate restructuring initiative while we continue our dialogue with the FDA to fully understand its response and work toward our goal of approval of EDSIVO™. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.

We may require additional financing to obtain marketing approval of our product candidates and, if approved, to commercialize our product candidates, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, substantially all of our resources have been dedicated to the clinical development of our product candidates. As of June 30, 2019, we had an accumulated deficit of $65.8 million, cash and cash equivalents of $23.5 million and current liabilities aggregating to $4.9 million. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements through the end of 2020.

We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we may choose to further develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any.

Our operating plan may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including: