10-Q 1 mrns-20190930x10q.htm 10-Q mrns_Current folio_10Q

 

 

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 SEPTEMBER 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 November 5, 2019 was: 53,869,297.

 

 

 

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

 

PART I – FINANCIAL INFORMATION 

 

Item 1. 

Consolidated Financial Statements (unaudited)

 

 

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

3

 

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

4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

5

 

Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 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

15

Item 3. 

Quantitative and Qualitative Disclosure About Market Risk

23

Item 4. 

Controls and Procedures

24

 

 

 

PART II – OTHER INFORMATION 

 

Item 1. 

Legal Proceedings

25

Item 1A. 

Risk Factors

25

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3. 

Defaults Upon Senior Securities

56

Item 4. 

Mine Safety Disclosures

56

Item 5. 

Other Information

56

Item 6. 

Exhibits

56

 

Signatures

57

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

ASSETS

    

 

    

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,159

 

$

67,727

 

Short-term investments

 

 

2,730

 

 

4,998

 

Prepaid expenses and other current assets

 

 

1,252

 

 

1,215

 

Total current assets

 

 

41,141

 

 

73,940

 

Property and equipment, net

 

 

2,337

 

 

1,294

 

Other assets

 

 

2,322

 

 

 —

 

Total assets

 

$

45,800

 

$

75,234

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,561

 

$

2,472

 

Accrued expenses

 

 

5,010

 

 

4,437

 

Total current liabilities

 

 

8,571

 

 

6,909

 

Other long-term liabilities

 

 

3,158

 

 

 —

 

Total liabilities

 

 

11,729

 

 

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, 52,608,064 issued and 52,578,833 outstanding at September 30, 2019 and 52,548,244 issued and 52,519,013 outstanding at December 31, 2018

 

 

53

 

 

53

 

Additional paid-in capital

 

 

254,182

 

 

249,727

 

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

 

 

 —

 

 

 —

 

Accumulated other comprehensive income (loss)

 

 

 1

 

 

(2)

 

Accumulated deficit

 

 

(220,165)

 

 

(181,453)

 

Total stockholders’ equity

 

 

34,071

 

 

68,325

 

Total liabilities and stockholders’ equity

 

$

45,800

 

$

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 September 30,

 

Nine Months Ended September 30,

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,572

 

$

9,148

 

$

30,454

 

$

20,307

 

General and administrative

 

 

2,327

 

 

2,073

 

 

8,496

 

 

6,599

 

Loss from operations

 

 

(13,899)

 

 

(11,221)

 

 

(38,950)

 

 

(26,906)

 

Interest income

 

 

93

 

 

111

 

 

280

 

 

292

 

Other expense

 

 

 —

 

 

 —

 

 

(42)

 

 

 —

 

Net loss

 

$

(13,806)

 

$

(11,110)

 

$

(38,712)

 

$

(26,614)

 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock—basic and diluted

 

$

(0.26)

 

$

(0.27)

 

$

(0.74)

 

$

(0.66)

 

Basic and diluted weighted average shares outstanding

 

 

52,543,539

 

 

40,407,146

 

 

52,510,610

 

 

40,392,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,806)

 

$

(11,110)

 

$

(38,712)

 

$

(26,614)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

 1

 

 

42

 

 

 1

 

 

68

 

Total comprehensive loss

 

$

(13,805)

 

$

(11,068)

 

$

(38,711)

 

$

(26,546)

 

 

See accompanying notes to consolidated financial statements.

4

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

    

 

    

    

 

    

 

Net loss

 

$

(38,712)

 

$

(26,614)

 

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

 

 

 

 

 

 

 

Depreciation

 

 

195

 

 

94

 

Stock-based compensation expense

 

 

4,438

 

 

3,645

 

Loss on disposal of fixed assets

 

 

42

 

 

 —

 

Noncash lease expense

 

 

166

 

 

 —

 

Noncash lease liability

 

 

(232)

 

 

 —

 

Amortization of discount on investments

 

 

(5)

 

 

(74)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(98)

 

 

(210)

 

Accounts payable and accrued expenses

 

 

1,822

 

 

4,475

 

Net cash used in operating activities

 

 

(32,384)

 

 

(18,684)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Maturities of short-term investments

 

 

5,000

 

 

5,000

 

Purchases of short-term investments

 

 

(2,725)

 

 

 

 

Purchases of property and equipment

 

 

(358)

 

 

(6)

 

Net cash provided by investing activities

 

 

1,917

 

 

4,994

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

97

 

 

14

 

Financing costs

 

 

(198)

 

 

 —

 

Repayments of short-term bank borrowings

 

 

 —

 

 

(193)

 

Net cash used in financing activities

 

 

(101)

 

 

(179)

 

Net decrease in cash and cash equivalents

 

 

(30,568)

 

 

(13,869)

 

Cash and cash equivalents—beginning of period

 

 

67,727

 

 

33,531

 

Cash and cash equivalents—end of period

 

$

37,159

 

$

19,662

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Property and equipment in accounts payable

 

$

22

 

$

31

 

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

 

Stock-based compensation expense

 

 —

 

 

 

 

1,171

 

 

 

 

 

 

 

 

 

1,171

 

Forfeiture of restricted stock

 

(8,000)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Unrealized gain on investments

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

41

 

 

 —

 

 

41

 

Net Loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(11,110)

 

 

(11,110)

 

Balance, September 30, 2018

 

40,554,244

 

$

41

 

$

206,450

 

29,231

 

$

 —

 

$

(28)

 

$

(171,341)

 

$

35,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,339

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,339

 

Exercise of stock options

 

24,208

 

 

 —

 

 

32

 

 

 

 

 

 

 

 

 

32

 

Financing costs under equity distribution agreement

 

 —

 

 

 —

 

 

(80)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(80)

 

Unrealized gain on investments

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

 

Net loss

 

 —

 

 

 

 

 

 

 

 

 

 —

 

 

(13,806)

 

 

(13,806)

 

Balance, September 30, 2019

 

52,608,064

 

$

53

 

$

254,182

 

29,231

 

$

 —

 

$

 1

 

$

(220,165)

 

$

34,071

 

 

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

 

The interim consolidated financial statements have been prepared assuming the Company will continue as a going concern.  We have not generated any product revenues and have incurred operating losses since inception, including losses of $13.8 million and $38.7 million for the three and nine months ended September 30, 2019, respectively. 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.  We have not generated positive cash flows from operations and have used $32.4 million for operating activities in the nine months ended September 30, 2019.  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. Our accumulated deficit as of September 30, 2019 was $220.2 million and we expect to incur substantial losses in future periods.  Based on the our cash, cash equivalents and investment balances of $39.9 million as of September 30, 2019, we believe the Company will be able to finance its capital requirements and operations into the third quarter of 2020.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  

 

The interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

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.  There can be no assurance that any of these future-funding efforts will be successful. Financing may not be available in amounts or on terms acceptable to the Company, or at all. If we are unable to obtain required financing, we may be required to delay, scale-back or eliminate certain of our planned clinical and product development activities and certain other aspects of our operations and our business, which could materially and adversely affect our financial condition and operating results.

 

In October 2017, we entered into an Equity Distribution Agreement (EDA) with JMP Securities LLC (JMP), under which JMP, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the agreement up to a maximum of $50 million worth of shares of our common stock. The EDA will terminate upon the earliest of: (1) the sale of all shares subject to the EDA, (2) October 31, 2020 or (3) the termination of the EDA in accordance with its terms.  Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate.  In October 2019, we sold 1,290,464 shares of our common stock pursuant to the EDA, generating net proceeds of $1.7 million, and $48.2 million is still available for use.

7

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

 

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.

 

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. 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 September 30, 2019. 

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (cash equivalents)

 

$

8,691

 

$

 

$

 

$

8,691

 

Certificates of deposit (cash equivalents)

 

 

496

 

 

 —

 

 

 —

 

 

496

 

Certificates of deposit

 

 

1,233

 

 

 

 

 

 

1,233

 

U.S. Treasury securities

 

 

 —

 

 

1,497

 

 

 

 

1,497

 

Total assets

 

$

10,420

 

$

1,497

 

$

 —

 

$

11,917

 

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):

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31, 

 

 

 

2019

 

2018

 

Payroll and related costs

 

$

1,746

 

$

1,364

    

Clinical trials and drug development

 

 

2,422

 

 

2,781

 

Professional fees

 

 

379

 

 

204

 

Short-term lease liabilities

 

 

430

 

 

 —

 

Other

 

 

33

 

 

88

 

Total accrued expenses

 

$

5,010

 

$

4,437

 

 

 

5. Property and Equipment

 

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

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Laboratory equipment

    

$

1,771

    

$

1,756

 

Leasehold improvements

 

 

899

 

 

 —

 

Office furniture and equipment

 

 

398

 

 

148

 

Total property and equipment

 

 

3,069

 

 

1,904

 

Less: accumulated depreciation

 

 

(732)

 

 

(610)

 

Total property and equipment, net

 

$

2,337

 

$

1,294

 

 

 

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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:

 

 

 

 

 

 

 

 

 

September 30,

 

 

2019

 

2018

 

Restricted stock

 

32,400

 

117,867

 

Stock options

 

8,431,488

 

4,832,109

 

 

 

8,463,888

 

4,949,976

 

 

 

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 September 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 September 30, 2019, 7,435,038 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 349,753 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 8,431,488 stock options outstanding as of September 30, 2019 at a weighted-average exercise price of $4.13 per share.  During the three and nine months ended September 30, 2019, 4,082,000 options were granted to employees and directors at a weighted-average exercise price of $2.45 per share.  Of the options granted, 3,672,000 options were granted pursuant to the 2014 Plan and 410,000 were granted outside of the 2014 Plan as inducements for new employees.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Research and development

    

$

689

    

$

458

    

$

1,949

    

$

1,274

 

General and administrative

 

 

640

 

 

695

 

 

2,459

 

 

2,302

 

Total

 

$

1,329

 

$

1,153

 

$

4,408

 

$

3,576

 

 

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 nine months ended September 30, 2019 or 2018.  As of September 30, 2019 there were 32,400 restricted shares of common stock outstanding, and 52,600 shares vested during the nine months ended September 30, 2019.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Research and development

    

$

 5

    

$

 7

    

$

15

    

$

18

 

General and administrative

 

 

 5

 

 

11

 

 

15

 

 

51

 

Total

 

$

10

 

$

18

 

$

30

 

$

69

 

 

 

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 September 30, 2019, our operating leases had a weighted average remaining lease term of 71 months.  These ROU assets are included in "Other assets" on our interim consolidated balance sheet as of September 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 September 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 September 30, 2019, ROU assets and operating lease liabilities were $2.3 million and $3.6 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 nine months ended September 30, 2019, we recognized $0.2 million and $0.5 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 September 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 our 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 September 30, 2019 were as follows (in thousands):

 

 

 

 

 

 

    

 

 

 

 

 

 

 

Remaining three months of 2019

 

$

199

 

2020

 

 

807

 

2021

 

 

818

 

2022

 

 

807

 

2023

 

 

823

 

Thereafter

 

 

1,482

 

 

 

 

4,936

 

Less: imputed interest

 

 

(1,348)

 

Total lease liabilities

 

$

3,588

 

 

 

 

 

 

Current operating lease liabilities

 

$

430

 

Non-current operating lease liabilities

 

 

3,158

 

Total lease liabilities

 

$

3,588

 

 

 

9. Commitments

 

Severance Arrangements

 

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 September 30, 2019, $0.3 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.

In October 2019, Lorianne Masuoka, our former Chief Medical Officer, announced her retirement from the Company.  In accordance with the terms of her employment agreement, we will provide a total of $0.3 million in salary and benefits continuation for a period of nine months beginning November 1, 2019.  As of September 30, 2019, none of these benefits were accrued or paid.

Employment Agreements

In August 2019, we entered into an into an amended and restated employment agreement with Scott Braunstein, M.D., Chief Executive Officer (the “Employment Agreement”).  Under the Employment Agreement, Dr. Braunstein will be paid an annual base salary of $537,500 and will be eligible to receive a bonus of up to 50% of his base salary, as determined by the Board in its discretion, prorated for 2019.

In October 2019, we entered into an into an Employment Agreement with Joe Hulihan, M.D., Chief Medical Officer.  Under his Employment Agreement, Dr. Hulihan will be paid an annual base salary of $375,000 and will be eligible to receive a bonus of up to 35% of his base salary, as determined by the Board in its discretion, prorated for 2019.

10. Investments

As of September 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 at various dates through March 2020.  U.S. Treasury securities are classified as short-term investments on our interim consolidated balance sheets and certificates of deposit are classified as short-term investments or cash equivalents on our interim 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 of our available-for-sale securities were each $1.5 million as of September 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 September 30, 2019.

 

 

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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;

15

·

the rate and degree of market acceptance of ganaxolone;

·

the timing and amount of 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

·