ITEM
1.
|
CONDENSED
FINANCIAL STATEMENTS
|
PROVENTION
BIO, INC.
CONDENSED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
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Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,142
|
|
|
$
|
39,165
|
|
Marketable securities
|
|
|
39,487
|
|
|
|
46,208
|
|
Prepaid expenses and other current assets
|
|
|
1,488
|
|
|
|
623
|
|
Total assets
|
|
$
|
78,117
|
|
|
$
|
85,996
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
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|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,536
|
|
|
$
|
1,775
|
|
Accrued expenses
|
|
|
3,367
|
|
|
|
2,065
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|
Total current liabilities
|
|
|
6,903
|
|
|
|
3,840
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|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 6)
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|
|
|
|
|
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|
|
|
|
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|
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Stockholders’ equity:
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|
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|
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Preferred stock, $0.0001 par value; 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2020 and December 31, 2019
|
|
|
—
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|
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|
—
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|
Common stock, $0.0001 par value; 100,000,000 shares authorized; 47,712,636 issued and outstanding at March 31, 2020; 47,658,361 share issued and oustanding at December 31, 2019
|
|
|
5
|
|
|
|
5
|
|
Additional paid-in capital
|
|
|
162,642
|
|
|
|
161,212
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|
Accumulated other comprehensive income
|
|
|
210
|
|
|
|
—
|
|
Accumulated deficit
|
|
|
(91,643
|
)
|
|
|
(79,061
|
)
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Total stockholders’ equity
|
|
|
71,214
|
|
|
|
82,156
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|
Total liabilities, preferred stock and stockholders’ equity
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|
$
|
78,117
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|
|
$
|
85,996
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|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
CONDENSED
STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in
thousands, except per share data)
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|
Three Months Ended March 31,
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|
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|
2020
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|
|
2019
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|
Operating expenses:
|
|
|
|
|
|
|
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Research and development
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$
|
9,090
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|
$
|
10,022
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General and administrative
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|
3,775
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|
1,237
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|
Total operating expenses
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12,865
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|
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|
11,259
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|
|
|
|
|
|
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Loss from operations
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|
(12,865
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)
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(11,259
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)
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Interest income
|
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|
283
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|
|
|
287
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|
Loss before income tax benefit
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(12,582
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)
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(10,972
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)
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Income tax benefit
|
|
|
—
|
|
|
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—
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Net loss
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|
$
|
(12,582
|
)
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|
$
|
(10,972
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)
|
|
|
|
|
|
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Net loss per common share, basic and diluted
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$
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(0.26
|
)
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$
|
(0.29
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
47,699
|
|
|
|
37,362
|
|
|
|
|
|
|
|
|
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Net Loss
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|
$
|
(12,582
|
)
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|
$
|
(10,972
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)
|
Other comprehensive income:
|
|
|
|
|
|
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Unrealized gain on marketable securities
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|
210
|
|
|
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—
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Total comprehensive loss
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|
$
|
(12,372
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)
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|
$
|
(10,972
|
)
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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)
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|
Common
Stock
|
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|
Additional
Paid-In
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
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Total
Stockholders’
Equity
|
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Shares
|
|
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Amount
|
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Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Deficit)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance at January 1, 2020
|
|
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47,658
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|
|
$
|
5
|
|
|
$
|
161,212
|
|
|
$
|
—
|
|
|
$
|
(79,061
|
)
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|
$
|
82,156
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|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,236
|
|
|
|
—
|
|
|
|
—
|
|
|
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1,236
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|
Issuance of common stock in connection with stock option exercises
|
|
|
55
|
|
|
|
—
|
|
|
|
194
|
|
|
|
—
|
|
|
|
—
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|
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194
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|
Unrealized gain on marketable securities, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
210
|
|
|
|
—
|
|
|
|
210
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|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,582
|
)
|
|
|
(12,582
|
)
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Balance at March 31, 2020
|
|
|
47,713
|
|
|
$
|
5
|
|
|
$
|
162,642
|
|
|
$
|
210
|
|
|
$
|
(91,643
|
)
|
|
$
|
71,214
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Deficit)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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
|
|
The
accompanying unaudited notes are an integral part of the condensed financial statements.
PROVENTION
BIO, INC.
CONDENSED
STATEMENTS OF CASH FLOWS (unaudited)
(in
thousands)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,582
|
)
|
|
$
|
(10,972
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,236
|
|
|
|
244
|
|
Amortization of premium and discounts on marketable securities
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(865
|
)
|
|
|
2,292
|
|
Accounts payable
|
|
|
1,761
|
|
|
|
211
|
|
Accrued interest recievable
|
|
|
(21
|
)
|
|
|
—
|
|
Accrued expenses
|
|
|
1,302
|
|
|
|
892
|
|
Net cash used in operating activities
|
|
|
(9,168
|
)
|
|
|
(7,333
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(9,049
|
)
|
|
|
—
|
|
Maturities of marketable securities
|
|
|
16,000
|
|
|
|
—
|
|
Net cash provided by in investing activities
|
|
|
6,951
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
194
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
194
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,023
|
)
|
|
|
(7,333
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
39,165
|
|
|
|
58,539
|
|
Cash and cash equivalents at end of period
|
|
$
|
37,142
|
|
|
$
|
51,206
|
|
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 March 31, 2020 and for the three months ended March 31, 2020 and 2019 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, 2019 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 2019, as filed with the SEC on March 12, 2020 and as amended on Form 10-K/A, and filed
with the SEC on April 8, 2020.
In
the opinion of management, the unaudited financial information as of March 31, 2020 and for the three months ended March 31, 2020
and 2019, 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 months ended March 31,
2020 and 2019 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 March 31, 2020, the Company had an accumulated deficit of
$91.6 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 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 and commercial 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 its cash, cash equivalents and marketable securities on hand at
March 31, 2020 are sufficient to meet the Company’s obligations for at least the next 12 months from the issuance 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 90 days
from the date of purchase to be cash equivalents. Marketable securities are those investments with original maturities
in excess of 90 days. The carrying amounts reported in the balance sheets for cash and cash equivalents are valued at cost,
which approximates their fair value.
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.
Marketable
securities
The
Company considers securities with original maturities of greater than 90 days to be available for sale securities. Available
for sale securities are classified as either current or non-current assets based on the nature of the securities and their availability
for use in current operations. Available for sale securities are recorded at fair value and unrealized gains and losses are recorded
within accumulated other comprehensive income. The estimated fair value of the available for sale securities is determined based
on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted
for amortization of premium and accretion of discount to maturity.
On
a quarterly basis, the Company reviews the status of each security in an unrealized loss position, to evaluate the existence of
potential credit losses. The Company first considers whether it intends to sell, or if it is more likely than not that the Company
will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent
or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities
that do not meet this criteria, the Company considers a number of factors to determine if the decline in fair value has resulted
from credit losses or other factors, including but not limited to: (1) the extent of the decline; (2) changes to the rating of
the security by a rating agency; (3) any adverse conditions specific to the security; and (4) other market conditions that may
affect the fair value of the security. If this assessment indicates that a credit loss exists and the present value of cash flows
expected to be collected is less than the amortized cost basis, an allowance for credit losses is required for the credit loss.
Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
As of March 31, 2020, the Company had no available for sale securities in an unrealized loss position.
The
Company’s available for sale securities are solely invested in U.S. Treasury and U.S. Government Agency securities.
Financial
instruments
Cash,
cash equivalents and marketable securities 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.
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 Comprehensive Loss. 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 us 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.
Stock-based
compensation expense is included in both research and development expenses and general and administrative expenses in the Statements
of Operations.
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
The
Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed
below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated balance
sheets or statements of operations.
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 have any lease agreements.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss estimates. Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective method
for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented
under ASC 326 (Financial Instruments - Credit Losses), while prior period amounts continue to be reported in accordance with previously
applicable GAAP. The adoption of this ASU had no impact on the Company’s financial statements.
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. Effective January 1, 2020, the Company adopted ASU 2018-13. The adoption had
no impact on the Company’s financial statements and related 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). Effective
January 1, 2020, the Company adopted ASU 2018-15. The adoption had no impact on the Company’s financial statements and related
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). Effective
January 1, 2020, the Company adopted ASU 2018-18. The adoption had no impact on the Company’s financial statements and related
disclosures.
4.
CAPITALIZATION
As
of March 31, 2020, the Company had authorized 100,000,000 shares of Common Stock, $0.0001 par value per share, of which 47,712,636
shares were issued and outstanding. In addition, as of March 31, 2020, the Company had authorized 25,000,000 shares of Preferred
Stock, $0.0001 par value per share, of which, none were issued and outstanding.
As
of December 31, 2019, the Company had authorized 100,000,000 shares of Common Stock, $0.0001 par value per share, of which 47,658,361
shares were issued and outstanding. In addition, as of December 31, 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.
5.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The
Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase
to be cash equivalents. Cash and cash equivalents as of March 31, 2020 and December 31, 2019 was $37.1 million and $39.2 million,
respectively, and included cash, investments in money market funds, and U.S. Treasury securities with original maturities of 90
days or less.
The
Company considers securities with original maturities of greater than 90 days at the date of purchase to be available for sale
securities. The Company held available for sale securities with a fair value totaling $39.5 million and $46.2 million at March
31, 2020 and December 31, 2019, respectively. These available for sale securities consisted solely of U.S. Treasury securities
and U.S Government Agency bonds. At March 31, 2020, the Company held available for sale securities of $39.5 million with
expected maturities of less than one year. The Company may sell certain of its marketable securities prior to their stated maturities
for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.
The
Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from
credit loss or other factors. As of March 31, 2020, the Company had no available for sale securities in an unrealized loss position.
While the Company classifies these securities as available for sale, the Company does not currently intend to sell its investments
and the Company currently believes it has the ability to hold these investments until maturity.
The
following table summarizes the amortized cost, fair value and allowance for credit losses of the Company’s available for
sale securities:
|
|
March 31, 2020
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
37,269
|
|
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
37,478
|
|
U.S. Government Agency securities
|
|
|
2,008
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2,009
|
|
Total
|
|
$
|
39,277
|
|
|
$
|
210
|
|
|
$
|
—
|
|
|
$
|
39,487
|
|
|
|
December 31, 2019
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
46,208
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,208
|
|
Total
|
|
$
|
46,208
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,208
|
|
The
Company’s available for sale securities are reported at fair value on the Company’s Balance Sheets. Unrealized gains
(losses) are reported within accumulated other comprehensive income (loss) in the statements of comprehensive income (loss). The
cost of securities sold and any realized gains/losses from the sale of available for sale securities are based on the specific
identification method. The changes in accumulated other comprehensive income (loss) associated with the unrealized gain (loss)
on available for sale securities during the three months ended March 31, 2020 and 2019, respectively were as follows:
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
—
|
|
|
$
|
—
|
|
Current period changes in fair value before reclassifications, net of tax
|
|
|
210
|
|
|
|
—
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
|
—
|
|
|
|
—
|
|
Other comprehensive income (loss)
|
|
|
210
|
|
|
|
—
|
|
Balance as of March 31, 2020
|
|
$
|
210
|
|
|
$
|
—
|
|
6.
LICENSE AND OTHER AGREEMENTS
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. 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. The Company has 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.
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. 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.
As
of March 31, 2020, the Company has not achieved any milestones that would trigger payments to MacroGenics.
The
Company recorded the warrants issued under the MacroGenics Asset Purchase Agreement and the MacroGenics License 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.
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 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 March 31, 2020, the Company has not achieved any milestones that would trigger payments to Vactech.
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 March 31, 2020, the Company had paid Intravacc a total of
approximately 8.0 million euros, or approximately $9.4 million, for services provided by Intravacc under the Intravacc Development
Services Agreement.
In
April 2017, the Company entered into the Janssen CSF-1R License Agreement, pursuant to which Janssen Pharmaceutica NV granted
the Company 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. The Company
evaluated PRV-6527 for Crohn’s disease in a recently completed Phase 2a clinical trial (the PRINCE study). In December 2019,
Janssen declined its option to buy back the rights to PRV-6527. and as such, all rights will remain with the Company. The Company
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, the Company 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. As of March 31, 2020, no milestones have been achieved that would trigger
payments to Janssen under the CSF-1R License Agreement.
7.
NET LOSS PER SHARE OF COMMON STOCK
Basic
and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average common shares
outstanding during the period. For the periods where there is a net loss, stock options and warrants have been excluded from the
calculation of diluted net loss per common share because their effect would be anti-dilutive. Therefore, the weighted average
common shares used to calculate both basic and diluted net loss per common share would be the same.
The
following table sets forth the computation of basic and diluted net loss per share of common stock for the periods indicated:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Net loss
|
|
$
|
(12,582
|
)
|
|
$
|
(10,972
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding - basic and diluted
|
|
|
47,699
|
|
|
|
37,362
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.29
|
)
|
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 March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
6,674
|
|
|
|
3,975
|
|
Warrants
|
|
|
2,125
|
|
|
|
4,588
|
|
8.
ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
Accrued research and development costs
|
|
$
|
2,536
|
|
|
$
|
1,700
|
|
Accrued compensation
|
|
|
427
|
|
|
|
54
|
|
Accrued professional fees
|
|
|
220
|
|
|
|
221
|
|
Other accrued liabilities
|
|
|
184
|
|
|
|
90
|
|
Total accrued expenses
|
|
$
|
3,367
|
|
|
$
|
2,065
|
|
9.
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.
In
accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:
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
following is a summary of assets and their related classifications under the fair value hierarchy:
|
|
March 31, 2020
|
|
|
|
Financial Instruments Carried at Fair Value
|
|
|
|
Quoted prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
active markets
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
for
identical items
|
|
|
observable
inputs
|
|
|
unobservable inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents1
|
|
$
|
37,142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,142
|
|
Investments in U.S. Treasury securities2
|
|
$
|
37,478
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,478
|
|
Investments in U.S. Government agency bonds2
|
|
$
|
—
|
|
|
$
|
2,009
|
|
|
$
|
—
|
|
|
$
|
2,009
|
|
|
|
December 31, 2019
|
|
|
|
Financial Instruments Carried at Fair Value
|
|
|
|
Quoted prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
active markets
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
for
identical items
|
|
|
observable
inputs
|
|
|
unobservable inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents 1
|
|
$
|
39,165
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,165
|
|
Investments in U.S. Treasury securities2
|
|
$
|
46,208
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,208
|
|
1
Cash and cash equivalents primarily include investments in money market funds and U.S. Treasury securities with maturity
dates within 90 days from the purchase date
2
Investments in U.S. Treasury and U.S. Governmental Agency securities are classified as available for sale securities
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 March 31, 2020, there were options to purchase an aggregate
of 6,674,476 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 evergreen provisions of the 2017 Plan, the number of shares available for issuance under the 2017 Plan was
increased by 3,000,000 shares, as determined by the board of directors under the provisions described below, effective
as of January 1, 2020. As of March 31, 2020, there were 3,102,154 shares available for future grants.
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.
Stock-based
compensation
Total
stock-based compensation expense recognized for both employees and non-employees was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
General and administrative
|
|
$
|
713
|
|
|
$
|
144
|
|
Research and development
|
|
|
523
|
|
|
|
100
|
|
Total share-based compensation expense
|
|
$
|
1,236
|
|
|
$
|
244
|
|
Option
activity
The
Company grants options with service-based vesting requirements as well as 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 three months ended March 31, 2020 are presented below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Stock Option Awards
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
5,894
|
|
|
$
|
6.33
|
|
|
|
8.5 years
|
|
|
$
|
—
|
|
Granted
|
|
|
835
|
|
|
$
|
12.80
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(55
|
)
|
|
$
|
3.57
|
|
|
|
|
|
|
|
|
|
Outstanding at Match 31, 2020
|
|
|
6,674
|
|
|
$
|
7.16
|
|
|
|
8.5 years
|
|
|
$
|
23,531
|
|
Exercisable at March 31, 2020
|
|
|
2,012
|
|
|
$
|
2.75
|
|
|
|
7.5 years
|
|
|
$
|
13,003
|
|
The
weighted average grant-date fair value of options granted during the three months ended March 31, 2020 was $8.28 per share. As
of March 31, 2020, there were approximately 1,737,000 unvested options subject to performance-based vesting criteria with approximately
$11.7 million of unrecognized compensation expense. This expense will be recognized when each milestone becomes probable of occurring.
In addition, as of March 31, 2020, there were approximately 2,925,000 unvested options outstanding subject to time-based vesting
with approximately $12.8 million of unrecognized compensation expense which will be recognized over a period of 3.3 years.
Cash
proceeds from, and the aggregate intrinsic value of, stock options exercised during the periods presented below were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Cash proceeds from options exercised
|
|
$
|
194
|
|
|
$
|
—
|
|
Aggregate intrinsic value of options exercised
|
|
|
309
|
|
|
|
—
|
|
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:
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
12.80
|
|
|
$
|
2.26
|
|
Expected volatility
|
|
|
72
|
%
|
|
|
66
|
%
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
|
6.2
|
|
|
|
6.6
|
|
Risk-free interest rate
|
|
|
1.31
|
%
|
|
|
2.41
|
%
|
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. 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. As of March 31, 2020, there were 554,675 warrants outstanding
related to the Series A Offering.
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 used 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 were 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. As of March 31, 2020, there were 1,569,893
warrants outstanding related to the IPO.
12.
SUBSEQUENT EVENTS
In
April 2020, the Company received net proceeds of $0.5 million from the sale of its 2018 New Jersey state net operating losses
(“NOLs”) through the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”).
The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined
research and development tax credits.
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, 2019 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2020.
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.
Impact
of COVID-19 on our Business
We
are closely monitoring developments related to the COVID-19 pandemic and are making every effort to ensure we remain focused on
the health and well-being of our patients and our employees while maintaining business continuity. At this time, it is too early
to predict what the long-term impact this pandemic, and the associated economic downturn, will have on our business. We have experienced
some level of disruption to two of our current or planned clinical trials. In March 2020, we announced a temporary pause in the
randomization of patients with newly diagnosed type 1 diabetes (T1D) into our global Phase 3 PROTECT study teplizumab. In addition,
we, with our partner Amgen, decided that we will now start our PRV-015 Phase 2b trial in gluten free diet non-responsive celiac
disease in the third quarter of 2020 instead in the second quarter of 2020. Our rolling BLA submission for teplizumab in the At-risk
indication has been initiated and is currently on track to be finalized upon completion of the CMC module by the end of 2020.
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 if we never achieve profitability.
We
have not generated any revenue to date and through March 31, 2020, and we had an accumulated deficit of $91.6 million. We have
financed our operations through a private offering of Series A Convertible Redeemable Preferred Stock in April 2017, our initial
public offering (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 our regulatory submissions, clinical trials and other development activities, as well as costs
to support our commercialization efforts to launch teplizumab, if we receive regulatory approval in the U.S. 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
Development & Safety
PRV-3279
(humanized anti-CD32B and CD79B bispecific)
In
March 2020, we announced positive top-line results from the Phase 1b portion of the PREVAIL (PRV-3279 EVAluation In Lupus) study,
which evaluated PRV-3279 in 16 healthy volunteers.
PRV-3279
was well-tolerated, with no serious adverse events, and as expected, did not deplete B cells and demonstrated profound and sustained
binding to circulating B lymphocytes, with reduction of circulating immunoglobulin M levels in a dose-proportional manner. While
anti-drug antibody production was observed at both dose levels tested, immunogenicity was found not to affect exposure, safety
or pharmacodynamic parameters.
Based
on the results, Provention plans to commence the Phase 2a portion of the PREVAIL study in lupus patients in the first half of
2021.
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.
In
November 2019, we completed a Type B multidisciplinary meeting with the FDA to discuss the proposed contents of a BLA for PRV-031
(teplizumab) for the prevention or delay of T1D in individuals at-risk of developing T1D. In April 2020, we announced the initiation
of the rolling submission of the Company’s BLA to the FDA and we are targeting completion of the submission in the fourth
quarter of 2020. Based on official FDA meeting minutes, we do not anticipate the need to conduct any additional clinical trials
in the at-risk population prior to BLA submission.
In
March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed type 1 diabetes (T1D) into our
global Phase 3 PROTECT study teplizumab. This pause was taken out of an abundance of caution to protect patients, caregivers,
clinical site staff, company employees and contractors at this critical juncture in the collective global efforts to combat the
COVID-19 pandemic. Patients that were undergoing study therapy were allowed to complete their course, as recommended by the PROTECT
study’s Data Safety Monitoring Board, which was recently expanded to include infectious diseases expertise.
In
addition, we recently initiated a Phase 2 open-label extension study of the NIH-sponsored At-Risk (TN-10) T1D study. The purpose
of this study is to evaluate the safety and tolerability of a single 12-day course of teplizumab treatment, administered
intravenously to participants in the NIH-sponsored trial who have developed clinical type 1 diabetes and are able to start
teplizumab treatment within 1 year of diagnosis.
PRV-015
(anti-interleukin 15)
In
April 2020, we, with our partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b
trial in gluten free diet non-responsive celiac disease and enable patients to comply fully with COVID-19 pandemic states of emergency
and social isolation, we will stagger study startup throughout the third quarter of 2020 rather than initiating screening in the
second quarter of 2020, as had originally been scheduled.
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:
|
●
|
PRV-031: a humanized,
anti-CD3 mAb for the interception of T1D in pediatric patients with newly-diagnosed T1D and for delaying and/or preventing
disease progression in individuals at risk of developing clinical stage T1D. PRV-031 has been designated by the FDA as an
orphan drug for the treatment of newly-diagnosed T1D. PRV-031 was also granted breakthrough therapy designation from the FDA
in August 2019 and PRIME eligibility from the EMA in October 2019 for the delay or prevention
of T1D;
|
|
|
|
|
●
|
PRV-101: a 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 damage to intestinal cells that leads to celiac disease;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
PRV-015: a human
anti-interleukin 15 (IL-15), mAb for the treatment of gluten-free diet non-responsive celiac disease (NRCD), intercepting
the effects of contaminating gluten in the most common autoimmune disorder without any approved medication; and
|
|
|
|
|
●
|
PRV-6527: an oral
small molecule CSF-1R inhibitor targeting the differentiation and activation of antigen-presenting cells (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
|
|
|
|
|
At-Risk
Indication – for the delay or prevention of clinical T1D in individuals at-risk of developing the disease
|
|
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.
|
|
In
April 2020, we initiated the non-clinical module of the rolling submission of our BLA to the FDA and expect to submit the clinical
module in the third quarter of 2020 and the CMC module (the completion of the submission) in the fourth quarter of 2020.
|
Newly Diagnosed Indication – for
the delay or prevention of clinical T1D in individuals diagnosed with early onset T1D
|
|
We
commenced a Phase 3 clinical trial (the PROTECT study) in approximately 300 pediatric and adolescent patients with newly
diagnosed type one diabetes. The first patient was dosed in the second quarter of 2019.
In
March 2020, in connection with the COVID-19 pandemic, we announced a temporary pause in the randomization of patients
with newly diagnosed type 1 diabetes (T1D) into the PROTECT study.
|
|
|
PRV-101 (polyvalent CVB vaccine) for the prevention
of acute CVB and the prevention of CVB triggered T1D and celiac disease.
|
|
We are developing a polyvalent vaccine at Intravacc,
our strategic partner in vaccine manufacturing process development.
|
|
We expect to commence a first-in-human safety
study in the second half of 2020. We expect to report top-line first-in-human data in 2021.
|
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
announced positive top-line results from our Phase 1b clinical trial (the PREVAIL study), which evaluated PRV-3279 in 16 healthy
volunteers.
|
|
We expect to commence the phase 2a portion of
the PREVAIL study in first half of 2021.
|
PRV-015 (anti-IL-15 mAb) for the treatment of
gluten-free diet non-responding celiac disease.
|
|
We designed a Phase 2b clinical trial (the PROACTIVE
trial) in celiac patients with gluten-free diet non-responsive celiac disease and completed additional chronic toxicology
studies to support this trial as needed.
|
|
We expect to commence
the Phase 2b PROACTIVE study in the third quarter of 2020.
|
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. In December 2019, Janssen declined its option to buy back PRV-6527.
|
|
We expect to engage with third parties for the
potential sublicense of PRV-6527.
|
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, the cost of manufacturing our drug candidates for clinical study,
regulatory costs, other internal operating expenses, 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 (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 (CMOs), on our behalf. Our development efforts from inception through March 31,
2020, were principally related to the acquisition and development of our 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, business development, commercial 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.
In addition, we expect that our general and administrative expenses will increase in the future as a result of the build out of
our commercial organization.
Interest
Income
Interest
income consists of interest income earned on our cash, cash equivalents and marketable securities.
RESULTS
OF OPERATIONS
Comparison
of the three months ended March 31, 2020 and 2019
|
|
Three months ended March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase (Decrease)
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Statement of Comprehensive Loss Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
9,090
|
|
|
$
|
10,022
|
|
|
$
|
(932
|
)
|
General and administrative
|
|
|
3,775
|
|
|
|
1,237
|
|
|
|
2,538
|
|
Total operating expenses
|
|
|
12,865
|
|
|
|
11,259
|
|
|
|
1,606
|
|
Loss from operations
|
|
|
(12,865
|
)
|
|
|
(11,259
|
)
|
|
|
1,606
|
|
Interest income
|
|
|
283
|
|
|
|
287
|
|
|
|
(4
|
)
|
Loss before income tax benefit
|
|
|
(12,582
|
)
|
|
|
(10,972
|
)
|
|
|
1,610
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(12,582
|
)
|
|
$
|
(10,972
|
)
|
|
$
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
47,699
|
|
|
|
37,362
|
|
|
|
|
|
Research
and Development Expenses
Research
and development expenses were $9.1 million for the three months ended March 31, 2020, a decrease of $0.9 million, compared to
$10.0 million for the three months ended March 31, 2019. The decrease related primarily to a decrease in clinical development
expenses for the PRINCE study (PRV-6527) and PULSE study (PRV-300), which were completed in 2019, as well as lower development
expenses for PRV-101. This decrease was offset by increased manufacturing and BLA submission costs for our PRV-031 program. Research
and development expenses for the three months ended March 31, 2020 and 2019 included $1.7 million and $0.9 million, respectively,
in personnel costs, including stock-based compensation.
General
and Administrative Expenses
General
and administrative expenses were $3.8 million for the three months ended March 31, 2020, an increase of $2.6 million, compared
to $1.2 million for the three months ended March 31, 2019. General and administrative expenses primarily included $1.3 million
in professional fees and legal expenses, $1.4 million in personnel costs, including stock-based compensation, and approximately
$0.7 million in insurance and other costs associated with being a public company. The increase in 2020 relates primarily to the
build out of our corporate and pre-commercial infrastructure. General and administrative expenses were $1.2 million for the three
months ended March 31, 2019 and were primarily comprised of $0.4 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 $0.3 million for each of the three-month periods ending March 31, 2020 and 2019, respectively.
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 equity securities. We expect to continue
to incur losses, as we plan to continue to fund development activities.
As
of March 31, 2020, we had cash, cash equivalents and marketable securities of $76.6 million. We believe that our current cash,
cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least 12 months
from the issuance 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, debt, or
potential out-licensing transactions. 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 in 2020 and beyond will be impacted by a number of factors, the most significant of which are expenses related
to PRV-031, including the PROTECT clinical trial, which commenced in April 2019, manufacturing activities, costs related to our BLA submission in the At-Risk indication and costs to build out our commercial infrastructure. Other factors include
costs related to our planned Phase 2b clinical study of PRV-015 and our continued 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.” To date, there have been no sales under the Sales Agreement.
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 March 31, 2020, we had cash, cash equivalents and marketable securities totaling $76.6 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 three months ended March 31, 2020 and 2019:
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(9,168
|
)
|
|
$
|
(7,333
|
)
|
Investing activities
|
|
|
6,951
|
|
|
|
—
|
|
Financing activities
|
|
|
194
|
|
|
|
—
|
|
Net change in cash and cash equivalents
|
|
$
|
(2,023
|
)
|
|
$
|
(7,333
|
)
|
Cash
Flows from Operating Activities
Net
cash used in operating activities was $9.2 million for the three months ended March 31, 2020 and primarily related to cash used
to fund clinical development activities for PRV-031, PRV-3279 and PRV-015, development activities for PRV-101, and increased personnel
costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Our working capital was
$71.2 million as of March 31, 2020.
Net
cash used in operating activities was $7.3 million for the three months ended March 31, 2019 and primarily related to cash used
to fund clinical development activities for PRV-031, PRV-6527 and PRV-300 and development activities for PRV-101.
Cash
Flows from Investing Activities
Net
cash provided by investing activities was $7.0 million for the three months ended March 31, 2020 and primarily related to the
proceeds received from the maturity of marketable securities totaling $16.0 million offset by purchases of marketable securities
totaling $9.0 million.
There
was no cash used in or provided by investing activities for the three months ended March 31, 2019.
Cash
Flows from Financing Activities
Net
cash provided by financing activities was $0.2 million and primarily related to cash received from stock option exercises.
There
was no cash used in or provided by financing activities for the three months ended March 31, 2019.
Commitments
and Contractual Obligations
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 March 31, 2020, we have not achieved
any milestones that would trigger payments to MacroGenics under the MacroGenics Asset Purchase Agreement.
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 March 31, 2020, we have not achieved any
milestones that would trigger payments to Vactech.
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 March 31, 2020, we have paid Intravacc a total of approximately 8.0 million
euros, or approximately $9.4 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 March 31, 2020, we have not achieved any milestones
that would trigger payments to MacroGenics under the MacroGenics License 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 has agreed to make an equity investment
of up to $20.0 million in us, which was completed in September 2019. See Note 6 – 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 March 31, 2020, we have not achieved any
milestones that would trigger payments to Amgen under the Amgen Agreement.
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 Item 1 – Business, Recent
Developments for the announcement of top-line results of the PRINCE study. In December 2019, Janssen declined its option to
buy back the rights to PRV-6527. and as such, all rights will remain with us. 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
March 31, 2020, no milestones have been achieved that would trigger payments to Janssen under the CSF-1R License 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 approximately 12 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.
The
table below presents a summary of our contractual obligations as of March 31, 2020:
|
|
Payments Due By Period
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 years
|
|
|
|
(In thousands)
|
|
Purchase Obligations (1)
|
|
$
|
3,025
|
|
|
$
|
3,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total (2)
|
|
$
|
3,025
|
|
|
$
|
3,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Purchase
obligations represent our commitments under binding forecasts, and purchase orders (inclusive of cancellation fees), including
those provided under our agreement(s) with AGC. The actual amounts incurred will be determined based on the amount of goods
purchased and the pricing then in effect under the applicable arrangement.
|
|
|
(2)
|
This
table does not include (a) any milestone payments which may become payable to third parties under license agreements as the
timing and likelihood of such payments are not known with certainty, (b) any royalty payments to third parties as the amounts,
timing and likelihood of such payments are not known, and (c) contracts that are entered into in the ordinary course of business
that are not material in the aggregate in any period presented above.
|
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, CMOs and other clinical development related
vendors 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.
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.
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 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 and manufacturing 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.
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:
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
12.80
|
|
|
$
|
2.26
|
|
Expected volatility
|
|
|
72
|
%
|
|
|
66
|
%
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
|
6.2
|
|
|
|
6.6
|
|
Risk-free interest rate
|
|
|
1.31
|
%
|
|
|
2.41
|
%
|
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 Comprehensive Loss.
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.
Recent
Accounting Pronouncements
See
Note 3, “Significant Accounting Policies”, in the accompanying notes to financial statements, which is incorporated
herein by reference.