10-Q 1 mrns-20190630x10q.htm 10-Q mrns_Current folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

COMMISSION FILE NUMBER 001-36576

 


 

Picture 1

 

MARINUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Delaware

 

20-0198082

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

5 Radnor Corporate Center

100 Matsonford Rd, Suite 100

Radnor, PA 19087

(Address of registrant’s principal executive offices)

 

Registrant’s telephone number, including area code: (484) 801-4670


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

 

 

 

 

 

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

 

MRNS

 

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.

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of August 7, 2019 was: 52,578,833.

 

 

 

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2019

 

PART I – FINANCIAL INFORMATION

 

Item 1. 

Consolidated Financial Statements (unaudited)

 

 

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

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

4

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

5

 

Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

6

 

Notes to Consolidated Financial Statements

7

Item 2. 

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

14

Item 3. 

Quantitative and Qualitative Disclosure About Market Risk

22

Item 4. 

Controls and Procedures

22

 

 

 

PART II – OTHER INFORMATION 

Item 1. 

Legal Proceedings

23

Item 1A. 

Risk Factors

23

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3. 

Defaults Upon Senior Securities

53

Item 4. 

Mine Safety Disclosures

53

Item 5. 

Other Information

53

Item 6. 

Exhibits

53

 

Signatures

55

 

 

2

PART I

 

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

ASSETS

    

 

    

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,436

 

$

67,727

 

Short-term investments

 

 

2,481

 

 

4,998

 

Prepaid expenses and other current assets

 

 

2,276

 

 

1,215

 

Total current assets

 

 

54,193

 

 

73,940

 

Property and equipment, net

 

 

2,381

 

 

1,294

 

Other assets

 

 

2,391

 

 

 —

 

Total assets

 

$

58,965

 

$

75,234

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

4,973

 

$

2,472

 

Accrued expenses

 

 

4,231

 

 

4,437

 

Total current liabilities

 

 

9,204

 

 

6,909

 

Other long-term liabilities

 

 

3,176

 

 

 —

 

Total liabilities

 

 

12,380

 

 

6,909

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 25,000,000 shares authorized, no shares issued and outstanding

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; 100,000,000 shares authorized, 52,583,856 issued and 52,554,625 outstanding at June 30, 2019 and 52,548,244 issued and 52,519,013 outstanding at December 31, 2018

 

 

53

 

 

53

 

Additional paid-in capital

 

 

252,891

 

 

249,727

 

Treasury stock at cost, 29,231 shares at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

 

Accumulated other comprehensive loss

 

 

 —

 

 

(2)

 

Accumulated deficit

 

 

(206,359)

 

 

(181,453)

 

Total stockholders’ equity

 

 

46,585

 

 

68,325

 

Total liabilities and stockholders’ equity

 

$

58,965

 

$

75,234

 

 

See accompanying notes to consolidated financial statements.

 

3

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,010

 

$

7,232

 

$

18,882

 

$

11,159

 

General and administrative

 

 

2,502

 

 

2,338

 

 

6,169

 

 

4,526

 

Loss from operations

 

 

(12,512)

 

 

(9,570)

 

 

(25,051)

 

 

(15,685)

 

Interest income

 

 

90

 

 

65

 

 

186

 

 

181

 

Other (expense) income

 

 

(1)

 

 

 1

 

 

(41)

 

 

 —

 

Net loss

 

$

(12,423)

 

$

(9,504)

 

$

(24,906)

 

$

(15,504)

 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock—basic and diluted

 

$

(0.24)

 

$

(0.24)

 

$

(0.47)

 

$

(0.38)

 

Basic and diluted weighted average shares outstanding

 

 

52,522,225

 

 

40,395,650

 

 

52,493,874

 

 

40,384,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(12,423)

 

$

(9,504)

 

$

(24,906)

 

$

(15,504)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

 —

 

 

38

 

 

 —

 

 

27

 

Total comprehensive loss

 

$

(12,423)

 

$

(9,466)

 

$

(24,906)

 

$

(15,477)

 

 

See accompanying notes to consolidated financial statements.

4

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

    

 

    

    

 

    

 

Net loss

 

$

(24,906)

 

$

(15,504)

 

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

 

 

 

 

 

 

 

Depreciation

 

 

112

 

 

65

 

Stock-based compensation expense

 

 

3,099

 

 

2,475

 

Loss on disposal of fixed assets

 

 

42

 

 

 —

 

Noncash lease expense

 

 

107

 

 

 —

 

Noncash lease liability interest

 

 

(143)

 

 

 —

 

Amortization of discount on investments

 

 

 —

 

 

(51)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,095)

 

 

(60)

 

Accounts payable and accrued expenses

 

 

2,404

 

 

1,198

 

Net cash used in operating activities

 

 

(20,380)

 

 

(11,877)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Maturities of short-term investments

 

 

5,000

 

 

 —

 

Purchases of short-term investments

 

 

(2,482)

 

 

 

 

Deposit on property and equipment

 

 

(6)

 

 

 —

 

Purchases of property and equipment

 

 

(340)

 

 

(8)

 

Net cash provided by (used in) investing activities

 

 

2,172

 

 

(8)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

65

 

 

14

 

Financing costs

 

 

(148)

 

 

 —

 

Repayments of short-term bank borrowings

 

 

 —

 

 

(193)

 

Net cash used in financing activities

 

 

(83)

 

 

(179)

 

Net decrease in cash and cash equivalents

 

 

(18,291)

 

 

(12,064)

 

Cash and cash equivalents—beginning of period

 

 

67,727

 

 

33,531

 

Cash and cash equivalents—end of period

 

$

49,436

 

$

21,467

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Operating lease liability

 

$

3,357

 

$

 —

 

Operating right-of-use asset

 

$

2,458

 

$

 —

 

 

See accompanying notes to consolidated financial statements.

5

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

Total 

 

 

 

Common Stock

 

Paid-in 

 

Treasury Stock

 

Comprehensive

 

Accumulated 

 

Stockholders’

 

 

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Loss

    

Deficit

    

Equity

 

Balance, December 31, 2017

 

40,549,936

 

$

41

 

$

202,790

 

29,231

 

$

 

 

$

(96)

 

$

(144,727)

 

$

58,008

 

Stock-based compensation expense

 

 —

 

 

 

 

1,127

 

 

 

 

 

 

 

 

 

1,127

 

Unrealized loss on investments

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(11)

 

 

 —

 

 

(11)

 

Net loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(5,999)

 

 

(5,999)

 

Balance, March 31, 2018

 

40,549,936

 

$

41

 

$

203,917

 

29,231

 

$

 —

 

$

(107)

 

$

(150,726)

 

$

53,125

 

Stock-based compensation expense

 

 —

 

 

 

 

1,348

 

 

 

 

 

 

 

 

 

1,348

 

Exercise of stock options

 

12,308

 

 

 —

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Unrealized gain on investments

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

38

 

 

 —

 

 

38

 

Net loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(9,505)

 

 

(9,505)

 

Balance, June 30, 2018

 

40,562,244

 

$

41

 

$

205,279

 

29,231

 

$

 —

 

$

(69)

 

$

(160,231)

 

$

45,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

52,548,244

 

$

53

 

$

249,727

 

29,231

 

$

 —

 

$

(2)

 

$

(181,453)

 

$

68,325

 

Stock-based compensation expense

 

 —

 

 

 

 

1,836

 

 

 

 

 

 

 

 

 

1,836

 

Exercise of stock options

 

55,812

 

 

 —

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Forfeiture of restricted stock

 

(20,200)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Unrealized gain on investments

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 2

 

Net loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(12,483)

 

 

(12,483)

 

Balance, March 31, 2019

 

52,583,856

 

$

53

 

$

251,628

 

29,231

 

$

 —

 

$

 —

 

$

(193,936)

 

$

57,745

 

Stock-based compensation expense

 

 —

 

 

 

 

1,263

 

 

 

 

 

 

 

 

 

1,263

 

Net loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(12,423)

 

 

(12,423)

 

Balance, June 30, 2019

 

52,583,856

 

$

53

 

$

252,891

 

29,231

 

$

 —

 

$

 —

 

$

(206,359)

 

$

46,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

6

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business and Liquidity

 

We are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat epilepsy and neuropsychiatric disorders. Our clinical stage product candidate, ganaxolone, is a positive allosteric modulator of GABAA being developed in two different routes of administration: intravenous (IV) and oral formulation. The multiple dose forms are intended to maximize the therapeutic range of ganaxolone for adult and pediatric patient populations, in acute and chronic care, and both in-patient and self-administered settings. Ganaxolone exhibits anti-seizure, anti-depression and anti-anxiety actions via its effects on synaptic and extrasynaptic GABAA receptors.

 

Liquidity

 

We have not generated any product revenues and have incurred operating losses since inception. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of our product candidates will require significant additional financing. Our accumulated deficit as of June 30, 2019 was $206.4 million and we expect to incur substantial losses in future periods.  We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, potential collaborations and revenues from potential future product sales, if any. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our planned product candidates.

 

In connection with the closing of a secondary public offering during the fourth quarter of 2018, we issued a total of 12,000,000 shares of common stock resulting in aggregate net proceeds, after underwriting discounts and commissions and other offering expenses, of $42.1 million.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and disclosures necessary for a presentation of our financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (GAAP) for annual financial statements. In the opinion of management, these unaudited interim consolidated financial statements reflect the elimination of all intercompany accounts and transactions and all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 and accompanying notes thereto included in our annual report on Form 10-K filed with the SEC on March 12, 2019.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from such estimates.

 

7

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model that requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a term longer than 12 months, and leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

 

We adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method on the effective date.  Consequently, financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019.  Upon adoption, we elected the ‘package of practical expedients,’ which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight practical expedient nor the practical expedient pertaining to land easements, the latter not being applicable to us. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of $2.5 million and lease liabilities for operating leases of $3.4 million on our interim consolidated balance sheets, with no material impact to our interim consolidated statements of operations, cash flows or stockholders’ equity. The operating lease liabilities were determined based on the present value of the remaining minimum retal payments and the operating lease asset was determined based on the value of the lease liability, adjusted for the lease incentive of $0.9 million. See Note 8 for further information regarding the impact of the adoption of ASU 2016-02 on our interim consolidated financial statements.

 

3. Fair Value Measurements

 

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.

 

The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

·

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

·

Level 2 — Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

·

Level 3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Valuation Techniques - Level 2 Inputs

We estimate the fair values of our financial instruments categorized as level 2 in the fair value hierarchy, including U.S. Treasury securities, by taking into consideration valuations obtained from third-party pricing services.

8

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The pricing services use industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, benchmark yields, issuer credit spreads, benchmark securities, and other observable inputs. We obtain a single price for each financial instrument and do not adjust the prices obtained from the pricing service.  We validate the prices provided by our third-party pricing services by reviewing their pricing methods, obtaining market values from other pricing sources and comparing them to the share prices presented by the third-party pricing services. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our third-party pricing services as of June 30, 2019. 

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (cash equivalents)

 

$

13,807

 

$

 

$

 

$

13,807

 

Certificates of deposit

 

 

988

 

 

 

 

 

 

988

 

U.S. Treasury securities

 

 

 

 

1,493

 

 

 

 

1,493

 

Total assets

 

$

14,795

 

$

1,493

 

$

 —

 

$

16,288

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (cash equivalents)

 

$

14,049

 

$

 

$

 

$

14,049

 

U.S. Treasury securities

 

 

 —

 

 

4,998

 

 

 

 

4,998

 

Total assets

 

$

14,049

 

$

4,998

 

$

 —

 

$

19,047

 

 

 

4. Accrued Expenses

 

Accrued expenses consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31, 

 

 

 

2019

 

2018

 

Payroll and related costs

 

$

1,483

 

$

1,364

    

Clinical trials and drug development

 

 

1,945

 

 

2,781

 

Professional fees

 

 

343

 

 

204

 

Short-term lease liabilities

 

 

321

 

 

 —

 

Other

 

 

139

 

 

88

 

Total accrued expenses

 

$

4,231

 

$

4,437

 

 

 

5. Property and Equipment

 

Property and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2019

 

2018

 

Laboratory equipment

    

$

1,756

    

$

1,756

 

Leasehold improvements

 

 

899

 

 

 —

 

Office furniture and equipment

 

 

376

 

 

148

 

 

 

 

3,031

 

 

1,904

 

Less: accumulated depreciation

 

 

(650)

 

 

(610)

 

 

 

$

2,381

 

$

1,294

 

 

9

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6. Loss Per Share of Common Stock

 

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, convertible notes payable, warrants, stock options, and unvested restricted stock, which would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation. These potentially dilutive securities are more fully described in Note 7, and summarized in the table below:

 

 

 

 

 

 

 

 

 

June 30,

 

 

2019

 

2018

 

Restricted stock

 

32,400

 

117,867

 

Stock options

 

6,618,571

 

4,741,109

 

 

 

6,650,971

 

4,858,976

 

 

 

7. Stockholders’ Equity

 

In 2005, we adopted the 2005 Stock Option and Incentive Plan (2005 Plan) that authorizes us to grant options, restricted stock and other equity-based awards. As of June 30, 2019, 330,450 options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2005 Plan.  No additional shares are available for issuance under the 2005 Plan. 

 

In August 2014, we adopted our 2014 Equity Incentive Plan, amended in May 2017 (2014 Plan), that authorizes us to grant options, restricted stock, and other equity-based awards, subject to adjustment in accordance with the 2014 Plan.  The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.  As of June 30, 2019, 5,681,121 options to purchase shares of common stock and 32,400 shares of restricted stock were outstanding pursuant to grants in connection with the 2014 Plan, and 2,018,144 shares of common stock were available for future issuance. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors. 

 

Stock Options

 

There were 6,618,571 stock options outstanding as of June 30, 2019 at a weighted-average exercise price of $5.08 per share.  During thethree and six months ended June 30, 2019, 1,974,000 options were granted to employees and directors at a weighted-average exercise price of $3.90 per share.  Of the options granted, 1,658,000 options were granted pursuant to the 2014 Plan and 316,000 were granted outside of the 2014 Plan as inducements for new employees.

 

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total compensation cost recognized for all stock option awards in the statements of operations is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Research and development

    

$

611

    

$

503

    

$

1,260

    

$

816

 

General and administrative

 

 

642

 

 

828

 

 

1,819

 

 

1,607

 

Total

 

$

1,253

 

$

1,331

 

$

3,079

 

$

2,423

 

 

Restricted Stock

 

All issued and outstanding restricted shares of common stock are time-based, and become vested between one and three years after the grant date.  Compensation expense is recorded ratably over the requisite service period. Compensation expense related to restricted stock is measured based on the fair value using the closing market price of our common stock on the date of the grant.

 

We did not issue any restricted shares of common stock during the six months ended June 30, 2019 or 2018.  As of June 30, 2019 there were 32,400 restricted shares of common stock outstanding, and 52,600 shares vested during the six months ended June 30, 2019.

 

Total compensation cost recognized for all restricted stock awards in the statements of operations is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Research and development

    

$

 5

    

$

 5

    

$

10

    

$

12

 

General and administrative

 

 

 5

 

 

11

 

 

10

 

 

40

 

Total

 

$

10

 

$

16

 

$

20

 

$

52

 

 

 

8. Leases

 

We have entered into operating leases for real estate. These leases have terms which range from 36 to 78 months, and include renewal terms which can extend the lease terms by 24 to 60 months, which are included in the lease term when it is reasonably certain that we will exercise the option.  As of June 30, 2019, our operating leases had a weighted average remaining lease term of 74 months. These ROU assets are included in "Other assets" on our interim consolidated balance sheet as of June 30, 2019, and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are included in "Accrued expenses" and "Other long-term liabilities" on our interim consolidated balance sheet as of June 30, 2019.  The ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received.  The ROU assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.  Our ROU assets as of January 1, 2019 have been adjusted for $0.9 million in lease incentives.

 

Based on the present value of the lease payments for the remaining lease term of our existing leases, we initially recognized ROU assets of $2.5 million and lease liabilities for operating leases of $3.4 million during the first quarter of 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

commencement date based on the present value of lease payments over the lease term. As of June 30, 2019, ROU assets and operating lease liabilities were $2.4 million and $3.5 million, respectively. We have entered into various short-term operating leases, primarily for clinical study equipment, with an initial term of twelve months or less. These leases are not recorded on our interim consolidated balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2019, we recognized $0.2 million and $0.4 million in total lease costs, respectively, which included less than $0.1 million in short-term lease costs related to short-term operating leases in both periods.

 

Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right-of-use assets and lease liabilities was 11.0%, derived from a corporate yield curve based on a synthetic credit rating model using a market signal analysis. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component.

 

ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.  As of June 30, 2019, we have not recognized any impairment losses for our ROU assets.

 

We monitor for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.   

 

Maturities of operating lease liabilities as of June 30, 2019 were as follows (in thousands):

 

 

 

 

 

 

    

 

 

 

 

 

 

 

Remaining six months of 2019

 

$

206

 

2020

 

 

807

 

2021

 

 

818

 

2022

 

 

807

 

2023

 

 

823

 

Thereafter

 

 

1,482

 

 

 

 

4,943

 

Less: imputed interest

 

 

(1,446)

 

Total lease liabilities

 

$

3,497

 

 

 

 

 

 

Current operating lease liabilities

 

$

321

 

Non-current operating lease liabilities

 

 

3,176

 

Total lease liabilities

 

$

3,497

 

 

 

9. Commitments

 

Severance Arrangement

 

In March 2019, we entered into a Severance Agreement and General Release (Severance Agreement) with Christopher M. Cashman (Cashman), our former Chief Executive Officer.  In connection with this Severance Agreement, we agreed to pay certain severance benefits for one year to Cashman, including salary and benefits continuation and a prorated bonus totaling $0.6 million.  As of June 30, 2019, $0.4 million in severance benefits

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

remained unpaid.  In addition, certain of Cashman’s outstanding stock option agreements were modified to accelerate vesting and extend the exercise period, resulting in additional compensation cost of $0.4 million.

 

10. Investments

As of June 30, 2019, our investments consisted of U.S. Treasury securities, maturing at various dates through December 2019, and certificates of deposit with various financial institutions maturing in March 2020.  U.S. Treasury securities are classified as short- or long-term investments on our consolidated balance sheets based on maturity and certificates of deposit are classified as short-term investments on our consolidated balance sheets.  U.S Treasury securities are classified as available-for-sale and are recorded at fair value.  Certificates of deposits are classified as held-to-maturity and are recorded at amortized cost, which approximates fair value.

Total amortized cost and fair value were each $1.5 million as of June 30, 2019.  Based on review of these securities, we believe that the cost basis of these available-for-sale securities is recoverable and that there were no other-than-temporary impairments on these securities as of June 30, 2019.

 

 

 

 

 

 

13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

·

our ability to develop and commercialize ganaxolone;

·

status, timing and results of preclinical studies and clinical studies;

·

enrollment in clinical studies, availability of data from ongoing clinical studies, expectations for regulatory approvals, or the attainment of clinical study results that will be supportive of regulatory approvals;

·

the potential benefits of ganaxolone;

·

the timing of seeking regulatory approval of ganaxolone;

·

our ability to obtain and maintain regulatory approval;

·

our estimates of expenses and future revenue and profitability;

·

our estimates regarding our capital requirements and our needs for additional financing;

·

our plans to develop and market ganaxolone and the timing of our development programs;

·

our estimates of the size of the potential markets for ganaxolone;

·

our selection and licensing of ganaxolone;

·

our ability to attract collaborators with acceptable development, regulatory and commercial expertise;

·

the benefits to be derived from corporate collaborations, license agreements, and other collaborative or acquisition efforts, including those relating to the development and commercialization of ganaxolone;

·

sources of revenue, including contributions from corporate collaborations, license agreements, and other collaborative efforts for the development and commercialization of products;

·

our ability to create an effective sales and marketing infrastructure if we elect to market and sell ganaxolone directly;

14

·

the rate and degree of market acceptance of ganaxolone;

·

the timing and amount or reimbursement for ganaxolone;

·

the success of other competing therapies that may become available;

·

the manufacturing capacity and regulatory requirements for ganaxolone;

·

our intellectual property position;

·

our ability to maintain and protect our intellectual property rights;

·

our results of operations, financial condition, liquidity, prospects, and growth strategies;

·

the industry in which we operate; and

·

the trends that may affect the industry or us.

You should refer to Part II Item 1A. “Risk Factors” of this Quarterly Report on this Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with: (i) the interim consolidated financial statements and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) our annual consolidated financial statements for the year ended December 31, 2018 which are included in our Annual Report on Form 10-K filed with the SEC on March 12, 2019.

Overview

 

We are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat epilepsy and neuropsychiatric disorders. Our clinical stage product candidate, ganaxolone, is a positive allosteric modulator of GABAA being developed in two different routes of administration: intravenous (IV) and oral formulations. The multiple dose forms are intended to maximize the therapeutic range of ganaxolone for adult and pediatric patient populations, in acute and chronic care, and both in-patient and self-administered settings. Ganaxolone exhibits anti-seizure, anti-depression and anti-anxiety actions via its effects on synaptic and extrasynaptic GABAA receptors.

15

Our Pipeline

We are developing ganaxolone in two different routes of administration (IV and oral formulations) intended to maximize therapeutic reach to adult and pediatric patient populations in both acute and chronic care settings where there is a mechanistic rationale for ganaxolone to provide a benefit, including the following indications:

Picture 2

*Pending regulatory interactions and funding

 

CDKL5 deficiency disorder (CDD)

We are currently enrolling patients into a pivotal Phase 3 clinical study (Marigold Study) evaluating the use of oral ganaxolone in children and young adults with CDD. The Marigold Study is a global, double‑blind, placebo‑controlled, study that will enroll up to 100 patients between the ages of 2 and 21 with a confirmed disease‑related CDKL5 gene variant and allopregnanolone sulfate levels below a pre-specified limit. Patients will undergo a six-week prospective baseline period to collect seizure data, followed by a 17-week double-blind treatment phase.  Patients randomized to ganaxolone will titrate over four weeks to a dose of up to 600 mg of oral liquid suspension three times a day and maintain that dose for the following 13-weeks, in addition to their existing anti‑seizure treatment. Following the double‑blind treatment period, all patients that meet certain eligibility requirements will have the opportunity to receive ganaxolone in the open label phase of the study. The study’s primary efficacy endpoint is percent reduction in seizures. Secondary outcome measures will include non‑seizure‑related endpoints to capture certain changes in behavior and sleep.  We plan to announce top-line data from the study in the third quarter of 2020.

PCDH19-related epilepsy (PCDH19-RE)

 

In March 2019, we announced the initiation of the Violet Study, a global, double-blind, randomized, placebo-controlled pivotal Phase 3 study evaluating ganaxolone in children with PCDH19-RE. The study will enroll up to 70 patients between the ages of 1 and 17 with a confirmed PCDH19 mutation. Patients enrolled in the study will be stratified into one of two biomarker groups based on baseline allopregnanolone sulfate levels and randomized (ganaxolone or placebo) within each stratum. The study will consist of an 8-week prospective baseline period to collect seizure data, followed by a 17-week double-blind treatment phase. Patients randomized to ganaxolone will titrate over four weeks to a dose of up to 600 mg of oral liquid suspension three times a day and maintain that dose for the following 13-weeks. After the double-blind period, all patients who meet certain eligibility criteria will have the opportunity to receive ganaxolone in an open label phase of the study.  We plan to announce top-line data from the study in 2021.

16

Refractory Status Epilepticus (RSE)

Status epilepticus (SE) is a life‑threatening occurrence of continuous or intermittent seizures lasting more than five minutes in duration without recovery of consciousness during the five or more minutes duration. If SE is not treated immediately, permanent neuronal damage may occur, which contributes to high rates of morbidity and mortality. In RSE, certain synaptic GABAA receptors are internalized, and thereby unavailable to drugs that target these receptors, such as benzodiazepines. RSE patients who fail to respond to at least two antiepileptic drugs (AEDs) are generally placed under IV anesthesia as a last resort to attempt to stop the seizures and prevent further damage to the brain and death. These patients are referred to as having super refractory status epilepticus (SRSE). 

We believe there is strong rationale for ganaxolone as a potential treatment option for RSE.  In RSE, ganaxolone leverages extrasynaptic GABAA receptors, where, in contrast to the third line SRSE setting in which the patients have been placed into a medically induced coma, target receptors are more likely to be both viable and available.  We are enrolling patients with RSE in a Phase 2 multiple ascending dose study with ganaxolone IV. Initial data from this proof‑of‑concept study in approximately 15-20 patients are expected in the third quarter of 2019.

Depressive Disorders

 

In July 2019, we announced top‑line results from Part 2 of our Phase 2 Magnolia clinical trial in patients with postpartum depression (PPD). In Part 2 of the clinical trial,  33 patients with PPD were randomized on a 1:1 basis to receive either a 6-hour infusion of IV ganaxolone (20 mg/hr) followed by 28-days of oral ganaxolone (900 mg once daily) (n=16) or placebo (n=17). Hamilton Rating Scale for Depression (HAM-D17) measurements were conducted by a centralized rater and taken at various timepoints spanning from baseline to end of treatment, at 28 days. Ganaxolone was generally safe, well‑tolerated and provided clinically meaningful reductions in HAM-D17 scores at early time points of 6 hours and 24 hours after start of treatment. HAM-D17 scores at 28 days of treatment were not different from placebo. Consistent with previous ganaxolone studies, the most common reported adverse events were sedation,  dizziness and somnolence. There were no serious adverse events reported, no discontinuations due to a treatment related adverse event and, consistent with prior studies, there were no reports of syncope or loss of consciousness.

In July 2019, we also announced top‑line results from our open-label, dose-optimization Phase 2 Amaryllis clinical trial in patients with PPD. In this clinical trial, 25 patients received 675 mg of oral ganaxolone at dinner for 28 days (low dose) and  43 patients received 675 mg of oral ganaxolone at dinner and bedtime for two days, followed by a dinner time dose of 1125 mg once daily for the remainder of the 28-day treatment regimen (high dose).  The high dose showed a HAMD-17 reduction at 24 hours of treatment that was approximately 2.0 points greater than the low dose, which was generally sustained over the treatment regimen, suggesting an efficacy trend with early activity onset. Oral ganaxolone was generally safe and well-tolerated with no serious adverse events reported and no discontinuations due to treatment related adverse events.  Data from the Amaryllis Study support continued use of the once daily 1125 mg oral dose in future clinical studies.

Our operations to date have consisted primarily of organizing and staffing our company and developing ganaxolone, including conducting preclinical testing and clinical studies. We have funded our operations primarily through sales of equity and debt securities. At June 30, 2019, we had cash and cash equivalents of $51.9 million.  We have no products currently available for sale, have incurred operating losses since inception, have not generated any product sales revenue and have not achieved profitable operations. We incurred a net loss of $12.4 million and $24.9 million for the three and six months ended June 30, 2019.  Our accumulated deficit as of June 30, 2019 was $206.4 million, and we expect to continue to incur substantial losses in future periods. We anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate, ganaxolone.

Based on these results, future development in severe depressive disorders will focus on IV regimens and we  will continue to engage strategic interest in oral ganaxolone.  We plan to discuss our PPD clinical results with regulators and are also evaluating the potential for future studies in other depressive disorders such as treatment-resistant depression (TRD).

17

We anticipate that our expenses will increase substantially as we:

conduct later stage clinical studies in targeted indications, which could include CDD, PPD, RSE, PCDH19-RE, Lennox-Gastaut Syndrome, Fragile X Syndrome (FXS) and other indications;

continue the research, development and scale-up manufacturing capabilities to optimize products and dose forms for which we may obtain regulatory approval;

conduct other preclinical and clinical studies to support the filing of New Drug Applications (NDAs) with the Food and Drug Administration (FDA) and other regulatory agencies in other countries;

acquire the rights to other product candidates and fund their development;

maintain, expand and protect our global intellectual property portfolio;

hire additional clinical, manufacturing and scientific personnel; and

add operational, financial and management information systems and personnel, including personnel to support our drug development and potential future commercialization efforts.

We believe that our cash and cash equivalents as of June 30, 2019, will enable us to fund our operating expenses and capital expenditure requirements to the end of the third quarter of 2020. However, we will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of our planned research and development activities with respect to ganaxolone.

Financial Overview

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred for the development of ganaxolone, which include:

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

expenses incurred under agreements with Clinical Research Organizations (CROs) and investigative sites that conduct our clinical studies and preclinical studies;

the cost of acquiring, developing and manufacturing clinical study materials;

facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

costs associated with preclinical activities and regulatory operations.

We expense research and development costs when we incur them. We record costs for some development activities, such as clinical studies, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us.

 

We will incur substantial costs beyond our present and planned clinical studies in order to file an NDA and Supplemental New Drug Applications (sNDAs), or equivalent Marketing Authorization Applications (MAA) outside the US, for ganaxolone for various clinical indications, and in each case, the nature, design, size and cost of further studies will depend in large part on the outcome of preceding studies and discussions with regulators. It is difficult to determine with certainty the costs and duration of our current or future clinical studies and preclinical studies, or if, when or to what

18

extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval. We may never succeed in achieving regulatory approval for ganaxolone. The duration, costs and timing of clinical studies and development of ganaxolone will depend on a variety of factors, including the uncertainties of future clinical studies and preclinical studies, uncertainties in clinical study enrollment rate and significant and changing government regulation.

 

In addition, the probability of success for our clinical programs will depend on numerous factors, including competition, manufacturing capability and commercial viability. See “Risk Factors.” Our commercial success depends upon attaining significant market acceptance, if approved, among physicians, patients, healthcare payers and the medical community. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success, as well as an assessment of commercial potential.

 

General and Administrative Expenses

 

General and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants, including stock-based compensation and travel expenses. Other general and administrative expenses include professional fees for legal, patent review, consulting and accounting services. General and administrative expenses are expensed when incurred. We expect that our general and administrative expenses will increase in the future as a result of employee hiring and scaling of our operations commensurate with supporting more advanced clinical studies and in preparation for commercial infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, outside consultants, legal counsel and accountants, among other expenses.

 

Interest Income

Interest income consists principally of interest income earned on cash and cash equivalents and investment balances.

Results of Operations

Research and Development Expenses

Research and development expenses increased to $10.0 million and $18.9 million for the three and six months ended June 30, 2019, respectively, as compared to $7.2 million and $11.2 million for the same periods in the prior year.  The primary drivers of our research and development expenditures are currently in our programs in CDD, PPD, RSE and PCDH19-RE.  We have initiated Phase 3 studies in CDD and PCDH19-RE, and Phase 2 studies in PPD and RSE.

The following table shows our research and development expenses incurred with respect to each active program, in millions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

CDKL5 disorder (1)

    

$

1.3

    

$

1.2

    

$

2.2

    

$

1.7

 

Postpartum depression (2)

 

 

2.5

 

 

2.5

 

 

4.9

 

 

3.5

 

Refractory status epilepticus (3)

 

 

0.8

 

 

1.1

 

 

1.3

 

 

1.5

 

PCDH19-RE (4)

 

 

1.0

 

 

 —

 

 

1.9

 

 

 —

 

General supportive studies (5)

 

 

0.7

 

 

 —

 

 

1.6

 

 

 —

 

Indirect research and development (6)

 

 

3.7

 

 

2.4

 

 

7.0

 

 

4.5

 

Total

 

$

10.0

 

$

7.2

 

$

18.9

 

$

11.2

 

 

(1)

The increases  were due primarily to the startup activities and eventual initiation of our Phase 3 study in 2018 followed by patient dosing during 2019.

19

(2)

The increase for the six months ended June 30, 2019 was due primarily to increased patient enrollment and the expansion of enrollment in our Magnolia and Amaryllis Phase 2 studies.

(3)

The decreases were due primarily to the timing of ongoing expenses during enrollment in our Phase 2 study.

(4)

The increases  were due primarily to the initiation of our Phase 3 study in 2019.

(5)

General supportive studies include preclinical and manufacturing studies in support of all formulations and indications for ganaxolone.  The increase was due primarily to further the advancement of ganaxolone in clinical studies to support a future NDA. 

(6)

Indirect research and development expenses in support of all our programs have increased due to the overall increase in preclinical, clinical, and manufacturing activities.

General and Administrative Expenses

General and administrative expenses were $2.5 million and $6.2 million for the three and six months ended June 30, 2019 as compared  $2.3 million and $4.5 million for the same periods in the prior year.  The quarter-to-date increase was driven primarily by professional fees and other costs associated with an increased scale of operations. The primary drivers of the year-to-date increase were $1.0 million in severance expenses related to the departure of Christopher M. Cashman, our former Chief Executive Officer ($0.4 million of which was non-cash equity compensation expense), and approximately $0.7 million in professional fees and other costs associated with an increased scale of operations.

Liquidity and Capital Resources

Since inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $12.4 million and $24.9 million for the three and six months ended June 30, 2019.  Our cash used in operating activities was $20.4 million for the months months ended June 30, 2019 compared to $11.9 million for the same period a year ago.  Historically, we have financed our operations principally through the sale of common stock, preferred stock and convertible debt, and the use of term loans.  At June 30, 2019, we had cash and cash equivalents of $51.9 million.  During 2018, we received net proceeds of $42.1 million through the sale of our common stock in connection with a secondary public offering.

 

Cash Flows

Operating Activities.  Cash used in operating activities increased to $20.4 million for the six months ended June 30, 2019 compared to $11.9 million for the same period a year ago. The increase was driven primarily by an  $9.4 million increase in net loss.    

Investing Activities.  Cash provided by investing activities for the six months ended June 30, 2019 represents the maturity of short-term investments of $5.0 million offset by $2.5 million in purchases of investments and payment of $0.3 million for property and equipment. 

Financing Activities.  Cash used in financing activities was $0.1 million for the six months ended June 30, 2019 due to payments of accrued financing costs offset by proceeds from the exercise of outstanding stock options.  Cash used in financing activities for the six months ended June 30, 2018 was $0.2 million due to repayments of short-term bank borrowings.

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Funding Requirements

We have never been profitable since our inception, and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we fund our planned clinical studies for ganaxolone.

 

We believe that our cash, cash equivalents and investments as of June 30, 2019 will enable us to fund our operating expenses and capital expenditure requirements to the end of the third quarter of 2020. However, we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations, and financial condition. Our future capital requirements will depend on many factors, including:

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the results of our preclinical studies and clinical studies;

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the development, formulation and commercialization activities related to ganaxolone;

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the scope, progress, results and costs of researching and developing ganaxolone or any other future product candidates, and conducting preclinical studies and clinical studies;

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the timing of, and the costs involved in, obtaining regulatory approvals for ganaxolone or any other future product candidates;

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the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale, including marketing, sales and distribution costs;

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the cost of manufacturing and formulating ganaxolone, or any other future product candidates, to internal and regulatory standards for use in preclinical studies, clinical studies and, if approved, in commercial sale;

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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

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any product liability, infringement or other lawsuits related to our products;

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capital needed to attract and retain skilled personnel;

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and