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 MARCH 31, 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 001-36365

 

SCYNEXIS, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

56-2181648

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1 Evertrust Plaza, 13th Floor

Jersey City, New Jersey

 

07302-6548

(Address of principal executive offices)

 

(Zip Code)

 

(201)-884-5485

(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 “large accelerated filer,” “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 Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

SCYX

Nasdaq Global Market

As of May 1, 2019, there were 53,651,269 shares of the registrant’s Common Stock outstanding.

 

 

 

 


Table of Contents

 

SCYNEXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

Unaudited Condensed Balance Sheets as of March 31, 2019, and December 31, 2018

 

1

 

 

Unaudited Condensed Statements of Operations for the three months ended March 31, 2019 and 2018

 

2

 

 

Unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

3

 

 

Notes to Financial Statements (unaudited)

 

4

Item 2.

 

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

 

15

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

 

Controls and Procedures

 

21

 

 

 

PART II OTHER INFORMATION

 

23

 

 

 

 

 

Item 1A.

 

Risk Factors

 

23

Item 6.

 

Exhibits

 

23

 

 

 

Signatures

 

24

 

 

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

SCYNEXIS, INC.

UNAUDITED CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,950

 

 

$

11,439

 

Short-term investments

 

 

26,110

 

 

 

32,718

 

Prepaid expenses and other current assets

 

 

958

 

 

 

7,251

 

Restricted cash

 

 

55

 

 

 

55

 

Total current assets

 

 

40,073

 

 

 

51,463

 

Other assets

 

 

812

 

 

 

812

 

Deferred offering costs

 

 

104

 

 

 

106

 

Restricted cash

 

 

273

 

 

 

273

 

Property and equipment, net

 

 

488

 

 

 

516

 

Operating lease right-of-use asset (See Note 7)

 

 

3,317

 

 

 

 

Total assets

 

$

45,067

 

 

$

53,170

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,346

 

 

$

3,653

 

Accrued expenses

 

 

2,211

 

 

 

2,103

 

Deferred revenue

 

 

54

 

 

 

121

 

Operating lease liability, current portion (See Note 7)

 

 

27

 

 

 

 

Total current liabilities

 

 

4,638

 

 

 

5,877

 

Warrant liabilities

 

 

7,508

 

 

 

986

 

Loan payable expected to be refinanced

 

 

 

 

 

15,082

 

Convertible debt and derivative liability (See Note 6)

 

 

18,296

 

 

 

 

Operating lease liability (See Note 7)

 

 

3,295

 

 

 

 

Total liabilities

 

 

33,737

 

 

 

21,945

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized 5,000,000 shares as of March 31, 2019 and December 31, 2018; 0 shares issued and outstanding as of March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized as of

   March 31, 2019, and December 31, 2018; 50,232,429 and 47,971,989

   shares issued and outstanding as of March 31, 2019, and December 31,

   2018, respectively

 

 

50

 

 

 

48

 

Additional paid-in capital

 

 

251,906

 

 

 

248,895

 

Accumulated deficit

 

 

(240,626

)

 

 

(217,718

)

Total stockholders’ equity

 

 

11,330

 

 

 

31,225

 

Total liabilities and stockholders’ equity

 

$

45,067

 

 

$

53,170

 

 

The accompanying notes are an integral part of the financial statements.

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Table of Contents

 

SCYNEXIS, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

64

 

 

$

64

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

9,684

 

 

 

5,326

 

Selling, general and administrative

 

 

2,241

 

 

 

1,971

 

Total operating expenses

 

 

11,925

 

 

 

7,297

 

Loss from operations:

 

 

(11,861

)

 

 

(7,233

)

Other (income) expense:

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

814

 

 

 

 

Amortization of debt issuance costs and discount

 

 

200

 

 

 

111

 

Interest income

 

 

(281

)

 

 

(167

)

Interest expense

 

 

367

 

 

 

379

 

Warrant liabilities fair value adjustment

 

 

6,522

 

 

 

(3,554

)

Derivative liability fair value adjustment

 

 

3,425

 

 

 

 

Total other expense (income):

 

 

11,047

 

 

 

(3,231

)

Net loss

 

$

(22,908

)

 

$

(4,002

)

Net loss per share - basic and diluted

 

$

(0.46

)

 

$

(0.12

)

Weighted average common shares outstanding - basic and diluted

 

 

49,317,575

 

 

 

33,579,025

 

 

The accompanying notes are an integral part of the financial statements.

2


Table of Contents

 

SCYNEXIS, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,908

)

 

$

(4,002

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

29

 

 

 

1

 

Stock-based compensation expense

 

 

492

 

 

 

425

 

Accretion of investment discount

 

 

(82

)

 

 

(58

)

Amortization of debt issuance costs and discount

 

 

200

 

 

 

111

 

Change in fair value of warrant liabilities

 

 

6,522

 

 

 

(3,554

)

Change in fair value of derivative liability

 

 

3,425

 

 

 

 

Amortization of operating lease right-of-use asset

 

 

48

 

 

 

 

Loss on extinguishment of debt

 

 

814

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses, other assets, and deferred costs

 

 

6,390

 

 

 

422

 

Accounts payable and accrued expenses

 

 

(1,367

)

 

 

(1,500

)

Deferred revenue

 

 

(64

)

 

 

(64

)

Net cash used in operating activities

 

 

(6,501

)

 

 

(8,219

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Maturities of investments

 

 

24,638

 

 

 

11,980

 

Purchases of property and equipment

 

 

 

 

 

(10

)

Purchases of investments

 

 

(18,041

)

 

 

(15,975

)

Net cash provided by (used in) investing activities

 

 

6,597

 

 

 

(4,005

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from common stock issued

 

 

2,588

 

 

 

30,192

 

Payments of offering costs and underwriting discounts and commissions

 

 

(77

)

 

 

(1,906

)

Proceeds from employee stock purchase plan issuance

 

 

20

 

 

 

20

 

Proceeds from senior convertible notes

 

 

16,000

 

 

 

 

Payments of senior convertible notes issuance costs

 

 

(1,143

)

 

 

 

Payment of loan payable expected to be refinanced

 

 

(15,973

)

 

 

 

Net cash provided by financing activities

 

 

1,415

 

 

 

28,306

 

Net increase in cash, cash equivalents, and restricted cash

 

 

1,511

 

 

 

16,082

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

11,767

 

 

 

11,469

 

Cash, cash equivalents, and restricted cash at end of period

 

$

13,278

 

 

$

27,551

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

411

 

 

$

379

 

Cash received for interest

 

$

291

 

 

$

128

 

Noncash financing and investing activities:

 

 

 

 

 

 

 

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

3,365

 

 

$

 

Deferred offering and issuance costs included in accounts payable and accrued expenses

 

$

110

 

 

$

224

 

Deferred offering costs reclassified to additional-paid-in capital

 

$

2

 

 

$

84

 

 

The accompanying notes are an integral part of the financial statements.

 

3


Table of Contents

 

SCYNEXIS, INC.

NOTES TO THE FINANCIAL STATEMENTS

(unaudited)

1.

Description of Business and Basis of Preparation

Organization

SCYNEXIS, Inc. (“SCYNEXIS” or the “Company”) is a Delaware corporation formed on November 4, 1999. SCYNEXIS is a biotechnology company, headquartered in Jersey City, New Jersey, committed to positively impacting the lives of patients suffering from difficult-to-treat and often life-threatening infections by delivering innovative therapies. The Company is developing its lead product candidate, ibrexafungerp, as the first representative of a novel oral and intravenous triterpenoid antifungal family for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections.  

The Company has incurred losses and negative cash flows from operations since its initial public offering ("IPO") in May 2014 and expects to continue to incur losses.  The Company's liquidity over the next 12 months could be materially affected by, among other things: its ability to raise capital through equity offerings, debt financings, other non-dilutive third-party funding (e.g., grants), strategic alliances and licensing or collaboration arrangements; key ibrexafungerp development and regulatory events; costs related to its development of ibrexafungerp; and other factors.

Shelf Registration Filing

On August 31, 2018, the Company filed a shelf registration statement on Form S-3 (File No. 333-227167) with the SEC, which was declared effective on September 14, 2018 (the “Shelf Registration”). The Shelf Registration contained three prospectuses:

 

a base prospectus which covers the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $175.0 million of the Company's common stock, preferred stock, debt securities and warrants, including common stock or preferred stock issuable upon conversion of debt securities, common stock issuable upon conversion of preferred stock, or common stock, preferred stock or debt securities issuable upon the exercise of warrants;

 

a prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $25.0 million of the Company's common stock that may be issued and sold under a Controlled Equity Offering Sales AgreementSM (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”).  Pursuant to the Sales Agreement, the Company may sell from time to time, at its option, up to an aggregate of $25.0 million of the Company’s common stock, through Cantor, as sales agent.  Pursuant to the Sales Agreement, sales of the common stock, if any, will be made under the Company’s effective Shelf Registration; and

 

a warrant prospectus covering the offering, issuance, and sale of the Company’s common stock issuable upon the exercise of warrants, consisting of (i) warrants to purchase 4,218,750 shares of the Company’s common stock at an exercise price of $3.00 per share originally issued by the Company on June 24, 2016, (ii) warrants to purchase 13,198,075 shares of the Company’s common stock at an exercise price of $1.85 per share originally issued by the Company on March 8, 2018, and (iii) warrants to purchase 7,988,175 shares of the Company’s common stock at an exercise price of $2.00 per share originally issued by the Company on March 8, 2018.  The warrants to purchase 13,198,075 shares of the Company’s common stock expired on March 14, 2019.  Upon full exercise for cash of the warrants outstanding on March 31, 2019, the holders of the warrants would pay the Company an aggregate of approximately $28.6 million.  See Note 8 for further details.

The common stock that may be offered, issued and sold by the Company under the Sales Agreement is included in the $175.0 million of securities that may be offered, issued and sold by the Company under the base prospectus. Upon termination of the Sales Agreement with Cantor, any portion of the $25.0 million included in the Sales Agreement that is not sold pursuant to the Sales Agreement will be available for sale in other offerings pursuant to the base prospectus and a corresponding prospectus supplement.  

Unaudited Interim Financial Information

The accompanying unaudited financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States, or US GAAP, as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows.  The results of operations for the three months

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Table of Contents

 

ended March 31, 2019, are not necessarily indicative of the results for the full year or the results for any future periods. These interim financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC") on March 14, 2019.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include: determination of the fair value of stock-based compensation grants; the estimate of services and effort expended by third-party research and development service providers used to recognize research and development expense; the estimates and assumptions used in determining the Company’s incremental borrowing rate for the discounting of the Company’s operating lease liability, and the estimates and assumptions utilized in measuring the fair values of the warrant and derivative liabilities each reporting period.

2.

Summary of Significant Accounting Policies

The accompanying unaudited financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2018, except as described below.

Basic and Diluted Net Loss per Share of Common Stock

The Company calculates net loss per common share in accordance with FASB ASC 260, Earnings Per Share ("Topic 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period.

The following potentially dilutive shares of common stock have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive:

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

Warrants to purchase Series C-1 Preferred

 

14,033

 

 

 

14,033

 

Warrants to purchase common stock associated with Solar Capital Ltd. loan agreement

 

122,435

 

 

 

122,435

 

Warrants to purchase common stock associated with June 2016 public offering

 

4,218,750

 

 

 

4,218,750

 

Warrants to purchase common stock associated with March 2018 public offering - Series 1

 

 

 

 

13,313,625

 

Warrants to purchase common stock associated with March 2018 public offering - Series 2

 

7,988,175

 

 

 

7,988,175

 

Stock options

 

5,310,498

 

 

 

4,152,734

 

Common stock associated with  6% convertible senior notes

 

13,008,000

 

 

 

 

Convertible Debt and Derivative Liability

In connection with the Company’s issuance of its 6.0% Convertible Senior Notes due 2025 (the “Notes”), the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging.  The convertible debt and the derivative liability associated with the Notes are presented in total on the unaudited balance sheet as the convertible debt and derivative liability.  The convertible debt is carried at amortized cost.  The derivative liability will be remeasured at each reporting period using the binomial lattice model with changes in fair value recorded in the statements of operations in other income (expense).  

Amortization of Debt Issuance Costs and Discount

The Company’s convertible debt is recorded net of debt issuance costs which comprised issuance costs and an advisory fee.  The portion of the debt issuance costs allocated to the convertible debt, based on the amount of proceeds allocated between the convertible debt and the derivative liability, is being amortized over the term of the convertible debt using the effective interest method.  Debt issuance costs allocated to the derivative liability were included in other expense as a component of the fair value adjustment for the three months ended March 31, 2019.  The Company's previous term loan with Solar Capital Ltd. (“Solar”), which was paid in full during the three months ended March 31, 2019 (see Note 6), was recorded net of debt discount which comprised issuance costs, customary closing and final fees, and the fair value of the warrants issued in conjunction with the term loan. The resulting debt discount was being amortized over the term of the term loan using the

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straight-line method, which approximates the effective interest method.  The amortization of debt issuance costs and discount is included in the accompanying unaudited statements of operations.

Recently Adopted Accounting Pronouncements

The Company adopted the FASB’s ASU No. 2016-02, Leases, or ASU 2016-02, on January 1, 2019, utilizing the modified retrospective basis.  ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability, initially measured at the present value of future lease payments, on the balance sheet and expands disclosure requirements regarding leasing arrangements.  The Company elected the practical expedients under ASC 842-10-65-1(f) and ASC 842-10-15-37 that allowed the Company to forego the requirement to reassess the lease classification of its existing office lease and to combine the lease and nonlease components associated with its office lease as a single lease component.  The consideration in the office lease that is allocated to the single lease component includes the fixed payments for the right to use the office space as well as common area maintenance.  The office lease also contains costs associated with certain expense escalation, property taxes, insurance, parking, and utilities which are all considered variable payments and are excluded from the operating lease liability.  The adoption of this accounting standard did not materially impact the Company’s results of operations, other than the recognition of the operating lease right-of-use asset and lease liability.  See Note 7 for further details.

3.

Short-term Investments

The following table summarizes the held-to-maturity securities held at March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

14,946

 

 

$

14

 

 

$

(15

)

 

$

14,945

 

Commercial paper

 

 

8,772

 

 

 

 

 

 

 

 

 

8,772

 

Overnight repurchase agreement

 

 

9,000

 

 

 

 

 

 

 

 

 

9,000

 

Total short-term investments

 

$

32,718

 

 

$

14

 

 

$

(15

)

 

$

32,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

As of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

13,430

 

 

$

5

 

 

$

(4

)

 

$

13,431

 

Commercial paper

 

 

7,680

 

 

 

 

 

 

 

 

 

7,680

 

Overnight repurchase agreement

 

 

5,000

 

 

 

 

 

 

 

 

 

5,000

 

Total short-term investments

 

$

26,110

 

 

$

5

 

 

$

(4

)

 

$

26,111

 

 

All held-to-maturity short-term investments at March 31, 2019 and December 31, 2018 will mature in less than one year.  The gross unrealized gains and losses for the Company's commercial paper and overnight repurchase agreement are not significant.  The Company carries short-term investments at amortized cost. The fair value of the short-term investments is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

4.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

Prepaid research and development services

 

$

743

 

 

$

245

 

Prepaid insurance

 

 

92

 

 

 

200

 

Other prepaid expenses

 

 

68

 

 

 

20

 

NOL sale receivable

 

 

 

 

 

6,732

 

Other current assets

 

 

55

 

 

 

54

 

Total prepaid expenses and other current assets

 

$

958

 

 

$

7,251

 

 

5.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

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March 31, 2019

 

 

December 31, 2018

 

Accrued research and development expenses

 

$

1,444

 

 

$

587

 

Accrued employee bonus compensation

 

 

325

 

 

 

1,197

 

Employee withholdings

 

 

7

 

 

 

21

 

Other accrued expenses

 

 

435

 

 

 

298

 

Total accrued expenses

 

$

2,211

 

 

$

2,103

 

 

6.

Borrowings

On September 30, 2016, the Company entered into a loan agreement with Solar, in its capacity as administrative and collateral agent and as lender. Pursuant to the loan agreement, Solar was providing the Company with a 48-month secured term loan in the amount of $15.0 million.  The term loan bore interest at a floating rate equal to the LIBOR rate in effect plus 8.49%.

On March 7, 2019, the Company entered into a Senior Convertible Note Purchase Agreement (the “Note Purchase Agreement”) with Puissance Life Science Opportunities Fund VI (“Puissance”).  Pursuant to the Note Purchase Agreement, on March 7, 2019, the Company issued and sold to Puissance $16.0 million aggregate principal amount of its Notes, resulting in $14.7 million in net proceeds after deducting $1.3 million for an advisory fee and other issuance costs.  The Company used the net proceeds to pay the remaining outstanding Solar term loan in full and recorded a loss on debt extinguishment of $0.8 million during the three months ended March 31, 2019.  The loss on debt extinguishment of $0.8 million for the three months ended March 31, 2019 was recognized as the difference between the reacquisition price of the outstanding Solar debt of $15.9 million and the $15.1 million net carrying value of the Solar debt obligation prior to repayment.  In accordance with ASC 470-10-45-14(a), the Company reclassified the short-term portion of the Solar term loan on the balance sheet as of December 31, 2018 to long-term given the Company had the intent and ability to refinance the short-term obligation on a long-term basis.  

As of March 31, 2019, the Company's $18.3 million in convertible debt and derivative liability consists of the convertible debt balance of $8.5 million presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.6 million and the bifurcated embedded conversion option derivative liability of $9.8 million.  In connection with the Company’s issuance of its Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging, at its initial fair value of $7.0 million as the interest make-whole provision is settled in shares of common stock.  Debt issuance costs of $0.6 million initially allocated to the derivative liability were written off upon issuance of the Notes and were recognized in the loss on the fair value adjustment for the derivative liability for the three months ended March 31, 2019.  For the three months ended March 31, 2019, the Company recognized a $2.9 million loss on the fair value adjustment for the derivative liability and recognized $0.1 million in amortization of debt issuance costs.

The Company estimated the fair value of the convertible debt and derivative liability using a binomial lattice valuation model and Level 3 inputs. At March 31, 2019, the fair value of the senior convertible notes is $19.1 million.

The Notes were issued and sold for cash at a purchase price equal to 100% of their principal amount, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), due to the Notes being issued to one financially sophisticated investor. The Notes bear interest at a rate of 6.0% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning September 15, 2019. The Notes will mature on March 15, 2025, unless earlier converted, redeemed or repurchased. The Notes constitute general, senior unsecured obligations of the Company.

The holder of the Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 into shares of the Company’s common stock. The initial conversion rate is 739.0983 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $1.35, and is subject to adjustment in certain events described in the Note Purchase Agreement. The Holder upon conversion may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate if the holder elects to convert its Notes in connection with such a corporate event. Subject to adjustment in the conversion rate, the number of shares that the Company may deliver in connection with a conversion of the Notes, including those delivered in connection with an interest make-whole payment, will not exceed a cap of 813 shares of common stock per $1,000 principal amount of the Notes.  In April 2019, Puissance converted $2.0 million of the Notes for 1,626,000 shares of common stock.

On or after March 15, 2022, the Company has the right, at its election, to redeem all or any portion of the Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of

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at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. The redemption price will be 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  If a “fundamental change” (as defined in the Note Purchase Agreement) occurs, then, subject to certain exceptions, the Company must offer to repurchase the Notes for cash at a repurchase price of 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

7.

Commitments and Contingencies

Leases

On March 1, 2018, the Company entered into a long-term lease agreement for approximately 19,275 square feet of office space in Jersey City, New Jersey, that the Company identified as an operating lease under ASC 840 (the “Lease”). The lease term is eleven years from August 1, 2018, the commencement date, with total lease payments of $7.3 million over the lease term. The Company has the option to renew for two consecutive five-year periods from the end of the first term and the Company is not reasonably certain that the option to renew the Lease will be exercised. Under the Lease, the Company must furnish a security deposit in the form of a standby letter of credit in the amount of $0.3 million, which will be reduced by fifty-five thousand dollars every two years for ten years after the commencement of the lease.  The security deposit is classified as restricted cash in the accompanying balance sheets.  

On January 1, 2019, a right-of-use asset and a corresponding operating lease liability of $3.4 million was recognized for the Lease.  The consideration in the Lease allocated to the single lease component includes the fixed payments for the right to use the office space as well as common area maintenance.  The Lease also contains costs associated with certain expense escalation, property taxes, insurance, parking, and utilities which are all considered variable payments and are excluded from the operating lease liability.  In determining the operating lease liability at January 1, 2019, the Company utilized its incremental borrowing rate. The incremental borrowing rate approximated the prevailing market interest rate the Company would incur to borrow a similar amount equal to the total Lease payments on a collateralized basis over the term of the Lease.  The following table summarizes certain quantitative information associated with the amounts recognized in the financial statements for the Lease (dollars in thousands):

 

 

 

Three Months Ended March 31, 2019

 

Operating lease cost

 

$

166

 

Variable lease cost

 

$

9

 

Total operating lease expense

 

$

175

 

 

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liability

 

$

164

 

 

 

 

 

 

 

 

March 31, 2019

 

Remaining Lease term (years)

 

 

10.25

 

Discount rate

 

 

15

%

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Rent expense was approximately $0.1 million for the three months ended March 31, 2018.  Future minimum lease payments for the Lease as of March 31, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

December 31, 2018

 

2019

 

 

 

 

498

 

2020

 

 

 

 

508

 

2021

 

 

 

 

518

 

2022

 

 

 

 

529

 

2023

 

 

 

 

716

 

Thereafter

 

 

 

 

4,203

 

Total

 

 

 

$

6,972

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

2019

 

 

 

 

334

 

2020

 

 

 

 

508

 

2021

 

 

 

 

518

 

2022

 

 

 

 

529

 

2023

 

 

 

 

716

 

Thereafter

 

 

 

 

4,203

 

Total

 

 

 

$

6,808

 

 

The presentation of the operating lease liability and right-of-use asset as of March 31, 2019 and January 1, 2019 are as follows (in thousands):

 

 

March 31, 2019

 

 

January 1, 2019

 

Present value of future minimum lease payments

 

$

3,322

 

 

$

3,368

 

 

 

 

 

 

 

 

 

 

Operating lease liability, current portion

 

$

27

 

 

$

23

 

Operating lease liability, long-term portion

 

$

3,295

 

 

$

3,345

 

Total operating lease liability

 

$

3,322

 

 

$

3,368

 

 

 

 

 

 

 

 

 

 

Difference between future minimum lease payments and discounted cash flows

 

$

3,486

 

 

$

3,604

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

3,317

 

 

$

3,365

 

 

License Arrangement with Potential Future Expenditures

As of March 31, 2019, the Company had a license arrangement with Merck Sharp & Dohme Corp., or Merck, that involves potential future expenditures. Under the license arrangement, the Company exclusively licensed from Merck its rights to ibrexafungerp in the field of human health. Ibrexafungerp is the Company's lead product candidate. Pursuant to the terms of the license agreement, Merck is eligible to receive milestone payments from the Company that could total $19.0 million upon occurrence of specific events, including initiation of a Phase 3 clinical study, new drug application, and marketing approvals in each of the U.S., major European markets and Japan. In addition, Merck is eligible to receive tiered royalties from the Company based on a percentage of worldwide net sales of ibrexafungerp. The aggregate royalty percentages are mid- to high-single digits.

In December 2014, the Company and Merck entered into an amendment to the license agreement that deferred the remittance of a milestone payment due to Merck, such that no amount would be due upon initiation of the first Phase 2 clinical trial of a product containing the ibrexafungerp compound (the "Deferred Milestone"). The amendment also increased, in an amount equal to the Deferred Milestone, the milestone payment that would be due upon initiation of the first Phase 3 clinical trial of a product containing the ibrexafungerp compound.  In December 2016 and January 2018, the Company entered into second and third amendments, respectively, to the license agreement with Merck which clarified what would constitute the initiation of a Phase 3 clinical trial for the purpose of milestone payment. Except as described above, all other terms and provisions of the license agreement remain in full force and effect.  In January 2019, a milestone payment became due to Merck as a result of the initiation of the VANISH Phase 3 VVC program and was paid in March 2019.  The milestone payment

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was recognized in the unaudited statement of operations in research and development expense for the three months ended March 31, 2019 and is included in cash used in operating activities on the statement of cash flows.

The Company has two additional licensing agreements for other compounds that could require it to make payments of up to $2.3 million upon achievement of certain milestones by the Company.

Clinical Development Arrangements

The Company has entered into, and expects to continue to enter into, contracts in the normal course of business with various third parties who support its clinical trials, preclinical research studies, and other services related to its development activities. The scope of the services under these agreements can generally be modified at any time, and the agreement can be terminated by either party after a period of notice and receipt of written notice.

8.

Stockholder's Equity

Authorized, Issued, and Outstanding Common Stock

The Company’s authorized common stock has a par value of $0.001 per share and consists of 125,000,000 shares as of March 31, 2019, and December 31, 2018; 50,232,429 and 47,971,989 shares were issued and outstanding at March 31, 2019, and December 31, 2018, respectively. The following table summarizes common stock share activity for the three months ended March 31, 2019 and 2018 (dollars in thousands): 

 

 

 

Three Months Ended March 31, 2018

 

 

 

Shares of

Common Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, January 1, 2018

 

 

28,971,651

 

 

$

29

 

 

$

226,631

 

 

$

(205,250

)

 

$

21,410

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,002

)

 

 

(4,002

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

425

 

 

 

 

 

 

425

 

Common stock issued through employee stock purchase plan

 

 

13,591

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Common stock issued, net of expenses

 

 

17,852,193

 

 

 

18

 

 

 

18,980

 

 

 

 

 

 

18,998

 

Common stock issued for vested restricted stock units

 

 

6,006

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Balance, March 31, 2018

 

 

46,843,441

 

 

$

47

 

 

$

246,049

 

 

$

(209,252

)

 

$

36,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Shares of

Common Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, January 1, 2019

 

 

47,971,989

 

 

$

48

 

 

$

248,895

 

 

$

(217,718

)

 

$

31,225

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,908

)

 

 

(22,908

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

492

 

 

 

 

 

 

492

 

Common stock issued through employee stock purchase plan

 

 

19,259

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Common stock issued, net of expenses

 

 

2,226,569

 

 

 

2

 

 

 

2,507

 

 

 

 

 

 

2,509

 

Common stock issued for vested restricted stock units

 

 

14,612

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Balance, March 31, 2019

 

 

50,232,429

 

 

$

50

 

 

$

251,906

 

 

$

(240,626

)

 

$

11,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Shares Reserved for Future Issuance

The Company had reserved shares of common stock for future issuance as follows:

 

 

March 31, 2019

 

 

December 31, 2018

 

Outstanding stock options

 

5,310,498

 

 

 

4,052,913

 

Outstanding restricted stock units

 

990,301

 

 

 

111,891

 

Outstanding Series C-1 Preferred warrants

 

14,033

 

 

 

14,033

 

Warrants to purchase common stock associated with June 2016 Public Offering

 

4,218,750

 

 

 

4,218,750

 

Warrants to purchase common stock associated with March 2018 Public Offering - Series 1

 

 

 

 

13,198,075

 

Warrants to purchase common stock associated with March 2018 Public Offering - Series 2

 

7,988,175

 

 

 

7,988,175

 

Warrants to purchase common stock associated with Loan Agreement

 

122,435

 

 

 

122,435

 

For possible future issuance for the conversion of the 6% senior convertible notes

 

13,008,000

 

 

 

 

For possible future issuance under 2014 Equity Incentive Plan (Note 9)

 

372,312

 

 

 

612,018

 

For possible future issuance under Employee Stock Purchase Plan (Note 9)

 

91,819

 

 

 

81,667

 

For possible future issuance under 2015 Inducement Plan (Note 9)

 

5,000

 

 

 

5,000

 

Total common shares reserved for future issuance

 

32,121,323

 

 

 

30,404,957

 

Derivative Liability

In connection with the Company’s issuance of its Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging.  The convertible debt and derivative liability associated with the Notes are presented in total on the accompanying unaudited balance sheet as the convertible debt and derivative liability.  In April 2019, Puissance converted $2.0 million of the Notes for 1,626,000 shares of common stock.

Warrants Associated with June 2016 and March 2018 Public Offerings

The outstanding warrants associated with the June 2016 and March 2018 public offerings contain a provision where the warrant holder has the option to receive cash, equal to the Black-Scholes fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC 480, Distinguishing Liabilities from Equity, requires that these warrants be classified as liabilities. The fair values of these warrants have been determined using the Black-Scholes valuation model, and the changes in the fair value are recorded in the accompanying statements of operations.  During the three months ended March 31, 2019 and 2018, the Company recorded a loss of $6.5 million and a gain of $3.6 million, respectively, due to the change in fair value of the warrant liabilities.  As of March 31, 2019, the fair value of the warrant liabilities was $7.5 million.

Warrant Associated with Solar Loan Agreement

Pursuant to the loan agreement, on the Closing Date the Company issued to Solar the warrant to purchase an aggregate of up to 122,435 shares of the Company’s common stock at an exercise price of $3.6754 per share. The warrant will expire five years from the date of the grant. The warrant was classified as equity and recorded at its relative fair value at issuance in the stockholders' equity section of the balance sheet. 

9.

Stock-based Compensation

Pursuant to the terms of the Company’s 2014 Equity Incentive Plan, or 2014 Plan, on January 1, 2019 and 2018, the Company automatically added 1,918,879 and 1,158,866 shares to the total number shares of common stock available for future issuance under the 2014 Plan, respectively. As of March 31, 2019, there were 372,312 shares of common stock available for future issuance under the 2014 Plan.

The activity for the Company’s 2009 Stock Option Plan, 2014 Plan and 2015 Inducement Plan, or 2015 Plan, for the three months ended March 31, 2019, is summarized as follows:

 

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Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life (in years)

 

 

Aggregate

Intrinsic

Value ($000)

 

Outstanding — January 1, 2019

 

 

4,052,913

 

 

$

4.37

 

 

 

7.23

 

 

$

 

Granted

 

 

1,270,500

 

 

$

1.26

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited/Cancelled

 

 

(12,915

)

 

$

9.35

 

 

 

 

 

 

 

 

 

Outstanding — March 31, 2019

 

 

5,310,498

 

 

$

3.62

 

 

 

7.69

 

 

$

333

 

Exercisable — March 31, 2019

 

 

2,621,464

 

 

$

5.43

 

 

 

6.29

 

 

$

13

 

Vested or expected to vest — March 31, 2019

 

 

5,310,498

 

 

$

3.62

 

 

 

7.69

 

 

$

333

 

Restricted stock unit ("RSU") activity under the 2014 Plan for the three months ended March 31, 2019, is summarized as follows:

 

 

Number of

Shares

 

 

Weighted

Average

Grant Date

Fair Value

Per Share

 

Non-vested at December 31, 2018

 

 

111,891

 

 

$

2.06

 

Granted

 

 

901,000

 

 

$

1.38

 

Vested

 

 

(22,590

)

 

$

2.30

 

Forfeited/Cancelled

 

 

 

 

$

 

Non-vested at March 31, 2019

 

 

990,301

 

 

$

1.43

 

The fair value of RSUs is based on the market price of the Company's common stock on the date of grant.  RSUs generally vest 25% annually over a four-year period from the date of grant. Upon vesting, the RSUs are net share settled to cover the required withholding tax with the remaining shares issued to the holder.  The Company recognizes compensation expense for such awards ratably over the corresponding vesting period.

Compensation Cost

The compensation cost that has been charged against income for stock awards under the 2009 Stock Option Plan, the 2014 Plan, the 2015 Plan, and the Company’s 2014 Employee Stock Purchase Plan, or ESPP, was $0.5 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively.  The total income tax benefit recognized in the statements of operations for share-based compensation arrangements was zero for the three months ended March 31, 2019 and 2018. Cash received from options exercised was zero for the three months ended March 31, 2019, and 2018.

Stock-based compensation expense related to stock options is included in the following line items in the accompanying statements of operations (in thousands):

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

 

Research and development

 

$

158

 

 

$

108

 

 

Selling, general and administrative

 

 

334

 

 

 

317

 

 

Total

 

$

492

 

 

$

425

 

 

 

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10.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached as of March 31, 2019 and December 31, 2018 for financial instruments measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

Fair Value Hierarchy Classification

 

 

 

Balance

 

 

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

213

 

 

$

213

 

 

 

 

 

 

 

Restricted cash

 

 

328

 

 

 

328

 

 

 

 

 

 

 

Money market funds

 

 

11,226

 

 

 

11,226

 

 

 

 

 

 

 

Total assets

 

$

11,767

 

 

$

11,767