UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Office) | (Zip Code) |
Registrant’s
telephone number, including area code:
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.
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 (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | 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 Act). Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
(The Nasdaq Capital Market) |
As of August 15, 2022, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was approximately .
COCRYSTAL PHARMA, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
INDEX
| 2 |
Part I – FINANCIAL INFORMATION
COCRYSTAL PHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Deposits | ||||||||
| Operating lease right-of-use assets, net (including $ | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Settlement payable | ||||||||
| Current maturities of finance lease liabilities | ||||||||
| Current maturities of operating lease liabilities (including $ | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Finance lease liabilities | ||||||||
| Operating lease liabilities (including $ | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ par value; shares authorized as of June 30, 2022 and December 31, 2021; and shares issued and outstanding as of June 30, 2022 and December 31, 2021. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-1 |
COCRYSTAL PHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal settlement | ||||||||||||||||
| Impairments | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign exchange gain | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Total other expense, net | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| F-2 |
COCRYSTAL PHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Sale of common stock, net of transaction costs | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Sale of common stock, net of transaction costs | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Sale of common stock, net of transaction costs | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| F-3 |
COCRYSTAL PHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of right of use assets | ||||||||
| Loss on impairment of goodwill | ||||||||
| Stock-based compensation | ||||||||
| Payments on operating lease liabilities | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Settlement payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Financing activities: | ||||||||
| Payments on finance lease liabilities | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock, net of transaction costs | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-4 |
COCRYSTAL PHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Business
Cocrystal Pharma, Inc. (“we”, the “Company” or “Cocrystal”), a clinical stage biopharmaceutical company incorporated in Delaware, has been developing novel technologies and approaches to create first-in-class or best-in-class antiviral drug candidates since its initial funding in 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors, we plan to leverage our infrastructure and expertise in these areas.
The Company’s activities since inception have principally consisted of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s development programs, obtaining regulatory approvals of its products and, ultimately, the attainment of profitable operations is dependent on future events, including, among other things, its ability to access potential markets, secure financing, develop a customer base, attract, retain and motivate qualified personnel, and develop strategic alliances. Through June 30, 2022, the Company has primarily funded its operations through equity offerings.
In September 2021, the Company opened a wholly owned foreign subsidiary in Australia named Cocrystal Pharma Australia, Ltd (“Cocrystal Australia”) with the objective of operating clinical trials in Australia.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X set forth by the Securities and Exchange Commission (“SEC”). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 23, 2022 (“Annual Report”).
Principles of Consolidation
The consolidated financial statements include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: Cocrystal Discovery, Inc., Cocrystal Pharma Australia Pty Ltd., RFS Pharma, LLC and Cocrystal Merger Sub, Inc. Intercompany transactions and balances have been eliminated.
Segments
The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision-making.
| F-5 |
Use of Estimates
Preparation of the Company’s consolidated financial statements in conformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The significant estimates in the Company’s consolidated financial statements relate to the valuation of equity awards and derivative liabilities, recoverability of deferred tax assets, estimated useful lives of fixed assets, and forecast assumptions used in the valuation of goodwill. The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.
Concentrations of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in
accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $
Foreign Currency Transactions
The Company and its subsidiaries use the U.S. dollar as functional currency. Foreign currency transactions are initially measured and recorded in the functional currency using the exchange rate on the date of the transaction. Foreign exchange gains and losses arising from settlement of foreign currency transactions are recognized in profit and loss.
Cocrystal Australia maintains its records in Australian dollars. The monetary assets and liabilities of Cocrystal Australia are remeasured into the functional currency using the closing rate at the end of every reporting period. All nonmonetary assets and liabilities and related profit and loss accounts are remeasured into the functional currency using the historical exchange rates. Profit and loss accounts, other than those that are remeasured using the historical exchange rates, are remeasured into the functional currency using the average exchange rate for the period. Foreign exchange gains and losses arising from the remeasurement into the functional currency is recognized in profit and loss.
Fair Value Measurements
FASB Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
| Level 1 — quoted prices in active markets for identical assets or liabilities. | |
| Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. | |
| Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date. |
| F-6 |
The Company categorizes its cash and restricted cash as Level 1 fair value measurements. The Company categorizes its warrants potentially settleable in cash as Level 2 fair value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option pricing model as discussed in Note 7 – Warrants.
At June 30, 2022 and December 31, 2021, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, other assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The carrying values of leases payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
The Company’s derivative liabilities are considered Level 2 measurements.
Goodwill
The
Company completed its annual impairment test in November 2021, and at that time determined the fair value of its reporting unit, as
determined utilizing both the Company’s Nasdaq market capitalization and an income approach analysis; exceeded the carrying
value of the reporting unit as of December 31, 2021; therefore, management did not consider the $
The Company uses judgement in assessing whether assets may have become
impaired between annual impairment tests. The occurrence of a change in circumstances, such as a continued decline in the market capitalization
of the Company, would determine the need for impairment testing between annual impairment tests. During
the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction
in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market
capitalization of the Company at June 30, 2022 and concluded that goodwill was impaired in its entirety and recorded a $
As of June 30, 2022, the Company had goodwill of $.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.
Research and Development Expenses
All research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.
| F-7 |
As of June 30, 2022, the Company assessed its income tax expense based on its projected future taxable income for the year ending December 31, 2022 and therefore recorded no amount for income tax expense for the six months ended June 30, 2022. In addition, the Company has significant deferred tax assets available to offset income tax expense due to net operating loss carry forwards which are currently subject to a full valuation allowance based on the Company’s assessment of future taxable income. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.
The Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock options. The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized as expense over the requisite service period on a straight-line basis.
Use of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free interest rate. The Company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities since the Company’s common stock has limited trading history and limited observable volatility of its own. The expected term of the options is estimated by using the SEC Staff Bulletin No. 107’s Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds rates.
Common Stock Purchase Warrants and Other Derivative Financial Instruments
We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants and the conversion of convertible notes payable.
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Outstanding options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Total | ||||||||
| F-8 |
Recent Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
Authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures.
3. Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated useful lives of the underlying assets (three to five years) using the straight-line method. As of June 30, 2022, and December 31, 2021, property and equipment consists of (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Lab equipment | $ | $ | ||||||
| Finance lease right-of-use lab equipment | ||||||||
| Computer and office equipment | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| F-9 |
Total
depreciation and amortization expense were approximately $
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands) as of:
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued other expenses | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
Accounts payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that have been billed and estimated unbilled, respectively, as of period-end.
5. Common Stock
The Company has shares of common stock, $ par value per share, authorized as of June 30, 2022 and December 31, 2021, respectively. The Company had and shares issued and outstanding as of June 30, 2022 and December 31, 2021.
On August 6, 2021, the Company filed with the Delaware Secretary of State a Certificate of Amendment to the Certificate of Incorporation pursuant to which the number of shares of common stock the Company is authorized to issue was increased from shares to shares. The Certificate of Amendment was effective upon filing.
The holders of common stock are entitled to one vote for each share of common stock held.
The
Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright &
Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through
Wainwright, up to $
On
May 4, 2021, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC, pursuant to which the Company agreed
to issue and sell shares of the Company’s common stock at a public offering price of $ per share, less underwriting
discounts and commissions (the “Offering”). The Company received approximately $
Equity Incentive Plans
The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan has expired and the Company no longer issues any awards under the 2007 Plan. As of June 30, 2022, there are of outstanding incentive stock options granted under the 2007 Plan that are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the fair market value of such stock on the date of grant. The maximum term of options granted under the 2007 Plan was ten years.
| F-10 |
The Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which shares of common stock have been reserved for issuance to employees, and nonemployee directors and consultants of the Company. Recipients of incentive stock options granted under the 2015 Plan shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 Plan is . On June 16, 2021, the Company’s stockholders voted to approve an amendment to the 2015 Plan to increase the number of shares of common stock authorized for issuance under the 2015 Plan from to shares. As of June 30, 2022, shares remain available for future grants under the 2015 Plan.
In
July 2021, the Compensation Committee of the Company’s Board of Directors granted a total of stock options with a fair
value of $
| Number of Shares Available for Grant | Total Options Outstanding | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||
| Balance at December 31, 2021 | $ | $ | ||||||||||||||
| Increase in authorized options | ||||||||||||||||
| Exercised | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired | ( | ) | 2.81 | |||||||||||||
| Cancelled | ( | ) | ||||||||||||||
| Balance at June 30, 2022 | $ | $ | ||||||||||||||
The Company accounts for share-based awards to employees and nonemployee directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur. For the three and six months ended June 30, 2022 and 2021, equity-based compensation expense recorded was $ and $ and $ and $ respectively.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-Free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected term (in years) | ||||||||
As
of June 30, 2022, there was approximately $ of total unrecognized compensation expense related to non-vested stock options that
is expected to be recognized over a weighted average period of years. For options granted and outstanding, there were options
outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $, a weighted average exercise price
of $ and weighted average remaining contractual term of years at June 30, 2022. For vested and exercisable options, outstanding
shares totaled
| F-11 |
The aggregate intrinsic value of outstanding and exercisable options at June 30, 2022 was calculated based on the closing price of the Company’s common stock as reported on The Nasdaq Capital Market on June 30, 2022 of $ per share less the exercise price of the options. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.
Common Stock Reserved for Future Issuance
The following table presents information concerning common stock available for future issuance (in thousands) as of:
| June 30, 2022 | June 30, 2021 | |||||||
| Stock options issued and outstanding | ||||||||
| Shares authorized for future option grants | ||||||||
| Warrants outstanding | ||||||||
| Total | ||||||||
7. Warrants
The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the six months ended June 30, 2022 (in thousands):
Warrants Accounted for as: Equity | Warrants Accounted for as: Liabilities | |||||||||||||||
| May 2018 Warrants | October 2013 Warrants | January 2014 Warrants | Total | |||||||||||||
| Outstanding, December 31, 2021 | ||||||||||||||||
| Exercised | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, June 30, 2022 | ||||||||||||||||
| Expiration date: | ||||||||||||||||
Warrants Classified as Liabilities
Liability-classified warrants consist of warrants issued by Biozone Pharmaceuticals, Inc. (“Biozone”), the company’s predecessor, in connection with equity financings in October 2013 and January 2014, which were assumed by the Company in connection with its merger with Biozone in January 2014. Warrants accounted for as liabilities have the potential to be settled in cash or are not indexed to the Company’s own stock.
The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of operations as changes in fair value of derivative liabilities.
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of June 30, 2022:
| October 2013 Warrants | January 2014 Warrants | |||||||
| Strike price | $ | $ | ||||||
| Expected dividend yield | % | % | ||||||
| Contractual term (years) | ||||||||
| Cumulative volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Value per warrants | $ | $ | ||||||
| Aggregate value | $ | $ | ||||||
| F-12 |
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2021:
| October 2013 Warrants | January 2014 Warrants | |||||||
| Strike price | $ | $ | ||||||
| Expected dividend yield | % | % | ||||||
| Expected term (years) | ||||||||
| Cumulative volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Fair value (in thousands) | $ | $ | ||||||
The Company estimates volatility using its own historical stock price volatility. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero-coupon rates in effect at the balance sheet date. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.
8. Licenses and Collaborations
Merck Sharp & Dohme Corp.
On
January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”)
with Merck to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement,
Merck funds research and development for the program, including clinical development, and will be responsible for worldwide commercialization
of any products derived from the collaboration. Cocrystal is eligible to receive payments related to designated development, regulatory
and sales milestones with the potential to earn up to $
Kansas State University Research Foundation
Cocrystal entered into a License Agreement with Kansas State University Research Foundation (the “Foundation”) on February 18, 2020 to further develop certain proprietary broad-spectrum antiviral compounds for the treatment of Norovirus and Coronavirus infections.
Pursuant to the terms of the License Agreement, the Foundation granted the Company an exclusive royalty bearing license to practice under certain patent rights, under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how, including to make and sell therapeutic, diagnostic and prophylactic products.
The
Company agreed to pay the Foundation a one-time non-refundable license initiation fee of $
| F-13 |
9. Commitments and Contingencies
Commitments
In the ordinary course of business, the Company enters into non-cancelable leases to purchase equipment and for its facilities, including related party leases (see Note 10 – Transactions with Related Parties). Leases are accounted for as operating leases or finance leases, in accordance with ASC 842, Leases.
Operating Leases
The
Company leases office space in Miami, Florida and research and development laboratory space in Bothell, Washington under operating leases
that expire on
The following table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
| 2022 (excluding the six months ended June 30, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total operating lease payments | ||||
| Less: present value discount | ( | ) | ||
| Total operating lease liabilities | $ |
As
of June 30, 2022, the total operating lease liability of $
The
operating lease liabilities summarized above do not include variable common area maintenance (CAM) charges, which are contractual liabilities
under the Company’s Bothell, Washington lease. CAM charges for the Bothell, Washington facility are calculated annually based on
actual common expenses for the building incurred by the lessor and proportionately billed to tenants based on leased square footage.
For the six months ended June 30, 2022 and 2021, approximately $
On
September 1, 2021, the Company entered into a three-year lease extension with a limited liability company controlled by Dr. Phillip Frost,
a director and a principal stockholder of the Company (see Note 10 – Transactions with Related Parties). On an annualized basis,
straight-line rent expense is approximately $
For
the six months ended June 30, 2022 and 2021, operating lease expense, excluding short-term leases, finance leases and CAM charges, totaled
approximately $
Finance Leases
In
November 2018, the Company entered into lease agreements to acquire lab equipment with
| F-14 |
The following table summarizes the Company’s maturities of finance lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
| 2022 (excluding the six months ended June 30, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total finance lease payments | ||||
| Less: present value discount | ( | ) | ||
| Total finance lease liabilities | $ |
The
leased lab equipment is depreciable over
Contingencies
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this report, except as described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.
Liberty
Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory
judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation,
that the monies totaling approximately $
In November 2017, Lee Pederson, a former Biozone lawyer, filed a lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Phillip Frost, OPKO Health, Inc. and Brian Keller alleging that defendants engaged in wrongful conduct related to Biozone, including causing Biozone to enter into an allegedly improper licensing agreement and engaged in alleged market manipulation (“Pederson I”). On September 13, 2018, the United States District Court granted the Company and its co-defendants’ motion to dismiss Pederson’s amended complaint in Pederson I for lack of personal jurisdiction in Minnesota. On October 11, 2018, Pederson filed a notice of appeal with the United States Court of Appeals for the Eighth Circuit. The plaintiff’s appeal was denied and the dismissal of Pederson I affirmed in March 2020. Meanwhile, in July 2019, Lee Pederson had filed another lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Frost, and Daniel Fisher (“Pederson II”). In his complaint in Pederson II, Pederson alleged tortious interference by the Company and Dr. Frost with an alleged collaboration agreement between Mr. Pederson and Mr. Fisher. On November 19, 2020 the Magistrate Judge recommended dismissal of Pederson II, and further recommended that Pederson be restricted from filing any other actions in the District of Minnesota against defendants on the same or similar allegations as those in Pederson II, and on January 4, 2021 the District Court Judge adopted those recommendations and ordered dismissal of Pederson II. On February 1, 2021 Pederson filed a Notice of Appeal from the order of dismissal of Pederson II in the Eighth Circuit. On February 8, 2022 the U.S. Court of Appeals, Eighth Circuit, denied Pederson’s petition for rehearing en banc.
| F-15 |
COVID-19
Our administrative and finance activities are fully functional out of our Miami, Florida location and our research laboratory in Bothell, Washington remains open for essential operations while meeting COVID-19 quarantine challenges. Our scientists are also able to continue working remotely and we remain committed to meeting our corporate and development milestones throughout the year. We have experienced delays in our supply chain and with service partners as a result of the COVID-19 pandemic, including recent raw material and test animal shortages affecting our research and development efforts. Also because of the unknown impact from the COVID-19 pandemic, it may have unanticipated material adverse effects on us in a number of ways including:
| ● | If our scientists and other personnel (or their family members) are infected with the virus, it may hamper our ability to engage in ongoing research activities; | |
| ● | Similarly, we rely on third parties who have been and may in the future be adversely impacted; | |
| ● | If these third parties are and/or continue to be adversely affected by COVID-19, they may focus on other activities which they may devote their limited time to other priorities rather than to our joint research, which has caused and may in the future cause material delays in our research and development efforts; | |
| ● | We have experienced and may experience in the future shortages of laboratory materials and other resources which impact our research activities; and | |
| ● | As a result of the continuing impact of the virus, including potential new variants, we may fail to get access to third party laboratories which would impact our research activities. |
10. Transactions with Related Parties
The
Company leases administrative offices from a limited liability company owned by one of the Company’s directors and principal stockholder,
Dr. Phillip Frost. The operating lease term is through September 2024 with an optional -year extension. On an annualized basis,
straight-line lease expense, including taxes and fees, for this location is approximately $
The
Company paid a lease deposit of $
| F-16 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Cocrystal Pharma, Inc. (the “Company” or “Cocrystal”) is a clinical-stage biotechnology company seeking to discover and develop novel antiviral therapeutics as treatments for serious and/or chronic viral diseases. We employ unique structure-based technologies and Nobel Prize winning expertise to create first- and best-in-class antiviral drugs. These technologies are designed to efficiently deliver small molecule therapeutics that are safe, effective and convenient to administer. We have identified promising preclinical and early clinical-stage antiviral compounds for unmet medical needs including Influenza virus, Coronavirus, Hepatitis C virus (“HCV”), and Norovirus infections.
Impact of COVID-19 Pandemic
COVID-19 is caused by a coronavirus called severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). Coronaviruses are a large family of viruses that are common in people and many different species of animals, including camels, cattle, cats, and bats. Rarely, animal coronaviruses can infect people and then spread between people. This occurred with Middle East respiratory syndrome coronavirus (MERS-CoV) and severe acute respiratory syndrome coronavirus (SARS-CoV), and now with the virus that causes COVID-19.
We have experienced delays in our supply chain and with contract service organizations (CROs) and contract development and manufacturing organizations (CDMOs) as a result of the COVID-19 pandemic. For example, there have been shortages in raw materials and test animals, which has resulted in delays in our research and development efforts. The consequences of the COVID-19 pandemic and the impact on the national and global economy continues to evolve and the full extent of the impact is uncertain as of the date of this filing.
Impact of Inflation
The Company does not believe that inflation has had a material effect on its operations to date, other than the impact of inflation on the general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary pressures in the future, which would have the effect of increasing the Company’s operating costs, and which would put additional stress on the Company’s working capital resources.
Research and Development Update
During the six months ended June 30, 2022 the Company focused its research and development efforts primarily in three areas for the development of therapeutic and prophylactic drugs.
COVID-19 and other coronaviruses
Intranasal/Pulmonary Protease Inhibitor - Our lead therapeutic molecule CDI-45205 has progressed in development against SARS-CoV-2, the virus that causes COVID-19.
CDI-45205 was one of the broad-spectrum protease inhibitors obtained from Kansas State University Research Foundation (“KSURF”) under a license agreement announced in April 2020. That agreement provides Cocrystal with an exclusive, royalty-bearing license to develop and commercialize therapeutic, diagnostic and prophylactic products against coronaviruses, caliciviruses and picornaviruses based on certain antivirals discovered by KSURF. The Company believes these protease inhibitors have the ability to inhibit the inactive SARS-CoV-2 polymerase replication enzymes into an active form. CDI-45205 showed good bioavailability in mouse and rat pharmacokinetic studies via intraperitoneal injection, and also no cytotoxicity against a variety of human cell lines.
The Company demonstrated a strong synergistic effect of CDI-45205 with remdesivir, which is an FDA-approved COVID-19 medicine. Additionally, a proof-of-concept animal study demonstrated that daily injection of CDI-45205 exhibited favorable in vivo efficacy in MERS-CoV-2 infected mice. CDI-45205 and several analogs showed potent in vitro activity against the SARS-CoV-2 Delta (India/B.1.617.2), Gamma (Brazil/P.1) Alpha (United Kingdom/B.1.1.7) and Beta (South African/B.1.351) variants, surpassing the activity observed with the original Wuhan strain.
The Company has initiated API (Active Pharmaceutical Ingredient) synthesis and process chemistry development as we prepare data to support an IND application with the goal of progressing to clinical trials in 2022 with CDI-45205.
| 3 |
The Company has received FDA guidance to advance preclinical and clinical development of its COVID-19 antiviral CDI-45205. FDA’s response covered topics including preclinical studies, manufacturing, pharmacology and toxicology, and clinical development plans for CDI-45205 for Phase 1 and Phase 2 studies.
Oral Protease Inhibitors – The Company has leveraged its antiviral development expertise by using its proprietary technology and drug discovery platform to develop novel SARS-CoV-2 3CL protease inhibitors and has selected two investigational novel antiviral drug candidates for further development as oral treatments for SARS-CoV-2, the virus that causes COVID-19. CDI-988 and CDI-873 target a highly conserved region in the active of SARS-CoV-2 main (3CL) protease required for viral RNA replication. The Company has initiated process chemistry development and API synthesis of the drug candidates as we prepare data to support an IND application.
Replication Inhibitors – The Company is also using its drug discovery platform to develop replication inhibitors for developing orally administered therapeutic and prophylactic treatments of SARS-CoV-2. Replication inhibitors have the potential to work with the protease inhibitors in a combination cocktail.
National Institute of Allergy and Infectious Diseases - In June 2022 the Company entered into a Non-Clinical Evaluation Agreement (“NCEA”) with the National Institute of Allergy and Infectious Diseases (“NIAID”) for exploratory preclinical studies to evaluate the potential of the Company’s 3CL protease inhibitors for the treatment of COVID-19. Under the NIAID collaboration, the Company has provided NIAID its proprietary process chemistry information for its oral 3CL protease inhibitors and the NIAID will in turn support a scale-up synthesis of a key intermediate of the oral 3CL protease inhibitors.
Influenza
CC-42344 Oral PB2 Inhibitor - CC-42344, a novel PB2 inhibitor, has been selected as a preclinical lead. This candidate binds to a highly conserved PB2 site of influenza polymerase complex (PB1: PB2: PA) and exhibits a novel mechanism of action. CC-42344 showed excellent antiviral activity against influenza A strains, including pandemic and seasonal strains and Tamiflu® and Xofluza® resistant strains, and has favorable pharmacokinetic and drug resistance profiles.
In March 2022, the Company announced the initiation of enrollment of healthy adults in a dose-escalating Phase 1 study with orally administered CC-42344 being conducted in Australia. The randomized, double-controlled Phase 1 study is designed to assess the safety, tolerability and pharmacokinetics of CC-42344. In April 2022, we reported preliminary results from the first study cohorts with CC-42344 demonstrating a favorable safety and pharmacokinetic profile. In July 2022, we reported completion of the single ascending dose portion of the Phase 1 study and pharmacokinetic results from this portion of the study supporting the potential for once-daily dosing. In July 2022 the Company announced that pharmacokinetic data from the single ascending dose portion of a Phase 1 study of CC-42344 of pandemic and seasonal influenza A support the potential for once-daily dosing. The single ascending dose portion of the Phase 1 study has been completed and subjects are currently being enrolled in the multiple ascending dose portion of the Phase 1 study. The Company expects to report final Phase 1 study results in 2022.
Merck program - On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) to discover and developed certain proprietary influenza A/B antiviral agents that are effective against both influenza A and B strains.
In January 2021, we announced that we completed all research obligations under the Collaboration Agreement, and that Merck is now solely responsible for further preclinical and clinical development of the influenza A/B antiviral compounds that were discovered using Cocrystal’s unique structure-based technologies. Merck is continuing development of the compounds under the terms of our Collaboration Agreement.
Norovirus Infections
We continue to develop non-nucleoside polymerase and protease inhibitors using the Company’s proprietary structure-based drug design technology platform. The Company is developing novel protease inhibitors against human norovirus and plan to conduct proof-of-concept animal studies. In addition, we obtained exclusive rights to norovirus protease inhibitors for use in humans obtained in the license from KSURF (see under Collaborations below).
| 4 |
Results of Operations for the Three and Six Months Ended June 30, 2022 compared to the Three and Six Months Ended June 30, 2021
Research and Development Expense
Research and development expense consists primarily of compensation-related costs for our employees dedicated to research and development activities and for our Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs related to our research and development programs.
Total research and development expenses for the three months ended June 30, 2022 and 2021 were $2,361,000 and $2,557,000, respectively. The decrease of $196,000 was primarily due to Influenza CC-42344 moving from preclinical discovery stage to clinical trial.
Total research and development expenses for the six months ended June 30, 2022 and 2021 were $5,233,000 and $3,957,000, respectively. The increase of $1,276,000 was primarily due increases in COVID-19 and influenza programs advancement.
We expect research and development expenses to continue increase in 2022 as we continue to advance our pandemic and seasonal influenza A (CC-42344) into clinical trials this year and progress our pre-clinical COVID-19 program towards clinical development.
General and Administrative Expense
General and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses.
General and administrative expenses for the three months ended June 30, 2022 and 2021 were $2,975,000 and $1,271,000, respectively. The increase of $1,704,000 was primarily due legal matters and insurance cost increases.
General and administrative expenses for the six months ended June 30, 2022 and 2021 were $4,308,000 and $2,609,000, respectively. The increase of $1,699,000 was primarily due legal matters and insurance cost increases.
Goodwill Impairment
During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market capitalization of the Company at June 30, 2022 and concluded that goodwill was impaired in its entirety and recorded a $19,092,000 non-cash impairment.
Interest Expense, Net
Interest expense for the three months ended June 30, 2022 and 2021 was $0 and $2,000, respectively. Interest expense for the six months ended June 30, 2022 and 2021 was $1,000 and $3,000, respectively. The decrease for the six months ended June 30, 2022 was due to changes in the finance lease agreements.
Other Income/(Expense)
In accordance with U.S. GAAP, we record other income or expense based upon the computed change in fair value of our outstanding warrants that are accounted for as liabilities. The fair value of our outstanding warrants is inversely related to the fair value of the underlying common stock; as such, an increase in the price of our common stock during a given period generally results in other expense. Conversely, a decrease in the price of our common stock generally results in other income. The change in the fair value of derivative liabilities for the six months ended June 30, 2022 and 2021 was $12,000 and $10,000, respectively.
| 5 |
In 2022, the Company established a wholly-owned subsidiary in Australia, making it subject to foreign exchange rate fluctuations. Foreign exchange gain during the six months ended June 30, 2022 was $15,000.
Income Taxes
No income tax benefit or expense was recognized for the three and six months ended June 30, 2022 and 2021. The Company’s effective income tax rate was 0.00% for the three and six months ended June 30, 2022 and 2021. As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
Net Loss
As a result of the above factors, net loss for the three and six months ended June 30, 2022 was $24,428,000 and $28,636,000, respectively, compared with a net loss of $3,821,000 and $6,559,000 for the three and six months ended June 30, 2021, respectively, as a result of goodwill impairment and expenses described above.
Liquidity and Capital Resources
Net cash used by operating activities was $7,634,000 for the six months ended June 30, 2022 compared with net cash used by operating activities of $4,394,000for the same period in 2021. This increase was primarily due to increase of operating costs related to pre-clinical development of our COVID-19 program, applications and commencement and progression of Influenza A clinical trials.
We had no net cash used for investing activities during the six months ended June 30, 2022 compared with $40,000 net cash used for the same period in 2021. For the six months ended June 30, 2022 the level of investments decreased compared to June 30, 2021 due to finalization of laboratory expansion.
Net cash provided by (used in) financing activities totaled ($13,000) for the six months ended June 30, 2022 compared with $38,486,000 for the same period in 2021. This decrease was primarily due to sufficient capital needs during the six months ended June 30, 2022, which resulted in no equity offerings in the 2022 period as compared to the six months ended June 30, 2021.
The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs. The Company had $51,033,000 unrestricted cash on June 30, 2022 and believes this is sufficient to maintain planned operations for at least the next 36 months.
We have focused our efforts on research and development activities, including through collaborations with suitable partners. We have been profitable on a quarterly basis, but have never been profitable on an annual basis. We have no products approved for sale and have incurred operating losses and negative operating cash flows on an annual basis since inception.
The Company’s interim consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Historically, public and private equity offerings have been our principal source of liquidity.
The Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. During January 2021, the Company sold 1,030,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2,072,000. There were no sales under the ATM Agreement during the six months ended June 30, 2022.
| 6 |
On May 4, 2021, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC, pursuant to which the Company agreed to issue and sell 26,000,000 shares of the Company’s common stock at a public offering price of $1.54 per share, less underwriting discounts and commissions (the “Offering”). The Company received approximately $36.4 million in net proceeds from the Offering, after deducting underwriting discounts and estimated offering expenses. The Offering closed on May 7, 2021.
As the Company continues to incur losses, achieving profitability is dependent upon the successful development, approval and commercialization of its product candidates, and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional private or public equity offerings and through arrangements with strategic partners or from other sources. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all, and any equity financing may be very dilutive to existing stockholders.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the future effectiveness of our product candidates, our plans for the future development of preclinical and clinical drug candidates, the expected time of achieving certain value driving milestones in our programs, including reporting the results of the Phase 1 Influenza A study and progressing our COVID-19 program towards clinical development, our expectations regarding future operating results and liquidity. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include the risks and uncertainties the impact of the COVID-19 pandemic, the Russian invasion of Ukraine, and inflation and Federal Reserve interest rate increases in response thereto on the national and global economies and on our Company including supply chain disruptions and our continued ability to proceed with our programs, our collaboration partners, CROs, CDMOs, and on the national and global economy, including manufacturing and research delays arising from raw material and test animal shortages and other supply chain disruptions and other business interruptions, the ability of our CROs to recruit volunteers for, and to proceed with, clinical trials, the results of the multiple ascending dose portion of the Phase 1 study for CC-42344, possible delays resulting from the lockdown in Australia, the cooperation of the FDA and NIAID in accelerating development in our COVID-19 program, the achievement by Merck of certain milestones under the Collaboration Agreement, our ability to successfully identify, enter into and maintain additional strategic collaborations for further development of our product candidates, future results of planned research and, if successful, clinical trials, general risks arising from clinical trials, our and our collaboration partners’ technology and software performing as expected, financial difficulties experienced by certain partners, receipt of regulatory approvals, and development of effective COVID-19 treatments and/or vaccines by competitors, including as part of the programs financed by the U.S. government and potential mutations in a virus we are targeting which may result in variants that are resistant to a product candidate we develop. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Critical Accounting Policies and Estimates
In our Annual Report on Form 10-K for the year ended December 31, 2021, we disclosed our critical accounting policies and estimates upon which our financial statements are derived.
Accounting estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 revenues and expenses during the reporting period. Actual results could differ significantly from these estimates
| 7 |
Goodwill. Goodwill is tested at least annually for impairment or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more. The Company’s last annual impairment assessment was on November 30, 2021.
During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022. Based on management’s assessment at June 30, 2022, goodwill has been impaired and the Company has taken a $19,092,000 impairment on this intangible asset. As of June 30, 2022, the Company had a goodwill of $0.
Readers are encouraged to review these disclosures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 in conjunction with the review of this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2022 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the quarter ended June 30, 2022. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| 8 |
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. During the reporting period, except as set forth below, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
With respect to the previously disclosed lawsuit against the Company filed by Liberty Insurance Underwriters Inc. (“Liberty”), on June 7, 2022, the court filed a Stipulation and Order for Entry of Judgment in the amount of $1,359,063.72 in favor of Liberty (the “Judgment”) following summary judgment granted by the court to Liberty on all but one of the matters at issue in the case. The Company filed an appeal in July 2022. Pending the outcome of the appeal, the Company paid $1.6 million into the registry of the court which stayed execution of the Judgment.
ITEM 1.A RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
All recent sales of unregistered securities have been previously reported.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
| 9 |
ITEM 6. EXHIBITS
The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 3.1 | Certificate of Incorporation, as amended | 10-Q | 8/16/21 | 3.1 | ||||||
| 3.2 | Amended and Restated Bylaws | 8-K | 2/19/21 | 3.1 | ||||||
| 10.1 | Consulting and Scientific Advisory Board Agreement, dated April 13, 2021 with Roger Kornberg | 10-Q | 8/16/21 | 10.1 | ||||||
| 31.1 | Certification of Principal Executive Officer (302) | Filed | ||||||||
| 31.2 | Certification of Principal Executive Officer (302) | Filed | ||||||||
| 31.3 | Certification of Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished* | ||||||||
| 101.INS | XBRL Instance Document | Filed | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed | ||||||||
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Cocrystal Pharma, Inc., 4400 Biscayne Blvd, Suite 101, Miami, FL 33137.
| 10 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cocrystal Pharma, Inc. | ||
| Dated: August 15, 2022 | By: | /s/ Sam Lee |
| Sam Lee | ||
| President and Co-Interim Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: August 15, 2022 | By: | /s/ James Martin |
| James Martin | ||
Chief Financial Officer and Co-Interim Chief Executive Officer | ||
| (Principal Financial Officer) |
| 11 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Sam Lee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 15, 2022
| /s/ Sam Lee | |
| Sam Lee | |
| President and Co- Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, James Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 15, 2022
| /s/ James Martin | |
| James Martin | |
| Co-Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, James Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 15, 2022
| /s/ James Martin | |
| James Martin | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cocrystal Pharma, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, I, Sam Lee, certify, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2. The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Sam Lee | |
| Sam Lee | |
| President and Co- Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Dated: August 15, 2022
In connection with the quarterly report of Cocrystal Pharma, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, I, James Martin, certify, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2. The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ James Martin | |
| James Martin | |
| Chief Financial Officer and Co- Interim Chief Executive Officer | |
| (Principal Financial Officer) |
Dated: August 15, 2022
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Related party operating lease right of use assets | $ 140 | $ 140 |
| Related party operating lease liabilities current | 56 | 56 |
| Operating lease liabilities, related party, non-current | $ 87 | $ 87 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 150,000,000 | 150,000,000 |
| Common stock, shares issued | 97,469,000 | 97,469,000 |
| Common stock, shares outstanding | 97,469,000 | 97,469,000 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Operating expenses: | ||||
| Research and development | $ 2,361 | $ 2,557 | $ 5,233 | $ 3,957 |
| General and administrative | 1,375 | 1,271 | 2,708 | 2,609 |
| Legal settlement | 1,600 | 1,600 | ||
| Impairments | 19,092 | 19,092 | ||
| Total operating expenses | 24,428 | 3,828 | 28,633 | 6,566 |
| Loss from operations | (24,428) | (3,828) | (28,633) | (6,566) |
| Other (expense) income: | ||||
| Interest expense, net | (2) | (1) | (3) | |
| Foreign exchange gain | (1) | (14) | ||
| Change in fair value of derivative liabilities | 1 | 9 | 12 | 10 |
| Total other expense, net | 7 | (3) | 7 | |
| Net loss | $ (24,428) | $ (3,821) | $ (28,636) | $ (6,559) |
| Net loss per common share, basic and diluted | $ (0.25) | $ (0.04) | $ (0.29) | $ (0.08) |
| Weighted average number of common shares outstanding, basic and diluted | 97,469 | 87,069 | 97,469 | 79,116 |
Organization and Business |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization and Business | 1. Organization and Business
Cocrystal Pharma, Inc. (“we”, the “Company” or “Cocrystal”), a clinical stage biopharmaceutical company incorporated in Delaware, has been developing novel technologies and approaches to create first-in-class or best-in-class antiviral drug candidates since its initial funding in 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors, we plan to leverage our infrastructure and expertise in these areas.
The Company’s activities since inception have principally consisted of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s development programs, obtaining regulatory approvals of its products and, ultimately, the attainment of profitable operations is dependent on future events, including, among other things, its ability to access potential markets, secure financing, develop a customer base, attract, retain and motivate qualified personnel, and develop strategic alliances. Through June 30, 2022, the Company has primarily funded its operations through equity offerings.
In September 2021, the Company opened a wholly owned foreign subsidiary in Australia named Cocrystal Pharma Australia, Ltd (“Cocrystal Australia”) with the objective of operating clinical trials in Australia.
|
Basis of Presentation and Significant Accounting Policies |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Significant Accounting Policies | 2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X set forth by the Securities and Exchange Commission (“SEC”). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 23, 2022 (“Annual Report”).
Principles of Consolidation
The consolidated financial statements include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: Cocrystal Discovery, Inc., Cocrystal Pharma Australia Pty Ltd., RFS Pharma, LLC and Cocrystal Merger Sub, Inc. Intercompany transactions and balances have been eliminated.
Segments
The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision-making.
Use of Estimates
Preparation of the Company’s consolidated financial statements in conformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The significant estimates in the Company’s consolidated financial statements relate to the valuation of equity awards and derivative liabilities, recoverability of deferred tax assets, estimated useful lives of fixed assets, and forecast assumptions used in the valuation of goodwill. The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $250,000 for each institution where accounts are held. At June 30, 2022 and December 31, 2021, our primary operating accounts held approximately $51,033,000 and $58,705,000, respectively, and our collateral account balance was $75,000 at a different institution. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof.
Foreign Currency Transactions
The Company and its subsidiaries use the U.S. dollar as functional currency. Foreign currency transactions are initially measured and recorded in the functional currency using the exchange rate on the date of the transaction. Foreign exchange gains and losses arising from settlement of foreign currency transactions are recognized in profit and loss.
Cocrystal Australia maintains its records in Australian dollars. The monetary assets and liabilities of Cocrystal Australia are remeasured into the functional currency using the closing rate at the end of every reporting period. All nonmonetary assets and liabilities and related profit and loss accounts are remeasured into the functional currency using the historical exchange rates. Profit and loss accounts, other than those that are remeasured using the historical exchange rates, are remeasured into the functional currency using the average exchange rate for the period. Foreign exchange gains and losses arising from the remeasurement into the functional currency is recognized in profit and loss.
Fair Value Measurements
FASB Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
The Company categorizes its cash and restricted cash as Level 1 fair value measurements. The Company categorizes its warrants potentially settleable in cash as Level 2 fair value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option pricing model as discussed in Note 7 – Warrants.
At June 30, 2022 and December 31, 2021, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, other assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The carrying values of leases payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
The Company’s derivative liabilities are considered Level 2 measurements.
Goodwill
The Company completed its annual impairment test in November 2021, and at that time determined the fair value of its reporting unit, as determined utilizing both the Company’s Nasdaq market capitalization and an income approach analysis; exceeded the carrying value of the reporting unit as of December 31, 2021; therefore, management did not consider the $19,092,000 of goodwill to be impaired.
The Company uses judgement in assessing whether assets may have become impaired between annual impairment tests. The occurrence of a change in circumstances, such as a continued decline in the market capitalization of the Company, would determine the need for impairment testing between annual impairment tests. During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market capitalization of the Company at June 30, 2022 and concluded that goodwill was impaired in its entirety and recorded a $19,092,000 non-cash impairment.
As of June 30, 2022, the Company had goodwill of $.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.
Research and Development Expenses
All research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.
As of June 30, 2022, the Company assessed its income tax expense based on its projected future taxable income for the year ending December 31, 2022 and therefore recorded no amount for income tax expense for the six months ended June 30, 2022. In addition, the Company has significant deferred tax assets available to offset income tax expense due to net operating loss carry forwards which are currently subject to a full valuation allowance based on the Company’s assessment of future taxable income. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.
The Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock options. The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized as expense over the requisite service period on a straight-line basis.
Use of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free interest rate. The Company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities since the Company’s common stock has limited trading history and limited observable volatility of its own. The expected term of the options is estimated by using the SEC Staff Bulletin No. 107’s Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds rates.
Common Stock Purchase Warrants and Other Derivative Financial Instruments
We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants and the conversion of convertible notes payable.
Recent Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
Authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures.
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Property and Equipment |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | 3. Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated useful lives of the underlying assets (three to five years) using the straight-line method. As of June 30, 2022, and December 31, 2021, property and equipment consists of (in thousands):
Total depreciation and amortization expense were approximately $90,000 and $92,000 for the six months ended June 30, 2022 and 2021 respectively, which includes amortization expense of $7,716 and $11,958 for the six months ended June 30, 2022 and 2021, respectively, related to assets under finance lease. For additional finance leases information, refer to Note 9 – Commitments and Contingencies.
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Accounts Payable and Accrued Expenses |
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| Accounts Payable and Accrued Expenses | 4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands) as of:
Accounts payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that have been billed and estimated unbilled, respectively, as of period-end.
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Common Stock |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Equity [Abstract] | |
| Common Stock | 5. Common Stock
The Company has shares of common stock, $ par value per share, authorized as of June 30, 2022 and December 31, 2021, respectively. The Company had and shares issued and outstanding as of June 30, 2022 and December 31, 2021.
On August 6, 2021, the Company filed with the Delaware Secretary of State a Certificate of Amendment to the Certificate of Incorporation pursuant to which the number of shares of common stock the Company is authorized to issue was increased from shares to shares. The Certificate of Amendment was effective upon filing.
The holders of common stock are entitled to one vote for each share of common stock held.
The Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. During January 2021, the Company sold shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2,072,000. There were no sales under the ATM Agreement during the six months ended June 30, 2022.
On May 4, 2021, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC, pursuant to which the Company agreed to issue and sell shares of the Company’s common stock at a public offering price of $ per share, less underwriting discounts and commissions (the “Offering”). The Company received approximately $36.4 million in net proceeds from the Offering, after deducting underwriting discounts and estimated offering expenses. The Offering closed on May 7, 2021.
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Stock Based Awards |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Awards |
Equity Incentive Plans
The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan has expired and the Company no longer issues any awards under the 2007 Plan. As of June 30, 2022, there are of outstanding incentive stock options granted under the 2007 Plan that are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the fair market value of such stock on the date of grant. The maximum term of options granted under the 2007 Plan was ten years.
The Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which shares of common stock have been reserved for issuance to employees, and nonemployee directors and consultants of the Company. Recipients of incentive stock options granted under the 2015 Plan shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 Plan is . On June 16, 2021, the Company’s stockholders voted to approve an amendment to the 2015 Plan to increase the number of shares of common stock authorized for issuance under the 2015 Plan from to shares. As of June 30, 2022, shares remain available for future grants under the 2015 Plan.
In July 2021, the Compensation Committee of the Company’s Board of Directors granted a total of stock options with a fair value of $964,000 effective as of July 16, 2021. This follows action, taken by the Board in April 2021 and later by the stockholders in June 2021, to amend the Company’s 2015 Equity Incentive Plan. The Company granted the stock options to directors, executives, employees, and consultants. .
The Company accounts for share-based awards to employees and nonemployee directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur. For the three and six months ended June 30, 2022 and 2021, equity-based compensation expense recorded was $ and $ and $ and $ respectively.
As of June 30, 2022, there was approximately $ of total unrecognized compensation expense related to non-vested stock options that is expected to be recognized over a weighted average period of years. For options granted and outstanding, there were options outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $, a weighted average exercise price of $ and weighted average remaining contractual term of years at June 30, 2022. For vested and exercisable options, outstanding shares totaled 1,008,000, with an aggregate intrinsic value of $0.00. These options had a weighted average exercise price of $2.92 per share and a weighted-average remaining contractual term of 6.8 years at June 30, 2022.
The aggregate intrinsic value of outstanding and exercisable options at June 30, 2022 was calculated based on the closing price of the Company’s common stock as reported on The Nasdaq Capital Market on June 30, 2022 of $ per share less the exercise price of the options. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.
Common Stock Reserved for Future Issuance
The following table presents information concerning common stock available for future issuance (in thousands) as of:
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Warrants |
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| Warrants | 7. Warrants
The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the six months ended June 30, 2022 (in thousands):
Warrants Classified as Liabilities
Liability-classified warrants consist of warrants issued by Biozone Pharmaceuticals, Inc. (“Biozone”), the company’s predecessor, in connection with equity financings in October 2013 and January 2014, which were assumed by the Company in connection with its merger with Biozone in January 2014. Warrants accounted for as liabilities have the potential to be settled in cash or are not indexed to the Company’s own stock.
The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of operations as changes in fair value of derivative liabilities.
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of June 30, 2022:
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2021:
The Company estimates volatility using its own historical stock price volatility. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero-coupon rates in effect at the balance sheet date. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.
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Licenses and Collaborations |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Licenses and Collaborations | 8. Licenses and Collaborations
Merck Sharp & Dohme Corp.
On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement, Merck funds research and development for the program, including clinical development, and will be responsible for worldwide commercialization of any products derived from the collaboration. Cocrystal is eligible to receive payments related to designated development, regulatory and sales milestones with the potential to earn up to $156,000,000, as well as royalties on product sales. Merck can terminate the Collaboration Agreement at any time prior to the first commercial sale of the first product developed under the Collaboration Agreement, in its sole discretion, without cause.
Kansas State University Research Foundation
Cocrystal entered into a License Agreement with Kansas State University Research Foundation (the “Foundation”) on February 18, 2020 to further develop certain proprietary broad-spectrum antiviral compounds for the treatment of Norovirus and Coronavirus infections.
Pursuant to the terms of the License Agreement, the Foundation granted the Company an exclusive royalty bearing license to practice under certain patent rights, under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how, including to make and sell therapeutic, diagnostic and prophylactic products.
The Company agreed to pay the Foundation a one-time non-refundable license initiation fee of $80,000 under the License Agreement, and annual license maintenance fees. The Company also agreed to make certain future milestone payments, dependent upon the progress of clinical trials, regulatory approvals, and initiation of commercial sales in the United States and certain countries outside the United States.
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | 9. Commitments and Contingencies
Commitments
In the ordinary course of business, the Company enters into non-cancelable leases to purchase equipment and for its facilities, including related party leases (see Note 10 – Transactions with Related Parties). Leases are accounted for as operating leases or finance leases, in accordance with ASC 842, Leases.
Operating Leases
The Company leases office space in Miami, Florida and research and development laboratory space in Bothell, Washington under operating leases that expire on August 31, 2024 and January 31, 2024, respectively. For operating leases, the weighted average discount rate is 7.20% and the weighted average remaining lease term is 1.8 years.
The following table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
As of June 30, 2022, the total operating lease liability of $398,000 is classified as $221,000 current operating lease liabilities and $177,000 long term operating lease liabilities.
The operating lease liabilities summarized above do not include variable common area maintenance (CAM) charges, which are contractual liabilities under the Company’s Bothell, Washington lease. CAM charges for the Bothell, Washington facility are calculated annually based on actual common expenses for the building incurred by the lessor and proportionately billed to tenants based on leased square footage. For the six months ended June 30, 2022 and 2021, approximately $47,000 and $39,000 of variable lease expense (CAM) was included in general and administrative operating expenses on the condensed consolidated statements of operations, respectively.
The minimum lease payments above include the amounts that would be paid if the Company maintains its Bothell lease for the five-year term, starting February 2019. The Company has the right to terminate this lease after three years on January 31, 2022, by giving prior notice at least nine months before the early termination date and by paying a termination fee equal to the sum of unamortized leasing commissions and reimbursement for tenant improvements provided by the landlord amortized at 8.0% over the extended term.
On September 1, 2021, the Company entered into a three-year lease extension with a limited liability company controlled by Dr. Phillip Frost, a director and a principal stockholder of the Company (see Note 10 – Transactions with Related Parties). On an annualized basis, straight-line rent expense is approximately $62,000, including fixed and estimable fees and taxes.
For the six months ended June 30, 2022 and 2021, operating lease expense, excluding short-term leases, finance leases and CAM charges, totaled approximately $116,000 and $114,000, respectively, of which $31,000 in the period was to a related party.
Finance Leases
In November 2018, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $1,000 payable through November 21, 2021. In April 2020, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $2,000 payable through March 31, 2023. For finance leases, the weighted average discount rate is 8.0% and the weighted average remaining lease term is 1.4 years.
The following table summarizes the Company’s maturities of finance lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
The leased lab equipment is depreciable over five years and is presented net of accumulated depreciation on the condensed consolidated balance sheets under property and equipment. As of June 30, 2022, total right-of-use lab equipment net of depreciation recognized under finance leases is $44,000 and depreciation expense for the six months ended June 30, 2022 was $8,000. As of December 31, 2021, total right-of-use assets lab equipment exchanged for finance lease liabilities was $194,000 and accumulated depreciation for lab equipment under finance leases was $143,000.
Contingencies
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this report, except as described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.
Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in connection with an SEC investigation (which did not result in charges against us) were not covered by insurance, and for recoupment of the monies already paid. We have retained counsel to defend us which has filed an answer to the complaint denying its material allegations, as well as a counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the Company’s claims for coverage of the class and derivative litigations, and seeking money damages. In June 2022, the court granted Liberty’s motions for summary judgment to Liberty and awarded Liberty $1,359,063 in damages. In July 2022, we filed an appeal and deposited $1,600,000 with the United State District Court for the District of Delaware as security during pending our appeal. During the period ended June 30, 2022, the Company recorded a legal judgement for this amount inclusive of estimated costs. See “Item 1 – Legal Proceedings” for more information.
In November 2017, Lee Pederson, a former Biozone lawyer, filed a lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Phillip Frost, OPKO Health, Inc. and Brian Keller alleging that defendants engaged in wrongful conduct related to Biozone, including causing Biozone to enter into an allegedly improper licensing agreement and engaged in alleged market manipulation (“Pederson I”). On September 13, 2018, the United States District Court granted the Company and its co-defendants’ motion to dismiss Pederson’s amended complaint in Pederson I for lack of personal jurisdiction in Minnesota. On October 11, 2018, Pederson filed a notice of appeal with the United States Court of Appeals for the Eighth Circuit. The plaintiff’s appeal was denied and the dismissal of Pederson I affirmed in March 2020. Meanwhile, in July 2019, Lee Pederson had filed another lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Frost, and Daniel Fisher (“Pederson II”). In his complaint in Pederson II, Pederson alleged tortious interference by the Company and Dr. Frost with an alleged collaboration agreement between Mr. Pederson and Mr. Fisher. On November 19, 2020 the Magistrate Judge recommended dismissal of Pederson II, and further recommended that Pederson be restricted from filing any other actions in the District of Minnesota against defendants on the same or similar allegations as those in Pederson II, and on January 4, 2021 the District Court Judge adopted those recommendations and ordered dismissal of Pederson II. On February 1, 2021 Pederson filed a Notice of Appeal from the order of dismissal of Pederson II in the Eighth Circuit. On February 8, 2022 the U.S. Court of Appeals, Eighth Circuit, denied Pederson’s petition for rehearing en banc.
COVID-19
Our administrative and finance activities are fully functional out of our Miami, Florida location and our research laboratory in Bothell, Washington remains open for essential operations while meeting COVID-19 quarantine challenges. Our scientists are also able to continue working remotely and we remain committed to meeting our corporate and development milestones throughout the year. We have experienced delays in our supply chain and with service partners as a result of the COVID-19 pandemic, including recent raw material and test animal shortages affecting our research and development efforts. Also because of the unknown impact from the COVID-19 pandemic, it may have unanticipated material adverse effects on us in a number of ways including:
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Transactions with Related Parties |
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| Related Party Transactions [Abstract] | |
| Transactions with Related Parties | 10. Transactions with Related Parties
The Company leases administrative offices from a limited liability company owned by one of the Company’s directors and principal stockholder, Dr. Phillip Frost. The operating lease term is through September 2024 with an optional -year extension. On an annualized basis, straight-line lease expense, including taxes and fees, for this location is approximately $58,000. In September 2018, the Company paid a lease deposit of $4,000 and total amounts paid in connection with this operating lease were $31,000 and $30,000 for the six months ended June 30, 2022 and 2021, respectively.
The Company paid a lease deposit of $4,000 and total rent and other expenses paid in connection with this lease were $31,000 for each of the six months ended June 30, 2022. |
Basis of Presentation and Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X set forth by the Securities and Exchange Commission (“SEC”). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 23, 2022 (“Annual Report”).
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| Principles of Consolidation | Principles of Consolidation
The consolidated financial statements include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: Cocrystal Discovery, Inc., Cocrystal Pharma Australia Pty Ltd., RFS Pharma, LLC and Cocrystal Merger Sub, Inc. Intercompany transactions and balances have been eliminated.
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| Segments | Segments
The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision-making.
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| Use of Estimates | Use of Estimates
Preparation of the Company’s consolidated financial statements in conformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The significant estimates in the Company’s consolidated financial statements relate to the valuation of equity awards and derivative liabilities, recoverability of deferred tax assets, estimated useful lives of fixed assets, and forecast assumptions used in the valuation of goodwill. The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.
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| Concentrations of Credit Risk | Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $250,000 for each institution where accounts are held. At June 30, 2022 and December 31, 2021, our primary operating accounts held approximately $51,033,000 and $58,705,000, respectively, and our collateral account balance was $75,000 at a different institution. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof.
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| Foreign Currency Transactions | Foreign Currency Transactions
The Company and its subsidiaries use the U.S. dollar as functional currency. Foreign currency transactions are initially measured and recorded in the functional currency using the exchange rate on the date of the transaction. Foreign exchange gains and losses arising from settlement of foreign currency transactions are recognized in profit and loss.
Cocrystal Australia maintains its records in Australian dollars. The monetary assets and liabilities of Cocrystal Australia are remeasured into the functional currency using the closing rate at the end of every reporting period. All nonmonetary assets and liabilities and related profit and loss accounts are remeasured into the functional currency using the historical exchange rates. Profit and loss accounts, other than those that are remeasured using the historical exchange rates, are remeasured into the functional currency using the average exchange rate for the period. Foreign exchange gains and losses arising from the remeasurement into the functional currency is recognized in profit and loss.
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| Fair Value Measurements | Fair Value Measurements
FASB Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
The Company categorizes its cash and restricted cash as Level 1 fair value measurements. The Company categorizes its warrants potentially settleable in cash as Level 2 fair value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option pricing model as discussed in Note 7 – Warrants.
At June 30, 2022 and December 31, 2021, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, other assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The carrying values of leases payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
The Company’s derivative liabilities are considered Level 2 measurements.
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| Goodwill | Goodwill
The Company completed its annual impairment test in November 2021, and at that time determined the fair value of its reporting unit, as determined utilizing both the Company’s Nasdaq market capitalization and an income approach analysis; exceeded the carrying value of the reporting unit as of December 31, 2021; therefore, management did not consider the $19,092,000 of goodwill to be impaired.
The Company uses judgement in assessing whether assets may have become impaired between annual impairment tests. The occurrence of a change in circumstances, such as a continued decline in the market capitalization of the Company, would determine the need for impairment testing between annual impairment tests. During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market capitalization of the Company at June 30, 2022 and concluded that goodwill was impaired in its entirety and recorded a $19,092,000 non-cash impairment.
As of June 30, 2022, the Company had goodwill of $.
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| Long-Lived Assets | Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.
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| Research and Development Expenses | Research and Development Expenses
All research and development costs are expensed as incurred.
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| Income Taxes | Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.
As of June 30, 2022, the Company assessed its income tax expense based on its projected future taxable income for the year ending December 31, 2022 and therefore recorded no amount for income tax expense for the six months ended June 30, 2022. In addition, the Company has significant deferred tax assets available to offset income tax expense due to net operating loss carry forwards which are currently subject to a full valuation allowance based on the Company’s assessment of future taxable income. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.
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| Stock-Based Compensation |
The Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock options. The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized as expense over the requisite service period on a straight-line basis.
Use of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free interest rate. The Company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities since the Company’s common stock has limited trading history and limited observable volatility of its own. The expected term of the options is estimated by using the SEC Staff Bulletin No. 107’s Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds rates.
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| Common Stock Purchase Warrants and Other Derivative Financial Instruments | Common Stock Purchase Warrants and Other Derivative Financial Instruments
We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
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| Net Income (Loss) per Share |
The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants and the conversion of convertible notes payable.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
Authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures. |
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Basis of Presentation and Significant Accounting Policies (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Antidilutive Securities Excluded from Calculations of Net Loss Per Share |
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Property and Equipment (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property and equipment are recorded at cost and depreciated over the estimated useful lives of the underlying assets (three to five years) using the straight-line method. As of June 30, 2022, and December 31, 2021, property and equipment consists of (in thousands):
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Accounts Payable and Accrued Expenses (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consisted of the following (in thousands) as of:
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Stock Based Awards (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Share-based Compensation, Stock Options, Activity |
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| Schedule of Weighted Average Assumptions Used for Grants |
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| Schedule of Common Stock Reserved for Future Issuance | The following table presents information concerning common stock available for future issuance (in thousands) as of:
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Warrants (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Warrant Activity | The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the six months ended June 30, 2022 (in thousands):
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| Schedule of Fair Value of Warrants Classified as Liabilities | The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of June 30, 2022:
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2021:
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Commitments and Contingencies (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of Maturities of Operating Lease Liabilities | The following table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
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| Schedule of Maturities of Finance Lease Liabilities | The following table summarizes the Company’s maturities of finance lease liabilities, by year and in aggregate, as of June 30, 2022 (in thousands):
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Schedule of Antidilutive Securities Excluded from Calculations of Net Loss Per Share (Details) - shares shares in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 2,583 | 1,682 |
| Outstanding Options to Purchase Common Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 2,340 | 1,439 |
| Warrants to Purchase Common Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total | 243 | 243 |
Basis of Presentation and Significant Accounting Policies (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Cash equivalents | $ 51,033,000 | $ 58,705,000 |
| Restricted cash | 75,000 | |
| Goodwill | $ 19,092,000 | |
| Goodwill impairment charge | 19,092,000 | |
| United States Financial Institutions Two [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Cash FDIC insured amount | $ 250,000 |
Schedule of Property and Equipment (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | $ 1,882 | $ 1,882 |
| Less: accumulated depreciation and amortization | (1,519) | (1,429) |
| Property and equipment, net | 363 | 453 |
| Lab Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | 1,557 | 1,557 |
| Finance Lease Right of Use Lab Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | 194 | 194 |
| Computer and Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | $ 131 | $ 131 |
Property and Equipment (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Property, Plant and Equipment [Line Items] | ||
| Depreciation expense | $ 90,000 | $ 92,000 |
| Finance Lease Right-of-use Lab Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Amortization expense | $ 7,716 | $ 11,958 |
Schedule of Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable | $ 616 | $ 578 |
| Accrued compensation | 144 | 104 |
| Accrued other expenses | 211 | 615 |
| Total accounts payable and accrued expenses | $ 971 | $ 1,297 |
Schedule of Weighted Average Assumptions Used for Grants (Details) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Share-Based Payment Arrangement [Abstract] | ||
| Risk-Free interest rate | 1.04% | 1.08% |
| Expected dividend yield | 0.00% | 0.00% |
| Expected volatility | 76.24% | 62.63% |
| Expected term (in years) | 4 years 3 months 29 days | 3 years 9 months 18 days |
Schedule of Common Stock Reserved for Future Issuance (Details) - shares shares in Thousands |
Jun. 30, 2022 |
Jun. 30, 2021 |
|---|---|---|
| Share-Based Payment Arrangement [Abstract] | ||
| Stock options issued and outstanding | 2,340 | 1,439 |
| Shares authorized for future option grants | 7,670 | 8,580 |
| Warrants outstanding | 243 | 243 |
| Total | 10,253 | 10,262 |
Licenses and Collaborations (Details Narrative) - USD ($) |
Feb. 18, 2020 |
Jan. 02, 2019 |
|---|---|---|
| Collaboration Agreement [Member] | Maximum [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Royalty received on sales | $ 156,000,000 | |
| License Agreement [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Non refundable license initiation fee | $ 80,000 |
Schedule of Maturities of Operating Lease Liabilities (Details) $ in Thousands |
Jun. 30, 2022
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2022 (excluding the six months ended June 30, 2022) | $ 120 |
| 2023 | 246 |
| 2024 | 58 |
| Thereafter | |
| Total operating lease payments | 424 |
| Less: present value discount | (26) |
| Total operating lease liabilities | $ 398 |
Schedule of Maturities of Finance Lease Liabilities (Details) $ in Thousands |
Jun. 30, 2022
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2022 (excluding the six months ended June 30, 2022) | $ 15 |
| 2023 | 7 |
| 2024 | |
| Total finance lease payments | 22 |
| Less: present value discount | (1) |
| Total finance lease liabilities | $ 21 |
Transactions with Related Parties (Details Narrative) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Sep. 30, 2018 |
|
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||
| Operating lease payments | $ 102,000 | $ 97,000 | |
| Lease expense | $ 116,000 | 114,000 | |
| Dr. Phillip Frost [Member] | |||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||
| Lease term | 3 years | ||
| Lease and rental expenses | $ 58,000 | ||
| Lease deposit liability | 4,000 | $ 4,000 | |
| Operating lease payments | 31,000 | $ 30,000 | |
| Lease expense | $ 31,000 | ||
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