CLEARSIDE BIOMEDICAL, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this Annual Report. In addition to historical financial information, the following discussion contains forwardlooking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forwardlooking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Item 1A. "Risk Factors" and "Special Note Regarding ForwardLooking Statements."
Overview
We are a biopharmaceutical company focused on revolutionizing the delivery of therapies to the back of the eye through the suprachoroidal space (SCS). Our SCS injection platform, utilizing our proprietary SCS Microinjector, enables an in-office, repeatable, non-surgical procedure for the targeted and compartmentalized delivery of a wide variety of therapies to the macula, retina or choroid to potentially preserve and improve vision in patients with sight-threatening eye diseases. Our suprachoroidal injection technology can be used in conjunction with existing drugs designed for delivery to the SCS, novel therapies, and future therapeutic innovations. We believe our proprietary suprachoroidal administration platform has the potential to become a standard for delivery of therapies intended to treat chorioretinal diseases.
We are leveraging our SCS injection platform by building an internal research
and development pipeline targeting retinal diseases and by creating external
collaborations with other companies. We are developing our own pipeline of small
molecule product candidates for administration via our SCS Microinjector, and we
also strategically partner with companies developing other ophthalmic
therapeutic innovations to be administered using our SCS injection platform. Our
first product, XIPERE (triamcinolone acetonide injectable suspension) for
suprachoroidal use, was approved by the
Our operations to date have been limited to organizing and staffing our company,
raising capital, conducting preclinical studies and clinical trials and
undertaking other research and development initiatives. To date, we have only
generated revenue through upfront payments and milestone payments related to
license agreements and other revenue generated from collaboration agreements. We
have primarily financed our operations through public offerings and private
placements of our equity securities, issuances of convertible promissory notes
and loan agreements. As of
We expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate significant product or license and other revenue unless and until XIPERE is successfully commercialized by its licensees or until we successfully complete development of, obtain regulatory approval for and commercialize additional product candidates, either on our own or together with a third party. Our financial results may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We expect clinical trial expenses to increase in 2023 as a result of the implementation of a Phase 2b clinical trial of CLS-AX as well as continuing our pipeline development. We also will continue our efforts to seek to discover, research and develop additional product candidates and seek regulatory approvals in additional regions for XIPERE for the treatment of macular edema associated with uveitis. Based on our current research and development plans, we expect to have sufficient resources to fund our planned operations into the second quarter of 2024. We will require additional capital in order to complete clinical development of CLS-AX.
Components of Operating Results
Revenue
We have not generated any revenue from the sale of XIPERE and we do not expect to generate any other product revenue unless or until we obtain regulatory approval of and commercialize our other product candidates, either on our own or with a third party. The revenue received under the Bausch license agreement, as well as other certain payments from our licensees, will be recorded as non-cash revenue until we have fulfilled our obligations under the Purchase and Sale Agreement. Our revenue in recent years has been generated primarily from our license agreements. We are seeking to enter into additional license and other agreements with third
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parties to evaluate the potential use of our proprietary SCS Microinjector with the third party's product candidates for the treatment of various eye diseases. These agreements may include payments to us for technology access, upfront license payments, regulatory and commercial milestone payments and royalties.
Research and Development
Since our inception, we have focused on our development programs. Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which include:
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employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;
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expenses incurred under agreements with contract research organizations, or CROs, as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies;
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costs associated with preclinical activities and clinical trials;
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costs associated with submitting regulatory approval applications for our product candidates;
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costs associated with training physicians on the suprachoroidal injection procedure and educating and providing them with appropriate product candidate information;
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costs associated with technology and intellectual property licenses;
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costs for our research and development facility; and
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depreciation expense for assets used in research and development activities.
We expense research and development costs to operations as incurred. These costs include preclinical activities, such as manufacturing and stability and toxicology studies, that are supportive of a product candidate itself. In addition, there are expenses related to clinical trials and similar activities for each program, including costs associated with CROs. Clinical costs are recognized based on the terms of underlying agreements, as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and additional information provided to us by our vendors about their actual costs occurred. Expenses related to activities that support more than one development program or activity, such as salaries, share-based compensation and depreciation, are not classified as direct preclinical costs or clinical costs and are separately classified as unallocated.
The following table shows our research and development expenses by type of
activity for the years ended
Year Ended
December 31,
2022 2021 2020
(in thousands)
XIPERE (uveitis program) $ 339 $ 2,612 $ 3,841
CLS-AX (wet AMD program) 5,449 4,515 2,169
CLS-301 (DME program) 911 966 240
Total program expense 6,699 8,093 6,250
Unallocated 12,931 10,444 8,823
Total research and development expense
Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended under contracts with research institutions, consultants and CROs that conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we would modify our estimates of accrued expenses accordingly on a prospective basis.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. However, it is difficult to determine with certainty the duration and completion
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costs of our current or future preclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include the following:
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the costs associated with process development, scale-up and manufacturing of our product candidates including the SCS Microinjector for clinical trials and for requirements associated with regulatory filings;
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the number of trials required for approval and any requirement for extension trials;
• per patient trial costs;
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the number of patients that participate in the trials;
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the number of sites included in the trials;
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the countries in which the trials are conducted;
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the length of time required to enroll eligible patients;
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the number of doses that patients receive;
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the drop-out or discontinuation rates of patients;
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potential additional safety monitoring or other studies requested by regulatory agencies;
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the duration of patient follow-up; and
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the efficacy and safety profiles of the product candidates.
In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential.
General and Administrative
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative costs historically included commercial pre-launch preparations for XIPERE, and also include facility related costs not otherwise included in research and development expenses, as well as professional fees for legal, patent, consulting, and accounting and audit services.
Other Income (Other Expense)
Other income consists of the gain on the extinguishment of the PPP Loan and accrued interest and interest income earned on our cash, cash equivalents and short-term investments. Interest income is not currently significant to our financial statements.
Other expense consists of interest expense incurred under our loan agreements.
Non-cash Interest Expense on Liability Related to the Sales of Future Royalties
Non-cash interest expense on liability related to the sales of future royalties consists of imputed interest on the carrying value of the liability and the amortization of the related issuance costs.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in
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estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of share-based compensation and some of our research and development expenses. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies, in accordance with
Revenue recognition
We recognize revenue from our contracts with customers under
As part of the accounting for our revenue arrangements, we develop assumptions that require judgment such as the estimate of the stand-alone selling price for each performance obligation identified in the contract.
Licenses of intellectual property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promised goods or services, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, we evaluate whether the achievement of the milestones is considered probable and estimate the amount to be included in the transaction price using the most likely amount method. Performance milestone payments represent a form of variable consideration. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Achievement of milestones that are not within our or our licensee's control, such as regulatory approvals, are not considered probable until the approvals are achieved. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis and we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer's discretion are generally considered options. The arrangements may also include assistance and oversight of the customer's use of the drug substance or drug product. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the outset of the arrangement.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not received any royalty revenue resulting from any of our licensing arrangements.
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Accrued expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable vendor personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include fees paid to CROs and investigative sites in connection with clinical trials.
We accrue our expenses related to clinical trials based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct research activities or manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the level of effort varies from our estimate, we will adjust the accrual accordingly. If we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. Although we do not currently anticipate the future settlement of existing accruals to differ materially from our estimates, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low for any period.
Share-based compensation
Compensation cost related to share-based awards granted to employees, directors and consultants is measured based on the estimated fair value of the award at the grant date. We estimate the fair value of stock options using a Black-Scholes option pricing model. Share-based compensation costs are expensed on a straight-line basis over the relevant vesting period. The fair value of restricted stock units, or RSUs, granted is measured based on the market value of our common stock on the date of grant and is recognized ratably over the requisite service period, which is generally the vesting period of the awards. All share-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying employees' roles.
Significant factors, assumptions and methodologies used in determining fair value
Determining the appropriate fair value measurement of share-based awards requires the use of subjective assumptions. The determination of the fair value measurement of options using the Black-Scholes option pricing model is affected by our estimated common stock fair values as well as assumptions regarding a number of other subjective variables. These other variables include the expected term of the options, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends.
We estimate the fair value of stock options at the grant date using Black-Scholes option pricing model with the following assumptions:
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Fair value of our common stock. We estimate the fair value of our common stock by reference to the closing price of our common stock on The Nasdaq Global Market on the date of grant.
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Volatility. We calculate expected volatility based on the historical volatility of our common stock.
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Expected term. In the year ended
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Risk-free rate. The risk-free interest rate is based on the yields of
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Forfeitures. Forfeitures are accounted for as they occur.
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Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
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We have an employee stock purchase plan that is considered a compensatory plan. The fair value of the discount and the look-back period of the employee stock purchase plan are estimated using the Black-Scholes option pricing model and expense is recognized over the six-month withholding period prior to the purchase date.
Share-based compensation expense related to stock options, the employee stock
purchase plan and RSUs aggregated
Liabilities Related to the Sales of Royalties and Non-Cash Interest Expense
We recognized a liability related to the sales of future royalties under ASC 470-10 Debt and ASC 835-30 Interest - Imputation of Interest. The initial funds received by us pursuant to the terms of the Purchase and Sale Agreement were recorded as a liability and will be accreted under the effective interest method up to the estimated amount of future royalties and milestone payments to be made under the Purchase and Sale Agreement. The issuance costs were recorded as a direct deduction to the carrying amount of the liability and will be amortized under the effective interest method over the estimated period the liability will be repaid. We estimated the total amount of future royalty revenue and milestone payments to be generated over the life of the Purchase and Sale Agreement, and a significant increase or decrease in these estimates could materially impact the liability balance and the related interest expense. If the timing of the receipt of royalty payments or milestones is materially different from the original estimates, we will prospectively adjust the effective interest and the related amortization of the liability and related issuance costs.
Tax valuation allowance
We recorded aggregate deferred tax assets of
Our deferred tax assets are primarily composed of federal and state tax NOL
carryforwards. As of
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Results of Operations for the Years Ended
The following table sets forth our results of operations for the years ended
Year Ended Period-to-
December 31, Period
2022 2021 Change
(in thousands)
License and other revenue $ 1,327 $ 29,575 $ (28,248 )
Operating expenses:
Cost of goods sold 204 - 204
Research and development 19,630 18,537 1,093
General and administrative 11,770 11,665 105
Total operating expenses 31,604 30,202 1,402
Loss from operations (30,277 ) (627 ) (29,650 )
Other income 669 1,003 (334 )
Non-cash interest expense on liability
related to the sales of future royalties (3,339 ) - (3,339 ) Net (loss) income$ (32,947 ) $ 376 $ (33,323 )
Revenue. In the year ended
Cost of Goods Sold. In the year ended
Research and development. Research and development expense increased by
General and administrative. General and administrative expenses increased by
Other income. Other income for the year ended
Non-cash interest expense from liability related to the sales of future
royalties. Non-cash interest expense for the year ended
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Results of Operations for the Years Ended
The following table sets forth our results of operations for the years endedDecember 31, 2021 and 2020. Year Ended Period-to- December 31, Period 2021 2020 Change (in thousands) License and other revenue$ 29,575 $ 7,894 $ 21,681 Operating expenses: Research and development 18,537 15,073 3,464 General and administrative 11,665 10,756 909 Total operating expenses 30,202 25,829 4,373 Loss from operations (627 ) (17,935 ) 17,308 Other income 1,003 - 1,003 Other expense - (275 ) 275 Net income (loss)$ 376 $ (18,210 ) $ 18,586
Revenue. In the year ended
Research and development. Research and development expense increased by
General and administrative. General and administrative expenses increased by
Other income. Other income for the year ended
Other expense. Other expense for the year ended
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through the proceeds from public
offerings of our common stock, sales of convertible preferred stock and the
issuance of long-term debt. As of
During the year ended
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2022, there was
On
On
In
Pursuant to the Arctic Vision License Agreement, Arctic Vision paid us an
upfront payment of
In
We previously entered into a loan and security agreement with
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, research and development costs to build our product candidate pipeline, legal and other regulatory expenses and general overhead costs. In
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addition, we have certain contractual obligations for future payments. Refer to Footnote 12 to our financial statements included this Annual Report on Form 10-K.
The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of CLS-AX or any future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from product sales. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
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successful enrollment in, and completion of, clinical trials;
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receipt of marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; and
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launching commercial sales of the products, if and when approved, whether alone or in collaboration with others.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that candidate.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of equity offerings, debt
financings and potential collaboration, license and development agreements.
Other than potential payments we may receive under our license and other
agreements, we do not currently have any committed external source of funds,
though, as described above, we may also be able to sell our common stock under
the ATM agreement with Cowen subject to the terms of that agreement and
depending on market conditions. We expect that we will require additional
capital to fund our ongoing operations. Additional funds may not be available to
us on a timely basis, on commercially reasonable terms, or at all. Our ability
to raise additional capital may be adversely impacted by potential worsening
global economic conditions and the recent disruptions to, and volatility in, the
credit and financial markets in
If we raise funds through additional collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, including any future collaboration or licensing arrangement for XIPERE outside of the territories in which we have previously licensed or granted options to license XIPERE, we may be required to relinquish additional rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We also incur costs as a public company, including costs and expenses for fees
to members of our board of directors, accounting and finance personnel costs,
directors and officers insurance premiums, audit and legal fees, investor
relations fees and expenses for compliance with reporting requirements under the
Exchange Act and rules implemented by the
Outlook
We have suffered recurring losses and negative cash flows from operations since inception and anticipate incurring additional losses until such time, if ever, that we can generate significant milestone payments and royalties from XIPERE and other licensing arrangements or revenues from other product candidates. We will need additional financing to fund our operations. Our plans primarily consist of raising additional capital, potentially in a combination of equity or debt financings, monetizing royalties, or restructurings, or potentially entering into additional collaborations, partnerships and other strategic arrangements.
Based on our current plans and forecasted expenses, we expect that our cash and
cash equivalents as of the filing date,
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Cash Flows
The following is a summary of the net cash flows provided by (used in) our operating, investing and financing activities:
Year Ended
December 31,
2022 2021 2020
(in thousands)
Net cash (used in) provided by:
Operating activities $ (13,365 ) $ (10,733 ) $ (13,120 )
Investing activities (246 ) - (55 )
Financing activities 31,333 23,782 7,867
Net change in cash and cash equivalents
During the years ended
The decrease in cash used in operating activities for the year ended
In the year ended
During the years ended
Recent Accounting Pronouncements
See Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies" for a discussion of recent accounting pronouncements and their effect on us.
Smaller Reporting Company Status
We are a "smaller reporting company," meaning that the market value of our
shares held by non-affiliates is less than
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