ITEM
1.
|
CONDENSED
FINANCIAL STATEMENTS
|
PROVENTION
BIO, INC.
CONDENSED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
95,088
|
|
|
$
|
58,539
|
|
Prepaid
expenses and other current assets
|
|
|
1,283
|
|
|
|
2,990
|
|
Total
assets
|
|
$
|
96,371
|
|
|
$
|
61,529
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,265
|
|
|
$
|
568
|
|
Accrued
expenses
|
|
|
2,695
|
|
|
|
1,303
|
|
Total current liabilities
|
|
|
4,960
|
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note
5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 25,000,000 shares authorized,
no shares issued or outstanding at September 30, 2019 and December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value; 100,000,000
shares authorized; 47,638,361 shares issued and outstanding at September 30, 2019; 37,361,562 shares issued and outstanding
at December 31, 2018
|
|
|
5
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
159,927
|
|
|
|
95,430
|
|
Accumulated deficit
|
|
|
(68,521
|
)
|
|
|
(35,776
|
)
|
Total
stockholders’ equity
|
|
|
91,411
|
|
|
|
59,658
|
|
Total
liabilities, preferred stock and stockholders’ equity
|
|
$
|
96,371
|
|
|
$
|
61,529
|
|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
CONDENSED
STATEMENTS OF OPERATIONS (unaudited)
(in
thousands, except per share data)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
7,324
|
|
|
$
|
4,140
|
|
|
$
|
27,896
|
|
|
$
|
17,684
|
|
General
and administrative
|
|
|
2,649
|
|
|
|
1,272
|
|
|
|
5,593
|
|
|
|
2,929
|
|
Total
operating expenses
|
|
|
9,973
|
|
|
|
5,412
|
|
|
|
33,489
|
|
|
|
20,613
|
|
Loss from operations
|
|
|
(9,973
|
)
|
|
|
(5,412
|
)
|
|
|
(33,489
|
)
|
|
|
(20,613
|
)
|
Interest income
|
|
|
204
|
|
|
|
237
|
|
|
|
744
|
|
|
|
339
|
|
Change
in fair value of warrant liability
|
|
|
—
|
|
|
|
(217
|
)
|
|
|
—
|
|
|
|
(520
|
)
|
Loss before income tax benefit
|
|
|
(9,769
|
)
|
|
|
(5,392
|
)
|
|
|
(32,745
|
)
|
|
|
(20,794
|
)
|
Income
tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(9,769
|
)
|
|
$
|
(5,392
|
)
|
|
$
|
(32,745
|
)
|
|
$
|
(20,794
|
)
|
Accretion
on Series A Convertible Redeemable Preferred Stock
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(276
|
)
|
Net loss attributable
to common stockholders
|
|
$
|
(9,769
|
)
|
|
$
|
(5,417
|
)
|
|
$
|
(32,745
|
)
|
|
$
|
(21,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
common share, basic and diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(1.21
|
)
|
Weighted average common shares outstanding,
basic and diluted
|
|
|
40,512
|
|
|
|
32,000
|
|
|
|
38,424
|
|
|
|
17,414
|
|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
CONDENSED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited)
(in
thousands, except per share data)
|
|
Convertible
Redeemable
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
37,362
|
|
|
$
|
4
|
|
|
$
|
95,430
|
|
|
$
|
(35,776
|
)
|
|
$
|
59,658
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
|
|
—
|
|
|
|
244
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,972
|
)
|
|
|
(10,972
|
)
|
Balance at March 31,
2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
37,362
|
|
|
$
|
4
|
|
|
$
|
95,674
|
|
|
$
|
(46,748
|
)
|
|
$
|
48,930
|
|
Issuance of common stock
in connection with stock option exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
461
|
|
|
|
—
|
|
|
|
461
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,004
|
)
|
|
|
(12,004
|
)
|
Balance at June 30,
2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
37,370
|
|
|
$
|
4
|
|
|
$
|
96,156
|
|
|
$
|
(58,752
|
)
|
|
$
|
37,408
|
|
Issuance of common stock
in connection with underwritten public offering, net of issuance costs
|
|
|
—
|
|
|
|
—
|
|
|
|
5,750
|
|
|
|
1
|
|
|
|
42,650
|
|
|
|
—
|
|
|
|
42,651
|
|
Issuance of common stock
in connection with private placement with Amgen
|
|
|
—
|
|
|
|
—
|
|
|
|
2,500
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
20,000
|
|
Issuance of common stock
in connection with stock option exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
198
|
|
|
|
—
|
|
|
|
198
|
|
Issuance of common stock
in connection with warrant exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
1,967
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
923
|
|
|
|
—
|
|
|
|
923
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,769
|
)
|
|
|
(9,769
|
)
|
Balance
at September 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
47,638
|
|
|
$
|
5
|
|
|
$
|
159,927
|
|
|
$
|
(68,521
|
)
|
|
$
|
91,411
|
|
|
|
Convertible
Redeemable
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2018
|
|
|
11,382
|
|
|
$
|
26,185
|
|
|
|
10,000
|
|
|
$
|
1
|
|
|
$
|
3,264
|
|
|
$
|
(9,298
|
)
|
|
$
|
(6,033
|
)
|
Accretion of Series
A Convertible Redeemable Preferred Stock to redemption value
|
|
|
—
|
|
|
|
125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(125
|
)
|
|
|
—
|
|
|
|
(125
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99
|
|
|
|
—
|
|
|
|
99
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,063
|
)
|
|
|
(5,063
|
)
|
Balance
at March 31, 2018
|
|
|
11,382
|
|
|
$
|
26,310
|
|
|
|
10,000
|
|
|
$
|
1
|
|
|
$
|
3,238
|
|
|
$
|
(14,361
|
)
|
|
$
|
(11,122
|
)
|
Accretion of Series
A Convertible Redeemable Preferred Stock to redemption value
|
|
|
—
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(126
|
)
|
|
|
—
|
|
|
|
(126
|
)
|
Fair value of warrants
issued in connection with the acquisition of product rights
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,978
|
|
|
|
—
|
|
|
|
3,978
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
415
|
|
|
|
—
|
|
|
|
415
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,339
|
)
|
|
|
(10,339
|
)
|
Balance at June 30,
2018
|
|
|
11,382
|
|
|
$
|
26,436
|
|
|
|
10,000
|
|
|
$
|
1
|
|
|
$
|
7,505
|
|
|
$
|
(24,700
|
)
|
|
$
|
(17,194
|
)
|
Issuance of common stock
upon conversion of Series A Convertible Redeemable Preferred Stock
|
|
|
(11,382
|
)
|
|
|
(26,461
|
)
|
|
|
11,382
|
|
|
|
1
|
|
|
|
26,460
|
|
|
|
—
|
|
|
|
26,461
|
|
Accretion of Series
A Convertible Redeemable Preferred Stock to redemption value
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(25
|
)
|
Reclassification of
Series A warrants liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,518
|
|
|
|
—
|
|
|
|
1,518
|
|
Issuance of common stock
in initial public offering, net of issuance costs
|
|
|
—
|
|
|
|
-
|
|
|
|
15,970
|
|
|
|
2
|
|
|
|
56,286
|
|
|
|
—
|
|
|
|
56,288
|
|
Fair value of warrants
issued in connection with the initial public offering of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,039
|
|
|
|
—
|
|
|
|
3,039
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
393
|
|
|
|
—
|
|
|
|
393
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,392
|
)
|
|
|
(5,392
|
)
|
Balance
at September 30, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
37,352
|
|
|
$
|
4
|
|
|
$
|
95,176
|
|
|
$
|
(30,092
|
)
|
|
$
|
65,088
|
|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
CONDENSED
STATEMENTS OF CASH FLOWS (unaudited)
(in
thousands)
|
|
Nine
Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,745
|
)
|
|
$
|
(20,794
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
expense
|
|
|
1,628
|
|
|
|
907
|
|
Stock-based consideration
in connection with acquisition of product rights (Note 5)
|
|
|
—
|
|
|
|
3,978
|
|
Change in fair value
of warrant liability
|
|
|
—
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
and other current assets
|
|
|
1,707
|
|
|
|
(1,431
|
)
|
Accounts payable
|
|
|
1,697
|
|
|
|
65
|
|
Accrued
expenses
|
|
|
1,392
|
|
|
|
(109
|
)
|
Net cash used
in operating activities
|
|
|
(26,321
|
)
|
|
|
(16,864
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from underwritten public offering,
net
|
|
|
42,651
|
|
|
|
—
|
|
Proceeds from private placement with
Amgen
|
|
|
20,000
|
|
|
|
—
|
|
Proceeds from initial public offering,
net
|
|
|
—
|
|
|
|
59,327
|
|
Proceeds from
exercise of stock options
|
|
|
219
|
|
|
|
—
|
|
Net cash provided
by financing activities
|
|
|
62,870
|
|
|
|
59,327
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
36,549
|
|
|
|
42,463
|
|
Cash and cash
equivalents at beginning of period
|
|
|
58,539
|
|
|
|
21,834
|
|
Cash and cash
equivalents at end of period
|
|
$
|
95,088
|
|
|
$
|
64,297
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of non-cash financing transactions:
|
|
|
|
|
|
|
|
|
Accretion of Series A Convertible Redeemable
Preferred Stock
|
|
$
|
—
|
|
|
$
|
(276
|
)
|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(tabular
dollars and shares in thousands, except per share data)
1.
DESCRIPTON OF BUSINESS AND BASIS OF PRESENTATION
Business
Provention
Bio, Inc. (the “Company”) was incorporated on October 4, 2016 under the laws of the State of Delaware. The Company
is a clinical stage biopharmaceutical company, focused on the development and commercialization of novel therapeutics and innovative
approaches to intercept and prevent immune-mediated diseases. Since its inception, the Company has devoted substantially all of
its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets
and raising capital. The Company’s business is subject to significant risks and uncertainties and will be dependent on raising
substantial additional capital before it becomes profitable and it may never achieve profitability.
Basis
of Presentation
The
accompanying unaudited financial information as of September 30, 2019 and for the three and nine months ended September 30, 2019
and 2018 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The
December 31, 2018 Balance Sheet was derived from the Company’s audited financial statements. These interim financial statements
should be read in conjunction with the notes to the financial statements contained in the Company’s Annual Report on Form
10-K (“Annual Report”) for 2018, as filed with the SEC on March 19, 2019.
In
the opinion of management, the unaudited financial information as of September 30, 2019 and for the three and nine months ended
September 30, 2019 and 2018, reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement
of the financial position, results of operations and cash flows of the Company. The results of operations for the three and nine
months ended September 30, 2019 and 2018 are not necessarily indicative of the operating results for the full fiscal year or any
future period.
2.
LIQUIDITY
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The Company has incurred recurring losses since inception and as of September 30, 2019, the Company had an accumulated deficit
of $68.5 million. To date, the Company has not generated any revenues and has financed its operations primarily
through a private offering of Series A Convertible Redeemable Preferred Stock in April 2017, its initial public offering (“IPO”)
in July 2018, and an underwritten public offering and concurrent private placement, which closed in September 2019.
In
April 2017, the Company completed its private placement of Series A Convertible Redeemable Preferred Stock (the “Series
A Offering”). The Company issued an aggregate 11,381,999 shares of Series A Convertible Redeemable Preferred Stock at $2.50
per share. The Company received net proceeds of $26.7 million.
In
July 2018, the Company issued and sold an aggregate of 15,969,563 shares of common stock in its IPO at a public offering price
of $4.00 per share. In connection with the IPO, the Company issued to MDB Capital Group, LLC (“MDB”), the underwriter
in the IPO, and its designees warrants to purchase 1,596,956 shares of Common Stock at an exercise price of $5.00 per share. The
Company received net proceeds from the IPO of $59.3 million, after deducting underwriting discounts and commissions of approximately
$3.7 million and other offering expenses of approximately $0.8 million. Upon the closing of the IPO, all of the Company’s
shares of redeemable convertible preferred stock outstanding at the time of the offering were automatically converted into 11,381,999
shares of common stock. In addition, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
also converted to warrants for the purchase of 558,740 shares of the Company’s common stock.
In
September 2019, the Company completed an underwritten public offering in which it sold 5,750,000 shares of common stock at a public
offering price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase
750,000 shares at a price of $8.00 per share. Concurrent with the underwritten public offering, the Company sold 2,500,000 shares
of common stock to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of
the Company’s License and Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from
the underwritten public offering and the concurrent private placement were $62.7 million, net of approximately $2.8 million in
underwriting discounts and commissions and other offering expenses of $0.5 million.
The
Company has devoted substantially all of its financial resources and efforts to research and development and expects to continue
to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related
to research funding, development of its product candidates and its preclinical programs, strategic alliances and the development
of its administrative organization. The Company’s net losses may fluctuate significantly from quarter to quarter
and year to year.
The
Company will require substantial additional financing to fund its operations and to continue to execute its strategy. The Company
intends to raise capital through public or private equity financings. The sale of equity and other securities may result in dilution
to the Company’s stockholders and certain of those securities may have rights senior to those of the Company’s existing
shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt
financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other
third-party funding arrangement could require the Company to relinquish valuable rights. The source, timing and availability of
any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s
clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of
necessary funds may require the Company, among other things, to delay, scale back or eliminate some or all of the Company’s
planned operations.
Based
on the Company’s business plans, management believes that it has sufficient cash on hand to meet the Company’s obligations
for approximately two years from the issuance date of these financial statements.
3.
SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:
Use
of estimates
The
process of preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and changes in
estimates may occur.
Segment
and geographic information
Operating
segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company views its operations and manages its business in one operating and reporting segment.
Cash,
cash equivalents and concentration of credit risk
The
Company considers only those investments which are highly liquid, readily convertible to cash, or that mature within three months
from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months.
The
Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts
or other hedging arrangements. The Company holds cash and cash equivalents in banks in excess of FDIC insurance limits. However,
the Company believes risk of loss is minimal as the cash and cash equivalents are held by large, highly-rated financial institutions.
Financial
instruments
Cash
and cash equivalents are reflected in the accompanying financial statements at fair value. The carrying amount of accounts payable
and accrued expenses, including accrued research and development expenses, approximates fair value due to the short-term nature
of those instruments.
Net
loss per common share
Net
loss per share information is determined using the two-class method, which includes the weighted-average number of shares of common
stock outstanding during the period and other securities that participate in dividends (a participating security). The Company
considered the Series A Preferred Stock, all of which were automatically converted to common stock upon the Company’s IPO,
to be participating securities because they included rights to participate in dividends, if any, with the common stock.
Under
the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net income attributable
to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The net loss attributable
to common stockholders is calculated by adjusting the net loss of the Company for the accretion on the Preferred Stock. Net losses
are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses. In periods
with net income attributable to common stockholders, the Company would allocate net income first to preferred stockholders based
on dividend rights under the Company’s certificate of incorporation and then to preferred and common stockholders based
on ownership interests. Diluted net loss per share attributable to common stockholders is computed using the more dilutive of
(1) the two-class method or (2) the if-converted method.
Diluted
net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders
for all periods presented since the effect of potentially dilutive securities are anti-dilutive given the net loss of the Company.
Foreign
Currency Translation
The
Company considers the U.S. dollar to be its functional currency. Expenses denominated in foreign currencies are translated at
the exchange rate on the date the expense is incurred. The effect of exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars is included in the Statements of Operations. Foreign exchange transaction gains and losses
are included in the results of operations and are not material in the Company’s financial statements.
Research
and development expenses
Research
and development expenses primarily consist of costs associated with the preclinical and clinical development of our product candidate
portfolio, including the following:
|
●
|
external
research and development expenses incurred under arrangements with third parties, such as contract research organizations
(CROs) and other vendors and contract manufacturing organizations (CMOs) for the production of drug substance and drug product;
and
|
|
|
|
|
●
|
employee-related
expenses, including salaries, benefits and share-based compensation expense.
|
Research
and development expenses also include costs of acquired product licenses and related technology rights where there is no alternative
future use, costs of prototypes used in research and development, consultant fees and amounts paid to certain of our collaborative
partners.
All
research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic, or ASC, 730, Research and Development. The Company accounts for non-refundable advance
payments for goods and services that will be used in future research and development activities as expenses when the service has
been performed or when the goods have been received, rather than when the payment is made.
Accrued
Research and Development Expenses
As
part of the process of preparing our financial statements, the Company is required to estimate its accrued expenses. This process
involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating
the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or
otherwise notified of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears
for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each
balance sheet date in our financial statements based on facts and circumstances known to the Company at that time. The Company
periodically confirms the accuracy of its estimates with the service providers and make adjustments if necessary. The significant
estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to CROs,
CMOs and other vendors in connection with research and development and manufacturing activities.
The
Company bases its expense related to CROs and CMOs on its estimates of the services received and efforts expended pursuant to
quotations and contracts with such vendors that conduct research and development and manufacturing activities 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. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided
and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, the
Company estimates the time period over which services will be performed and the level of effort to be expended in each period.
If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual
or prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually
incurred, the Company’s 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 in any particular period.
There have been no material changes in estimates for the periods presented.
Stock-based
compensation expense
The
Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees and non-employees, including stock options. Stock-based
compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally
recognized as an expense over the requisite service period. For grants containing performance-based vesting provisions, the grant-date
fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance
condition will be achieved. The Company accounts for actual forfeitures in the period the forfeiture occurs.
Stock
Options
The
Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Due to the
lack of trading history, the Company’s computation of stock-price volatility is based on the volatility rates of comparable
publicly held companies over a period equal to the expected term of the options granted by the Company. The Company’s computation
of expected term is determined using the “simplified” method, which is the midpoint between the vesting date and the
end of the contractual term. The Company believes that it does not have sufficient reliable exercise data in order to justify
the use of a method other than the “simplified” method of estimating the expected exercise term of employee stock
option grants. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends
to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon U.S.
Treasury yield at the date of grant for a term equivalent to the expected term of the option.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, (“ASU 2018-07”)
which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition
of goods and services from both employees and nonemployees. During the third quarter of 2018, the Company early adopted ASU 2018-07.
After the adoption of ASU 2018-07, the measurement date for non-employee awards is the date of grant. Compensation expense for
non-employees is recognized, without changes to the fair value of the award, over the requisite service period, which is the vesting
period of the respective award. The adoption of ASU 2018-07 did not have a material impact the Company’s financial statements
or footnote disclosures.
Prior
to the third quarter of 2018, the Company accounted for awards of equity instruments issued to non-employees in accordance with
ASC Topic 505-50, Equity-Based Payment to Non-Employees, (“ASC 505-50”) and accordingly the value of the stock
compensation to non-employees was based upon the measurement date as determined at either a) the date at which a performance commitment
was reached, or b) at the date at which the necessary performance to earn the equity instruments was completed, which was normally
the end of the vesting period. At the end of each financial reporting period prior to completion of the service, the fair value
of these awards was remeasured using updated assumption inputs in the Black-Scholes option-pricing model.
Stock-based
compensation expense is included in both research and development expenses and general and administrative expenses in the Statements
of Operations.
Warrant
liability
In
April 2017, the Company issued warrants to purchase shares of Series A Convertible Redeemable Preferred Stock in connection with
the issuance of the Series A Preferred Stock. The Company accounted for these warrants as a liability in the financial statements
because the underlying instrument into which the warrants were exercisable contained redemption provisions that were outside the
Company’s control.
Upon
the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
converted to warrants for the purchase of 558,740 shares of our common stock and the warrants no longer contain redemption provisions
that are outside the Company’s control. The liability associated with these warrants was revalued just prior to the completion
of the IPO, with the change in the fair value of the warrant liability charged to earnings. The warrant liability was then reclassified
to additional paid-in capital upon the completion of the IPO in July 2018.
The
fair value of the warrants was determined using the Black-Scholes option-pricing model and were re-measured to fair value at each
financial reporting period date with any changes in fair value recognized in the statements of operations. See Note 8 to our financial
statements for further information.
Income
taxes
The
Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes. Under
this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred
tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax
expense.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees
to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. Effective January
1, 2019, the Company adopted ASU 2016-02. The adoption had no impact on the Company’s financial statements and related disclosures
as the Company does not currently have any lease agreements.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement, including, among other changes, the consideration of costs and
benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods
beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. The Company
is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote
disclosures.
In
August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
(a consensus of the FASB Emerging Issues Task Force). ASU 2018-15 aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance
is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early
adoption permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on its
financial statements and footnote disclosures.
In
November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808), which clarifies the interaction
between the guidance for collaborative arrangements (Topic 808) and the new revenue recognition standard (Topic 606). For public
companies, the amendments are effective for annual reporting periods beginning after December 15, 2019, including interim periods
within those annual periods. Early adoption is permitted. The Company is currently assessing the impact that adopting this new
accounting guidance will have on its financial statements and footnote disclosures.
4.
CAPITALIZATION
As
of September 30, 2019, the Company had authorized 100,000,000 shares of Common Stock, $0.0001 par value per share, of which 47,638,361
shares were issued and outstanding. In addition, as of September 30, 2019, the Company had authorized 25,000,000 shares of Preferred
Stock, $0.0001 par value per share, of which, none were issued and outstanding.
In
July 2019, MacroGenics elected to exercise its warrants for an aggregate of 2,432,688 shares on a cashless basis, resulting in
the Company’s net issuance of 1,948,474 shares. Following the MacroGenics’ July 2019 warrant exercises, the there
are no additional warrants outstanding in connection with the MacroGenics License Agreement and the MacroGenics Asset Purchase
Agreement.
In
September 2019, the Company completed an underwritten public offering in which it sold 5,750,000 shares of common stock at a public
offering price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase
750,000 shares at a price of $8.00 per share. Concurrent with the underwritten public offering, the Company sold 2,500,000 shares
of common stock to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of
the Company’s License and Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from
the underwritten public offering and the concurrent private placement were $62.7 million, net of approximately $2.8 million in
underwriting discounts and commissions and other offering expenses of $0.5 million.
5.
LICENSE AND OTHER AGREEMENTS
In
April 2017, the Company entered into a License Agreement with Vactech Ltd. (the “Vactech License Agreement”), pursuant
to which Vactech Ltd. (“Vactech”) granted the Company exclusive global rights for the purpose of developing and commercializing
the group B coxsackie virus vaccine (CVB) platform technology. In consideration of the licenses and other rights granted by Vactech,
the Company issued two million shares of its common stock to Vactech. The Company recorded the issuance of the shares at their
estimated fair value of approximately $1.70 per share for a total of $3.4 million as a license fee expense included as part of
Research & Development Expense for the year ended December 31, 2017. Provention paid Vactech a total of approximately $0.5
million for transition and advisory services during the first 18 months of the term of the agreement. In addition, Provention
may be obligated to make a series of contingent milestone payments to Vactech totaling up to an additional $24.5 million upon
the achievement of certain clinical development and regulatory filing milestones. In addition, the Company has agreed to pay Vactech
tiered single-digit royalties on net sales of any approved product based on the CVB platform technology and three additional payments
totaling $19.0 million upon the achievement of certain annual net sales levels. The Vactech Agreement may be terminated by the
Company on a country by country basis without cause (in which case the exclusive global rights to the technology will transfer
back to Vactech) and by either party upon a material breach or insolvency of the other party. If the Company terminates the agreement
with respect to two or more specified European countries, the agreement will be deemed terminated with respect to all of the EU,
and if the Company terminates the agreement with respect to the United States, the agreement will be deemed terminated with respect
to all of North America. The agreement expires upon the expiration of the Company’s last obligation to make royalty payments
to Vactech. As of September 30, 2019, the Company has not achieved any milestones that would trigger payments to Vactech.
In
April 2017, the Company entered into a License, Development and Commercialization Agreement with Janssen Pharmaceutica NV (the
“CSF-1R License Agreement”), pursuant to which Janssen Pharmaceutica NV granted the Company exclusive global rights
for the purpose of developing and commercializing JNJ-40346527 (renamed PRV-6527), a colony stimulating factor 1 receptor (CSF-1R)
inhibitor for inflammatory bowel diseases including Crohn’s Disease and ulcerative colitis (UC). The Company evaluated PRV-6527
for Crohn’s disease in a recently completed Phase 2a clinical trial (the PRINCE study). See Note 13 – Subsequent Events
for the announcement of top-line results of the PRINCE study. Janssen has an option to buy back the rights for future development
for a one-time payment of $50.0 million and future single-digit royalties on future net sales for a period of 10 years from first
sale or expiration of the intellectual property, whichever is shorter. If Janssen does not exercise its option to buy-back the
rights, all rights will remain with the Company and it will be obligated to make contingent milestone payments to Janssen totaling
$35.0 million upon the achievement of certain clinical and regulatory milestones for the first indication and an additional $20.0
million upon the achievement of certain clinical and regulatory milestones for a second indication. In addition, Provention has
agreed to pay Janssen tiered single-digit royalties on net sales of any approved product based on the CSF-1R technology and three
additional payments totaling $100.0 million upon the achievement of certain annual net sales levels. The CSF-1R License Agreement
may be terminated by Provention without cause (in which case the exclusive global rights to the technology will transfer back
to Janssen) and by either party upon a material breach and expires upon the expiration of Provention’s last obligation to
make royalty payments to Janssen. As of September 30, 2019, the Company has not achieved any milestones that would trigger payments
to Janssen.
In
March 2018, the Company entered into a Development Services Agreement with The Institute of Translational Vaccinology (the “Intravacc
Development Services Agreement”), pursuant to which The Institute of Translational Vaccinology (“Intravacc”)
will provide services related to process development, non-GMP and GMP manufacturing of the Company’s polyvalent coxsackie
virus B vaccine (CVB), including providing proprietary technology for manufacturing purposes. The Company will pay Intravacc approximately
10 million euros for their services over the development and manufacturing period which the Company currently expects will
last for approximately 24 to 30 months. Each party retains its existing intellectual property and will share newly developed
intellectual property via a fully-paid non-exclusive license between the parties for all development work through phase 1 clinical
trials. Any future use, including commercial use, of Intravacc’s technology will be subject to a separate nonexclusive license
agreement. The Intravacc Development Services Agreement may be terminated by us with ninety days’ notice without cause and
by either party upon a material breach or insolvency of the other party. As of September 30, 2019, the Company had paid Intravacc
a total of approximately 7.0 million euros, or approximately $8.3 million, for services provided by Intravacc under the Intravacc
Development Services Agreement.
In
May 2018, the Company entered into a License Agreement with MacroGenics, Inc. (the “MacroGenics License Agreement”),
pursuant to which MacroGenics, Inc. (“MacroGenics”) granted the Company exclusive global rights for the purpose of
developing and commercializing MGD010 (renamed PRV-3279), a humanized protein and a potential treatment for systemic lupus erythematosus
(SLE) and other similar diseases. As partial consideration for the MacroGenics License Agreement, the Company granted MacroGenics
a warrant to purchase 270,299 shares of the Company’s common stock at an exercise price of $2.50 per share (See Note 11).
The Company is obligated to make contingent milestone payments to MacroGenics totaling $42.5 million upon the achievement of certain
developmental and approval milestones for the first indication, and an additional $22.5 million upon the achievement of certain
regulatory approvals for a second indication. In addition, the Company is obligated to make contingent milestone payments to MacroGenics
totaling $225.0 million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit
royalty on net sales of the product. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain
consideration to the extent received in connection with a future grant of rights to PRV-3279 by the Company to a third party.
The Company is obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The license
agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without cause
upon prior notice to MacroGenics, and by MacroGenics in the event that the Company challenges the validity of any licensed patent
under the agreement, but only with respect to the challenged patent.
In
May 2018, the Company entered into an Asset Purchase Agreement with MacroGenics (the “MacroGenics Asset Purchase Agreement”)
pursuant to which the Company acquired MacroGenics’ interest in teplizumab (renamed PRV-031), a humanized mAb for the treatment
of Type 1 Diabetes (T1D). As partial consideration for the MacroGenics Asset Purchase Agreement, the Company granted MacroGenics
a warrant to purchase 2,162,389 shares of the Company’s common stock at an exercise price of $2.50 per share (See Note 11).
The Company is obligated to pay MacroGenics contingent milestone payments totaling $170.0 million upon the achievement of certain
regulatory approval milestones, including $60.0 million payable upon approval of a Biologics License Application (“BLA”)
in the United States. In addition, the Company is obligated to make contingent milestone payments to MacroGenics totaling $225.0
million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit royalty
on net sales of the product. We have also agreed to pay third-party obligations, including low single-digit royalties, a portion
of which is creditable against royalties payable to MacroGenics, aggregate milestone payments of up to approximately $1.3 million
and other consideration, for certain third-party intellectual property under agreements the Company is assuming pursuant to the
MacroGenics Asset Purchase Agreement. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain
consideration to the extent it is received in connection with a future grant of rights to PRV-031 by the Company to a third party.
The Company is obligated to use reasonable commercial efforts to develop and seek regulatory approval for PRV-031. As of September
30, 2019, the Company has not achieved any milestones that would trigger payments to MacroGenics.
The
Company recorded the warrants issued under MacroGenics License Agreement and the MacroGenics Asset Purchase Agreement at an estimated
fair value of $1.64 per share, approximately $4.0 million in the aggregate, as license fee expense included as part of Research
& Development Expense during the second quarter of 2018. See Note 11 of these condensed financial statements for further details
of the warrants issued to MacroGenics.
In
July 2019, MacroGenics elected to exercise its warrants for an aggregate of 2,432,688 shares on a cashless basis, resulting in
the Company’s net issuance of 1,948,474 shares. Following the MacroGenics’ July 2019 warrant exercises, the there
are no additional warrants outstanding in connection with the MacroGenics License Agreement and the MacroGenics Asset Purchase
Agreement.
In
November 2018, the Company entered into a License and Collaboration Agreement (the “Amgen Agreement”) with Amgen,
Inc. (“Amgen”) for PRV-015 (formerly AMG 714), a novel anti-IL-15 monoclonal antibody being developed for the treatment
of gluten-free diet non-responsive celiac disease (NRCD). Under the terms of the agreement, the Company will conduct and fund
a Phase 2b trial in NRCD and lead the development and regulatory activities for the program. Amgen agreed to make an equity investment
of up to $20.0 million in the Company, subject to certain terms and conditions set forth in the agreement. Amgen is also responsible
for the manufacturing of PRV-015. Upon completion of the Phase 2b trial, a $150.0 million milestone payment is due from Amgen
to the Company, plus an additional regulatory milestone payment, and single digit royalties on future sales. If Amgen elects not
to pay the $150.0 million milestone, AMG 714 rights will be transferred to Company pursuant to a termination license agreement
from Amgen and the Company. The Company will be obligated to make certain contingent milestone payments to Amgen and other third
parties totaling up to $70.0 million upon the achievement of certain clinical and regulatory milestones and a low double-digit
royalty on net sales of any approved product based on the IL-15 technology. The agreement may be terminated by the Company without
cause (in which case the exclusive global rights to the technology will transfer back to Amgen) and by either party upon a material
breach. The agreement expires upon the expiration of Amgen’s last obligation to make royalty payments to Provention (or,
the Company’s last obligation to make royalty payments to Amgen, if the program rights are transferred to the Company).
In September 2019, in a private placement completed concurrently with the Company’s underwritten public offering, Amgen
purchased 2,500,000 shares of the Company’s common stock at the underwritten public offering price of $8.00 per share, for
a total investment of $20.0 million.
In
April 2017, the Company entered into a License, Development and Commercialization Agreement with Janssen Sciences Ireland UC (the
“TLR3 License Agreement”), pursuant to which Janssen Sciences Ireland UC granted the Company exclusive global rights
for the purpose of developing and commercializing JNJ-42915925 (renamed PRV-300), an anti-Toll-Like Receptor 3 (TLR3) antibody.
The Company evaluated PRV-300 for UC in a recently completed Phase 1b trial (the PULSE study). See Item 2. Management’s
Discussion and Analysis of Financial Condition and Result of Operations – Recent Company Developments for disclosure
of top-line results of the PULSE study. The Company returned the rights to PRV-300 to Janssen and exercised its termination rights
under the TLR3 License Agreement in the third quarter of 2019.
6.
NET LOSS PER SHARE OF COMMON STOCK
The
following table sets forth the computation of basic and diluted loss per share for the three months and nine months ended September
30, 2019 and 2018:
|
|
Three
Months ended September 30,
|
|
|
Nine
Months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Net loss, basic
|
|
$
|
(9,769
|
)
|
|
$
|
(5,392
|
)
|
|
$
|
(32,745
|
)
|
|
$
|
(20,794
|
)
|
Accretion
of Series A Convertible Redeemable Preferred Stock
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(276
|
)
|
Net loss attributable
to common stockholders
|
|
$
|
(9,769
|
)
|
|
$
|
(5,417
|
)
|
|
$
|
(32,745
|
)
|
|
$
|
(21,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding,
basic and diluted
|
|
|
40,512
|
|
|
|
32,000
|
|
|
|
38,424
|
|
|
|
17,414
|
|
Net loss per common share, basic and
diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(1.21
|
)
|
The
following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding
as they would be antidilutive:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Redeemable Preferred
Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants
|
|
|
2,125
|
|
|
|
4,588
|
|
|
|
2,125
|
|
|
|
4,588
|
|
Stock options
|
|
|
5,934
|
|
|
|
3,486
|
|
|
|
5,934
|
|
|
|
3,486
|
|
7.
ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
Accrued
research and development costs
|
|
$
|
1,852
|
|
|
$
|
1,023
|
|
Accrued professional
fees
|
|
|
461
|
|
|
|
126
|
|
Other accrued liabilities
|
|
|
200
|
|
|
|
154
|
|
Accrued
compensation
|
|
|
182
|
|
|
|
—
|
|
Total accrued
expenses
|
|
$
|
2,695
|
|
|
$
|
1,303
|
|
8.
FAIR VALUE OF ASSETS AND LIABILITIES
The
carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximate
fair value based on the short-term nature of these items.
The
Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the
assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level
1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities
generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or liabilities.
Level
2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level
3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined
using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation.
The
Company had no assets or liabilities classified as Level 1 or Level 2 as of September 30, 2019 or December 31, 2018. Liability
classified warrants issued in April 2017 to the placement agent in conjunction with the Series A Preferred Stock offering (see
Note 9) were previously classified as Level 3. During the three and nine months ended September 30, 2018, the Company recorded
$0.1 million and $0.5 million, respectively, of expense related to the change in the fair value (an increase) of the Series A
Preferred Stock warrant liability. Upon the completion of the IPO in July 2018, these warrants converted to warrants for the purchase
of 558,740 shares of our common stock and no longer contain redemption provisions outside the Company’s control. The liability
associated with these warrants was revalued just prior to the completion of the IPO, with the change in the fair value of the
warrant liability charged to earnings. The warrant liability was then reclassified to additional paid-in capital upon the completion
of the IPO in July 2018.
There
were no recurring or non-recurring measurements of fair value as of September 30, 2019, as of December 31, 2018 or during the
three and nine months ended September 30, 2019 with respect to assets and liabilities.
9.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
In
April 2017, the Company issued 11,381,999 shares of Series A Convertible Redeemable Preferred Stock for $2.50 per share which
raised gross proceeds of $28.5 million and net cash proceeds of $26.7 million after deducting certain issuance costs including
warrants. The Company classified the Series A Convertible Redeemable Preferred Stock outside of permanent equity based upon the
terms of the instrument. See Note 11 for a description of the warrants issued to the placement agent in connection with this transaction.
In
connection with the closing of the Company’s IPO in July 2018, all of the Company’s shares of redeemable convertible
preferred stock outstanding at the time of the offering were automatically converted into 11,381,999 shares of common stock.
10.
STOCK OPTIONS
In
2017, the Company adopted the Provention Bio, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). Pursuant to the 2017
Plan, the Company’s Board of Directors may grant incentive stock options, nonqualified stock options, and restricted stock
to employees, officers, directors, consultants and advisors. As of September 30, 2019, there were options to purchase an aggregate
of 5,934,467 shares of Common Stock outstanding under the 2017 Plan. Options issued under the 2017 Plan are exercisable for up
to 10 years from the date of issuance.
In
connection with the completion of its IPO, the Company amended and restated its 2017 Plan to, among other things, include an evergreen
provision, which would automatically increase the number of shares available for issuance under the 2017 Plan in an amount equal
to (1) the difference between (x) 18% of the total shares of the Company’s common stock outstanding, on a fully diluted
basis, on December 31st of the preceding calendar year, and (y) the total number of shares of the Company’s common stock
reserved under the 2017 Plan on December 31st of such preceding calendar year or (2) an amount less than this calculated increase
as determined by the board of directors.
In
connection with the evergreen provisions of the 2017 Plan, the number of shares available for issuance under the 2017 Plan was
increased by 3,050,893 shares, as determined by the board of directors under the provisions described above, effective as of January
1, 2019. As of September 30, 2019, there were 916,438 shares available for future grants.
Stock-based
compensation
Total
stock-based compensation expense recognized for both employees and non-employees was as follows:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Research and development
|
|
$
|
378
|
|
|
$
|
208
|
|
|
$
|
754
|
|
|
$
|
549
|
|
General and administrative
|
|
|
545
|
|
|
|
185
|
|
|
|
874
|
|
|
|
358
|
|
Total share-based
compensation expense
|
|
$
|
923
|
|
|
$
|
393
|
|
|
$
|
1,628
|
|
|
$
|
907
|
|
Option
activity
The
Company grants options with service-based vesting requirements and also grants options with performance-based vesting requirements.
Generally, the service-based requirements vest over a four-year period in multiple tranches. Each tranche of the performance-based
component vests upon the achievement of a specific milestone. These milestones are related to the Company’s clinical trials,
manufacturing activities, regulatory activities, and certain other performance metrics.
A
summary of option activity for the nine months ended September 30, 2019 are presented below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Contractual
|
|
Intrinsic
|
|
Stock
Option Awards
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
3,476
|
|
|
$
|
2.85
|
|
|
8.8 years
|
|
$
|
—
|
|
Granted
|
|
|
2,677
|
|
|
$
|
10.34
|
|
|
|
|
|
|
|
Exercised
|
|
|
(59
|
)
|
|
$
|
3.69
|
|
|
|
|
|
|
|
Forfeited or
expired
|
|
|
(160
|
)
|
|
$
|
4.00
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
5,934
|
|
|
$
|
6.19
|
|
|
8.8 years
|
|
$
|
15,449
|
|
Exercisable at September 30, 2019
|
|
|
1,514
|
|
|
$
|
2.71
|
|
|
8.0 years
|
|
$
|
6,250
|
|
The
weighted average grant-date fair value of options granted during the nine months ended September 30, 2019 was $6.80 per share.
As of September 30, 2019, there were approximately 1,803,000 unvested options subject to performance-based vesting criteria with
approximately $9.4 million of unrecognized compensation expense. This expense will be recognized when each milestone becomes probable
of occurring. In addition, as of September 30, 2019, there were approximately 2,617,000 unvested options outstanding subject to
time-based vesting with approximately $10.3 million of unrecognized compensation expense which will be recognized over a period
of 3.4 years.
Cash
proceeds from, and the aggregate intrinsic value of, stock options exercised during the periods presented below were as follows:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Cash proceeds from options
exercised
|
|
$
|
198
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
—
|
|
Aggregate intrinsic value of options
exercised
|
|
|
292
|
|
|
|
—
|
|
|
|
373
|
|
|
|
—
|
|
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average
assumptions for the period indicated:
|
|
Nine
months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
10.34
|
|
|
$
|
3.93
|
|
Expected volatility
|
|
|
72
|
%
|
|
|
61
|
%
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
|
6.3
|
|
|
|
6.2
|
|
Risk-free interest rate
|
|
|
1.91
|
%
|
|
|
2.78
|
%
|
The
weighted-average valuation assumptions were determined as follows:
|
●
|
Risk-free
interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect
at the time of grant for a period that is commensurate with the assumed expected option term.
|
|
|
|
|
●
|
Expected
annual dividends: The estimate for annual dividends is 0%, because the Company has not historically paid, and does not expect
for the foreseeable future to pay, a dividend.
|
|
|
|
|
●
|
Expected
stock price volatility: The expected volatility used is based on historical volatilities of similar entities within the Company’s
industry which were commensurate with the Company’s expected term assumption.
|
|
|
|
|
●
|
Expected
term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected
term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting
Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and
contractual period due to the limited operating history. The expected term for options granted to non-employees is equal to
the contractual term of the awards.
|
11.
WARRANTS
In
connection with the April 2017 sale of Series A Convertible Redeemable Preferred Stock, the Company issued warrants to MDB, the
Placement Agent, and its designees to purchase 558,740 shares of Series A Convertible Redeemable Preferred Stock with an exercise
price of $2.50 per share with a seven-year term. The underlying instrument into which the warrants are exercisable contained redemption
provisions that were outside the Company’s control. Accordingly, these warrants were considered liabilities and at issuance,
the fair value of $0.9 million was recorded as a warrant liability against a reduction to the proceeds from the issuance of the
Series A Convertible Redeemable Preferred Stock. Upon completion of the IPO in July 2018, the warrants automatically became warrants
for the purchase of 558,740 shares of the Company’s common stock and because the warrants no longer contain redemption provisions
outside the Company’s control, the Company determined that equity classification was appropriate. See Note 8 for further
information. In July 2019, certain warrant holders from the Series A Offering elected to exercise warrants for an aggregate of
4,065 shares on a cashless basis, resulting in the Company’s net issuance of 3,167 shares. As of September 30, 2019, there
were 554,675 warrants outstanding related to the Series A Offering.
In
May 2018, in connection with the MacroGenics License Agreement and the MacroGenics Asset Purchase Agreement, the Company issued
warrants to MacroGenics to purchase 2,432,688 shares of the Company’s common stock at an exercise price of $2.50 per share.
These warrants had a seven-year term. The Company recorded the warrants issued under MacroGenics License Agreement and
the MacroGenics Asset Purchase Agreement at an estimated fair value of $1.64 per share, approximately $4.0 million in the aggregate,
as license fee expense included as part of Research & Development Expense during the second quarter of 2018.
The
Company uses valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free
interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants issued to MacroGenics. The
fair values of these instruments are determined using models based on inputs that require management judgment and estimates.
The
fair value of the warrants issued to MacroGenics was measured at issuance on May 7, 2018 using the Black-Scholes option
pricing model based on the following assumptions:
Equity value upon issuance on May 7, 2018
|
|
$
|
2.58
|
|
Exercise Price
|
|
$
|
2.50
|
|
Expected volatility
|
|
|
62.0
|
%
|
Expected dividends
|
|
|
—
|
|
Contractual term (in years)
|
|
|
7.0
|
|
Risk-free interest rate
|
|
|
2.86
|
%
|
The
MacroGenics warrants were evaluated under ASC 480, Distinguishing Liabilities from Equity,
(“ASC 480”) and ASC 815, Derivatives and Hedging, (“ASC 815) and the Company determined that equity
classification was appropriate.
In
July 2019, MacroGenics elected to exercise its warrants for an aggregate of 2,432,688 shares on a cashless basis, resulting in
the Company’s net issuance of 1,948,474 shares. Following the MacroGenics’ July 2019 warrant exercises, there were
no additional warrants outstanding in connection with the MacroGenics License Agreement and the MacroGenics Asset Purchase
Agreement.
In
connection with the Company’s completion of its IPO in July 2018, the Company issued to MDB, the underwriter in the IPO,
and its designees warrants to purchase 1,596,956 shares of the Company’s common stock at an exercise price of $5.00 per
share. These warrants have a five-year term.
The
Company uses valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free
interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants. The fair values of these
instruments are determined using models based on inputs that require management judgment and estimates.
The
fair value of the warrants issued to MDB were measured at issuance on July 19, 2018 using the Black-Scholes option pricing model
based on the following assumptions:
Equity value upon issuance on July 19, 2018
|
|
$
|
4.00
|
|
Exercise Price
|
|
$
|
5.00
|
|
Expected volatility
|
|
|
60.0
|
%
|
Expected dividends
|
|
|
—
|
|
Contractual term (in years)
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
2.74
|
%
|
The
Company estimated the fair value of the warrants issued to MDB to be $1.90 per share, approximately $3.0 million in the aggregate,
which was recorded as a cost of the IPO. The MDB warrants were evaluated under ASC 480 and
ASC 815 and the Company determined that equity classification was appropriate.
In
July 2019, certain warrant holders from the IPO elected to exercise warrants for an aggregate of 27,063 shares on a cashless basis,
resulting in the Company’s net issuance of 15,746 shares. As of September 30, 2019, there were 1,569,893 warrants outstanding
related to the IPO.
12.
RELATED PARTY TRANSACTIONS
The
Company paid transition service fees to Vactech of approximately $0.1 million and $0.3 million during the three and nine months
ended September 30, 2018. The Company made only de minimis payments to Vactech during the three and nine months ended September
30, 2019.
In
connection with the Company’s Asset Purchase Agreement with MacroGenics, the Company made payments of approximately $0.3
million to Tolerance Therapeutics, Inc. during the nine months ended September 30, 2018. The Company did not make any payments
to Tolerance Therapeutics Inc. during the nine months ended September 30, 2019. Dr. Bluestone, who was appointed to our board
of directors in March 2019, is a majority stockholder in Tolerance Therapeutics, Inc.
13.
SUBSEQUENT EVENTS
On
October 22, 2019, the Company announced top-line results from its Phase 2a clinical trial (the PRINCE study), which evaluated
PRV-6527, an oral CSF-1R small molecule inhibitor, in 93 patients with moderate-to-severe Crohn’s disease. The primary efficacy
endpoint of the study was the change in the Crohn’s Disease Activity Index (CDAI) score at week 12. While PRV-6527 demonstrated
a substantial improvement in this symptom driven score at week 12, it did not differentiate from placebo. This high placebo response
is deemed to be possibly related to the standard of care and/or background medication used (~85%) in the study’s predominantly
biologic-naïve population. PRV-6527 was associated with improvements in several key secondary objective endpoints in the
steroid-free population (75% of study subjects), including mucosal endoscopy (as assessed by the Simple Endoscopic Score for Crohn’s
Disease, SES-CD) and tissue histology (as measured by the Global Histological Activity Score, GHAS). Analysis of exploratory serum
and tissue biomarkers showed that patients treated with PRV-6527 had significant reductions in circulatory inflammatory monocytes,
as well as macrophages, dendritic cells and the CSF1 gene signature in colonic tissue, providing proof of mechanism in the interception
of inflammatory myeloid cells. PRV-6527 was found to be generally safe and well tolerated, with no drug-related serious adverse
events.
Pursuant
to the CSF-1R License Agreement, Janssen has 90 days from the announcement of top-line results from the PRINCE study to exercise
its right to buy back PRV-6527 from the Company for a one-time payment of $50.0 million and single-digit royalties on future net
sales in inflammatory bowel disease indications. In the event that Janssen does not take back PRV-6527, the Company retains the
rights and is free to sublicense the program on a worldwide basis to another partner in the field of inflammatory bowel disease.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis of our financial condition and results of operations should be read together with our financial
statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and
related notes and management’s discussion and analysis of financial condition and results of operations for the year ended
December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2019.
Some of the information 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 and related financing, includes forward-looking
statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this
Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We
are a clinical stage biopharmaceutical company, focused on the development and commercialization of novel therapeutics and innovative
approaches aimed at intercepting and preventing immune-mediated diseases. Since our inception, we have devoted substantially all
of our efforts to business planning, research and development, recruiting management and technical staff, acquiring operating
assets, partnering and raising capital. We have not yet commenced any revenue-generating operations, do not have any positive
cash flows from operations and we will need to raise additional capital to finance our operations. Our business is subject to
significant risks and uncertainties and we will be dependent on raising substantial additional capital before we become profitable
and we may never achieve profitability.
We
have not generated any revenue to date and through September 30, 2019, and we had an accumulated deficit of $68.5 million.
We have financed our operations through a private offering of Series A Convertible Redeemable Preferred Stock in April 2017, our
initial public offering, or IPO in July 2018 and our underwritten public offering and concurrent private placement, which closed
in September 2019.
In
April 2017, we completed our private placement of Series A Convertible Redeemable Preferred Stock. We issued an aggregate 11,381,999
shares of Series A Convertible Redeemable Preferred Stock at $2.50 per share. We received net proceeds of $26.7 million.
In
July 2018, we issued and sold an aggregate of 15,969,563 shares of common stock in our IPO at a public offering price of $4.00
per share. In connection with the IPO, we issued to MDB, the underwriter in the IPO, and its designees warrants to purchase 1,596,956
shares of Common Stock at an exercise price of $5.00 per share. We received net proceeds from the IPO of $59.3 million, after
deducting underwriting discounts and commissions of approximately $3.7 million and other offering expenses of approximately $0.8
million. Upon the closing of the IPO, all of our shares of Series A Convertible Redeemable Preferred Stock outstanding at the
time of the IPO were automatically converted into 11,381,999 shares of common stock. In addition, the warrants issued in connection
with the Series A Convertible Redeemable Preferred Stock also converted to warrants for the purchase of 558,740 shares of our
common stock.
In
September 2019, we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering
price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000
shares at a price of $8.00 per share. Concurrent with the underwritten public offering, we sold 2,500,000 shares of common stock
to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of our License and
Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering
and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions
and other offering expenses of $0.5 million.
We
expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research
and development in connection with clinical trials and other development activities. If adequate funds are not available to us
on a timely basis, or at all, we may be required to terminate or delay certain development activities.
Recent
Company Developments
Clinical
Data & Safety
PRV-031
(teplizumab, anti-CD3 mAb)
In
June 2019, we announced results from a Phase 2 clinical trial in patients with Stage 2 T1D (Teplizumab for Prevention of Type
1 Diabetes In Relatives “At-Risk”) conducted at TrialNet sites and sponsored by the NIDDK, part of the National Institutes
of Health, or NIH, which evaluated PRV-031, a humanized, anti-CD3 mAb for the interception of T1D, in 76 patients with stage 2
T1D. The trial results showed that PRV-031 significantly delayed the median onset of clinical diabetes from 24.4 months (placebo)
to 48.4 months (teplizumab) (p=0.006). PRV-031 is the first potential immune modulator therapy that has demonstrated a delay in
the onset of clinical disease in T1D.
The
results from At-Risk study were reported at the American Diabetes Association meeting in June 2019 and published in the New England
Journal of Medicine. A total of 76 subjects were enrolled and randomized, 44 to teplizumab and 32 to placebo. The safety profile
in At-Risk subjects who received a single course of teplizumab was consistent with those from subjects with newly-diagnosed clinical
T1D who received two courses of the drug.
In
August 2019, the U.S. Food and Drug Administration granted breakthrough therapy designation (“BTD”) to PRV-031 for
the delay or prevention of clinical T1D in individuals at-risk of developing the disease. BTD is an FDA program designed to expedite
the development and review of therapeutic candidates intended to treat serious or life-threatening diseases.
In
October 2019, the European Medicines Agency (EMA) granted PRIority MEdicines (“PRIME”)
eligibility to teplizumab (PRV-031) for the prevention or delay of clinical T1D in individuals at-risk of developing the disease.
The PRIME initiative is designed to expedite the development and review of promising therapies that target an unmet need and show
potential clinical benefit so the medicine can reach patients earlier. The designation offers the opportunity for enhanced interaction
and dialogue with the EMA to optimize development, as well as the potential for accelerated assessment at the time of application
for a marketing authorization.
PRV-6527
(CSF-1R inhibitor)
In
October 2019, we announced top-line results from our Phase 2a clinical trial (the PRINCE study), which evaluated PRV-6527, an
oral CSF-1R small molecule inhibitor, in 93 patients with moderate-to-severe Crohn’s disease. The primary efficacy endpoint
of the study was the change in the Crohn’s Disease Activity Index (CDAI) score at week 12. While PRV-6527 demonstrated a
substantial improvement in this symptom driven score at week 12, it did not differentiate from placebo. This high placebo response
is deemed to be possibly related to the standard of care and/or background medication used (~85%) in the study’s predominantly
biologic-naïve population. PRV-6527 was associated with improvements in several key secondary objective endpoints in the
steroid-free population (75% of study subjects), including mucosal endoscopy (as assessed by the Simple Endoscopic Score for Crohn’s
Disease, SES-CD) and tissue histology (as measured by the Global Histological Activity Score,
GHAS). Analysis of exploratory serum and tissue biomarkers showed that patients treated with PRV-6527 had significant reductions
in circulatory inflammatory monocytes, as well as macrophages, dendritic cells and the CSF1 gene signature in colonic tissue,
providing proof of mechanism in the interception of inflammatory myeloid cells. PRV-6527 was found to be generally safe and well
tolerated, with no drug-related serious adverse events.
Pursuant
to the CSF-1R License Agreement, Janssen has 90 days to exercise its right to buy back PRV-6527 from us for a one-time payment
of $50.0 million and single-digit royalties on future net sales in inflammatory bowel disease indications. In the event that Janssen
does not take back PRV-6527, we retain the rights and are free to sublicense the program on a worldwide basis to another partner
in the field of inflammatory bowel disease.
PRV-300
(anti-TLR3 mAb)
In
May 2019, we announced preliminary top-line results from our Phase 1b clinical trial (the PULSE study), which evaluated PRV-300,
an anti-TLR3 (toll-like receptor 3) mAb, in 37 patients with active, moderate-to-severe ulcerative colitis, or UC. PRV-300
met the primary safety and tolerability endpoint over the twelve-week study period and also demonstrated TLR3 target engagement
and proof-of-mechanism. However, improvements in solely secondary and exploratory clinical, endoscopic, histologic and other UC-related
efficacy endpoints were not observed over background medication, suggesting that elevated TLR3 gene signatures previously observed
in UC patients, as well as in the PULSE clinical trial, are downstream or circumstantial effects that do not contribute significantly
to causal pathology.
We
returned the rights to PRV-300 to Janssen and exercised our termination rights under the TLR3 License Agreement in the third quarter
of 2019.
PRV-101
(polyvalent CVB vaccine)
We
have experienced certain delays in the manufacturing of a polyvalent CVB vaccine for use in toxicology testing that will delay
the filing of a clinical trial application (CTA) and the start of the first-in-human study by approximately six to twelve months.
Top-line data from the first-in-human study is now expected in 2021.
Financing
In
September 2019, we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering
price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000
shares at a price of $8.00 per share. Concurrent with the underwritten public offering, we sold 2,500,000 shares of common stock
to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of our License and
Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering
and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions
and other offering expenses of $0.5 million.
Our
Focus and Pipeline
Inflammation
is a natural consequence of most infections as it is the immune system’s first response to invading pathogens in the event
of injury or acute illness. Most of the time, this response is beneficial and well-controlled; helping to repair tissue damage
and clear pathogens from the body. In addition to directly damaging tissues and organs, an infection can sometimes result in the
excessive release of toxic immune mediators leading to a potentially life-threatening acute pathological immune response. When
patients have the requisite genetic predisposition, infections can also trigger chronic autoimmune responses that persist and
progress long after the original insult has subsided. These sustained pathological responses have been linked to an increased
susceptibility to chronic debilitating and potentially life-threatening diseases like inflammatory bowel disease, diabetes, cancer,
and certain neurological disorders.
Our
“predict” and “preempt” therapeutic approach is to intercept the underlying pathological immune and inflammatory
responses in susceptible individuals. Our pipeline includes:
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●
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PRV-031:
a humanized, anti-CD3 mAb for the interception of T1D in pediatric patients with newly-diagnosed T1D and, potentially, for
delaying and/or preventing disease progression in subjects at risk of developing T1D, which has been designated by the FDA,
as orphan drug for the treatment of newly-diagnosed T1D, and was granted breakthrough therapy designation from the FDA in
August 2019 and PRIME eligibility from the EMA in October 2019;
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|
|
|
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●
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PRV-3279:
a humanized bispecific scaffold molecule targeting the B-cell surface proteins, CD32B and CD79B, for the treatment of systemic
lupus erythematosus (SLE) and for the prevention of immunogenicity of biotherapeutics such as those used in gene therapy;
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|
|
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●
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PRV-015:
a human anti-interleukin 15, or IL-15, mAb for the treatment of gluten-free diet non-responsive celiac disease, or NRCD, intercepting
the effects of contaminating gluten in the most common autoimmune disorder without any approved medication;
|
|
●
|
PRV-101:
a coxsackie virus B (CVB) vaccine to prevent acute CVB infections and, in those patients at risk, preventing the CVB-triggered
autoimmune damage to pancreatic beta cells that progresses to T1D and T1D-associated celiac disease; and
|
|
|
|
|
●
|
PRV-6527:
an oral small molecule CSF-1R inhibitor targeting the differentiation and activation of antigen-presenting cells, or APCs,
to prevent chronic inflammatory responses and progression or relapse in Crohn’s disease;
|
The
table below summarizes the current status and anticipated milestones for our principal product candidates:
Product
Candidate / Indication
|
|
Status
|
|
Next
Expected Milestone
|
PRV-031
(teplizumab, anti-CD3 mAb) for the interception of T1D
|
|
We
commenced a Phase 3 clinical trial (the PROTECT study) in approximately 300 pediatric
and adolescent patients with early onset type one diabetes. The first patient was dosed
in April 2019.
Top-line
results from a National Institute of Diabetes and Digestive and Kidney Diseases-sponsored study conducted at TrialNet
sites for preventing disease progression in patients at-risk of developing T1D were publicly reported in June 2019.
In
August 2019, the FDA granted BTD to PRV-031 for the delay or prevention of clinical T1D in individuals at-risk of developing
the disease.
In
October 2019, the EMA granted PRIME eligibility to teplizumab to PRV-031 for the delay or prevention of clinical T1D in
individuals at-risk of developing the disease.
|
|
We
expect to meet with the FDA during the fourth quarter of 2019.
We
expect to file a BLA for the At-Risk indication in Q4 2020.
We
expect to report top-line results from the Phase 3 PROTECT study in 2022.
|
|
|
|
|
|
PRV-3279
(humanized anti-CD32B and CD79B bispecific) for the treatment of SLE and for the prevention of immunogenicity biotherapeutics
such as gene therapy
|
|
We
commenced a Phase 1b clinical trial (the PREVAIL study) in 16 healthy volunteers. The
first patient was dosed in August 2019.
We
are designing a Phase 2a portion of the PREVAIL study, which upon successful completion of the Phase 1b study, we plan
to initiate to study patients with SLE.
|
|
We
expect to report top-line results of the Phase 1b portion of the PREVAIL study in the first quarter of 2020.
|
|
|
|
|
|
PRV-015
(anti-IL-15 mAb) for the treatment of gluten-free diet non-responding celiac disease.
|
|
We
are planning a Phase 2b clinical trial (the PROACTIVE trial) in celiac patients with gluten-free diet non-responsive celiac
disease and will undertake additional chronic toxicology studies to support this trial as needed.
|
|
We
expect to commence the Phase 2b PROACTIVE study in the first half of 2020.
|
|
|
|
|
|
PRV-101
(polyvalent CVB vaccine) for the prevention of acute CVB and the prevention of CVB triggered T1D
|
|
We
are developing a polyvalent vaccine at Intravacc, our strategic partner in vaccine manufacturing process development.
|
|
We
expect to report top-line first-in-human data in 2021.
|
|
|
|
|
|
PRV-6527
(oral CSF-1R inhibitor) for the treatment of Crohn’s disease
|
|
We
announced top-line results from our Phase 2a clinical trial (the PRINCE study), which evaluated PRV-6527 in 93 patients with
moderate-to-severe Crohn’s disease.
|
|
Janssen
has 90 days (first quarter of 2020) to exercise its right to buy back PRV-6527 from us for a one-time payment of $50.0 million
and single-digit royalties on future net sales in inflammatory bowel disease indications.
|
|
|
|
|
|
PRV-300
(anti-TLR3 mAb) for the treatment of severe viral infections
|
|
We
returned the rights to PRV-300 to Janssen and exercised our termination rights under the TLR3 License Agreement in the third
quarter of 2019.
|
|
|
We
intend to leverage our distinctive competences and drug development strategy; advance our carefully selected portfolio of product
candidates; in-license or acquire additional targeted development assets and apply our disease interception and prevention approach
to multiple autoimmune and immune-mediated inflammatory diseases.
Financial
operations overview
Research
and Development Expenses
Research
and development expenses consist primarily of clinical studies, other internal operating expenses, the cost of manufacturing our
drug candidate for clinical study, and the cost of conducting preclinical activities. Expenses also include the cost of salaries,
benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions.
In addition, our research and development expenses include payments to third parties, as well as the fair value of equity issuances
to third parties for the license rights to products in development (prior to marketing approval). Our expenses related to clinical
trials are primarily related to activities at contract research organizations, or CROs, that design, obtain regulatory approval,
and conduct clinical trials on our behalf. Our expenses related to the production of drug substance or drug product for our clinical
trials and development programs are primarily related to activities performed by licensors, strategic partners or contract manufacturing
organizations, or CMOs, on our behalf. Our development efforts from inception through September 30, 2019, were principally related
to the acquisition and development of our six programs detailed in the Pipeline description immediately above.
All
research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic, or ASC, 730, Research and Development. We account for non-refundable advance payments
for goods and services that will be used in future research and development activities as expenses when the service has been performed
or when the goods have been received, rather than when the payment is made.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation,
for our personnel serving in our executive and finance and accounting functions. General and administrative expenses also include
professional fees for legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting
services. We anticipate that we will incur increased general and administrative expenses related to audit, legal, regulatory,
and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer
insurance premiums, and investor relations costs associated with being a public company.
Interest
Income
Interest
income consists of interest income earned on our cash and cash equivalents.
Change
in Fair Value of Warrant Liability
Change
in fair value of warrant liability represents the re-measurement of liability classified warrants using the Black-Scholes option-pricing
model at each financial reporting period. The fair value was affected by changes in inputs to the model including the fair value
of our Series A Convertible Redeemable Preferred Stock, expected stock price volatility, the estimated term until exercise, and
the risk-free interest rate.
Upon
the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
converted to warrants for the purchase of 558,740 shares of our common stock. The liability associated with these warrants was
revalued just prior to the completion of the IPO, with the change in the fair value of the warrant liability charged to earnings.
The warrant liability was then reclassified to additional paid-in capital upon the completion of the IPO in July 2018, as the
warrants no longer contain redemption provisions outside our control.
RESULTS
OF OPERATIONS
Comparison
of the three months ended September 30, 2019 and 2018
|
|
Three
Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Increase
(Decrease)
|
|
|
|
(in thousands, except
per share data)
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
7,324
|
|
|
$
|
4,140
|
|
|
$
|
3,184
|
|
General
and administrative
|
|
|
2,649
|
|
|
|
1,272
|
|
|
|
1,377
|
|
Total
operating expenses
|
|
|
9,973
|
|
|
|
5,412
|
|
|
|
4,561
|
|
Loss from operations
|
|
|
(9,973
|
)
|
|
|
(5,412
|
)
|
|
|
4,561
|
|
Interest income
|
|
|
204
|
|
|
|
237
|
|
|
|
(33
|
)
|
Change
in fair value of warrant liability
|
|
|
—
|
|
|
|
(217
|
)
|
|
|
(217
|
)
|
Loss before income tax benefit
|
|
|
(9,769
|
)
|
|
|
(5,392
|
)
|
|
|
4,377
|
|
Income
tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(9,769
|
)
|
|
|
(5,392
|
)
|
|
|
4,377
|
|
Accretion
on Series A Convertible Redeemable Preferred Stock
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
Net loss attributable
to common stockholders
|
|
$
|
(9,769
|
)
|
|
$
|
(5,417
|
)
|
|
$
|
4,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and
diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
Weighted average common shares outstanding,
basic and diluted
|
|
|
40,512
|
|
|
|
32,000
|
|
|
|
|
|
Research
and Development Expenses
Research
and development expenses were $7.3 million for the three months ended September 30, 2019, an increase of $3.2 million, compared
to $4.1 million for the three months ended September 30, 2018. The increase related primarily to an increase in clinical development
expenses for PRV-031, PRV-101, and PRV-3279. Research and development expenses for the three months ended September 30, 2018 related
primarily to clinical development expenses for PRV-6527 and PRV-300, development costs for PRV-101, transition and startup costs
for PRV-031, which was acquired in the second quarter of 2018, and internal personnel costs, including stock-based compensation.
General
and Administrative Expenses
General
and administrative expenses were $2.6 million for the three months ended September 30, 2019, an increase of $1.3 million, compared
to $1.3 million for the three months ended September 30, 2018. General and administrative expenses primarily included $1.1 million in professional fees and legal expenses, $0.8 million in personnel costs, including stock-based compensation, and
approximately $0.7 million in insurance and other costs associated with being a public company. General and administrative expenses
for the three months ended September 30, 2018 primarily included $0.5 million in professional fees and legal expenses, $0.4 million
in personnel costs, including stock-based compensation and approximately $0.3 million in insurance and other costs associated
with being a public company.
Interest
Income
Interest
income was $0.2 million during the three months ended September 30, 2019 compared to $0.2 million during the three months ended
September 30, 2018. The slight decrease in interest income during the three months ended September 30, 2019 related primarily
to a decrease in average cash and cash equivalents balances during the three months ended September 30, 2019 compared to same
period in 2018.
Change
in fair value of warrant liability
Change
in fair value of warrant liability was a loss of approximately $25 thousand during the three months ended September 30, 2018 and
related to a change in the fair value of our Series A Convertible Redeemable Preferred Stock during the period just prior our
IPO, as determined using a Black Scholes option-pricing model.
Upon
the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
converted to warrants for the purchase of 558,740 shares of our common stock. The warrant liability was then reclassified to additional
paid-in capital upon the completion of the IPO in July 2018, as the warrants no longer contain redemption provisions outside our
control. As such, the Company did not record any gain or loss related to the warrant liability during the three months ended September
30, 2019.
Comparison
of the nine months ended September 30, 2019 and 2018
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Increase
(Decrease)
|
|
|
|
(in thousands, except
per share data)
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
27,896
|
|
|
$
|
17,684
|
|
|
$
|
10,212
|
|
General
and administrative
|
|
|
5,593
|
|
|
|
2,929
|
|
|
|
2,664
|
|
Total
operating expenses
|
|
|
33,489
|
|
|
|
20,613
|
|
|
|
12,876
|
|
Loss from operations
|
|
|
(33,489
|
)
|
|
|
(20,613
|
)
|
|
|
12,876
|
|
Interest income
|
|
|
744
|
|
|
|
339
|
|
|
|
405
|
|
Change
in fair value of warrant liability
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
(520
|
)
|
Loss before income tax benefit
|
|
|
(32,745
|
)
|
|
|
(20,794
|
)
|
|
|
11,951
|
|
Income
tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(32,745
|
)
|
|
|
(20,794
|
)
|
|
|
11,951
|
|
Accretion
on Series A Convertible Redeemable Preferred Stock
|
|
|
—
|
|
|
|
(276
|
)
|
|
|
(276
|
)
|
Net loss attributable
to common stockholders
|
|
$
|
(32,745
|
)
|
|
$
|
(21,070
|
)
|
|
$
|
11,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and
diluted
|
|
$
|
(0.85
|
)
|
|
$
|
(1.21
|
)
|
|
|
|
|
Weighted average common shares outstanding,
basic and diluted
|
|
|
38,424
|
|
|
|
17,414
|
|
|
|
|
|
Research
and Development Expenses
Research
and development expenses were $27.9 million for the nine months ended September 30, 2019, an increase of $10.2 million, compared
to $17.7 million for the nine months ended September 30, 2018. The increase related primarily to an increase in clinical development
expenses for PRV-031, PRV-101, PRV-3279. Research and development expenses for the nine months ended September 30, 2018 related
primarily to clinical development expenses for PRV-6527 and PRV-300, development costs for PRV-101, non-cash acquisition costs
for the rights to PRV-031 and PRV-3279 from MacroGenics, and internal personnel costs, including stock-based compensation.
General
and Administrative Expenses
General
and administrative expenses were $5.6 million for the nine months ended September 30, 2019, an increase of $2.7 million, compared
to $2.9 million for the nine months ended September 30, 2018. General and administrative expenses primarily included $1.9 million
in personnel costs, including stock-based compensation, $1.9 million in professional fees and legal expenses and approximately
$1.4 million in insurance and other costs associated with being a public company. General and administrative expenses for the
nine months ended September 30, 2018 primarily included $1.2 million in personnel costs, including stock-based compensation, and
$1.2 million in professional fees and legal expenses.
Interest
Income
Interest
income was $0.7 million during the nine months ended September 30, 2019 compared to $0.3 million during the nine months ended
September 30, 2018. The increase in interest income during the nine months ended September 30, 2019 related primarily to an increase
in average cash and cash equivalents balances in 2019 compared to the same period in 2018.
Change
in fair value of warrant liability
Change
in fair value of warrant liability was a loss of approximately $0.5 million during the nine months ended September 30, 2018 and
was primarily impacted by a change in the fair value of our Series A Convertible Redeemable Preferred Stock, as determined using
a Black Scholes option-pricing model.
Upon
the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
converted to warrants for the purchase of 558,740 shares of our common stock. The warrant liability was then reclassified to additional
paid-in capital upon the completion of the IPO in July 2018, as the warrants no longer contain redemption provisions outside our
control. As such, the Company did not record any gain or loss related to the warrant liability during the nine months ended September
30, 2019.
LIQUIDITY
AND CAPITAL RESOURCES
Overview
There
is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory
approval and commercialization. We have funded our operations to date through offerings of our equity securities. We expect to
continue to incur losses, as we plan to continue to fund development activities.
As
of September 30, 2019, we had cash and cash equivalents of $95.1 million. In September 2019, we completed an underwritten public
offering of 5,750,000 shares and a concurrent private placement with Amgen of 2,500,000 of our common stock, at a price of $8.00
per share, resulting in aggregate net cash proceeds from the sale of the shares, after deducting the underwriting discounts and
offering expenses, of $62.7 million. We believe that our current cash and cash equivalents will be sufficient to fund our projected
operating requirements for approximately two years from the issuance date of these financial statements.
We
will need to raise additional capital to fund our operations, to develop and commercialize PRV-031, PRV-015, PRV-3279 and PRV-101
and to develop, acquire, or in-license other products. We plan to raise additional capital through equity offerings. Such additional
funding will be necessary to continue to develop our potential product candidates, to pursue the license or purchase of other
technologies, to commercialize our product candidates or to purchase other products. We may seek to sell common or preferred equity
or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing.
In addition, we may consider raising additional capital to fund operating activities, to expand our business, to pursue strategic
investments, to take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities
may result in dilution to our stockholders and those securities may have rights senior to those of our common shares. If we raise
additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities
or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require
us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital
may not be available on reasonable terms, or at all. If we are unable to obtain sufficient additional funds when required, we
may be forced to delay, restrict or eliminate all or a portion of our development programs, dispose of assets or technology or
cease operations.
Our
cash requirements for the remainder of 2019 and 2020 will be impacted by a number of factors, the most significant of which are
expenses related to PRV-031, including the PROTECT clinical study, which commenced in April 2019, the recent breakthrough therapy
designation by the FDA for PRV-031 and the related path towards a potential BLA submission for PRV-031. Other factors include
the recent initiation of the Phase 1b portion of the PREVAIL study of PRV-3279 and if successful, the planned Phase 2a portion
of the PREVAIL study, as well as our planned Phase 2b clinical study of PRV-015 and development efforts for PRV-101.
In
April 2017, we completed a private offering of 11,381,999 shares of our Series A Convertible Redeemable Preferred Stock, at a
price of $2.50 per share, resulting in net cash proceeds from the sale of the shares, after deducting the underwriter’s
discount and offering expenses, of $26.7 million.
In
July 2018, we closed our initial public offering of 15,969,563 shares of common stock at a price of $4.00 per share. The net proceeds
to the Company were $59.3 million, after deducting underwriters’ commissions of approximately $3.7 million and other offering
expenses of approximately $0.8 million. In connection with the closing of the IPO, all of our shares of redeemable convertible
preferred stock outstanding at the time of the IPO were automatically converted into 11,381,999 shares of common stock. In addition,
the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock also converted to warrants for the
purchase of 558,740 shares of our common stock.
In
August 2019, we entered into the Sales Agreement with SVB Leerink LLC (“SVBLeerink”) and Cantor Fitzgerald & Co.
(“Cantor”) pursuant to which SVBLeerink and Cantor will serve as our sales agent to sell up to $50.0 million of shares
of our common stock through an “at the market offering.”
In
September 2019, we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering
price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000
shares at a price of $8.00 per share. Concurrent with the underwritten public offering, we sold 2,500,000 shares of common stock
to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of our License and
Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering
and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions
and other offering expenses of $0.5 million.
Cash
Flows
As
of September 30, 2019, we had cash and cash equivalents totaling $95.1 million. We currently have invested our cash and cash equivalents
in money market funds.
The
following table shows a summary of our cash flows for the nine months ended September 30, 2019 and 2018:
|
|
Nine
Months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(26,321
|
)
|
|
$
|
(16,864
|
)
|
Investing activities
|
|
|
—
|
|
|
|
—
|
|
Financing
activities
|
|
|
62,870
|
|
|
|
59,327
|
|
Net change in
cash and cash equivalents
|
|
$
|
36,549
|
|
|
$
|
42,463
|
|
Cash
Flows from Operating Activities
Net
cash used in operating activities was $26.3 million for the nine months ended September 30, 2019 and primarily related to cash
used to fund clinical development activities for PRV-031, PRV-6527, PRV-300, PRV-3279, development activities for PRV-101, as
well as costs for our PRV-015 program. Our working capital was $91.4 million as of September 30, 2019.
Net
cash used in operating activities was $16.9 million for the nine months ended September 30, 2018 and primarily related to cash
used to fund clinical development activities for PRV-6527 and PRV-300, development activities for PRV-101, as well as costs for
PRV-031, which was acquired in the second quarter of 2018.
Cash
Flows from Investing Activities
There
was no cash used in or provided by investing activities for the nine months ended September 30, 2019 and September 30, 2018, respectively.
Cash
Flows from Financing Activities
Net
cash provided by financing activities was $62.9 million for the nine months ended September 30, 2019 and primarily related to
$62.7 million in aggregate net proceeds we received from the completion of our underwritten public offering and concurrent private
placement in September 2019. We also received approximately $0.2 million from stock option exercises during the period.
Net
cash provided by financing activities was $59.3 million for the nine months ended September 30, 2018 and primarily related to
the net proceeds we received from the completion of our IPO in July 2018.
Commitments
and Contractual Obligations
In
April 2017, we entered into the Vactech License Agreement, pursuant to which Vactech Ltd. (Vactech) granted us exclusive global
rights for the purpose of developing and commercializing the group B coxsackie virus vaccine (CVB) platform technology. In consideration
of the licenses and other rights granted by Vactech, we issued two million common shares to Vactech. We paid Vactech a total of
approximately $0.5 million for transition and advisory services during the first 18 months of the term of the agreement. In addition,
we are obligated to make a series of contingent milestone payments to Vactech totaling up to an additional $24.5 million upon
the achievement of certain clinical development and regulatory filing milestones. In addition, we have agreed to pay Vactech tiered
single-digit royalties on net sales of any approved product based on the CVB platform technology and three additional payments
totaling $19.0 million upon the achievement of certain annual net sales levels. As of September 30, 2019, we have not achieved
any milestones that would trigger payments to Vactech.
In
April 2017, we entered into the Janssen CSF-1R License Agreement, pursuant to which Janssen Pharmaceutica NV granted us exclusive
global rights for the purpose of developing and commercializing a colony stimulating factor 1 receptor (CSF-1R) inhibitor named
JNJ-40346527 (renamed PRV-6527) for inflammatory bowel diseases including Crohn’s disease and UC. We evaluated PRV-6527
for Crohn’s disease in a recently completed Phase 2a clinical trial (the PRINCE study). See Note 13 – Subsequent Events
for the announcement of top-line results of the PRINCE study. Janssen has an option to buy back the rights for future development
for a one-time payment of $50.0 million and future single-digit royalties on future net sales for a period of 10 years from first
sale or expiration of the intellectual property, whichever is shorter. If Janssen does not exercise its option to buy-back the
rights, all rights will remain with us and we will be obligated to make contingent milestone payments to Janssen totaling $35.0
million upon the achievement of certain clinical and regulatory milestones for the first indication and an additional $20.0 million
upon the achievement of certain clinical and regulatory milestones for a second indication. In addition, we have agreed to pay
Janssen tiered single-digit royalties on net sales of any approved product based on the CSF-1R technology and three additional
payments totaling $100.0 million upon the achievement of certain annual net sales levels. As of September 30, 2019, we have not
achieved any milestones that would trigger payments to Janssen under the CSF-1R License Agreement.
In
March 2018, we entered into the Intravacc Development Services Agreement with The Institute of Translational Vaccinology, pursuant
to which Intravacc will provide services related to process development, non-GMP and GMP manufacturing of our polyvalent coxsackie
virus B vaccine (CVB), including providing proprietary technology for manufacturing purposes. We will pay Intravacc approximately
10 million euros for their services over the development and manufacturing period which we currently expect will last for
approximately 24 to 30 months. Each party retains its existing intellectual property and will share newly developed intellectual
property via a fully-paid non-exclusive license between the parties for all development work through phase 1 clinical trials.
Any future use, including commercial use, of Intravacc’s technology will be subject to a separate nonexclusive license agreement.
The Intravacc Development Services Agreement may be terminated by us with ninety-days’ notice without cause and by either
party upon a material breach or insolvency of the other party. As of September 30, 2019, we have paid Intravacc a total of approximately
7.0 million euros, or approximately $8.3 million, for services provided by Intravacc under the Intravacc Development Services
Agreement.
In
May 2018, we entered into the MacroGenics License Agreement with MacroGenics, Inc., pursuant to which MacroGenics granted us exclusive
global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a humanized protein and a potential
treatment for SLE and other similar diseases. We are obligated to make contingent milestone payments to MacroGenics totaling $42.5
million upon the achievement of certain developmental and approval milestones for the first indication, and an additional $22.5
million upon the achievement of certain regulatory approvals for a second indication. In addition, we are obligated to make contingent
milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. We have also agreed
to pay MacroGenics a single-digit royalty on net sales of the product. Further, we are required to pay MacroGenics a low double-digit
percentage of certain consideration to the extent received in connection with a future grant of rights to PRV-3279 by us to a
third party. We are obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The
license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without
cause upon prior notice to MacroGenics, and by MacroGenics in the event that we challenge the validity of any licensed patent
under the agreement, but only with respect to the challenged patent. As of September 30, 2019, we have not achieved any milestones
that would trigger payments to MacroGenics under the MacroGenics License Agreement.
In
May 2018, we entered into the MacroGenics Asset Purchase Agreement with MacroGenics pursuant to which we acquired MacroGenics’
interest in teplizumab (renamed PRV-031), a humanized mAb for the treatment of T1D. We are obligated to pay MacroGenics contingent
milestone payments totaling $170.0 million upon the achievement of certain regulatory approval milestones, including $60.0 million
payable upon approval of a BLA in the United States. In addition, we are obligated to make contingent milestone payments to MacroGenics
totaling $225.0 million upon the achievement of certain sales milestones. We have also agreed to pay MacroGenics a single-digit
royalty on net sales of the product. We have also agreed to pay third-party obligations, including low single-digit royalties,
a portion of which is creditable against royalties payable to MacroGenics, aggregate milestone payments of up to approximately
$1.3 million and other consideration, for certain third-party intellectual property under agreements we are assuming pursuant
to the Asset Purchase Agreement. Further, we are required to pay MacroGenics a low double-digit percentage of certain consideration
to the extent it is received in connection with a future grant of rights to PRV-031 by us to a third party. We are obligated to
use reasonable commercial efforts to develop and seek regulatory approval for PRV-031. As of September 30, 2019, we have not achieved
any milestones that would trigger payments to MacroGenics under the MacroGenics Asset Purchase Agreement.
In
November 2018, we entered into the Amgen Agreement with Amgen for PRV-015 (formerly AMG 714), a novel anti-IL-15 monoclonal antibody
being developed for the treatment of gluten-free diet NRCD. Under the terms of the agreement, we will conduct and fund a Phase
2b trial in NRCD and lead the development and regulatory activities for the program. Amgen agreed to make an equity investment
of up to $20.0 million in the Company, which was completed in September 2019. See Note 5 – License and Other Agreements
for further details. Amgen is also responsible for the manufacturing of PRV-015. Upon completion of the Phase 2b trial, a
$150.0 million milestone payment is due from Amgen to us, plus an additional regulatory milestone payment, and single digit royalties
on future sales. If Amgen elects not to pay the $150.0 million milestone, AMG 714 rights will be transferred to us pursuant to
a termination license agreement from Amgen and us. We will be obligated to make certain contingent milestone payments to Amgen
and other third parties totaling up to $70.0 million upon the achievement of certain clinical and regulatory milestones and a
low double-digit royalty on net sales of any approved product based on the IL-15 technology. The agreement may be terminated by
us without cause (in which case the exclusive global rights to the technology will transfer back to Amgen) and by either party
upon a material breach. The agreement expires upon the expiration of Amgen’s last obligation to make royalty payments to
Provention (or, our last obligation to make royalty payments to Amgen, if the program rights are transferred to us). As of September
30, 2019, we have not achieved any milestones that would trigger payments to Amgen under the Amgen Agreement.
In
February 2019, we entered into a services agreement with AGC Biologics (“AGC”) to manufacture and supply teplizumab,
PRV-031, for our anticipated clinical supply needs. We may terminate the agreement or any statement of work thereunder with approximately12
months’ prior written notice to AGC. If we provide less than 12 months’ notice of termination, we may incur a cancellation
fee depending on the timing of such notice. AGC may terminate the agreement if we do not, over a specified period, purchase and
take delivery from AGC of a specified minimum quantity of API for teplizumab. Each party also has the right to terminate the agreement
for other customary reasons such as material breach and bankruptcy. The agreement contains provisions relating to compliance by
AGC with current Good Manufacturing Practices, cooperation by AGC in connection with potential marketing applications for PRV-031,
indemnification, confidentiality, dispute resolution and other customary matters for an agreement of this kind.
We
also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events,
such as a change in control or termination without cause, occur.
In
addition, in the course of normal business operations, we have agreements with contract service providers to assist in the performance
of our research and development and manufacturing activities. Expenditures to CROs and CMOs represent significant costs in clinical
development. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue
the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing,
and supplier agreements in the future, which may require upfront payments and even long-term commitments of cash.
Future
Funding Requirements
To
date, we have not generated revenue, and we do not know when, or if, we will generate revenue. We do not expect to generate revenue
unless or until we obtain marketing approval of, secure reimbursement for, and commercialize, our product candidates. We will
need to raise additional capital to fund our operations, to develop and commercialize our product candidates, and to develop,
acquire, in-license or co-promote other products. Our future capital requirements may be substantial and will depend on many factors.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect
on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.
Critical
Accounting Policies and Estimates
Preparation
of financial statements in accordance with generally accepted accounting principles in the US requires us to make estimates and
assumptions affecting the reported amounts of assets, liabilities, and expenses and the disclosures of contingent assets and liabilities.
We use our historical experience and other relevant factors when developing our estimates and assumptions. We continually evaluate
these estimates and assumptions. The amounts of assets and liabilities reported in our balance sheets and the amounts of expenses
reported in our statements of comprehensive loss are affected by estimates and assumptions, which are used for, but not limited
to, the accounting for research and development, stock-based compensation, accrued expenses and both liability-classified and
equity-classified warrants. The accounting policies discussed below are considered critical to an understanding of our financial
statements because their application places the most significant demands on our judgment. Actual results could differ from our
estimates. For additional accounting policies, see Note 3 to our Financial Statements— Summary of Significant Accounting
Policies.
Research
and Development
Research
and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation,
for personnel serving our development functions, and other internal operating expenses, the cost of clinical studies, and the
cost of our drug candidates for clinical study. In addition, research and development expenses include payments to third parties
for the development of our product candidates and the estimated fair value for the issuance of equity for the license rights to
products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities
at contract research organizations that design, gain approval for and conduct clinical trials on our behalf. Such amounts are
then recognized as an expense as the related goods are delivered or the services are performed.
Stock-Based
Compensation
We
recognize stock-based compensation expense for awards of equity instruments based on the grant-date fair value of those awards.
The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which
generally equals the vesting period of the award. We also grant performance-based stock options. The grant-date fair value of
the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will
be achieved. We record actual forfeitures in the period the forfeiture occurs.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which supersedes
ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods
and services from both employees and nonemployees. During the third quarter of 2018, we early adopted ASU 2018-07. After the adoption
of ASU 2018-07, the measurement date for non-employee awards is the date of grant. Compensation expense for non-employees is recognized,
without changes to the fair value of the award, over the requisite service period, which is the vesting period of the respective
award. The adoption of ASU 2018-07 did not have a material impact our financial statements or footnote disclosures.
Prior
to the third quarter of 2018, we accounted for awards of equity instruments issued to non-employees in accordance with ASC Topic
505-50 “Equity-Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees
was based upon the measurement date as determined at either a) the date at which a performance commitment was reached, or b) at
the date at which the necessary performance to earn the equity instruments was complete, which was normally the end of the vesting
period. At the end of each financial reporting period prior to completion of the service, the fair value of these awards was remeasured
using updated assumption inputs in the Black-Scholes option-pricing model.
We
used the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average assumptions
for the period indicated:
|
|
Nine
months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
10.34
|
|
|
$
|
3.93
|
|
Expected volatility
|
|
|
72
|
%
|
|
|
61
|
%
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
|
6.3
|
|
|
|
6.2
|
|
Risk-free interest rate
|
|
|
1.91
|
%
|
|
|
2.78
|
%
|
The
weighted-average valuation assumptions were determined as follows:
|
●
|
Risk-free
interest rate: we base the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the
time of grant for a period that is commensurate with the assumed expected option term.
|
|
●
|
Expected
annual dividends: the estimate for annual dividends is 0%, because we have not historically paid, and do not expect for the
foreseeable future to pay, a dividend.
|
|
●
|
Expected
stock price volatility: the expected volatility used is based on historical volatilities of similar entities within our industry
which were commensurate with our expected term assumption.
|
|
●
|
Expected
term of options: the expected term of options represents the period of time options are expected to be outstanding. The expected
term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting
Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and
contractual period due to our limited operating history. The expected term for options granted to non-employees is equal to
the contractual term of the awards.
|
Stock-based
compensation expense is included in both research and development expenses and general and administrative expenses in the Statement
of Operations.
Determination
of Fair Value of Common Stock
Prior
to our IPO, there was no public market for our common stock. The estimated fair value of our common stock had been determined
by our board of directors as of the date of each option grant and quarter end, with input from management, considering our most
recently available third-party valuations of common stock. These factors included, but were not limited to: our most recently
available valuations of our common stock by an unrelated third party; the price at which we sold shares of our convertible redeemable
preferred stock to outside investors in arms-length transactions; the rights, preferences and privileges of our convertible preferred
stock relative to those of our common stock; our results of operations, financial position and capital resources; current business
conditions and projections; the lack of marketability of our common stock; the hiring of key personnel and the experience of management;
the risk inherent in the development of our products; our stage of development and material risks related to our business; the
fact that the option grants involved illiquid securities in a private company; and the likelihood of achieving a liquidity event,
such as our IPO or sale, in light of prevailing market conditions.
Previously,
we determined the estimated fair value of our common stock at various dates using contemporaneous valuations performed in accordance
with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation
of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. The Practice Aid identifies various
available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value
of common stock at each valuation date. In accordance with the Practice Aid, our board of directors considered the following methods:
|
●
|
Current
Value Method. Under the Current Value Method, or CVM, value is determined based on our balance sheet. This value is first
allocated based on the liquidation preference associated with preferred stock issued as of the valuation date, and then any
residual value is assigned to the common stock.
|
|
|
|
|
●
|
Option-Pricing
Method. Under the option-pricing method, or OPM, shares valued by creating a series of call options with exercise prices
based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred
and common stock are inferred by analyzing these options.
|
|
|
|
|
●
|
Probability-Weighted
Expected Return Method. The probability-weighted expected return method, or PWERM, is a scenario-based analysis that estimates
value per share based on the probability-weighted present value of expected future investment returns, considering each of
the possible outcomes available to us, as well as the economic and control rights of each share class.
|
Prior
to our IPO, we determined that a PWERM was the most appropriate method for allocating our enterprise value to determine the estimated
fair value of our common stock. Our common stock valuations as of April 25, 2017, June 30, 2017, September 11, 2017, September
30, 2017, December 1, 2017, December 31, 2017, March 1, 2018, March 31, 2018, May 7, 2018, June 30, 2018 and July 18, 2018 were
prepared using the PWERM.
Our
board of directors and management developed best estimates based on application of these approaches and the assumptions underlying
these valuations, giving careful consideration to the advice from our third-party valuation expert. Such estimates involved inherent
uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly
different assumptions or estimates, our equity-based compensation could be materially different.
Subsequent
to the completion of our IPO, our board of directors determines the fair market value of our common stock based on its closing
price as reported on the date of grant on the primary stock exchange on which our common stock is traded.
Accrued
Research and Development Expenses
As
part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves
reviewing quotations and contracts, identifying 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 the actual
cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones
are met. 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 at that time. We periodically confirm the accuracy of our estimates with the service providers and make
adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred
with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.
We
base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotations
and contracts with such vendors that conduct research and development and manufacturing activities 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. There
may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of
the applicable research and development or manufacturing expense. 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 actual timing of the performance of services
or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect
our estimates to be materially different from amounts actually incurred, 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 in any particular period. There have been no material changes in estimates for the periods presented.
Warrant
Liability
In
April 2017, we issued warrants to purchase shares of Series A Convertible Redeemable Preferred Stock in connection with the issuance
of the Series A Preferred Stock financing. We accounted for these warrants as a liability in the financial statements because
the underlying instrument into which the warrants were exercisable contained redemption provisions that were outside our control.
Upon
the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock
converted to warrants for the purchase of 558,740 shares of our common stock and no longer contain these redemption provisions
outside our control. The liability associated with these warrants was revalued just prior to the completion of the IPO, with the
change in the fair value of the warrant liability charged to earnings. The warrant liability was then reclassified to additional
paid-in capital upon the completion of the IPO in July 2018, as the warrants no longer contain redemption provisions outside our
control.
The
fair value of the warrants was determined using the Black-Scholes option-pricing model and were re-measured to fair value at each
financial reporting period date with any changes in fair value recognized in the statements of operations. See Note 8 to our financial
statements in Part I-Item 1 of this Quarterly Report on Form 10-Q for further information.
Recent
Accounting Pronouncements
See
Note 3, “Significant Accounting Policies”, in the accompanying notes to financial statements, which is incorporated
herein by reference.