SPRING BANK PHARMACEUTICALS, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year endedDecember 31, 2019 , and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our
Annual Report on Form 10-K filed with the
This report contains forward-looking statements that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or PSLRA, with the intention of obtaining the benefits of the "safe harbor" provisions of the PSLRA. Forward-looking statements involve risks and uncertainties. In this Quarterly Report on Form 10-Q, words such as "may," "will," "expect," "anticipate," "estimate," "intend," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution our readers that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company engaged in the discovery and development of novel therapeutics for the treatment of a range of cancers and inflammatory diseases using our proprietary small molecule nucleotide platform. We design our compounds to selectively target and modulate the activity of specific proteins implicated in various disease states. Our internally-developed programs are primarily designed to stimulate and/or dampen immune responses. We are devoting our resources to advancing multiple programs in ourSTING product portfolio, including ourSTING agonist clinical program in oncology, ourSTING antagonist compounds for inflammatory diseases, and ourSTING agonist antibody drug conjugate (ADC) program for oncology. We are also in the process of evaluating our portfolio of RIG-I agonist andSTING agonist compounds as potential therapeutics and vaccine adjuvants for SARS-CoV-2, the virus responsible for COVID-19. UntilJanuary 2020 , we had been developing inarigivir soproxil, an orally-administered investigational selective immunomodulator, as a potential treatment for chronic hepatitis B virus, or HBV. InApril 2019 , we launched two Phase 2 global trials (CATALYST 1 and CATALYST 2) examining the administration of inarigivir 400mg as monotherapy and co-administered with a nucleotide in naïve and virally suppressed chronic HBV patients. OnJanuary 29, 2020 , we announced that we were terminating all clinical development of inarigivir for the treatment of HBV due to the occurrence of unexpected serious adverse events, including one patient death, in our Phase 2b CATALYST trial.
Key Developments
OnJuly 29, 2020 , we entered into a share exchange agreement, or the Exchange Agreement, withF-star Therapeutics Limited , or F-star, a private company registered inEngland andWales , and the holders of issued shares in the capital of F-star and the holders of convertible notes of F-star, pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Exchange Agreement, we will acquire the entire issued share capital of F-star, withF-star Therapeutics, Inc. to continue as the combined company, which we collectively refer to as the Exchange. Upon completion of the Exchange,Spring Bank Pharmaceuticals, Inc. will be renamedF-star Therapeutics, Inc. , and is expected to trade on the Nasdaq Capital Market under the ticker symbol "FSTX". The Exchange is intended to create a company focused on transforming the lives of patients with cancer through the development of innovative tetravalent bispecific (mAb2™) antibodies. The combined company will advance its immuno-oncology pipeline of multiple tetravalent bispecific antibody programs, including the Company'sSTING (STimulator of INterferon Gene) agonist, SB 11285, currently in a Phase 1/2 clinical trial. The combined company will be led byEliot Forster , Ph.D., MBA, F-star President and Chief Executive Officer, and will be headquartered inCambridge, United Kingdom . The initial size of the Board of Directors of the Company will be eight and the initial 23
-------------------------------------------------------------------------------- directors are expected to beNessan Bermingham , Ph.D., who shall be Chairman;David Arkowitz , MBA (continuing Company director);Edward Benz , MD;Todd Brady , MD, Ph.D. (continuing Company director);Eliot Forster , Ph.D., MBA;Pamela Klein , MD (continuing Company director);Patrick Krol , MBA; andGeoffrey Race , FCMA MBA. The resignations from the Company's board of directors of each ofTimothy Clackson , Ph.D.,Martin Driscoll ,Kurt Eichler andScott Smith will be effective as of the closing of the proposed Exchange.
We will continue to conduct activities with respect to SB 11285, our
intravenously (IV)-administered
Spring Bank Development Programs
The pandemic caused by an outbreak of a new strain of coronavirus, or the COVID-19 pandemic, that is affecting theU.S. and global economy and financial markets is also impacting our employees, patients, communities and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. Management is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. In the paragraphs that follow, we have described impacts of the COVID-19 pandemic on our clinical and preclinical development programs. We are developing our leadSTING agonist product candidate, SB 11285, as a next-generation immunotherapeutic agent for the treatment of selected cancers. SB 11285 is currently being evaluated as an intravenously (IV)-administered monotherapy in a Phase 1a/1b multicenter, dose escalation clinical trial in patients with advanced solid tumors. Phase 1a of this trial is a dose-escalation study with IV SB 11285 monotherapy which allows combination with a checkpoint inhibitor after the completion of the first two cohorts of the trial. Phase 1b of this trial is designed to explore IV SB 11285 antitumor activity in combination with a checkpoint inhibitor in tumor types expected to be responsive to immunotherapy. InFebruary 2020 , we entered into a clinical collaboration with Roche for the use of Roche's PD-L1 checkpoint inhibitor atezolizumab (Tecentriq®) in the combination cohorts of this trial. We initiated dosing in the initial monotherapy cohort of this Phase 1 trial in the fourth quarter of 2019. Although several of the institutions involved in the conduct of this trial have suspended patient enrollment in all of their clinical trials due to the COVID-19 pandemic, we have been able to continue dosing patients in this trial at two key sites and just recently completed the dosing of patients in the third cohort. Depending on whether we are able to continue enrolling and dosing patients in this Phase 1 trial, we plan to complete the fourth monotherapy cohort by the end of the third or early fourth quarter of 2020. Also, we expect to initiate the first combination cohort examining the co-administration of SB 11285 and atezolizumab by the end of summer 2020. We anticipate that we will announce monotherapy data in the fourth quarter of 2020 and generate sufficient data from our Phase 1a/1bIV STING agonist program by the end of the first half of 2021 to enable advancement into a Phase 2 clinical trial. While the company currently anticipates this Phase 1 trial will remain open and currently enrolled patients will continue on study, all clinical sites activated for the study may determine to stop enrolling and/or dosing patients as a result of the impact of the COVID-19 pandemic, which has the potential to impact both the advancement into combination cohorts and the availability of data in 2020 and the first half of 2021. ADCs represent a novel platform to enable the targeted delivery of payload molecules. Conjugation of a payload molecule to an antibody that has its own efficacy profile could allow for a single drug with enhanced potency and safety compared to either mechanism alone. We believe the chemistry used to develop ourSTING agonists is differentiated from first generationSTING agonists because preclinical studies have shown that our molecules allow for site-specific conjugation to other therapeutic modalities, including antibodies, to form ADCs. OurSTING agonists, in combination with an antibody to form an ADC, could provide targeted delivery to the tumor site to better achieve anti-tumor efficacy. We are also exploring the use of our novelSTING antagonist compounds for the treatment of certain autoimmune and inflammatory diseases where theSTING pathway is involved. OurSTING antagonists are selectively designed to block aberrant activation of theSTING pathway, which contributes to the causes of certain autoimmune and inflammatory diseases, includingSTING -associated vasculopathy with onset in infancy (SAVI), systemic lupus erythematosus (SLE) and other proinflammatory-mediated diseases. InJuly 2019 , we presented preclinical data from a novelSTING antagonist compound, which showed potent inhibition of interferon and pro-inflammatory cytokines in wild type and mutantSTING in vitro models. In vivo administration of this compound antagonizedSTING -agonist-induced interferon and cytokine production in the blood, spleen and liver in mice, illustrating the potential that this compound has for therapeutic applications in interferonopathies, as well as autoimmune and inflammatory diseases. Furthermore, inAugust 2019 , we entered into a research agreement with theUniversity of Texas 24 --------------------------------------------------------------------------------
InApril 2020 , we announced that we are exploring programs and collaborations to study our portfolio of RIG-I agonist andSTING agonist compounds as potential therapeutics and vaccine adjuvants for SARS-CoV-2, the virus responsible for COVID-19. We are collaborating with theNational Institute of Allergy and Infectious Diseases (NIAID) to examine multiple compounds from our RIG-I agonist andSTING agonist portfolio in the Middle East Respiratory Syndrome Coronavirus (MERS-CoV) assay and the SARS-CoV-2 antiviral assay. We are also pursuing the inclusion of inarigivir soproxil, a RIG-I agonist, as an adjuvant therapy in ongoing clinical trials involving Bacille Calmette-Guerin (BCG) vaccines against SARS-CoV-2. To date, we have devoted substantially all of our resources to research and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We have not generated any revenue to date other than from grants from theNational Institutes of Health , orNIH . No additional funding remains available to us under any grant for the development of any of our product candidates. We have funded our operations primarily through proceeds received from private placements of convertible notes, common stock and/or warrants; the exercise of options and warrants;NIH grant funding; and public offerings of securities. We have incurred significant annual net operating losses in every year since our inception and expect to continue to incur significant expenses and net operating losses for the foreseeable future. Our net losses for the three and six months endedJune 30, 2020 were$6.5 million and$14.7 million , respectively, and our net losses for the three and six months endedJune 30, 2019 were$4.6 million and$9.8 million , respectively. As ofJune 30, 2020 , we had an accumulated deficit of$140.9 million . Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to continue to incur significant expenses and increasing operating losses for the next several years. We do not expect to raise any additional funds prior to the completion of the Exchange. However, if the Exchange is not completed, we may require significant additional funds earlier than we currently expect in order to conduct clinical trials and preclinical and discovery activities. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders' ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. There is no guarantee that the Exchange will be completed. As ofJune 30, 2020 , we had$23.5 million in cash, cash equivalents and marketable securities. We expect that our cash, cash equivalents and marketable securities as ofJune 30, 2020 will be sufficient to fund operations for at least the next twelve months. This estimate assumes no additional funding from new collaboration agreements, equity financings or further sales under our Controlled Equity OfferingSM Sales Agreement withCantor Fitzgerald & Co.
Financial Operations Overview
Operating expenses
Our operating expenses since inception have consisted primarily of research and development expense and general and administrative costs.
Research and development
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, which include:
• expenses incurred under agreements with third parties, including CROs
that conduct research, preclinical activities and clinical trials on
our behalf as well as contract manufacturing organizations, or CMOs,
that manufacture drug products for use in our preclinical and clinical
trials;
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel in our research anddevelopment
functions;
• costs of outside consultants, including their fees, stock-based
compensation and related travel expenses;
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• the cost of laboratory supplies and acquiring, developing and
manufacturing preclinical study and clinical trial materials;
• costs related to compliance with regulatory requirements; and
• facility-related expenses, which include direct depreciation costs and
allocated expenses for rent and maintenance of facilities and other
operating costs.
We expense research and development costs as incurred. We recognize external
development costs based on an evaluation of the progress to completion of
specific tasks using information provided to us by our vendors and our clinical
investigative sites. Payments for these activities are based on the terms of the
individual agreements, which may differ from the pattern of costs incurred, and
are reflected in our consolidated financial statements as prepaid or accrued
research and development expenses.
Our direct research and development expenses are not currently tracked on a
program-by-program basis. Until January 2020 , we were primarily focused on the
research and development of inarigivir. Going forward, and at least until the
completion of the Exchange, we expect our primary focus to be on the research
and development of compounds targeting the STING pathway. Our direct research
and development expenses consist primarily of external costs, such as fees paid
to investigators, consultants and CROs in connection with our preclinical
studies and clinical trial and regulatory fees. We do not allocate
employee-related costs and other indirect costs to specific research and
development programs.
The successful development of our product candidates is highly uncertain.
Accordingly, at this time, we cannot reasonably estimate the nature, timing and
costs of the efforts that will be necessary to complete the development of any
of our product candidates. We are also unable to predict when, if ever, we will
generate revenues from SB 11285 or any of our other product candidates. This is
due to the numerous risks and uncertainties associated with developing
medicines, including the uncertainties related to:
• establishing an appropriate safety profile for our product candidates;
• successful enrollment in and completion of clinical trials;
• receipt of marketing approvals from applicable regulatory authorities;
• establishing commercial manufacturing capabilities or making
arrangements with third-party manufacturers;
• obtaining and maintaining patent and trade secret protection and
regulatory exclusivity for our product candidates;
• launching commercial sales of the products, if and when approved,
whether alone or in collaboration with others; and
• if a product is approved, a continued acceptable safety profile of the
product.
A change in the outcome of any of these variables with respect to any of our
product candidates would significantly change the costs and timing associated
with the development of that product candidate.
We anticipate our research and development expenses will trend below comparable prior period levels in the near future as a result of reduced research and development activities and a reduced headcount of research and development personnel.
General and administrative
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance, corporate and business development and administrative
functions. General and administrative expenses also include legal fees relating
to patent and corporate matters; professional fees for accounting, auditing, tax
and consulting services; insurance costs; travel expenses; and facility-related
expenses, which include direct depreciation costs and allocated expenses for
rent and maintenance of facilities and other operating costs.
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We anticipate our general and administrative expenses will remain consistent
with comparable prior period levels in the near future. We will continue to
incur expenses associated with being a public company, including costs of
accounting, audit, legal, regulatory and tax-related services associated with
maintaining compliance with exchange listing and Securities and Exchange
Commission requirements, director and officer insurance premiums, and investor
and public relations costs.
Other income (expense)
Other income (expense) consists of interest income earned on our cash, cash
equivalents, restricted cash and marketable securities, interest expense paid on
the Convertible Term Loan and the loss on extinguishment of debt for repayment
of the Convertible Term Loan.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities consists of a gain or (loss) related to the change in the fair value of the warrants issued in connection with our private placement offering inNovember 2016 , resulting from factors such as a change in our stock price and a change in expected stock price volatility.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States of America . The preparation of our consolidated financial statements and related disclosures requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates and assumptions underlying the accounting policies described therein may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these current estimates based on different assumptions and under different conditions.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
• CROs in connection with performing research services on our behalf and
clinical trials;
• investigative sites or other providers in connection with clinical trials;
• vendors in connection with preclinical and clinical development
activities; and
• vendors related to product manufacturing, development and distribution
of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with multiple CROs that conduct and manage clinical trials 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 clinical expense. Payments
under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical trial milestones. In
accruing service fees, we estimate the time period over which services will be
performed, enrollment of patients, number of sites activated 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 amount of 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 may result in us
reporting amounts that are too high or too low in any particular period. To
date, we have not made any material adjustments to our prior estimates of
accrued research and development expenses.
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--------------------------------------------------------------------------------Warrants Issued in 2016 Private Placement
In connection with our private placement offering inNovember 2016 , or the November private placement, we issued warrants to purchase 1,644,737 shares of common stock, which we refer to as theNovember 2016 Warrants. These warrants are exercisable at an exercise price of$10.79 per share. We evaluated the terms of these warrants and concluded that they should be liability-classified. InNovember 2016 , we recorded the fair value of these warrants of approximately$8.3 million . We recognize any change in the value of the warrant liability each reporting period in the statement of operations. As ofJune 30, 2020 , the fair value of the warrants was approximately$38,000 , which is a decrease of approximately$261,000 from the fair value of approximately$299,000 as ofDecember 31, 2019 . See Note 7 of the notes to the unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Stock-Based Compensation
We issue stock-based awards to employees and non-employees, generally in the form of stock options or performance-based restricted stock units. We account for our stock-based compensation awards in accordance withFinancial Accounting Standards Board , (FASB) ASC Topic 718, Compensation-Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employees, including grants of employee stock options and modifications to existing stock awards, to be recognized in the statements of operations and comprehensive loss based on their fair values. We measure stock options and other stock-based awards granted to employees, nonemployees and directors based on the fair value on the date of grant and recognize the corresponding compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur. Generally, we issue stock options and performance based restricted stock units with service-based vesting conditions and record the expense for these awards using the straight-line method. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based restricted stock units ("performance-based RSUs") if necessary. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Use of this model requires that we make assumptions as to the fair value of our common stock, the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we lack company-specific historical and implied volatility information due in part to the limited time in which we have operated as a publicly traded company, we estimate our expected volatility based on the historical volatility of a group of publicly traded peer companies. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. We use the simplified method prescribed by theSEC's Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of options granted to employees and directors. We base the expected term of options granted to consultants and nonemployees on the contractual term of the options. We determine the risk-free interest rate by reference to the United States Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future. We recognize forfeitures as they occur and the compensation expense is reversed in the period that the forfeiture occurs. The assumptions we used to determine the fair value of granted stock options in six months endedJune 30, 2020 and 2019 are as follows: For the Six Months Ended June 30, 2020 2019 Risk-free interest rate 0.7 % 2.6 % Expected term (in years) 5.9 6.0 Expected volatility 82.8 % 81.1 % Expected dividend yield 0 % 0 % The assumptions used to determine the fair value of the time-based RSUs granted to management during the six months endedJune 30, 2020 is based on the market price of the award on the grant date, which was a weighted average fair value for the six months endedJune 30, 2020 of$1.41 per share. These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest. 28 --------------------------------------------------------------------------------
The impact of our stock-based compensation expense for stock options and performance based restricted stock units granted to employees and non-employees may grow in future periods if the fair value of our common stock increases.
The following table summarizes the classification of our stock-based compensation expenses recognized in our consolidated statements of operations and comprehensive loss (in thousands):
For the Three Months Ended For the Six Months Ended
June 30, June 30,
Stock-based compensation: 2020 2019 2020 2019
Research and development $ 171 $ 339 $ 446 $ 656
General and administrative 303 702 845 1,357
Total Stock-based compensation $ 474 $ 1,041 $ 1,291 $ 2,013
JOBS Act
In April 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act,
was enacted. Section 107 of the JOBS Act provides that an "emerging growth
company," or EGC, can take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the
Securities Act, for complying with new or revised accounting standards. Thus, as
an EGC, we could have delayed the adoption of certain accounting standards until
those standards would otherwise apply to private companies. However, we
irrevocably elected not to avail ourselves of this extended transition period
and, as a result, we will adopt new or revised accounting standards on the
relevant dates on which adoption of such standards is required for other public
companies.
Subject to certain conditions, as an EGC, we intend to rely on certain
exemptions afforded by the JOBS Act, including the exemption from certain
requirements related to the disclosure of executive compensation in our periodic
reports and proxy statements, and the requirement that we hold a nonbinding
advisory vote on executive compensation and any golden parachute payments; the
requirement that the auditors provide an attestation report on our system of
internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act; and complying with any requirement that may be adopted by
the Public Company Accounting Oversight Board , or PCAOB, regarding mandatory
audit firm rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements, known as the auditor
discussion and analysis. We will remain an EGC until the earliest of the last
day of the fiscal year in which we have total annual gross revenues of
approximately $1.07 billion or more; the last day of the fiscal year following
the fifth anniversary of the date of the completion of the closing of our
initial public offering, or IPO, which is December 31, 2021 ; the date on which
we have issued more than $1 billion in nonconvertible debt during the previous
three years; or the date on which we are deemed to be a large accelerated filer
under the rules of the SEC .
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Results of Operations
Comparison of the Three and Six Months Ended
The following table summarizes our results of operations for the three and six
months ended
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2020 2019 Change 2020 2019 Change
Operating expenses:
Research and development $ 3,204 $ 7,275 $ (4,071 ) $ 8,507 $ 12,842 $ (4,335 )
General and administrative 2,164 2,490 (326 ) 5,043 5,300 (257 )
Total operating expenses 5,368 9,765 (4,397 ) 13,550 18,142 (4,592 ) Loss from operations (5,368 ) (9,765 ) 4,397 (13,550 ) (18,142 ) 4,592 Other income (expense) (1,198 ) 325 (1,523 ) (1,433 ) 686 (2,119 ) Change in fair value of warrant liabilities 22 4,885 (4,863 ) 261 7,706 (7,445 ) Net loss$ (6,544 ) $ (4,555 ) $ (1,989 ) $ (14,722 ) $ (9,750 ) $ (4,972 )
Research and development expenses.
Research and development expenses during the three months endedJune 30, 2020 and 2019 were$3.2 million and$7.3 million , respectively. The decrease of$4.1 million during the three months endedJune 30, 2020 was primarily due to a decrease in spending on preclinical and clinical trial-related activities for inarigivir and manufacturing costs for inarigivir and SB 11285 of$3.6 million , as well as other research and development related expenses of$0.5 million , including laboratory supplies, salaries and benefits costs and non-cash charges for stock-based compensation. Research and development expenses during the six months endedJune 30, 2020 and 2019 were$8.5 million and$12.8 million , respectively. The decrease of$4.3 million during the six months endedJune 30, 2020 was primarily due to a decrease in spending on preclinical studies and clinical trial-related activities for inarigivir and manufacturing costs for inarigivir and SB 11285 of$3.8 million , as well as other research and development related expenses of$0.5 million , including laboratory supplies, salaries and benefits costs and non-cash charges for stock-based compensation.
General and administrative expenses.
General and administrative expenses during the three months endedJune 30, 2020 and 2019 were$2.2 million and$2.5 million , respectively. The decrease of$0.3 million during the three months endedJune 30, 2020 was primarily due to a decrease in non-cash stock-based compensation of$0.4 million , offset by insurance costs of$0.1 million . General and administrative expenses during the six months endedJune 30, 2020 and 2019 were$5.0 million and$5.3 million , respectively. The decrease of$0.3 million during the six months endedJune 30, 2020 was primarily due to an decrease in non-cash charges for stock-based compensation of$0.5 million and legal-related costs of$0.2 million , offset by other general and administrative related expenses of$0.4 million , including consulting-related costs and public company related costs. Other income (expense). Other income (expense) during the three and six months endedJune 30, 2020 and 2019 is comprised of interest income, offset by interest expense and loss on extinguishment of debt. Interest income during the three and six months endedJune 30, 2020 was approximately$44,000 and$285,000 , respectively, and was primarily related to the interest earned on marketable securities. Interest expense during the three and six months endedJune 30, 2020 was approximately$35,000 and$511,000 , respectively, and was due to the interest expense incurred on the Convertible Term Loan. Loss on extinguishment of debt during the three and six months endedJune 30, 2020 was approximately$1.2 million during both periods and was due to the repayment of the Convertible Term Loan. Interest income during the three and six months endedJune 30, 2019 was approximately$325,000 and approximately$686,000 , respectively, and was primarily due to the interest earned on marketable securities. There was no interest expense and no loss on extinguishment of debt as ofJune 30, 2019 . Change in fair value of warrant liabilities. The change in fair value of warrant liabilities during the three and six months endedJune 30, 2020 was a gain of approximately$22,000 and$261,000 , respectively. The change in fair value of warrant liabilities during the three and six months endedJune 30, 2019 was a gain of$4.9 million and$7.7 million , respectively. The change in value each period was solely due to the change in the fair value of theNovember 2016 Warrants, primarily as a result of the change in our stock price and stock price volatility. 30
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Liquidity and Capital Resources
Sources of Liquidity
From our inception throughJune 30, 2020 , we have financed our operations through proceeds received from private placements of convertible notes, common stock and/or warrants, the exercise of options and warrants,NIH grant funding and public offerings of securities. As ofJune 30, 2020 , we had cash, cash equivalents and marketable securities totaling$23.5 million and an accumulated deficit of$140.9 million . InAugust 2017 , we entered into a Controlled Equity OfferingSM Sales Agreement, or Sales Agreement, withCantor Fitzgerald & Co. , or Cantor, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock having an aggregate offering price of up to$50.0 million . We pay Cantor a commission rate equal to 3.0% of the aggregate gross proceeds from each sale. Shares sold under the Sales Agreement were offered and sold pursuant to our Registration Statement on Form S-3 (Registration No. 333-218399) that was declared effective by theSEC onJune 12, 2017 , which we refer to as the S-3 Registration Statement, and a prospectus supplement and accompanying base prospectus that we filed with theSEC onAugust 18, 2017 . During the three and six months endedJune 30, 2020 , we sold an aggregate of 649,095 and 690,895 shares of our common stock, respectively, pursuant to the Sales Agreement at a weighted-average selling price of$1.32 per share, during both periods, which resulted in approximately$0.8 million in net proceeds to the Company during both periods. During the year endedDecember 31, 2019 , we sold an aggregate of 600 shares of our common stock under the Sales Agreement at a weighted average selling price of$10.03 per share, which resulted in de minimis net proceeds. InSeptember 2019 , we entered into a loan and security agreement with certain affiliates of Pontifax Medison Finance, or the Lenders, that provided for a$20.0 million term loan and bears annual interest at a rate of 8.0%, which we refer to as the Convertible Term Loan. The Convertible Term Loan provided for interest-only payments for twenty-four months and repayment of the aggregate outstanding principal balance of the loan in quarterly installments starting upon expiration of the interest only period and continuing throughSeptember 19, 2023 . The Lenders could have, at their option, elected to convert some or all of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of our common stock at a conversion price of$8.76 per share. OnApril 8, 2020 , we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cash onApril 8, 2020 of our$20.0 million Convertible Term Loan. The pay-off letter provided that the repayment amount would be approximately$20.3 million , which included payment in full of all outstanding principal and accrued interest underlying the Convertible Term Loan and$0.3 million for a prepayment fee. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Convertible Term Loan terminated upon the Lenders' receipt of the repayment amount. In connection with the repayment of the Convertible Term Loan, the warrants previously issued to the lenders were amended and restated so that the new exercise price is$2.08 , which was equal to 1.5 times the weighted-average closing price of our common stock during the 90 days prior to the repayment date and resulted in an incremental expense of approximately$54,000 . All other terms and conditions of the Pontifax Warrants remain the same. We made the decision to repay the Convertible Term Loan as a result of changes in our operating needs following our announcement in the first quarter of 2020 that we were discontinuing the development of our HBV program, as well as the cost of capital associated with the Convertible Term Loan.
Cash Flows
The following table summarizes sources and uses of cash for each of the periods
presented (in thousands):
For the Six Months Ended
June 30,
2020 2019
Net cash used in operating activities $ (11,961 ) $ (14,765 )
Net cash provided by investing activities 11,234 10,582
Net cash (used in) provided by financing activities (19,451 ) 6
Net decrease in cash, cash equivalents and restricted cash
Net cash used in operating activities. The use of cash in both periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities during the six months endedJune 30, 2020 and 2019 was$12.0 million and$14.8 million , respectively. The decrease in cash used in operating activities during the six months endedJune 30, 2020 compared to six months endedJune 30, 2019 of$2.8 million was primarily due to a decrease in the 31 -------------------------------------------------------------------------------- non-cash change in the fair value of the warrant liability of$7.4 million , non-cash change in stock-based compensation of$0.7 million and prepaid expense and other current assets of$1.5 million , offset by an increase in net loss of$4.9 million , loss on extinguishment of debt of$1.2 million and accrued expenses and other current and non-current liabilities of$1.7 million . Net cash provided by investing activities. Net cash provided by investing activities during the six months endedJune 30, 2020 and 2019 was$11.2 million and$10.6 million , respectively. The cash provided by investing activities during the six months endedJune 30, 2020 was primarily the result of$32.2 million in proceeds from the sale of marketable securities, which was offset by$21.0 million for the purchase of marketable securities. The cash used in investing activities during the six months endedJune 30, 2019 was primarily the result of$16.8 million in proceeds from the sale of marketable securities, which was offset by$6.0 million for the purchase of marketable securities and$0.2 million for the purchase of property and equipment. Net cash (used in) provided by financing activities. Net cash used in financing activities during the six months endedJune 30, 2020 was$19.5 million and net cash provided by financing activities during the six months endedJune 30, 2019 was approximately$6,000 . Net cash used in financing activities during the six months endedJune 30, 2020 was primarily the result of$20.3 million for payment of the Convertible Term Loan and prepayment charge, offset by$0.8 million of net proceeds from our at-the-market offering program under the Sales Agreement. Net cash provided by financing activities during the six months endedJune 30, 2019 was the result of net proceeds from our at-the-market offering program under the Sales Agreement.
Funding Requirements
As ofJune 30, 2020 , we had$23.5 million in cash, cash equivalents and marketable securities. We expect that our cash, cash equivalents and marketable securities as ofJune 30, 2020 will be sufficient to fund operations for at least the next twelve months. This estimate assumes no additional funding from new collaboration agreements, equity financings or further sales under our Controlled Equity OfferingSM Sales Agreement withCantor Fitzgerald & Co.
Our future capital requirements as a stand-alone company, if the proposed Exchange were not to be completed, are difficult to forecast. Our future funding requirements will depend on many factors, including, but not limited to:
• the continued clinical development of SB 11285, our lead
product candidate;
• the costs involved in conducting preclinical and clinical activities
for our STING and COVID-19 programs;
• the costs of preparing, filing, and prosecuting patent applications
and maintaining, enforcing and defending intellectual property-related
claims;
• the extent to which we may elect to continue product development
activities in the future, if at all; and
• the timing and completion of the Exchange.
We do not expect to raise any additional funds prior to the completion of the
Exchange. However, if the Exchange is not completed, we may require significant
additional funds earlier than we currently expect in order to conduct clinical
trials and preclinical and discovery activities. Because of the numerous risks
and uncertainties associated with the development and commercialization of our
product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with future research and
development activities.
To the extent the Exchange is not completed and our capital resources are
insufficient to meet our future operating and capital requirements, we will need
to finance our future cash needs through public or private equity offerings,
collaboration agreements, debt financings or licensing arrangements. However,
additional funding may not be available to us on acceptable terms or at all, and
our ability to obtain funding may be adversely affected by the uncertainty and
volatility in the U.S. capital markets relating to the ongoing COVID-19
pandemic. In addition, the terms of any financing may adversely affect the
holdings or the rights of our stockholders. For example, if we raise additional
funds by issuing equity securities or by selling convertible debt securities,
further dilution to our existing stockholders may result. In addition, pursuant
to the instructions to Form S-3, if we file a new S-3 shelf registration
statement, we would only have the ability to sell shares under such registration
statement, during any 12-month period, in an amount less than or equal to
one-third of the aggregate market value of our common stock held by
non-affiliates, which is commonly referred to as our "public float." If adequate
funds are not available, we may be required to obtain funds through
collaborators that may require us to relinquish rights to our technologies or
drug candidates that we might otherwise seek to develop or commercialize
independently.
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--------------------------------------------------------------------------------Contractual Obligations and Commitments
InSeptember 2019 , we entered into the Convertible Term Loan with the Lenders that provided for a$20.0 million term loan with an annual interest rate of 8.0%. The Convertible Term Loan provided for interest-only payments for twenty-four months and repayment of the aggregate outstanding principal balance of the term loan in quarterly installments starting upon expiration of the interest only period and continuing throughSeptember 19, 2023 . OnApril 8, 2020 , we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cash onApril 8, 2020 of the Convertible Term Loan. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Loan terminated upon the Lenders' receipt of the repayment amount. The Convertible Term Loan and the subsequent repayment are described in Note 9 to the notes to the consolidated financial statements contained in this Quarterly Report on Form 10-Q. We enter into contracts in the normal course of business with third party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. We have not included our payment obligations under these contracts in the table as these contracts generally provide for termination upon notice, and therefore, we believe that our non-cancelable obligations under these agreements are not material and we cannot reasonably estimate the timing of if and when they will occur. We could also enter into additional research, manufacturing, supplier and other agreements in the future, which may require up-front payments and even long-term commitments of cash.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Recently Issued Accounting Pronouncements
InAugust 2018 , the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement. This ASU removes, modifies and adds certain disclosure requirements of ASC Topic 820. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 31, 2019 . We adopted this standard as ofJanuary 1, 2020 ; however, the adoption of this standard did not impact our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
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