aldx-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to                               

Commission File Number: 001-36332

 

ALDEYRA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1968197

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

131 Hartwell Avenue, Suite 320

 

 

Lexington, MA

 

02421

(Address of principal executive offices)

 

(Zip Code)

 

(781) 761-4904

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes         No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes         No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes         No  

Securities registered pursuant to 12(b) of the Act:

 

Title of Class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.001 par value per share

ALDX

The Nasdaq Stock Market LLC

 

As of November 7, 2019, there were 27,952,937 shares of the registrant’s common stock issued and outstanding.

 

 

 


 

 

Aldeyra Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2019

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements:

3

 

Consolidated Balance Sheets at September 30, 2019 (Unaudited) and December 31, 2018

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

4

 

Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

5

 

Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

6

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)

8

 

Notes to Condensed Consolidated Financial Statements

9

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

26

ITEM 4.

Controls and Procedures

26

PART II – OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

27

ITEM 1A.

Risk Factors

27

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

ITEM 3.

Defaults Upon Senior Securities

59

ITEM 4.

Mine Safety Disclosures

59

ITEM 5.

Other Information

59

ITEM 6.

Exhibits

59

Signatures

60

 

2


 

Part I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

 

 

 

 

 

2019

 

 

December 31,

 

 

 

(unaudited)

 

 

2018

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,604,203

 

 

$

3,357,472

 

Cash equivalent - Reverse Repurchase Agreements

 

 

26,000,000

 

 

 

44,000,000

 

Marketable securities

 

 

24,567,074

 

 

 

46,242,220

 

Prepaid expenses and other current assets

 

 

849,087

 

 

 

1,169,594

 

Total current assets

 

 

77,020,364

 

 

 

94,769,286

 

Deferred offering costs

 

 

 

 

 

86,644

 

Right-of-use assets

 

 

248,165

 

 

 

 

Fixed assets, net

 

 

172,470

 

 

 

235,225

 

Total assets

 

$

77,440,999

 

 

$

95,091,155

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

572,363

 

 

$

3,051,678

 

Accrued expenses

 

 

11,324,963

 

 

 

5,421,498

 

Current portion of operating lease liabilities

 

 

218,953

 

 

 

 

Total current liabilities

 

 

12,116,279

 

 

 

8,473,176

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

14,386,706

 

 

 

 

Operating lease liabilities, net of current portion

 

 

58,720

 

 

 

 

Total liabilities

 

 

26,561,705

 

 

 

8,473,176

 

Commitments and contingencies (Notes 14 and 15)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, voting, $0.001 par value; 150,000,000 authorized and 27,151,775

   and 26,244,435 shares issued and outstanding, respectively

 

 

27,152

 

 

 

26,244

 

Additional paid-in capital

 

 

237,047,752

 

 

 

225,136,127

 

Accumulated other comprehensive income (loss)

 

 

5,766

 

 

 

(9,224

)

Accumulated deficit

 

 

(186,201,376

)

 

 

(138,535,168

)

Total stockholders’ equity

 

 

50,879,294

 

 

 

86,617,979

 

Total liabilities and stockholders’ equity

 

$

77,440,999

 

 

$

95,091,155

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

16,223,972

 

 

$

7,880,822

 

 

$

34,737,420

 

 

$

21,274,032

 

Acquired in-process research and development

 

 

(47,102

)

 

 

 

 

 

6,500,602

 

 

 

 

General and administrative

 

 

2,839,319

 

 

 

3,065,912

 

 

 

8,940,771

 

 

 

7,330,142

 

Loss from operations

 

 

(19,016,189

)

 

 

(10,946,734

)

 

 

(50,178,793

)

 

 

(28,604,174

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

330,329

 

 

 

163,015

 

 

 

1,262,378

 

 

 

427,361

 

Interest expense

 

 

(29,154

)

 

 

(28,846

)

 

 

(59,766

)

 

 

(83,248

)

Total other income (expense), net

 

 

301,175

 

 

 

134,169

 

 

 

1,202,612

 

 

 

344,113

 

Loss before income taxes

 

 

(18,715,014

)

 

 

(10,812,565

)

 

 

(48,976,181

)

 

 

(28,260,061

)

Income tax benefit

 

 

 

 

 

 

 

 

1,309,973

 

 

 

 

Net loss

 

$

(18,715,014

)

 

$

(10,812,565

)

 

$

(47,666,208

)

 

$

(28,260,061

)

Net loss per share - basic and diluted

 

$

(0.69

)

 

$

(0.52

)

 

$

(1.77

)

 

$

(1.40

)

Weighted average common shares outstanding - basic and

   diluted

 

 

27,111,600

 

 

 

20,969,913

 

 

 

26,928,725

 

 

 

20,168,633

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

$

(18,715,014

)

 

$

(10,812,565

)

 

$

(47,666,208

)

 

$

(28,260,061

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities, net of tax

 

(7,687

)

 

 

(2,637

)

 

 

14,990

 

 

 

12,635

 

Total other comprehensive (loss) income

$

(7,687

)

 

$

(2,637

)

 

$

14,990

 

 

$

12,635

 

Comprehensive loss

$

(18,722,701

)

 

$

(10,815,202

)

 

$

(47,651,218

)

 

$

(28,247,426

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


5


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

 

 

 

Stockholders' Equity

 

 

 

Common Voting Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in Capital

 

 

Other

Comprehensive

Income/(Loss),

net of tax

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, December 31, 2018

 

 

26,244,435

 

 

$

26,244

 

 

$

225,136,127

 

 

$

(9,224

)

 

$

(138,535,168

)

 

$

86,617,979

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,133,990

 

 

 

 

 

 

 

 

 

6,133,990

 

Issuance of common stock, acquisition

   of Helio Vision, Inc.

 

 

724,518

 

 

 

724

 

 

 

4,862,007

 

 

 

 

 

 

 

 

 

4,862,731

 

Issuance of common stock, net of

   issuance costs

 

 

83,557

 

 

 

84

 

 

 

720,880

 

 

 

 

 

 

 

 

 

720,964

 

Issuance of common stock, employee

   stock purchase plan

 

 

34,253

 

 

 

35

 

 

 

194,813

 

 

 

 

 

 

 

 

 

194,848

 

Issuance of common stock, vested

   restricted stock awards

 

 

65,012

 

 

 

65

 

 

 

(65

)

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

14,990

 

 

 

 

 

 

14,990

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,666,208

)

 

 

(47,666,208

)

Balance, September 30, 2019

 

 

27,151,775

 

 

$

27,152

 

 

$

237,047,752

 

 

$

5,766

 

 

$

(186,201,376

)

 

$

50,879,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

19,137,639

 

 

$

19,138

 

 

$

139,241,635

 

 

$

(17,831

)

 

$

(99,641,923

)

 

$

39,601,019

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,126,920

 

 

 

 

 

 

 

 

 

3,126,920

 

Issuance of common stock, net of

   issuance costs

 

 

1,796,306

 

 

 

1,796

 

 

 

14,027,185

 

 

 

 

 

 

 

 

 

14,028,981

 

Issuance of common stock, vested

   restricted stock awards

 

 

40,975

 

 

 

41

 

 

 

(41

)

 

 

 

 

 

 

 

 

 

Issuance of common stock, employee

   stock purchase plan

 

 

14,382

 

 

 

14

 

 

 

85,559

 

 

 

 

 

 

 

 

 

85,573

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

12,635

 

 

 

 

 

 

12,635

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,260,061

)

 

 

(28,260,061

)

Balance, September 30, 2018

 

 

20,989,302

 

 

$

20,989

 

 

$

156,481,258

 

 

$

(5,196

)

 

$

(127,901,984

)

 

$

28,595,067

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

ALDEYRA THERAPEUTICS, INC.

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

 

 

 

Stockholders' Equity

 

 

 

Common Voting Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in Capital

 

 

Other

Comprehensive

Income/(Loss),

net of tax

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, June 30, 2019

 

 

26,986,936

 

 

$

26,987

 

 

$

234,779,291

 

 

$

13,453

 

 

$

(167,486,361

)

 

$

67,333,370

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,152,938

 

 

 

 

 

 

 

 

 

2,152,938

 

Issuance of common stock, acquisition

   of Helio Vision, Inc.

 

 

142,155

 

 

 

142

 

 

 

(142

)

 

 

 

 

 

 

 

 

 

Issuance of common stock, employee

   stock purchase plan

 

 

22,684

 

 

 

23

 

 

 

115,665

 

 

 

 

 

 

 

 

 

115,688

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(7,687

)

 

 

 

 

 

(7,687

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,715,015

)

 

 

(18,715,015

)

Balance, September 30, 2019

 

 

27,151,775

 

 

$

27,152

 

 

$

237,047,752

 

 

$

5,766

 

 

$

(186,201,376

)

 

$

50,879,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

 

20,842,198

 

 

$

20,842

 

 

$

154,051,733

 

 

$

(2,559

)

 

$

(117,089,419

)

 

$

36,980,597

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,273,720

 

 

 

 

 

 

 

 

 

1,273,720

 

Issuance of common stock, net of

   issuance costs

 

 

132,722

 

 

 

133

 

 

 

1,070,246

 

 

 

 

 

 

 

 

 

1,070,379

 

Issuance of common stock, employee

   stock purchase plan

 

 

14,382

 

 

 

14

 

 

 

85,559

 

 

 

 

 

 

 

 

 

85,573

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(2,637

)

 

 

 

 

 

(2,637

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,812,565

)

 

 

(10,812,565

)

Balance, September 30, 2018

 

 

20,989,302

 

 

$

20,989

 

 

$

156,481,258

 

 

$

(5,196

)

 

$

(127,901,984

)

 

$

28,595,067

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(47,666,208

)

 

$

(28,260,061

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Acquired in-process research and development

 

 

6,500,602

 

 

 

 

Deferred taxes

 

 

(1,309,973

)

 

 

 

Stock-based compensation

 

 

6,133,990

 

 

 

3,126,920

 

Amortization of debt discount

 

 

59,766

 

 

 

11,608

 

Accretion on debt securities available for sale, net

 

 

(474,771

)

 

 

(82,996

)

Depreciation expense

 

 

72,284

 

 

 

48,161

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

404,264

 

 

 

(683,566

)

Accounts payable

 

 

(3,082,081

)

 

 

2,441,407

 

Accrued expenses

 

 

5,604,224

 

 

 

1,509,571

 

Net cash used in operating activities

 

 

(33,757,903

)

 

 

(21,888,956

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(9,529

)

 

 

(248,382

)

Cash acquired in Helio asset acquisition

 

 

632,090

 

 

 

 

Purchases of marketable securities

 

 

(36,860,554

)

 

 

(21,573,832

)

Sales of marketable securities

 

 

59,000,000

 

 

 

27,459,000

 

Net cash provided by investing activities

 

 

22,762,007

 

 

 

5,636,786

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

720,964

 

 

 

14,194,871

 

Proceeds from employee stock purchase plan

 

 

194,849

 

 

 

85,614

 

Proceeds from long-term debt

 

 

14,450,000

 

 

 

 

Debt issuance costs paid in cash

 

 

(123,186

)

 

 

(43,000

)

Net cash provided by financing activities

 

 

15,242,627

 

 

 

14,237,485

 

NET INCREASE (DECREASE) IN CASH

 

 

4,246,731

 

 

 

(2,014,685

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

47,357,472

 

 

 

20,023,337

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

51,604,203

 

 

$

18,008,652

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:

 

 

 

 

 

 

 

 

Helio acquisition:

 

 

 

 

 

 

 

 

Assets acquired

 

$

75,632

 

 

$

 

Liabilities acquired

 

$

637,994

 

 

$

 

Fair value of securities issued

 

$

4,862,731

 

 

$

 

Right-of-use assets acquired through operating leases

 

$

386,060

 

 

$

 

Cash paid during the period for interest

 

$

 

 

$

81,968

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

8


 

ALDEYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

NATURE OF BUSINESS

Aldeyra Therapeutics, Inc., together with its wholly-owned subsidiaries (the Company or Aldeyra), a Delaware corporation, is developing next-generation medicines to improve the lives of patients with immune-mediated diseases.

The Company’s principal activities to date include raising capital and research and development activities.

2.

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 8, 2019.

The financial information as of September 30, 2019, and the three and nine months ended September 30, 2019 and 2018, respectively, is unaudited. In the opinion of management all adjustments, consisting only of normal recurring adjustments considered necessary for the fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented, have been included. The balance sheet data as of December 31, 2018 was derived from audited financial statements. The results of the Company’s operations for any interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

Based on its current operating plan, and not including additional access to capital under the Company’s credit facility or the Open Market Sales Agreement SM (Jefferies Sales Agreement), the Company believes that its cash, cash equivalents, and marketable securities as of September 30, 2019, will be adequate to fund currently anticipated operating expenses into 2021, including the currently planned Phase 3 clinical trial in dry eye disease (the RENEW trial), the initial part of the currently planned adaptive Phase 3 clinical trial in proliferative vitreoretinopathy (the GUARD trial), and the currently planned Phase 3 trial in allergic conjunctivitis (the INVIGORATE trial).The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all planned research and development activities; commercialize product candidates; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, it will be required to significantly decrease the amount of planned expenditures and may be required to cease operations.

Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the realization of its business plan and the future operations of the Company.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, including fair value estimates for investments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting periods. The Company’s management evaluates its estimates and assumptions on an ongoing basis. Management’s most significant estimates in the Company’s financial statements include, but are not limited to, estimates related to clinical trial accruals, estimates related to prepaid and accrued research and development costs, acquired in-process research and development (IPR&D) expense, accounting for income taxes and related valuation allowance, and accounting for stock-based compensation. Although estimates and assumptions are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

9


 

In-process research and development

Assets purchased in an asset acquisition transaction are expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use, provided that the acquired asset did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Acquired IPR&D payments are immediately expensed in the period in which they are incurred and include upfront payments, as well as transaction fees and subsequent pre-commercial milestone payments. Research and development costs incurred after the acquisition are expensed as incurred.

Summary of Significant Accounting Policies

There were no changes to significant accounting policies during the nine months ended September 30, 2019, as compared to the those identified in the 2018 Form 10-K, except for the Company's adoption of Accounting Standards Codification (ASC) Topic 842, Leases, on January 1, 2019.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02 (ASU 2016-02), Leases. ASU 2016-02 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The adoption did not have a material impact on the Company’s financial statements.

3.

Helio Vision Acquisition

On January 28, 2019 (the Closing Date), the Company acquired Helio Vision, Inc. (Helio). As a result of the acquisition, the Company initially issued an aggregate of 1,150,990 shares of common stock to the former securityholders and an advisor of Helio. The founders of Helio were issued 568,627 shares and non-founders were issued 582,363 shares. The Helio founders’ shares are subject to vesting based on continued service to the Company over three years from the Closing Date of which 25% are vested as of September 30, 2019. The Company recognizes the expense associated with the founders’ restricted shares as compensation expense on a straight-line basis as the shares vest over the three-year period. For the three and nine months ended September 30, 2019, the Company recorded $0.6 million and $1.6 million, respectively, of research and development compensation expense for the founders’ restricted shares.

The Company, subject to the conditions of the acquisition agreement, is contingently obligated to make additional payments to the former securityholders of Helio as follows: (a) $2.5 million of common stock on the date that is 24 months following the Closing Date (assuming certain technical milestones are met); (b) $10.0 million of common stock following approval by the FDA of a new drug approval application for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the Closing Date; and (c) $2.5 million of common stock following FDA approval of a new drug application for an indication (other than proliferative vitreoretinopathy) prior to the 12th anniversary of the Closing Date (the shares of common stock issuable pursuant to the preceding clauses (a) – (c) are referred to herein as the Milestone Shares), provided that in no event shall the Company be obligated to issue more than an aggregate of 5,248,885 shares of common stock. Additionally, in the event of certain change of control or divestitures by the Company, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million.

The Company determined that liability accounting is not required for the Milestone Shares under FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). The Company also determined that the Milestone Shares meet the scope exception as a derivative under FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”), from inception of the Milestone Shares through September 30, 2019. Accordingly, the Milestone Shares are evaluated under FASB ASC Topic 450, Contingencies (ASC 450) and the Company will record a liability related to the Milestone Shares if the milestones are achieved, and the obligation to make additional payment(s) becomes probable. At that time, the Company will record the cost of the Milestone Shares issued to the founders as compensation expense and to the Helio non-founders as in-process research and development expense if there is no alternative future use. No milestones related to the Milestone Shares are probable of being achieved as of September 30, 2019.

 

10


 

The Company assessed the acquisition of Helio under the FASB ASC Topic 805, Business Combinations (ASC 805). Under ASC 805, the Company determined that the acquired assets did not constitute a business since substantially all the assets acquired were related to ADX-2191 and that the transaction would be accounted for as an asset acquisition. The asset and development program acquired from Helio are at an early stage of development and will require a significant investment of time and capital for development. There is no assurance that the Company will be successful in developing such asset, and a failure to successfully develop such asset could diminish the Company’s prospects. Under ASC 805, the asset acquired is considered to have no alternative future uses, since the future economic benefit of the acquired asset at the date of acquisition is highly uncertain. The fair value of the assets was determined using the quoted market price of the Company’s common stock on the closing date and was fully expensed as in-process research and development. Additionally, the Company assessed the Helio acquisition under ASC Topic 740, Income Taxes (ASC 740). The acquisition resulted in an income tax benefit of $1.3 million and a corresponding increase to acquired IPR&D expense. The expense resulted from the reduction in the Company’s valuation allowance due to the deferred tax liability created as a result of the book and tax basis difference during the quarter ended March 31, 2019. During the nine months ended September 30, 2019, the Company recorded $6.5 million of IPR&D related to the fair value of consideration given which includes transaction costs and the deferred tax impact of the Helio acquisition.

4.

NET LOSS PER SHARE

As of September 30, 2019 and 2018, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to the Company’s net loss position.

The following potentially dilutive securities, prior to the application of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact:

 

 

 

Three and Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Options to purchase common stock

 

 

4,539,279

 

 

 

3,512,163

 

Warrants to purchase common stock

 

 

 

 

 

60,000

 

Restricted stock units

 

 

430,425

 

 

 

212,297

 

Unvested restricted shares (1)

 

 

426,472

 

 

 

 

Total of common stock equivalents

 

 

5,396,176

 

 

 

3,784,460

 

 

(1)

Represents 426,472 shares of common stock that are issued and outstanding but that were subject to a right of repurchase by the Company at September 30, 2019 and are not included in stockholders’ equity pursuant to U.S. generally accepted accounting principles.

 

11


 

5.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash, cash equivalents, and marketable securities were comprised of:

 

 

 

September 30, 2019

 

 

 

Carrying

Amount

 

 

Unrecognized

Gain

 

 

Unrecognized

Loss

 

 

Estimated

Fair Value

 

 

Cash and Cash

Equivalents

 

 

Current

Marketable

Securities

 

Cash

 

$

6,472,575

 

 

$

 

 

$

 

 

$

6,472,575

 

 

$

6,472,575

 

 

$

 

Money market funds

 

 

16,136,718

 

 

 

 

 

 

 

 

 

16,136,718

 

 

 

16,136,718

 

 

 

 

Reverse repurchase agreements

 

 

26,000,000

 

 

 

 

 

 

 

 

 

26,000,000

 

 

 

26,000,000

 

 

 

 

U.S. government agency securities

 

 

27,556,218

 

 

 

5,766

 

 

 

 

 

 

 

27,561,984

 

 

 

2,994,910

 

 

 

24,567,074

 

Available for Sale (1)

 

 

53,556,218

 

 

 

5,766

 

 

 

 

 

 

53,561,984

 

 

 

28,994,910

 

 

 

24,567,074

 

Total cash, cash equivalents, and

   current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

51,604,203

 

 

$

24,567,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

Carrying

Amount

 

 

Unrecognized

Gain

 

 

Unrecognized

Loss

 

 

Estimated

Fair Value

 

 

Cash and Cash

Equivalents

 

 

Current

Marketable

Securities

 

Cash

 

$

2,127,175

 

 

$

 

 

$

 

 

$

2,127,175

 

 

$

2,127,175

 

 

$

 

Money market funds

 

 

1,230,297

 

 

 

 

 

 

 

 

 

1,230,297

 

 

 

1,230,297

 

 

 

 

Reverse repurchase agreements

 

 

44,000,000

 

 

 

 

 

 

 

 

 

44,000,000

 

 

 

44,000,000

 

 

 

 

U.S. government agency securities

 

 

46,251,444

 

 

 

 

 

 

(9,224

)

 

 

46,242,220

 

 

 

 

 

 

46,242,220

 

Available for Sale (1)

 

 

90,251,444

 

 

 

 

 

 

(9,224

)

 

 

90,242,220

 

 

 

44,000,000

 

 

 

46,242,220

 

Total Cash, cash equivalents and

   current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

47,357,472

 

 

$

46,242,220

 

 

(1)

Available for sale securities are reported at fair value with unrealized gains and losses reported net of taxes, if material, in other comprehensive income.

The contractual maturities of all available for sale securities were less than one year at September 30, 2019.

6.

FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements, establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

There were no liabilities measured at fair value at September 30, 2019 or December 31, 2018.

Money market funds included in cash and cash equivalents in the consolidated balance sheets, are recorded at fair value and considered as Level 1 inputs under the fair value hierarchy.

Reverse repurchase agreements and U.S. government agency securities are recorded at fair market value and considered as Level 2 inputs under the fair value hierarchy.

12


 

Financial instruments including cash equivalents, clinical trial prepayments to contract research organizations, and accounts payable are carried in the financial statements at amounts that approximate their fair value based on the short maturities of those instruments. The carrying amount of the Company’s term loan under its credit facility approximates market rates currently available to the Company.

7.

ACCRUED EXPENSES

Accrued expenses were comprised of: