10-Q 1 scyx-10q_20200331.htm 10-Q scyx-10q_20200331.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 MARCH 31, 2020

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 001-36365

 

SCYNEXIS, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

56-2181648

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1 Evertrust Plaza, 13th Floor

Jersey City, New Jersey

 

07302-6548

(Address of principal executive offices)

 

(Zip Code)

 

(201)-884-5485

(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, par value $0.001 per share

SCYX

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    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, a 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 May 1, 2020, there were 98,587,061 shares of the registrant’s Common Stock outstanding.

 

 

 


Table of Contents

 

SCYNEXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

 

2

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

3

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

4

Item 2.

 

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

 

15

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

 

Controls and Procedures

 

23

 

 

 

PART II OTHER INFORMATION

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

Item 6.

 

Exhibits

 

25

 

 

 

Signatures

 

26

 

 

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,253

 

 

$

41,920

 

Short-term investments

 

 

14,267

 

 

 

6,494

 

Prepaid expenses and other current assets

 

 

2,270

 

 

 

3,988

 

Total current assets

 

 

36,790

 

 

 

52,402

 

Other assets

 

 

812

 

 

 

812

 

Deferred offering costs

 

 

110

 

 

 

70

 

Restricted cash

 

 

273

 

 

 

273

 

Property and equipment, net

 

 

381

 

 

 

405

 

Operating lease right-of-use asset (See Note 7)

 

 

3,143

 

 

 

3,191

 

Total assets

 

$

41,509

 

 

$

57,153

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,222

 

 

$

7,177

 

Accrued expenses

 

 

1,792

 

 

 

3,801

 

Operating lease liability, current portion (See Note 7)

 

 

40

 

 

 

36

 

Total current liabilities

 

 

7,054

 

 

 

11,014

 

Warrant liabilities

 

 

13,628

 

 

 

18,396

 

Convertible debt and derivative liability (See Note 6)

 

 

11,100

 

 

 

11,522

 

Operating lease liability (See Note 7)

 

 

3,272

 

 

 

3,326

 

Total liabilities

 

 

35,054

 

 

 

44,258

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized 5,000,000 shares as of March 31, 2020 and December 31, 2019; 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value, 250,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 97,876,042 and 97,413,721 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

98

 

 

 

97

 

Additional paid-in capital

 

 

284,787

 

 

 

284,226

 

Accumulated deficit

 

 

(278,430

)

 

 

(271,428

)

Total stockholders’ equity

 

 

6,455

 

 

 

12,895

 

Total liabilities and stockholders’ equity

 

$

41,509

 

 

$

57,153

 

 

The accompanying notes are an integral part of the financial statements.

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Table of Contents

 

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$

 

 

$

64

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

9,866

 

 

 

9,684

 

Selling, general and administrative

 

 

2,613

 

 

 

2,241

 

Total operating expenses

 

 

12,479

 

 

 

11,925

 

Loss from operations

 

 

(12,479

)

 

 

(11,861

)

Other (income) expense:

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

814

 

Amortization of debt issuance costs and discount

 

 

278

 

 

 

200

 

Interest income

 

 

(147

)

 

 

(281

)

Interest expense

 

 

210

 

 

 

367

 

Other income

 

 

(350

)

 

 

 

Warrant liabilities fair value adjustment

 

 

(4,768

)

 

 

6,522

 

Derivative liability fair value adjustment

 

 

(700

)

 

 

3,425

 

Total other (income) expense

 

 

(5,477

)

 

 

11,047

 

Net loss

 

$

(7,002

)

 

$

(22,908

)

Net loss per share - basic and diluted

 

$

(0.07

)

 

$

(0.46

)

Weighted average common shares outstanding – basic and diluted

 

 

97,445,775

 

 

 

49,317,575

 

 

The accompanying notes are an integral part of the financial statements.

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Table of Contents

 

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,002

)

 

$

(22,908

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

28

 

 

 

29

 

Stock-based compensation expense

 

 

410

 

 

 

492

 

Accretion of investments discount

 

 

(31

)

 

 

(82

)

Amortization of debt issuance costs and discount

 

 

278

 

 

 

200

 

Change in fair value of warrant liabilities

 

 

(4,768

)

 

 

6,522

 

Change in fair value of derivative liability

 

 

(700

)

 

 

3,425

 

Noncash operating lease expense for right-of-use asset

 

 

48

 

 

 

48

 

Loss on extinguishment of debt

 

 

 

 

 

814

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses, other assets, deferred costs, and other

 

 

1,734

 

 

 

6,390

 

Accounts payable, accrued expenses, and other

 

 

(4,054

)

 

 

(1,367

)

Deferred revenue

 

 

 

 

 

(64

)

Net cash used in operating activities

 

 

(14,057

)

 

 

(6,501

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Maturities of investments

 

 

6,477

 

 

 

24,638

 

Purchases of property and equipment

 

 

(4

)

 

 

 

Purchases of investments

 

 

(14,235

)

 

 

(18,041

)

Net cash (used in) provided by investing activities

 

 

(7,762

)

 

 

6,597

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from common stock issued

 

 

214

 

 

 

2,588

 

Payments of offering costs and underwriting discounts and commissions

 

 

(7

)

 

 

(77

)

Proceeds from common stock issuance under employee stock purchase plan

 

 

18

 

 

 

20

 

Repurchase of shares to satisfy tax withholdings

 

 

(73

)

 

 

 

Proceeds from senior convertible notes

 

 

 

 

 

16,000

 

Payments of senior convertible notes issuance costs

 

 

 

 

 

(1,143

)

Payment of loan payable expected to be refinanced

 

 

 

 

 

(15,973

)

Net cash provided by financing activities

 

 

152

 

 

 

1,415

 

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(21,667

)

 

 

1,511

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

42,193

 

 

 

11,767

 

Cash, cash equivalents, and restricted cash at end of period

 

$

20,526

 

 

$

13,278

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

420

 

 

$

411

 

Cash received for interest

 

$

129

 

 

$

291

 

Noncash financing and investing activities:

 

 

 

 

 

 

 

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

 

 

$

3,365

 

Deferred offering and issuance costs included in accounts payable and accrued expenses

 

$

40

 

 

$

110

 

Deferred offering costs reclassified to additional-paid-in capital

 

$

 

 

$

2

 

 

The accompanying notes are an integral part of the financial statements.

 

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Table of Contents

 

SCYNEXIS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.

Description of Business and Basis of Preparation

Organization

SCYNEXIS, Inc. (“SCYNEXIS” or the “Company”) is a Delaware corporation formed on November 4, 1999. SCYNEXIS is a biotechnology company, headquartered in Jersey City, New Jersey, pioneering innovative medicines to help millions of patients worldwide in need of new options to overcome and prevent difficult-to-treat and drug resistant infections.  The Company is developing its lead product candidate, ibrexafungerp, as a broad-spectrum, intravenous (IV)/oral agent in late stage development for multiple indications, ranging from the treatment of vaginal yeast infections in the community setting to life-threatening invasive fungal infections in hospitalized patients.

The Company has incurred significant losses and negative cash flows from operations since its initial public offering in May 2014 and expects to continue to incur losses and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of $278.4 million at March 31, 2020 and limited capital resources to fund ongoing operations. These capital resources primarily comprised cash and cash equivalents of $20.3 million and short-term investments of $14.3 million at March 31, 2020. While the Company believes its capital resources are sufficient to fund the Company’s on-going operations for a period of a least 12 months subsequent to the issuance of the accompanying unaudited condensed consolidated financial statements, the Company's liquidity could be materially affected over this period by, among other things: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to its development of ibrexafungerp; or (4) any other unanticipated material negative events or costs.  Should one or more of these negative events or costs materially affect its liquidity, the Company’s available capital resources may not be sufficient for it to continue to meet its obligations as they become due over the next 12 months.  If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.  Intercompany balances and transactions are eliminated in consolidation.

Shelf Registration Filing

On August 31, 2018, the Company filed a shelf registration statement on Form S-3 (File No. 333-227167) with the Securities and Exchange Commission (“SEC”), which was declared effective on September 14, 2018 (the “Shelf Registration”). The Shelf Registration contained three prospectuses:

 

a base prospectus which covers the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $175.0 million of the Company’s common stock, preferred stock, debt securities and warrants, including common stock or preferred stock issuable upon conversion of debt securities, common stock issuable upon conversion of preferred stock, or common stock, preferred stock or debt securities issuable upon the exercise of warrants;

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a prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $25.0 million of the Company's common stock that may be issued and sold under a Controlled Equity Offering Sales AgreementSM (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”).  Pursuant to the Sales Agreement, the Company may sell from time to time, at its option, up to an aggregate of $25.0 million of the Company’s common stock, through Cantor, as sales agent.  Pursuant to the Sales Agreement, sales of the common stock, if any, will be made under the Company’s effective Shelf Registration; and

 

a warrant prospectus covering the offering, issuance, and sale of the Company’s common stock issuable upon the exercise of warrants, consisting of (i) warrants to purchase 4,218,750 shares of the Company’s common stock at an exercise price of $3.00 per share originally issued by the Company on June 24, 2016, (ii) warrants to purchase 13,198,075 shares of the Company’s common stock at an exercise price of $1.85 per share originally issued by the Company on March 8, 2018, and (iii) warrants to purchase 7,988,175 shares of the Company’s common stock at an exercise price of $2.00 per share originally issued by the Company on March 8, 2018.  The warrants to purchase 13,198,075 shares of the Company’s common stock expired on March 14, 2019.  Upon full exercise for cash of the warrants outstanding on March 31, 2020, the holders of the warrants would pay the Company an aggregate of approximately $28.6 million.  See Note 8 for further details.

December 2019 Public Offering

On December 12, 2019, the Company completed a public offering (the "December 2019 Public Offering") of its common stock and warrants pursuant to the Company's effective Shelf Registration.  The Company sold an aggregate of 38,888,889 shares of the Company’s common stock and warrants to purchase up to an aggregate of 38,888,889 shares of the Company’s common stock at a public offering price of $0.90 per share and accompanying warrant.  Net proceeds from the December 2019 Public Offering were approximately $32.5 million, after deducting the underwriting discount and estimated offering expenses.  In addition, the Company granted to the underwriters an option to purchase up to 5,833,333 additional shares of common stock and/or warrants to purchase up to an aggregate of an additional 5,833,333 shares of common stock, in each case at the public offering price, less underwriting discounts and commissions. The underwriters exercised their option to purchase 5,833,333 warrants in December 2019.  The option to purchase up to 5,833,333 additional shares of common stock was not exercised by the underwriters and the option expired in January 2020.  See Note 8 for further details.

The common stock that may be offered, issued and sold by the Company under the Sales Agreement is included in the $175.0 million of securities that may be offered, issued and sold by the Company under the base prospectus. Upon termination of the Sales Agreement with Cantor, any portion of the $25.0 million included in the Sales Agreement that is not sold pursuant to the Sales Agreement will be available for sale in other offerings pursuant to the base prospectus and a corresponding prospectus supplement.  As of March 31, 2020, approximately $127.3 million of securities registered under the base prospectus are available to be offered, issued and sold by the Company.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows.  The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020.  

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include: determination of the fair value of stock-based compensation grants; the estimate of services and effort expended by third-party research and development service providers used to recognize research and development expense; and the estimates and assumptions utilized in measuring the fair values of the warrant and derivative liabilities each reporting period.

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2.

Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2019, except as described below.

Basic and Diluted Net Loss per Share of Common Stock

The Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic net loss per common share for the three months ended March 31, 2020 and 2019 was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period.   

The following potentially dilutive shares of common stock have not been included in the computation of diluted net loss per share for the three months ended March 31, 2020 and 2019, as the result would be anti-dilutive:

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

Warrants to purchase Series C-1 Preferred

 

 

 

 

14,033

 

Warrants to purchase common stock associated with Solar loan agreement

 

122,435

 

 

 

122,435

 

Warrants to purchase common stock associated with June 2016 public offering

 

4,218,750

 

 

 

4,218,750

 

Warrants to purchase common stock associated with March 2018 public offering – Series 2

 

7,988,175

 

 

 

7,988,175

 

Outstanding stock options

 

7,684,762

 

 

 

5,310,498

 

Outstanding restricted stock units

 

862,514

 

 

 

107,841

 

Common stock associated with 6% convertible senior notes

 

11,382,000

 

 

 

13,008,000

 

Warrants to purchase common stock associated with December 2019 Public Offering

 

44,722,222

 

 

 

 

Total

 

76,980,858

 

 

 

30,769,732

 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which revised the effective dates for ASU 2016-13 for public business entities that meet the SEC definition of a smaller reporting company to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.  As a smaller reporting company, the Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, Fair Value Measurement. ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The Company adopted ASU 2018-13 during the three months ended March 31, 2020 and as a result, included the required additional disclosures for its Level 3 fair value measurements in its unaudited condensed consolidated financial statements (see Note 10).  The Company did not identify any other material impacts of ASU 2018-13 on its unaudited condensed consolidated financial statements.

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3.

Short-term Investments

The following table summarizes the held-to-maturity securities held at March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

As of March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

6,000

 

 

$

18

 

 

$

(15

)

 

$

6,003

 

Commercial paper

 

 

8,267

 

 

 

 

 

 

 

 

 

8,267

 

Total short-term investments

 

$

14,267

 

 

$

18

 

 

$

(15

)

 

$

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

1,996

 

 

$

15

 

 

$

(14

)

 

$

1,997

 

Commercial paper

 

 

998

 

 

 

 

 

 

 

 

 

998

 

Overnight repurchase agreement

 

 

3,500

 

 

 

 

 

 

 

 

 

3,500

 

Total short-term investments

 

$

6,494

 

 

$

15

 

 

$

(14

)

 

$

6,495

 

All held-to-maturity short-term investments at March 31, 2020 and December 31, 2019 will mature in less than one year.  The gross unrealized gains and losses for the Company’s commercial paper and overnight repurchase agreement are not significant.  The Company carries short-term investments at amortized cost. The fair value of the short-term investments is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

4.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

March 31, 2020

 

 

December 31, 2019

 

Prepaid research and development services

 

$

1,176

 

 

$

3,043

 

Prepaid insurance

 

 

92

 

 

 

252

 

Other prepaid expenses

 

 

88

 

 

 

19

 

Other current assets

 

 

914

 

 

 

674

 

Total prepaid expenses and other current assets

 

$

2,270

 

 

$

3,988

 

 

5.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

March 31, 2020

 

 

December 31, 2019

 

Accrued research and development expenses

 

$

828

 

 

$

1,296

 

Accrued employee bonus compensation

 

 

365

 

 

 

1,798

 

Other accrued expenses

 

 

599

 

 

 

707

 

Total accrued expenses

 

$

1,792

 

 

$

3,801

 

 

6.

Borrowings

On September 30, 2016, the Company entered into a loan agreement with Solar Capital Ltd. (“Solar”), in its capacity as administrative and collateral agent and as lender. Pursuant to the loan agreement, Solar was providing the Company with a 48-month secured term loan in the amount of $15.0 million.  The term loan bore interest at a floating rate equal to the LIBOR rate in effect plus 8.49%.  The Solar term loan was paid in full in March 2019.

On March 7, 2019, the Company entered into a Senior Convertible Note Purchase Agreement (the “March 2019 Note Purchase Agreement”) with Puissance Life Science Opportunities Fund VI (“Puissance”).  Pursuant to the March 2019 Note Purchase Agreement, on March 7, 2019, the Company issued and sold to Puissance $16.0 million aggregate principal amount of its 6.0% Senior Convertible Notes due 2025 (the “Notes”), resulting in $14.7 million in net proceeds after deducting $1.3 million for an advisory fee and other issuance costs.  The Company used the net proceeds to pay the remaining outstanding Solar term loan in full and recorded a loss on debt extinguishment of $0.8 million during the three months ended March 31, 2019.  The loss on debt extinguishment of $0.8 million for the three months ended March 31, 2019 was recognized as the

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difference between the reacquisition price of the outstanding Solar debt of $15.9 million and the $15.1 million net carrying value of the Solar debt obligation prior to repayment.

As of March 31, 2020, the Company’s $11.1 million in convertible debt and derivative liability consists of the convertible debt balance of $8.6 million presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.5 million and the bifurcated embedded conversion option derivative liability of $2.5 million.  In connection with the Company’s issuance of its Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging, at its initial fair value of $7.0 million as the interest make-whole provision is settled in shares of common stock.  Debt issuance costs of $0.6 million initially allocated to the derivative liability were written off upon issuance of the Notes and were recognized in the loss on the fair value adjustment for the derivative liability for the three months ended March 31, 2019.  For the three months ended March 31, 2020 and 2019, the Company recognized a gain of $0.7 million and a loss of $3.4 million on the fair value adjustments for the derivative liability, respectively, and recognized $0.3 million and $0.2 million in amortization of debt issuance costs and discount for the three months ended March 31, 2020 and 2019, respectively, related to the Notes.

In April 2019, Puissance converted $2.0 million of the Notes for 1,626,000 shares of common stock.  Upon conversion of the $2.0 million of the Notes, the Company recognized a $0.2 million extinguishment loss which represents the difference between the total net carrying amount of the convertible debt and derivative liabilities of $2.8 million and the fair value of the consideration issued of $3.0 million.  

The Company estimated the fair value of the convertible debt and derivative liability using a binomial lattice valuation model and Level 3 inputs. At March 31, 2020, the fair value of the senior convertible notes is $10.2 million.

The Notes were issued and sold for cash at a purchase price equal to 100% of their principal amount, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), due to the Notes being issued to one financially sophisticated investor. The Notes bear interest at a rate of 6.0% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning September 15, 2019. The Notes will mature on March 15, 2025, unless earlier converted, redeemed or repurchased. The Notes constitute general, senior unsecured obligations of the Company.

The holder of the Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 into shares of the Company’s common stock. The initial conversion rate is 739.0983 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $1.35, and is subject to adjustment in certain events described in the March 2019 Note Purchase Agreement. The Holder upon conversion may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate if the holder elects to convert its Notes in connection with such a corporate event. Subject to adjustment in the conversion rate, the number of shares that the Company may deliver in connection with a conversion of the Notes, including those delivered in connection with an interest make-whole payment, will not exceed a cap of 813 shares of common stock per $1,000 principal amount of the Notes.  

On or after March 15, 2022, the Company has the right, at its election, to redeem all or any portion of the Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. The redemption price will be 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  If a “fundamental change” (as defined in the March 2019 Note Purchase Agreement) occurs, then, subject to certain exceptions, the Company must offer to repurchase the Notes for cash at a repurchase price of 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

7.

Commitments and Contingencies

Leases

On March 1, 2018, the Company entered into a long-term lease agreement for approximately 19,275 square feet of office space in Jersey City, New Jersey, that the Company identified as an operating lease under ASC 840 (the “Lease”). The lease term is eleven years from August 1, 2018, the commencement date, with total lease payments of $7.3 million over the lease term. The Company has the option to renew for two consecutive five-year periods from the end of the first term and the Company is not reasonably certain that the option to renew the Lease will be exercised. Under the Lease, the Company furnished a security deposit in the form of a standby letter of credit in the amount of $0.3 million, which was reduced by fifty-five thousand dollars on the first anniversary of the commencement date.  The security deposit will continue to be reduced by

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fifty-five thousand dollars every two years on the commencement date anniversary for eight years. The security deposit is classified as restricted cash in the accompanying unaudited condensed consolidated balance sheets.  

The consideration in the Lease allocated to the single lease component includes the fixed payments for the right to use the office space as well as common area maintenance.  The Lease also contains costs associated with certain expense escalation, property taxes, insurance, parking, and utilities which are all considered variable payments and are excluded from the operating lease liability.  The incremental borrowing rate utilized approximated the prevailing market interest rate the Company would incur to borrow a similar amount equal to the total Lease payments on a collateralized basis over the term of the Lease.  The following table summarizes certain quantitative information associated with the amounts recognized in the unaudited condensed consolidated financial statements for the Lease (dollars in thousands):

 

 

 

Three Months Ended March 31, 2020

 

Operating lease cost

 

$

166

 

Variable lease cost

 

 

21

 

Total operating lease expense

 

$

187

 

 

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liability

 

$

167

 

 

 

 

 

 

 

 

 

 

 

Remaining Lease term (years)

 

9.34

 

Discount rate

 

 

15

%

 

  Future minimum lease payments for the Lease as of March 31, 2020 are as follows (in thousands):

 

 

 

March 31, 2020

 

2020

 

$

340

 

2021

 

 

517

 

2022

 

 

527

 

2023

 

 

715

 

2024

 

 

730

 

Thereafter

 

 

3,533

 

Total

 

$

6,362

 

 

The presentation of the operating lease liability and right-of-use asset as of March 31, 2020 are as follows (in thousands):

 

 

March 31, 2020

 

Present value of future minimum lease payments

 

$

3,312

 

 

 

 

 

 

Operating lease liability, current portion

 

$

40

 

Operating lease liability, long-term portion

 

 

3,272

 

Total operating lease liability

 

$

3,312

 

 

 

 

 

 

Difference between future minimum lease payments and discounted cash flows

 

$

3,050

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

3,143

 

 

License Arrangement with Potential Future Expenditures

As of March 31, 2020, the Company had a license arrangement with Merck Sharp & Dohme Corp., or Merck, that involves potential future expenditures. Under the license arrangement, the Company exclusively licensed from Merck its rights to ibrexafungerp in the field of human health. Ibrexafungerp is the Company’s lead product candidate. Pursuant to the terms of the license agreement, Merck is eligible to receive milestone payments from the Company that could total $19.0 million upon occurrence of specific events, including initiation of a Phase 3 clinical study, new drug application, and marketing approvals in each of the U.S., major European markets and Japan. In addition, Merck is eligible to receive tiered royalties from the

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Company based on a percentage of worldwide net sales of ibrexafungerp. The aggregate royalty percentages are mid- to high-single digits.

In December 2014, the Company and Merck entered into an amendment to the license agreement that deferred the remittance of a milestone payment due to Merck, such that no amount would be due upon initiation of the first Phase 2 clinical trial of a product containing the ibrexafungerp compound (the “Deferred Milestone”). The amendment also increased, in an amount equal to the Deferred Milestone, the milestone payment that would be due upon initiation of the first Phase 3 clinical trial of a product containing the ibrexafungerp compound.  In December 2016 and January 2018, the Company entered into second and third amendments, respectively, to the license agreement with Merck which clarified what would constitute the initiation of a Phase 3 clinical trial for the purpose of milestone payment. Except as described above, all other terms and provisions of the license agreement remain in full force and effect.  In January 2019, a milestone payment became due to Merck as a result of the initiation of the VANISH Phase 3 VVC program and was paid in March 2019.  The milestone payment was recognized in the unaudited condensed consolidated statement of operations in research and development expense for the three months ended March 31, 2019 and is included in cash used in operating activities on the statement of cash flows.

Clinical Development Arrangements

The Company has entered into, and expects to continue to enter into, contracts in the normal course of business with various third parties who support its clinical trials, preclinical research studies, and other services related to its development activities. The scope of the services under these agreements can generally be modified at any time, and the agreement can be terminated by either party after a period of notice and receipt of written notice.

8.

Stockholders’ Equity

Authorized, Issued, and Outstanding Common Stock

The Company’s authorized common stock has a par value of $0.001 per share and consists of 250,000,000 shares as of March 31, 2020, and December 31, 2019; 97,876,042 and 97,413,721 shares were issued and outstanding at March 31, 2020, and December 31, 2019, respectively.  The following table summarizes common stock share activity for the three months ended March 31, 2020 and 2019 (dollars in thousands): 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Shares of

Common Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2019

 

 

97,413,721

 

 

$

97

 

 

$

284,226

 

 

$

(271,428

)

 

$

12,895

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,002

)

 

 

(7,002

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

410

 

 

 

 

 

 

410

 

Common stock issued through employee stock purchase plan

 

 

22,143

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Common stock issued, net of expenses

 

 

285,276

 

 

 

1

 

 

 

206

 

 

 

 

 

 

207

 

Common stock issued for vested restricted stock units

 

 

154,902

 

 

 

 

 

 

(73

)

 

 

 

 

 

(73

)

Balance, March 31, 2020

 

 

97,876,042

 

 

$

98

 

 

$

284,787

 

 

$

(278,430

)

 

$

6,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Shares of

Common Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2018

 

 

47,971,989

 

 

$

48

 

 

$

248,895

 

 

$

(217,718

)

 

$

31,225

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,908

)

 

 

(22,908

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

492

 

 

 

 

 

 

492

 

Common stock issued through employee stock purchase plan

 

 

19,259

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Common stock issued, net of expenses

 

 

2,226,569

 

 

 

2

 

 

 

2,507

 

 

 

 

 

 

2,509

 

Common stock issued for vested restricted stock units

 

 

14,612

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Balance, March 31, 2019

 

 

50,232,429

 

 

$

50

 

 

$

251,906

 

 

$

(240,626

)

 

$

11,330

 

 

Shares Reserved for Future Issuance

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The Company had reserved shares of common stock for future issuance as follows:

 

 

March 31, 2020

 

 

December 31, 2019

 

Outstanding stock options

 

7,684,762

 

 

 

5,261,860

 

Outstanding restricted stock units

 

862,514

 

 

 

966,394

 

Warrants to purchase common stock associated with June 2016 Public Offering

 

4,218,750

 

 

 

4,218,750

 

Warrants to purchase common stock associated with March 2018 Public Offering – Series 2

 

7,988,175

 

 

 

7,988,175

 

Warrants to purchase common stock associated with December 2019 Public Offering

 

44,722,222

 

 

 

44,722,222

 

Option to purchase common stock associated with December 2019 Public Offering

 

 

 

 

5,833,333

 

Warrants to purchase common stock associated with Solar loan agreement

 

122,435

 

 

 

122,435

 

For possible future issuance for the conversion of the 6% senior convertible notes

 

11,382,000

 

 

 

11,382,000

 

For possible future issuance under 2014 Equity Incentive Plan (Note 9)

 

1,900,861

 

 

 

554,774

 

For possible future issuance under Employee Stock Purchase Plan

 

81,499

 

 

 

74,231

 

For possible future issuance under 2015 Inducement Award Plan (Note 9)

 

315,500

 

 

 

315,500

 

Total common shares reserved for future issuance

 

79,278,718

 

 

 

81,439,674

 

Convertible Debt and Derivative Liability

In connection with the Company’s issuance of its Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging.  The convertible debt and derivative liability associated with the Notes are presented in total on the accompanying unaudited condensed consolidated balance sheets as the convertible debt and derivative liability.  The derivative liability will be remeasured at each reporting period using the binomial lattice model with changes in fair value recorded in the statements of operations in other (income) expense.  For the three months ended March 31, 2020 and 2019, the Company recorded a gain of $0.7 million and a loss of $3.4 million due to the change in fair value of the derivative liability.

Warrants Associated with June 2016, March 2018, and December 2019 Public Offerings

The outstanding warrants associated with the June 2016, March 2018, and December 2019 public offerings contain a provision where the warrant holder has the option to receive cash, equal to the Black-Scholes fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC 480, Distinguishing Liabilities from Equity, requires that these warrants be classified as liabilities. The fair values of these warrants have been determined using the Black-Scholes valuation model, and the changes in the fair value are recorded in the accompanying unaudited condensed consolidated statements of operations.  During the three months ended March 31, 2020 and 2019, the Company recorded a gain of $4.8 million and a loss of $6.5 million, respectively, due to the change in fair value of the warrant liabilities.  As of March 31, 2020, the fair value of the warrant liabilities was $13.6 million.

Warrant Associated with Solar Loan Agreement

On the closing date of the Company’s previous loan agreement with Solar, pursuant to the loan agreement the Company issued to Solar the warrant to purchase an aggregate of up to 122,435 shares of the Company’s common stock at an exercise price of $3.6754 per share. The warrant will expire five years from the date of the grant. The warrant was classified as equity and recorded at its relative fair value at issuance in the stockholders’ equity section of the balance sheet. 

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9.

Stock-based Compensation

Pursuant to the terms of the Company’s 2014 Equity Incentive Plan (“2014 Plan”), on January 1, 2020 and 2019, the Company automatically added 3,896,548 and 1,918,879 shares to the total number shares of common stock available for future issuance under the 2014 Plan, respectively. As of March 31, 2020, there were 1,900,861 shares of common stock available for future issuance under the 2014 Plan.

As of March 31, 2020, there were 315,500 shares of common stock available for future issuance under the Company’s 2015 Inducement Award Plan (“2015 Plan”).  During the three months ended March 31, 2020 and 2019, there were no granted options of the Company’s common stock under the 2015 Plan.  

The activity for the Company’s 2009 Stock Option Plan, 2014 Plan, and 2015 Plan, for the three months ended March 31, 2020, is summarized as follows:

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life (in years)

 

 

Aggregate

Intrinsic

Value ($000)

 

Outstanding — December 31, 2019

 

 

5,261,860

 

 

$

3.06

 

 

 

7.62

 

 

$

60

 

Granted

 

 

2,563,400

 

 

$

0.86

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited/Cancelled

 

 

(140,498

)

 

$

1.80

 

 

 

 

 

 

 

 

 

Outstanding — March 31, 2020

 

 

7,684,762

 

 

$

2.35

 

 

 

8.11

 

 

$

28

 

Exercisable — March 31, 2020

 

 

3,326,023

 

 

$

3.89

 

 

 

6.63

 

 

$

23

 

Vested or expected to vest — March 31, 2020

 

 

7,684,762

 

 

$

2.35

 

 

 

8.11

 

 

$

28

 

 

Restricted stock unit (“RSU”) activity under the 2014 Plan and 2015 Plan for the three months ended March 31, 2020, is summarized as follows:

 

 

Number of

Shares

 

 

Weighted

Average

Grant Date

Fair Value

Per Share

 

Non-vested at December 31, 2019

 

 

966,394

 

 

$

1.42

 

Granted

 

 

256,950

 

 

$

0.86

 

Vested

 

 

(231,439

)

 

$

1.46

 

Forfeited/Cancelled

 

 

(129,391

)

 

$

1.26

 

Non-vested at March 31, 2020

 

 

862,514

 

 

$

1.26

 

The fair value of RSUs is based on the market price of the Company’s common stock on the date of grant.  RSUs generally vest 25% annually over a four-year period from the date of grant. Upon vesting, the RSUs are net share settled to cover the required withholding tax with the remaining shares issued to the holder.  The Company recognizes compensation expense for such awards ratably over the corresponding vesting period.

Compensation Cost

The compensation cost that has been charged against income for stock awards under the 2014 Plan and the 2015 Plan was $0.4 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.  The total income tax benefit recognized in the statements of operations for share-based compensation arrangements was zero for both the three months ended March 31, 2020 and 2019. Cash received from options exercised was zero for both the three months ended March 31, 2020 and 2019.  

Stock-based compensation expense related to stock options is included in the following line items in the accompanying unaudited condensed consolidated statements of operations (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

136

 

 

$

158

 

Selling, general and administrative

 

 

274

 

 

 

334

 

Total

 

$

410

 

 

$

492

 

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10.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached as of March 31, 2020 and December 31, 2019 for financial instruments measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

Fair Value Hierarchy Classification

 

 

 

Balance

 

 

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

195

 

 

$

195

 

 

 

 

 

 

 

Restricted cash

 

 

273

 

 

 

273

 

 

 

 

 

 

 

Money market funds

 

 

20,058

 

 

 

20,058

 

 

 

 

 

 

 

Total assets

 

$

20,526

 

 

$

20,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

13,628

 

 

 

 

 

 

 

 

$

13,628

 

Derivative liability

 

 

2,492

 

 

 

 

 

 

 

 

 

2,492

 

Total liabilities

 

$

16,120

 

 

 

 

 

 

 

 

$

16,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

23

 

 

$

23

 

 

 

 

 

 

 

Restricted cash

 

 

273

 

 

 

273

 

 

 

 

 

 

 

Money market funds

 

 

41,897

 

 

 

41,897

 

 

 

 

 

 

 

Total assets

 

$

42,193