TREVI THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form
10-K. Some of the statements contained in this discussion and analysis or set
forth elsewhere in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K, particularly
including those risks identified in Part I-Item 1A "Risk Factors" and our other
filings with the
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
Annual Report on Form 10-K. Statements made herein are as of the date of the
filing of this Annual Report on Form 10-K with the
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) for the treatment of chronic cough in adults with idiopathic pulmonary fibrosis, or IPF, and other chronic cough indications, and for the treatment of prurigo nodularis.
Chronic Cough. In
80
--------------------------------------------------------------------------------
evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic
cough in adults with IPF that we conducted at multiple sites in the
We are in discussions with the
We also plan to develop Haduvio for additional chronic cough indications, which
we expect will commence initially with a Phase 2 clinical trial of Haduvio for
the treatment of refractory chronic cough, which we expect to initiate in the
third quarter of 2023 at sites in the
Prurigo Nodularis. In
We are analyzing the open-label extension portion of the Phase 2b/3 PRISM trial,
which we completed 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 FDA, a marketing authorization application, or
MAA, to the
Human Abuse Liability Study. We initiated a human abuse liability study in the
fourth quarter of 2022 to compare the abuse potential of oral nalbuphine to
butorphanol. The injectable version of nalbuphine is currently unscheduled in
the
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
In
In
81
--------------------------------------------------------------------------------
In
On
On
On
As of
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 next trials we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF, our planned Phase 2 clinical trial of Haduvio for the treatment of refractory chronic cough, and our ongoing human abuse liability, or HAL, study to determine the abuse potential of oral nalbuphine ER relative to butorphanol.
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
82
--------------------------------------------------------------------------------
development and commercialization of Haduvio 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. While the current trajectory of the COVID-19 pandemic is uncertain, in the future we may continue to experience adverse impacts on our clinical trial activities, business operations, financial condition, and prospects as a result of the future evolution of the virus, among other factors.
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 or other outbreaks of infectious disease 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 pandemic, 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 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 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 contract 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
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 Income (Expense), Net
Change in Fair Value of Term Loan Derivative Liability
Before it was amended by the Third Amendment (as defined below), the SVB Loan Agreement provided that 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.
83
--------------------------------------------------------------------------------
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 income (expense), net. See below as discussed under "-Results of Operations-Operating Expenses-Other Income (Expense), Net."
Other Income (Expense), Net
For the year ended
Interest Income, Net
Interest income, net 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
On
The SVB Term Loan required interest-only payments until
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods
indicated (in thousands):
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 19,834 $ 22,984 $ (3,150 )
General and administrative 10,073 9,492 581
Total operating expenses 29,907 32,476 (2,569 )
Loss from operations (29,907 ) (32,476 ) 2,569
Other income (expense):
Change in fair value of term loan derivative
liability (147 ) 82 (229 )
Other income (expense), net 289 (375 ) 664
Interest income, net 1,740 10 1,730
Interest expense (1,163 ) (1,202 ) 39
Total other income (expense), net 719 (1,485 ) 2,204
Loss before income taxes (29,188 ) (33,961 ) 4,773
Income tax benefit 36 21 15
Net loss $ (29,152 ) $ (33,940 ) $ 4,788
84--------------------------------------------------------------------------------
Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the periods indicated (in thousands):
Year Ended December 31,
2022 2021 Change
Clinical development expenses $ 11,796 $ 15,764 $ (3,968 )
Personnel and related expenses 4,180 4,439 (259 )
Consulting expenses and professional fees 2,595 1,761 834 Stock-based compensation expenses
815 743 72
Other research and development expenses 448 277 171
Total research and development expenses
Research and development expenses for the year ended
General and Administrative Expenses
General and administrative expenses for the year ended
Other Income (Expense), Net
Other income, net for the year ended
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 IPO, and concurrent private placement in
In
In
85
--------------------------------------------------------------------------------
"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
On
SVB Loan Agreement
In
On
On
86
--------------------------------------------------------------------------------
under the SVB Loan Agreement. Under the terms of the Third Amendment, upon the
closing of the
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."
Cash Flows
The following table summarizes our cash flows for each of the periods presented below (in thousands):
Year Ended December 31,
2022 2021 Change
Net cash used in operating activities
- (107,373 )
Net cash provided by financing activities 111,307 20,775 90,532
Net decrease in cash and cash equivalents
Operating Activities
During the year ended
During the year ended
Investing Activities
During the year ended
During the year ended
Financing Activities
During the year ended
87
--------------------------------------------------------------------------------
During the year ended
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 next trials we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF;
•
our planned Phase 2 clinical trial of Haduvio for the treatment of refractory chronic cough; and
• our ongoing HAL study.
Generally, regulatory authorities require two adequate and well-controlled studies for approval. Furthermore, we expect to continue to incur 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 next clinical trials for the treatment of chronic cough in adults with IPF, our planned Phase 2 clinical trial in refractory chronic cough, and our ongoing HAL study, as well as trials for 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 ongoing HAL study and a potential Thorough QT 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 chronic cough in adults with IPF or any other chronic cough indications 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 chronic cough in adults with IPF or for any other chronic cough indications or for the treatment of prurigo nodularis 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 other chronic cough indications 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
•
our headcount growth and associated costs as we expand our research and development activities and establish a commercial infrastructure;
88
--------------------------------------------------------------------------------
•
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;
•
our ability to establish and maintain healthcare coverage and adequate reimbursement for our products;
•
the costs of operating as a public company; and
•
the impact of the COVID-19 pandemic and other outbreaks of infectious disease 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, will enable us to fund our operating expenses and capital expenditure requirements into 2026. Our current plans do not take into account the cost of any additional clinical trials 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 chronic cough in adults with IPF or refractory chronic cough or for the treatment of prurigo nodularis 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. 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 financial statements have been prepared in accordance with
While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
89
--------------------------------------------------------------------------------
Research and Development Expenses
Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.
We have entered into agreements with CROs, contract manufacturing organizations and other companies that provide services in connection with our research and development activities. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on our consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CROs, contract manufacturing organizations and other companies under these arrangements in advance of the performance of the related services are recorded as prepaid expenses.
Stock-Based Compensation Expense
We account for stock-based compensation arrangements with employees and non-employees for consultancy services in accordance with ASC 718, Stock Compensation, or ASC 718. ASC 718 requires the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based payments, including stock options. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model for stock options with time-based vesting and is impacted by our common stock price as well as changes in assumptions regarding a number of complex and subjective variables. These variables include the expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends.
The fair value of an option award is recognized over the period during which the optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period) on a straight-line basis. Forfeitures are accounted for as they occur.
Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require analysis and judgment to develop.
Expected Term-The expected term assumption represents the weighted average period that the stock-based awards are expected to be outstanding. We have elected to use the "simplified method" for estimating the expected term of the options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.
Expected Volatility-For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, we considered the industry, stage of development, size and financial leverage of potential comparable companies.
Expected Dividend-The Black-Scholes valuation model calls for a single expected dividend yield as an input. We currently have no history or expectation of paying cash dividends on our common stock.
Risk-Free Interest Rate-The risk-free interest rate is based on the yield
available on
We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.
Income Taxes
We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
We account for uncertain tax positions in accordance with ASC 740, Accounting for Uncertainty in Income Taxes, or ASC 740. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax
90
--------------------------------------------------------------------------------
position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.
Warrants
We determine the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity, and then in accordance with ASC 815, Derivatives and Hedging, depending on the specific terms of the warrant agreement. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing a variable number of shares.
If warrants do not meet liability classification under ASC 480, we assess the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815, in order to conclude equity classification, we assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under ASC 815 or other applicable GAAP. After all relevant assessments are made, we conclude whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of comprehensive loss as a gain or loss. For equity classified warrants, no changes in fair value are recognized after the issuance date.
Fair Value Measurements
Our financial instruments have consisted of cash and cash equivalents, tax credit and other receivables, accounts payable, accrued expenses, term loans, term loan derivative liability and warrants to acquire our common stock. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. The carrying amounts of cash and cash equivalents, tax credit and other receivables, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Available-for-sale marketable securities are reported at their fair values, based upon pricing of securities with the same or similar investment characteristics as provided by third-party pricing services, as described below. The carrying amount of the term loan approximates its fair value due to its floating market-based interest rate. The carrying amount of the term loan approximates its fair value due to its floating market-based interest rate. The fair value of the term loan derivative liability is estimated utilizing a probability-weighted cash flow approach.
Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with ASC 820, Fair Value Measurements and Disclosures, and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions and are classified into the following fair value hierarchy:
•
Level 1-Observable inputs-quoted prices in active markets for identical assets and liabilities.
•
Level 2-Observable inputs other than the quoted prices in active markets for identical assets and liabilities-such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data.
•
Level 3-Unobservable inputs-includes amounts derived from valuation models where one or more significant inputs are unobservable and require the company to develop relevant assumptions.
Valuation Techniques - Level 2 Inputs
We estimate the fair values of our financial instruments categorized as level 2
in the fair value hierarchy, including
91
--------------------------------------------------------------------------------
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act, permits emerging growth companies such as us to take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Recently Adopted Accounting Pronouncements
There have been no new pronouncements adopted during the year ended
Recently Issued Accounting Pronouncements
There have been no new pronouncements issued during the year ended
© Edgar Online, source
