The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our Condensed Consolidated
Financial Statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our audited consolidated financial statements and
related notes for the year ended December 31, 2021 included in our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on
March 17, 2022. Some of the statements contained in this discussion and analysis
or set forth elsewhere in this Quarterly Report on Form 10-Q, including
information with respect to our plans and strategy for our business, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "might," "plan," "potential," "predict," "project,"
"should," "target," "would," and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We have based these forward-looking statements on our
current expectations and projections about future events. The following
information and any forward-looking statements should be considered in light of
factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly
including those risks identified in Part II-Item 1A "Risk Factors" and our other
filings with the SEC.
Our actual results and timing of certain events may differ materially from the
results discussed, projected, anticipated, or indicated in any forward-looking
statements. We caution you that forward-looking statements are not guarantees of
future performance and that our actual results of operations, financial
condition and liquidity, and the development of the industry in which we operate
may differ materially from the forward-looking statements contained in this
Quarterly Report on Form 10-Q. Statements made herein are as of the date of the
filing of this Quarterly Report on Form 10-Q with the SEC and should not be
relied upon as of any subsequent date. Even if our results of operations,
financial condition and liquidity, and the development of the industry in which
we operate are consistent with the forward-looking statements contained in this
Quarterly Report on Form 10-Q, they may not be predictive of results or
developments in future periods. We disclaim any obligation, except as
specifically required by law and the rules of the SEC, to publicly update or
revise any such statements to reflect any change in our expectations or in
events, conditions or circumstances on which any such statements may be based,
or that may affect the likelihood that actual results will differ from those set
forth in the forward-looking statements.
We caution readers not to place undue reliance on any forward-looking statements
made by us, which speak only as of the date they are made.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and
commercialization of the investigational therapy Haduvio (oral nalbuphine ER) to
treat serious neurologically mediated conditions. We are developing Haduvio for
the treatment of prurigo nodularis and chronic cough in adults with idiopathic
pulmonary fibrosis, or IPF.
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In June 2022, we reported positive results in our Phase 2b/3 clinical trial of
Haduvio in prurigo nodularis, which we refer to as the Phase 2b/3 PRISM trial.
The Phase 2b/3 PRISM trial was a randomized, double-blind, placebo controlled,
two-arm treatment study that was designed to evaluate the safety and efficacy of
Haduvio in patients in the United States and Europe. In the Phase 2b/3 PRISM
trial, Haduvio demonstrated statistically significant results on the primary and
all three key secondary endpoints. The trial results comparing subjects
randomized to Haduvio (n=168) or placebo (n=176) showed that:
• 25% of Haduvio subjects evaluated at week 14 met the primary endpoint of
a 4-point reduction in the Worst Itch Numerical Rating Scale, or WI-NRS,
from baseline compared to 14% of placebo subjects (p=0.0157);
• Haduvio subjects experienced significantly greater improvements in
ItchyQoL vs. placebo (p=0.0002) at week 14, which was statistically
significant across each of the three domains (symptoms, functional
limitations, and emotions). ItchyQoL is used to measure how pruritus
impacts a subject's quality of life;
• 55% of Haduvio subjects had at least a 1-category improvement in the
5-point scale in their Prurigo Activity Scale (PAS) (pruriginous lesions
with excoriations), vs. 38% on placebo (p=0.006) as evaluated at week
14;
• Haduvio subjects experienced significantly greater improvements in
PROMIS sleep disturbance short form 8a vs. placebo (p=0.0002) at week
14, which was statistically significant as early as week 6.
The safety results of the trial were generally consistent with the known safety
profile of Haduvio from previous trials. During the double-blind titration
period (weeks 1-2), treatment-emergent adverse events, or TEAE, were more common
in the Haduvio-treated subjects (66.1%) vs. placebo-treated subjects (31.3%).
During the 12-week fixed-dose period, the occurrence of TEAEs were generally
similar between Haduvio and placebo groups (48% Haduvio, 45% placebo).
Discontinuations during the 14 weeks of the trial were 36.9% in Haduvio-treated
subjects vs. 19.3% in placebo-treated subjects. During the 14-week double-blind
portion of the Phase 2b/3 PRISM trial, eight subjects on Haduvio and six
subjects on placebo experienced at least one treatment emergent Serious Adverse
Event, or SAE. None of the SAEs were considered by the investigator to be
treatment-related. Adverse events most commonly observed with Haduvio were
nausea, dizziness, headache, and constipation.
We are continuing to conduct the open-label extension portion of the Phase 2b/3
PRISM trial, which we expect to complete in the first quarter of 2023. We expect
that we will need to conduct an additional Phase 3 clinical trial to support the
submission of a new drug application, or NDA, to the U.S. Food and Drug
Administration, or the FDA, a marketing authorization application, or MAA, to
the European Medicines Agency, or EMA, and an MAA to the Medicines and
Healthcare Products Regulatory Agency in the United Kingdom, or MHRA, for
Haduvio for the treatment of prurigo nodularis and plan to request an end of
Phase 2 meeting with the FDA.
We are also conducting a Phase 2 clinical trial of Haduvio for chronic cough in
adults with IPF, which we refer to as the Phase 2 CANAL trial. The Phase 2 CANAL
trial is a randomized, double-blind, placebo controlled, two-treatment,
two-period, crossover study that is designed to evaluate the efficacy, safety,
tolerability and dosing of Haduvio for chronic cough in adults with IPF. This
trial was originally designed to enroll approximately 60 subjects with a goal to
have 44 study completers. We are conducting the trial at multiple sites in the
United Kingdom. In February 2022, we conducted an interim statistical analysis
for this trial. The interim analysis (N=26) was statistically significant on the
primary efficacy endpoint demonstrating a 52% placebo-adjusted reduction in the
geometric mean percent change in daytime cough events (p<0.0001, conditional
power 100%) for Haduvio. P-value is a conventional statistical method for
measuring the statistical significance of clinical results. A p-value of less
than 0.05 is generally considered to represent statistical significance, meaning
that there is a less than five percent likelihood that the observed results
occurred by chance. The interim analysis was conducted by an independent
statistical team according to the pre-specified endpoint in the protocol. In
March 2022, in light of the statistically significant efficacy results from the
interim analysis, we concluded enrollment early for our Phase 2 CANAL trial. In
total, we enrolled approximately 40 subjects in the study. We expect to report
efficacy and safety data for the full set of subjects for this trial in the
third quarter of 2022. We are actively preparing for the next trial in chronic
cough in adults with IPF and are planning to discuss the program and trial plan
with the FDA at a meeting scheduled for the third quarter of 2022.
We are currently focusing our financial and operational resources on completing
the open-label extension portion of the Phase 2b/3 PRISM and the Phase 2 CANAL
trials, preparing for meetings with the FDA on the results of both of these
trials and preparing for the initiation of the next trial of Haduvio for the
treatment of chronic cough in adults with IPF.
Since commencing operations in 2011, we have devoted substantially all of our
efforts and financial resources to the clinical development of Haduvio. We have
not generated any revenue from product sales and, as a result, we have never
been profitable and have incurred net losses in each year since commencement of
our operations. As of June 30, 2022, we had an accumulated deficit of $196.3
million, primarily as a result of research and development and general and
administrative expenses. We do not expect to generate product revenue unless and
until we obtain marketing approval for and commercialize Haduvio for the
treatment of prurigo nodularis or chronic cough in adults with IPF and we can
provide no assurance that we will ever generate significant revenue or profits.
In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO, and
1,500,000 shares of common stock in a concurrent private placement, in each case
at an offering price of $10.00 per share, for combined net proceeds of $62.1
million after deducting aggregate underwriting discounts and commissions and
private placement agent fees of $4.9 million and other offering expenses of $3.0
million. Upon the closing of the IPO, our preferred stock then outstanding
converted into an aggregate of 10,381,234 shares of common stock.
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In June 2020, we entered into a sales agreement with SVB Leerink LLC, or SVB
Leerink, which we refer to as the ATM Sales Agreement, under which we may issue
and sell shares of common stock, from time to time, having an aggregate offering
price of up to $12.0 million. Sales of common stock under the ATM Sales
Agreement may be made by any method that is deemed an "at-the-market" offering
as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We
are not obligated to make any sales of our common stock under the ATM Sales
Agreement. We began making sales pursuant to the ATM Sales Agreement in July
2020, and as of June 30, 2022, we had issued and sold an aggregate of 3,583,394
shares of common stock for gross proceeds of $11.0 million, before deducting
estimated commissions and allocated fees of $0.8 million. Under the terms of the
October 2021 Private Placements, as described below, we agreed to not issue and
sell additional shares under the ATM Sales Agreement on or prior to January 4,
2022. In May 2022, we amended the ATM Sales Agreement with SVB Leerink to
increase the maximum aggregate offering price of common stock that we may issue
and sell from time to time under the ATM Sales Agreement by $50.0 million, from
$12.0 million to up to $62.0 million.
In August 2020, we entered into a loan and security agreement, or the SVB Loan
Agreement, with Silicon Valley Bank, or SVB, pursuant to which SVB provided a
term loan, or the SVB Term Loan, to us in the original principal amount of $14.0
million. On the first business day of each month commencing on March 1, 2022, we
are required to repay the SVB Term Loan in 24 consecutive installments of
principal plus monthly payments of accrued interest. All outstanding principal
and accrued and unpaid interest under the SVB Term Loan and all other
outstanding obligations with respect to the SVB Term Loan are due and payable in
full on February 1, 2024. The SVB Loan Agreement permits voluntary prepayment of
all, but not less than all, of the SVB Term Loan, subject to a prepayment
premium. In July 2021 and April 2022, we entered into amendments to the SVB Loan
Agreement with SVB, which we refer to as the Loan Amendments, that modified the
conditions under which we would be required to cash collateralize the
outstanding amounts owed to them under the SVB Loan Agreement. For further
discussion of the SVB Term Loan and the Loan Amendments, see "-Liquidity and
Capital Resources".
On October 5, 2021 and October 18, 2021, we issued and sold in two private
placements, or the October 2021 Private Placements, in the aggregate (i)
4,225,053 shares of our common stock and accompanying warrants to purchase an
aggregate of 8,450,106 shares of our common stock, and (ii) pre-funded warrants
to purchase up to an aggregate of 4,926,069 shares of our common stock and
accompanying warrants to purchase an aggregate of 9,852,138 shares of our common
stock. Each share of our common stock and accompanying common stock warrants
were sold together at a combined price of $1.62, and each pre-funded warrant and
accompanying common stock warrants were sold together at a combined price of
$1.619, for gross proceeds of approximately $14.8 million. Each pre-funded
warrant had an exercise price of $0.001 per share, became exercisable
immediately upon issuance and continued to be exercisable until exercised in
full. Of the accompanying common stock warrants, we issued warrants to purchase
an aggregate of 9,151,122 shares that are to expire in April 2025 and warrants
to purchase an aggregate of 9,151,122 shares that are to expire in October 2028.
The accompanying common stock warrants have an exercise price of $1.37 per share
and became exercisable immediately upon issuance. As of August 11, 2022, all of
the pre-funded warrants and all of the warrants to purchase shares of common
stock that were to expire on April 5, 2025 had been exercised.
On April 11, 2022, we issued and sold in a private placement, or the April 2022
Private Placement, (i) an aggregate of 4,580,526 shares of our common stock, and
(ii) pre-funded warrants to purchase up to an aggregate of 24,379,673 shares of
our common stock. Each share of our common stock was sold at a price of $1.90,
and each pre-funded warrant was sold at a price of $1.899 per warrant share, for
gross proceeds of approximately $55.0 million. Each pre-funded warrant has an
exercise price of $0.001 per share, is exercisable immediately and will be
exercisable until the pre-funded warrant is exercised in full.
As of June 30, 2022, we had cash, cash equivalents and marketable securities of
$78.9 million. In July 2022, we received approximately $4.1 million in proceeds
from the exercise of common stock warrants that were issued in the October 2021
Private Placements. We believe that our existing cash, cash equivalents and
marketable securities, including the proceeds from the exercise of common stock
warrants that were issued in the October 2021 Private Placements that we
received in July 2022, will enable us to fund our operating expenses and capital
expenditure requirements for at least 12 months from the date of issuance of the
Condensed Consolidated Financial Statements included in this Quarterly Report on
Form 10-Q.
We expect to incur substantial expenditures in the foreseeable future as we
advance Haduvio through clinical development, the regulatory approval process
and, if approved, commercial launch activities. Specifically, in the near term,
we expect to incur substantial expenses relating to the ongoing open-label
extension portion of our Phase 2b/3 PRISM trial for prurigo nodularis, our Phase
2 CANAL trial and the next trial we plan to conduct for Haduvio for the
treatment of chronic cough in adults with IPF, which we expect will be designed
as a Phase 2b/3 trial, subject to discussions with the FDA. In addition, we may
continue to incur additional expenses if we determine to conduct an additional
clinical trial for the treatment of prurigo nodularis, or as a result of the
COVID-19 pandemic and related clinical trial delays and interruptions.
We will need substantial additional funding to support our continuing operations
and pursue our growth strategy. Until such time as we can generate significant
revenue from sales of Haduvio, if ever, we expect to finance our operations
through the sale of equity, debt financings or other capital sources, including
potential collaborations with other companies or other strategic transactions.
Adequate funding may not be available to us on acceptable terms or at all. If we
fail to raise capital or enter into such agreements as and when needed, we may
have to significantly delay, scale back or discontinue the development and
commercialization of Haduvio
21
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for one or more indications or delay our efforts to expand our product pipeline.
Impacts of the COVID-19 Pandemic
The COVID-19 pandemic and government measures taken in response thereto have had
a significant impact, both direct and indirect, on segments of the global
economy and have interrupted our clinical trial activities, disrupted our
business operations and have the potential to interrupt our supply chain. We
experienced restrictions and delays at our clinical sites for both our Phase
2b/3 PRISM and Phase 2 CANAL trials. The COVID-19 pandemic may also adversely
affect our ability to recruit and retain principal investigators and site staff
who, as healthcare providers, may have heightened exposure to COVID-19, and may
result in further disruptions to our clinical trials due to prioritization of
hospital and medical resources toward the outbreak, restrictions on travel of
patients and healthcare providers, potential unwillingness of patients to enroll
in trials at this time or the inability of patients to comply with clinical
trial protocols if quarantines or travel restrictions impede patient movement or
interrupt healthcare services. The response to the COVID-19 pandemic may also
redirect resources of regulators in a way that could adversely impact our
ability to progress towards regulatory approvals and we may face impediments to
regulatory meetings and approvals relating to our clinical trials due to
measures intended to limit in-person interactions.
The COVID-19 pandemic may also affect employees of third-party contract research
organizations located in affected geographies that we rely upon to carry out our
clinical trials. The spread of COVID-19 or another infectious disease could also
negatively affect the operations at our third-party suppliers, which could
result in delays or disruptions in the supply of drug product used in our
clinical trials.
Components of Operating Results
Operating Expenses
Research and Development Expenses
For the periods presented, all of our research and development expenses consist
of expenses incurred in connection with the development of Haduvio. These
expenses include personnel-related costs, including stock-based compensation,
consulting costs, contract manufacturing costs and fees paid to clinical
research organizations, or CROs, to conduct certain research and development
activities on our behalf. We do not allocate all of our costs by each indication
for which we are developing Haduvio, as a significant amount of our development
activities broadly support all indications. In addition, several of our
departments support our Haduvio drug candidate development program and we do not
identify internal costs for each potential indication.
We expect our research and development expenses to increase over the next few
years as we pursue our development program, pursue regulatory approval of
Haduvio in the U.S., Europe and other jurisdictions outside the U.S. and prepare
for a possible commercial launch of Haduvio. Predicting the timing or the cost
to conduct our Haduvio development program and prepare for a possible commercial
launch of Haduvio is difficult and delays may occur because of many factors
including factors outside of our control. For example, if the FDA or other
regulatory authorities were to require us to conduct clinical trials beyond
those that we currently anticipate or if we experience significant delays in
enrollment in any of our clinical trials, whether as a result of the COVID-19
pandemic or otherwise, we could be required to expend significant additional
financial resources and time on our development program. Furthermore, we are
unable to predict when or if Haduvio will receive regulatory approval in the
U.S. or elsewhere with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related
costs, including stock-based compensation for personnel in executive, finance,
commercial and other administrative functions; professional fees for legal,
consulting and accounting services; as well as rent and other general operating
expenses not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase as a
result of increased personnel costs, including stock-based compensation and
expanded infrastructure.
Other Expense, Net
Change in Fair Value of Term Loan Derivative Liability
In connection with the SVB Term Loan, prior to the Third Amendment (as defined
below) to the SVB Loan Agreement upon the occurrence of the Phase 3 Event, as
described below, the interest rate on the SVB Term Loan would increase by 2.00%.
This contingent interest rate increase represented a free-standing financial
instrument. Accordingly, we accounted for the contingent interest rate increase
as a derivative under Accounting Standards Codification or ASC, 815, Derivatives
and Hedging and therefore, we recorded a term loan derivative liability for the
contingent interest rate increase at its fair value. We adjusted this liability
to fair value at each reporting date it remained outstanding. We recognized
changes in the fair value of this term loan derivative in our statements of
comprehensive loss as a component of other expense, net. See below as discussed
under "-Results of Operations-Operating Expenses-Other Expense, Net."
Interest Income, Net
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Interest income consists of interest earned primarily on our cash, cash
equivalents and marketable securities as well as accretion of
discounts/amortization of premiums on purchases of marketable securities.
Interest Expense
In August 2020, we entered into the SVB Loan Agreement under which we borrowed
$14.0 million under the SVB Term Loan. In connection with the SVB Term Loan, we
recognize interest expense which includes amortization of deferred financing
charges, accretion of loan discount-financing costs, accrual of the final
payment fee, amortization of the term loan discount-interest and the stated
interest on the SVB Term Loan. Prior to the Third Amendment to the SVB Loan
Agreement, the SVB Term Loan bore interest at a floating rate per annum equal to
the greater of (A) the prime rate plus 1.00% and (B) 4.25%. If SVB received
evidence satisfactory to it that we had (i) received positive data for the Phase
2b/3 PRISM trial sufficient to advance Haduvio into a second Phase 3 clinical
trial for prurigo nodularis and (ii) raised sufficient financing to fund such
Phase 3 clinical trial and our operations, which we refer to together as the
Phase 3 Event, the interest rate under the SVB Term Loan would be adjusted to a
floating rate equal to the greater of (A) the prime rate plus 3.00% and (B)
6.25%.
On April 6, 2022, we entered into the Third Amendment to the SVB Loan Agreement,
or the Third Amendment. Under the Third Amendment, SVB agreed that amounts
outstanding under the SVB Loan Agreement would accrue interest at a floating per
annum rate equal to (i) the greater of (A) the prime rate plus 1.00% and (B)
4.25%, prior to raising $45.0 million in net proceeds from the sale of equity
securities, which we refer to as the 2022 Equity Event, and (ii) upon and after
the occurrence of the 2022 Equity Event, the greater of (A) the prime rate plus
3.00% and (B) 6.25%. The closing of the April 2022 Private Placement constituted
the 2022 Equity Event.
The SVB Term Loan required interest-only payments until March 2022. Commencing
on March 1, 2022, we are required to repay the SVB Term Loan in 24 consecutive
installments of principal plus monthly payments of accrued interest. All
outstanding principal and accrued and unpaid interest under the SVB Term Loan
and all other outstanding obligations with respect to the SVB Term Loan are due
and payable in full on February 1, 2024.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the periods
indicated (in thousands):
Three Months Ended June 30,
2022 2021 Change
Operating expenses:
Research and development $ 5,103 $ 6,498 $ (1,395 )
General and administrative 2,717 2,669 48
Total operating expenses 7,820 9,167 (1,347 )
Loss from operations (7,820 ) (9,167 ) 1,347
Other (expense) income:
Change in fair value of term loan
derivative liability (136 ) 40 (176 )
Other expense - (375 ) 375
Interest income 195 2 193
Interest expense (295 ) (296 ) 1
Total other expense, net (236 ) (629 ) 393
Loss before income taxes (8,056 ) (9,796 ) 1,740
Income tax benefit 4 2 2
Net loss $ (8,052 ) $ (9,794 ) $ 1,742
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Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods indicated (in thousands):
Three Months Ended June 30,
2022 2021 Change
Clinical development expenses $ 3,259 $ 4,237 $ (978 )
Personnel and related expenses 1,104 1,343 (239 )
Other research and development expenses 289 73 216
Consulting expenses and professional fees 279 594 (315 )
Stock-based compensation expenses 172 251 (79 )
Total research and development expenses $ 5,103 $ 6,498 $ (1,395 )
Research and development expenses for the three months ended June 30, 2022
decreased to $5.1 million from $6.5 million for the corresponding period in
2021, primarily due to reduced purchases of clinical trial supplies and clinical
trial subject recruitment costs, decreased consulting expenses and professional
fees due to a reduction in our use of consulting services and the non-recurrence
of professional recruiting fees related to hirings in the prior year period.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2022
increased slightly as compared to the corresponding period in 2021. The increase
was primarily due to higher market research costs.
Other Expense, Net
Other expense, net for the three months ended June 30, 2022 was $0.2 million
compared to $0.6 million for the corresponding period in 2021. The decrease was
due to the non-recurrence of a $0.4 million expense from the prior year period
related to the value of the shares of our common stock that we issued to Lincoln
Park Capital Fund, LLC, or Lincoln Park, as consideration for Lincoln Park's
commitment to purchase shares of our common stock under a common stock purchase
agreement, or the LPC Purchase Agreement, as described below. Also contributing
to the decrease is an increase of interest income of $0.2 million due to higher
available cash balances and higher interest rates as we have deployed a large
portion of our funds into marketable securities. Offsetting these decreases was
an increase in expense of $0.2 million related to the change in fair value and
settlement of the term loan derivative liability.
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the periods
indicated (in thousands):
Six Months Ended June 30,
2022 2021 Change
Operating expenses:
Research and development $ 9,748 $ 12,087 $ (2,339 )
General and administrative 5,097 5,169 (72 )
Total operating expenses 14,845 17,256 (2,411 )
Loss from operations (14,845 ) (17,256 ) 2,411
Other (expense) income:
Change in fair value of term loan derivative
liability (147 ) 34 (181 )
Other expense - (375 ) 375
Interest income 199 5 194
Interest expense (597 ) (590 ) (7 )
Total other expense, net (545 ) (926 ) 381
Loss before income taxes (15,390 ) (18,182 ) 2,792
Income tax benefit 9 17 (8 )
Net loss $ (15,381 ) $ (18,165 ) $ 2,784
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Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods indicated (in thousands):
Six Months Ended June 30,
2022 2021 Change
Clinical development expenses $ 6,324 $ 8,048 $ (1,724 )
Personnel and related expenses 2,194 2,520 (326 )
Consulting expenses and professional fees 436 998 (562 )
Stock-based compensation expenses
432 424 8
Other research and development expenses 362 97 265
Total research and development expenses $ 9,748 $ 12,087 $ (2,339 )
Research and development expenses for the six months ended June 30, 2022
decreased to $9.7 million from $12.1 million for the corresponding period in
2021, primarily due to decreased purchases of clinical trial supplies, decreased
clinical trial subject recruitment costs, decreased consulting expenses and
professional fees due to a reduction in our use of consulting services and the
non-recurrence of professional recruiting fees related to hirings in the prior
year period and decreased personnel-related expenses primarily due to severance
in the prior year period that did not recur.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2022
decreased to $5.1 million from $5.2 million for the corresponding period in
2021. The decrease was primarily due to lower legal fees as a result of the
timing of certain intellectual property filings partially offset by higher
market research costs.
Other Expense, Net
Other expense, net for the six months ended June 30, 2022 was $0.5 million
compared to $0.9 million for the corresponding period in 2021. The decrease was
due to the non-recurrence of a $0.4 million expense from the prior year period
related to the value of the shares of our common stock that we issued to Lincoln
Park as consideration for Lincoln Park's commitment to purchase shares of our
common stock under the LPC Purchase Agreement. The decrease was also attributed
to a decrease of $0.2 million attributable to expense being recognized for the
change in fair value and settlement of the term loan derivative liability. These
decreases were offset by an increase in interest income of $0.2 million due to
higher interest rates and higher average cash balances as well as the receipt of
higher interest rate yields as we have deployed a large portion of our available
cash into marketable securities.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue and have incurred
significant operating losses and negative cash flows from our operations. Prior
to the completion of our initial public offering, or the IPO, and concurrent
private placement in May 2019, we financed our operations primarily through
private placements of our preferred stock and convertible notes as well as
borrowings under our prior term loan. From inception to our IPO, we raised an
aggregate of $102.2 million in gross proceeds from sales of our preferred stock
and convertible notes and borrowed $15.0 million under our prior term loan.
In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO and
1,500,000 shares of common stock in a concurrent private placement, in each case
at an offering price of $10.00 per share, for combined net proceeds of $62.1
million after deducting aggregate underwriting discounts and commissions and
private placement agent fees of $4.9 million and other offering expenses of $3.0
million.
In June 2020, we entered into the ATM Sales Agreement, under which we may issue
and sell shares of common stock, from time to time, having an aggregate offering
price of up to $12.0 million. Sales of common stock under the ATM Sales
Agreement may be made by any method that is deemed an "at-the-market" offering
as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We
are not obligated to make any sales of our common stock under the ATM Sales
Agreement. We began making sales pursuant to the ATM Sales Agreement in July
2020 and as of June 30, 2022 we had issued and sold an aggregate of 3,583,394
shares of common stock for gross proceeds of $11.0 million, before deducting
estimated commissions and allocated fees of $0.8 million. Under the terms of the
October 2021 Private Placements, we agreed to not issue or sell additional
shares under the ATM Sales Agreement on or prior to January 4, 2022. In May
2022, the Company amended the ATM Sales Agreement with SVB Leerink LLC to
increase the maximum aggregate offering price of common stock that it may issue
and sell from time to time under the ATM Sales Agreement by $50.0 million, from
$12.0 million to up to $62.0 million. During the three and six months ended
June 30, 2022, the Company had no sales of shares of common stock under the ATM
Sales Agreement.
On June 18, 2021, we entered into the LPC Purchase Agreement with Lincoln Park
for an equity line financing. The LPC Purchase Agreement provides that, subject
to the terms and conditions set forth therein, we have the right, but not the
obligation, to sell to Lincoln Park and Lincoln Park is obligated to purchase up
to $15.0 million of shares of common stock at our sole discretion,
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over a 24-month period commencing on July 23, 2021. We filed a registration
statement on Form S-1 covering the resale of shares of common stock that are
issued to Lincoln Park under the LPC Purchase Agreement, which was declared
effective on July 14, 2021. As part of the LPC Purchase Agreement, we issued
170,088 shares of our common stock to Lincoln Park as consideration for its
commitment to purchase shares of our common stock under the LPC Purchase
Agreement. Under the terms of the October 2021 Private Placements, we agreed to
not issue or sell additional shares under the LPC Purchase Agreement on or prior
to April 6, 2023.
SVB Loan Agreement
In August 2020, we entered into the SVB Loan Agreement with SVB, pursuant to
which SVB provided the SVB Term Loan in the original principal amount of $14.0
million. Prior to the Third Amendment, the SVB Term Loan bore interest at a
floating rate per annum equal to the greater of (A) the prime rate plus 1.00%
and (B) 4.25%. If SVB received evidence satisfactory to it that we had (i)
received positive data for the Phase 2b/3 PRISM trial, sufficient to advance
Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii)
raised sufficient financing to fund such Phase 3 clinical trial and our
operations, the interest rate under the SVB Term Loan would have been adjusted
to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B)
6.25%. Commencing on March 1, 2022 and on the first business day of each month
thereafter, we are required to repay the SVB Term Loan in 24 consecutive
installments of principal plus monthly payments of accrued interest. All
outstanding principal and accrued and unpaid interest under the SVB Term Loan
and all other outstanding obligations with respect to the SVB Term Loan are due
and payable in full on February 1, 2024. The SVB Loan Agreement permits
voluntary prepayment of all, but not less than all, of the SVB Term Loan,
subject to a prepayment premium. Such prepayment premium would be 3.00% of the
principal amount of the SVB Term Loan if prepaid prior to the first anniversary
of the date on which we entered into the SVB Term Loan or the Effective Date,
2.00% of the principal amount of the SVB Term Loan if prepaid on or after the
first anniversary of the Effective Date, but prior to the second anniversary of
the Effective Date and 1.00% of the principal amount of the SVB Term Loan if
prepaid on or after the second anniversary of the Effective Date but prior to
February 1, 2024. Upon repayment in full of the SVB Term Loan, we will be
required to pay a final payment fee equal to $1.2 million. The SVB Term Loan and
related obligations under the SVB Loan Agreement are secured by substantially
all of our properties, rights and assets, except for our intellectual property
(which is subject to a negative pledge under the SVB Loan Agreement). The SVB
Loan Agreement contains customary representations, warranties, events of default
and covenants. The occurrence and continuation of an event of default could
cause interest to be charged at the rate that is otherwise applicable plus 5.00%
(unless SVB elects to impose a smaller increase) and would provide SVB with the
right to accelerate all obligations under the SVB Loan Agreement and exercise
remedies against us and the collateral securing the SVB Term Loan and other
obligations under the SVB Loan Agreement, including foreclosure against assets
securing the SVB Term Loan and other obligations under the SVB Loan Agreement,
including our cash.
On July 6, 2021, we and SVB entered into the First Amendment to the SVB Loan
Agreement, or the First Amendment. The First Amendment modified the conditions
under which we are required to cash collateralize outstanding amounts owed to
SVB under the SVB Loan Agreement. Under the First Amendment, if we failed to
receive positive data in our Phase 2b/3 PRISM trial or, prior to June 30, 2022,
failed to raise sufficient net proceeds from the sale of equity securities to
finance our planned second Phase 3 clinical trial of Haduvio for prurigo
nodularis and our ongoing operations, each of which we refer to as a Milestone
Condition, we would be required to deposit unrestricted and unencumbered cash
equal to 100% of all outstanding amounts owed to SVB in a cash collateral
account with SVB, which could be used by SVB to prepay the SVB Term Loan at any
time. In addition, the First Amendment provided that if we failed to maintain at
least $20.0 million in unrestricted and unencumbered cash in our accounts with
SVB, or the Minimum Required Cash, at any time prior to the satisfaction of all
the Milestone Conditions, we would also have been required to cash collateralize
all outstanding amounts owed to SVB under the SVB Loan Agreement. We would also
have been required to cash collateralize all outstanding amounts owed to SVB
under the SVB Loan Agreement if we did not raise at least $15.0 million in net
proceeds from the sale of equity securities during the period from June 1, 2021
through October 31, 2021. We satisfied this equity funding condition through a
combination of equity issuances under our ATM Sales Agreement and the proceeds
from the October 2021 Private Placements.
On April 6, 2022, we entered into the Third Amendment to the SVB Loan Agreement.
The Third Amendment principally modified the conditions under which we are
required to cash collateralize all outstanding amounts owed to SVB under the SVB
Loan Agreement. Under the terms of the Third Amendment, upon the closing of the
April 2022 Private Placement, our obligations to achieve the Milestone
Conditions and maintain the Minimum Required Cash terminated and the sole
remaining cash collateralization requirement under the SVB Loan Agreement was
the requirement that we receive positive final data by December 31, 2022 from
either our Phase 2b/3 PRISM trial of Haduvio for prurigo nodularis or our Phase
2 CANAL trial of Haduvio for the treatment of chronic cough in adults with IPF.
On August 3, 2022, SVB confirmed that the reported data from the Phase 2b/3
PRISM trial satisfied the requirement for positive data and that the cash
collateralization requirements of the SVB Loan Agreement were no longer in
effect.
In addition, the Third Amendment modified the interest rate on the principal
amount outstanding under the SVB Loan Agreement, as discussed above under
"-Components of Operating Results-Operating Expenses-Interest Expense."
Private Placements
On October 5, 2021 and October 18, 2021, we issued and sold in two private
placements (i) an aggregate of 4,225,053 shares of our common stock and
accompanying warrants to purchase an aggregate of 8,450,106 shares of our common
stock, and (ii) pre-funded
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warrants to purchase up to an aggregate of 4,926,069 shares of our common stock
and accompanying warrants to purchase an aggregate of 9,852,138 shares of our
common stock. Each share of our common stock and accompanying common stock
warrants were sold together at a combined price of $1.62, and each pre-funded
warrant and accompanying common stock warrants were sold together at a combined
price of $1.619, for gross proceeds of approximately $14.8 million. Each
pre-funded warrant had an exercise price of $0.001 per share, became exercisable
immediately upon issuance and was exercisable until exercised in full. Of the
accompanying common stock warrants, warrants to purchase an aggregate of
9,151,122 shares will expire in April 2025 and warrants to purchase an aggregate
of 9,151,122 shares will expire in October 2028. The accompanying common stock
warrants have an exercise price of $1.37 per share and became exercisable
immediately upon issuance. As of August 11, 2022, all of the pre-funded warrants
and all of the common stock warrants to purchase shares of common stock that
were to expire on April 5, 2025 had been exercised.
On April 11, 2022, we issued and sold in the April 2022 Private Placement, (i)
an aggregate of 4,580,526 shares of our common stock, and (ii) pre-funded
warrants to purchase up to an aggregate of 24,379,673 shares of our common
stock. Each share of our common stock was sold at a price of $1.90, and each
pre-funded warrant was sold at a price of $1.899 per warrant share, for gross
proceeds of approximately $55.0 million. Each pre-funded warrant has an exercise
price of $0.001 per share, is exercisable immediately and will be exercisable
until the pre-funded warrant is exercised in full.
Cash Flows
The following table summarizes our cash flows for each of the periods presented
below (in thousands):
Six Months Ended June 30,
2022 2021 Change
Net cash used in operating activities $ (13,268 ) $ (15,476 ) $ 2,208
Net cash used in investing activities (54,217 )
- (54,217 )
Net cash provided by financing activities 55,353 6,900 48,453
Net decrease in cash and cash equivalents $ (12,132 ) $ (8,576 ) $ (3,556 )
Operating Activities
During the six months ended June 30, 2022, operating activities used
$13.3 million of net cash, resulting from our net loss of $15.4 million offset
by net changes in our operating assets and liabilities of $0.5 million and by
non-cash charges of $1.6 million. The non-cash charges consisted primarily of
stock-based compensation expense of $1.3 million and $0.3 million of
accretion/accrual of term loan discounts and debt issuance costs. Changes in our
operating assets and liabilities consisted of a $0.9 million increase in
accounts payable and a $0.4 million increase in accrued expenses and other
liabilities partially offset by a $0.9 million increase in prepaid expenses and
other current assets. The increase in accounts payable was primarily due to the
timing of vendor invoices. The increase in accrued expenses and other
liabilities was primarily due to increased accruals for research, development
and clinical trial work performed by our CROs, partially offset by a decrease in
accrued compensation and benefits. The increase in prepaid expenses and other
current assets was primarily due to an increase in prepayments of our corporate
insurance policies.
During the six months ended June 30, 2021, operating activities used $15.5
million of net cash, resulting from our net loss of $18.2 million and partially
offset by net changes in our operating assets and liabilities of $0.6 million
and by non-cash charges of $2.1 million. The non-cash charges consisted
primarily of stock-based compensation expense of $1.5 million, $0.4 million of
other expense associated with the value of the shares of our common stock that
we issued to Lincoln Park as consideration for Lincoln Park's commitment to
purchase shares of our common stock under the LPC Purchase Agreement and $0.3
million of accretion/accrual of term loan discounts and debt issuance costs.
Changes in our operating assets and liabilities consisted of a $1.5 million
increase in accounts payable, a $0.6 million increase in prepaid expenses and
other current assets and a $0.3 million decrease in accrued expenses and other
liabilities. The increase in accounts payable was primarily due to the timing of
vendor invoices. The increase in prepaid expenses and other current assets was
primarily due to an increase in prepayments of our corporate insurance policies.
The decrease in accrued expenses and other liabilities was primarily due to
decreased accruals for research, development and clinical trial work performed
by our CROs, partially offset by an increase in accrued compensation and
benefits.
Investing Activities
During the six months ended June 30, 2022, net cash used in investing activities
was $54.2 million, primarily related to purchases of marketable securities.
During the six months ended June 30, 2021, no cash was provided by or used in
investing activities.
Financing Activities
During the six months ended June 30, 2022, net cash provided by financing
activities was $55.4 million, primarily consisting of net cash proceeds from our
April 2022 Private Placement of $51.8 million and cash proceeds of $5.9 million
from the exercise of warrants as well as cash proceeds from purchases under our
2019 Employee Stock Purchase Plan partially offset by repayments of $2.3 million
on the SVB Term Loan, payments of offering costs of less than $0.1 million and
payments of financing costs of less than $0.1 million associated with the Third
Amendment to the SVB Loan Agreement.
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During the six months ended June 30, 2021, net cash provided by financing
activities was $6.9 million, consisting of gross cash proceeds of $7.4 million
from sales of our common stock under the ATM Sales Agreement, before deducting
estimated commissions and allocated fees of $0.6 million, as well as cash
proceeds from purchases under our 2019 Employee Stock Purchase Plan offset by
payments of offering costs.
Funding Requirements
We expect to incur substantial expenditures in the foreseeable future as we
advance Haduvio through clinical development, the regulatory approval process
and, if approved, commercial launch activities. Specifically, in the near term,
we expect to incur substantial expenses relating to:
• the ongoing open-label extension portion of our Phase 2b/3 PRISM trial in
patients with prurigo nodularis,
• the Phase 2 CANAL trial and, if the CANAL trial is successful, the next
trial we plan to conduct for Haduvio for the treatment of chronic cough in
adults with IPF, which we expect will be designed as a Phase 2b/3 trial,
subject to discussions with the FDA.
Generally, regulatory authorities require two adequate and well-controlled
studies for approval. In addition, we have incurred and may continue to incur
additional expenses as a result of the COVID-19 pandemic and resulting clinical
trial delays and interruptions. Furthermore, we expect to continue to incur
additional costs associated with operating as a public company, including
significant legal, accounting, investor relations and other expenses.
We will need substantial additional funding to support our continuing operations
and pursue our growth strategy. Until such time as we can generate significant
revenue from sales of Haduvio, if ever, we expect to finance our operations
through public or private equity offerings, debt financings, collaborations and
licensing arrangements or other sources to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms or
at all. Our future funding requirements, both short-term and long-term, will
depend on many factors, including:
• the scope, progress, timing, costs and results of clinical trials of
Haduvio, including the ongoing open-label extension portion of our Phase
2b/3 PRISM trial and our Phase 2 CANAL trial, as well as any future product
candidates;
• the number and characteristics of indications for which we seek to develop
Haduvio or any future product candidates and their respective development
requirements;
• the outcome, timing and costs of clinical and nonclinical trials and of
seeking regulatory approvals, including the costs of supportive clinical
studies such as our planned human abuse liability, or HAL, study and a
potential Thorough QT, or TQT, study;
• the costs associated with the manufacture of necessary quantities of
Haduvio or any future product candidate for clinical development in
connection with regulatory submissions;
• the costs of commercialization activities for Haduvio for the treatment of
prurigo nodularis or for the treatment of chronic cough in adults with IPF
or for any other serious neurologically mediated conditions or for any
future product candidates that receive marketing approval, if any,
including the costs and timing of establishing product sales, marketing,
distribution and manufacturing capabilities;
• subject to receipt of marketing approvals, revenue, if any, received from
commercial sales of Haduvio for the treatment of prurigo nodularis or for
the treatment of chronic cough in adults with IPF or for any other serious
neurologically mediated conditions or from any future product candidates;
• our ability to identify potential collaborators for Haduvio for the
treatment of prurigo nodularis or for the treatment of chronic cough in
adults with IPF or for any future product candidates and the terms and
timing of any collaboration agreement that we may establish for the
development and any commercialization of such product candidates;
• the extent to which we acquire or in-license rights to other potential
product candidates or technologies and the terms and timing of any such
acquisition or licensing arrangements;
• our potential obligation to make milestone payments to Endo, which would
become due upon the successful completion of the first Phase 3 clinical
trial of a licensed product candidate and the marketing approval of a
licensed product in the United States, as well as our potential obligations
to pay Endo mid-single digit royalties on the net sales of the product;
• our headcount growth and associated costs as we expand our research and
development activities and establish a commercial infrastructure;
• the costs of preparing, filing and prosecuting patent applications,
maintaining, expanding and protecting our intellectual property rights and
defending against intellectual property-related claims;
• the effect of competing technologies and market developments;
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• our ability to establish and maintain healthcare coverage and adequate
reimbursement for our products;
• the costs of operating as a public company;
• our ability to continue as a going concern; and
• the impact of the COVID-19 pandemic on the scope, progress, timing, costs
and results of our ongoing and planned clinical trials of Haduvio.
We believe that our existing cash, cash equivalents and marketable securities,
including the proceeds we received in July 2022 from the exercise of common
stock warrants that were issued in the October 2021 Private Placements, will
enable us to fund our operating expenses and capital expenditure requirements
into the fourth quarter of 2023. This does not consider the cost of any
additional clinical trial that we may determine to conduct for the treatment of
prurigo nodularis.
We have based our estimates as to how long we expect we will be able to fund our
operations on assumptions that may prove to be wrong and we could use our
available capital resources sooner than we currently expect, in which case we
would be required to obtain additional financing and financing may not be
available to us on acceptable terms, on a timely basis or at all. Our failure to
raise capital as and when needed would have a negative impact on our financial
condition and our ability to pursue our business strategy.
We do not have any committed external source of funds. Accordingly, we will be
required to obtain further funding through public or private equity offerings,
debt financings, collaborations, licensing arrangements or other sources to
complete the clinical development and commercialization of Haduvio for the
treatment of prurigo nodularis or for the treatment of chronic cough in adults
with IPF or any other indication. If we raise additional funds by issuing equity
securities, our stockholders may experience dilution. Any debt financing into
which we enter would result in fixed payment obligations and may involve
agreements that include grants of security interests on our assets and
restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures, granting liens over our
assets, redeeming stock or declaring dividends, that could adversely impact our
ability to conduct our business. For example, in connection with the SVB Term
Loan, we granted a security interest on all of our assets, excluding our
intellectual property, agreed to a negative pledge on our intellectual property,
agreed to restrictive covenants including, subject to certain exceptions,
covenants that prohibit us from transferring all or any part of our business or
property, changing our business, liquidating or dissolving, merging with or
acquiring another entity, entering into a transaction that will result in a
change in control, incurring additional indebtedness, creating any lien on our
property, paying dividends or redeeming stock, making payments on subordinated
debt or entering into material transactions with affiliates and agreed to cash
collateralize the SVB Term Loan in certain circumstances. Future debt securities
or other financing arrangements could contain similar or more restrictive
negative covenants. We are also bound by certain contractual terms and
obligations that may limit or otherwise impact our ability to raise additional
funding in the near-term including, but not limited to, provisions in the
October 2021 Private Placements prohibiting us from obtaining additional
financing through a variable rate transaction such as an equity line of credit.
In addition, securing financing could require a substantial amount of time and
attention from our management and may divert a disproportionate amount of their
attention away from day-to-day activities, which may adversely affect our
management's ability to oversee the development of our product candidates. Any
debt financing that we seek or additional equity that we raise may contain terms
that could adversely affect our common stockholders.
If we are unable to raise sufficient capital as and when needed, we may be
required to delay, reduce or abandon our product development programs or
commercialization efforts. If we raise additional funds through collaborations
or marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to future revenue streams or product
candidates or grant licenses on terms that may not be favorable to us.
Critical Accounting Policies and Use of Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these
Condensed Consolidated Financial Statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the Condensed
Consolidated Financial Statements, as well as the reported expenses incurred
during the reporting periods. Our estimates are based on our 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.
While our significant accounting policies are described in the Notes to our
financial statements, we believe that the critical accounting policies described
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Critical Accounting Policies and Use of Estimates" in
our Annual Report on Form 10-K for the year ended December 31, 2021 are the most
important to understanding and evaluating our reported financial results. During
the six months ended June 30, 2022, there were no material changes to our
critical accounting policies.
Recently Adopted Accounting Pronouncements
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There have been no new pronouncements adopted during the six months ended
June 30, 2022, which could be expected to materially impact the Company's
Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
There have been no new pronouncements during the six months ended June 30, 2022
which could be expected to materially impact our Condensed Consolidated
Financial Statements.
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