scyx-10q_20200630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

☐	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, 13^th Floor Jersey City, New Jersey		07302-6548
(Address of principal executive offices)		(Zip Code)

(201)-884-5485

(Registrant’s telephone number, including area code)

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

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 ☒

As of August 1, 2020, there were 10,601,229 shares of the registrant’s Common Stock outstanding.

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SCYNEXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

		Page

PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019	1
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	3
	Notes to the Condensed Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II OTHER INFORMATION		30

Item 1A.	Risk Factors	30
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	31

Signatures		32

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	34,021		$	41,920
Short-term investments		3,594			6,494
Prepaid expenses and other current assets		2,952			3,988
Total current assets		40,567			52,402
Other assets		812			812
Deferred offering costs		167			70
Restricted cash		273			273
Property and equipment, net		354			405
Operating lease right-of-use asset (See Note 7)		3,094			3,191
Total assets	$	45,267		$	57,153
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,853		$	7,177
Accrued expenses		2,387			3,801
Warrant liability		33			—
Operating lease liability, current portion (See Note 7)		43			36
Total current liabilities		7,316			11,014
Warrant liabilities		10,034			18,396
Convertible debt and derivative liabilities (See Note 6)		18,254			11,522
Operating lease liability (See Note 7)		3,330			3,326
Total liabilities		38,934			44,258
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, authorized 5,000,000 shares as of June 30, 2020 and December 31, 2019; 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 10,478,927 and 9,741,372 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		10			10
Additional paid-in capital		291,134			284,313
Accumulated deficit		(284,811	)		(271,428	)
Total stockholders’ equity		6,333			12,895
Total liabilities and stockholders’ equity	$	45,267		$	57,153

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

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue	$	—		$	57		$	—		$	121
Operating expenses:
Research and development		8,469			8,474			18,335			18,158
Selling, general and administrative		3,357			2,779			5,966			5,021
Total operating expenses		11,826			11,253			24,301			23,179
Loss from operations		(11,826	)		(11,196	)		(24,301	)		(23,058	)
Other (income) expense:
Loss on extinguishment of debt		806			231			806			1,045
Amortization of debt issuance costs and discount		321			373			599			573
Interest income		(36	)		(233	)		(183	)		(513	)
Interest expense		319			209			529			574
Other income		(60	)		—			(405	)		—
Other expense		602			—			602			—
Warrant liabilities fair value adjustment		(3,560	)		(2,049	)		(8,329	)		4,473
Derivative liabilities fair value adjustment		(693	)		(1,324	)		(1,393	)		2,101
Total other (income) expense		(2,301	)		(2,793	)		(7,774	)		8,253
Loss before taxes		(9,525	)		(8,403	)		(16,527	)		(31,311	)
Income tax benefit		(3,144	)		—			(3,144	)		—
Net loss	$	(6,381	)	$	(8,403	)	$	(13,383	)	$	(31,311	)
Net loss per share - basic and diluted	$	(0.64	)	$	(1.58	)	$	(1.35	)	$	(6.10	)
Weighted average common shares outstanding – basic and diluted		10,009,614			5,327,766			9,877,094			5,130,855

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

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(13,383	)	$	(31,311	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		54			59
Stock-based compensation expense		821			938
Accretion of investments discount		(23	)		(89	)
Amortization of debt issuance costs and discount		599			573
Change in fair value of warrant liabilities		(8,329	)		4,473
Change in fair value of derivative liabilities		(1,393	)		2,101
Noncash operating lease expense for right-of-use asset		97			81
Loss on extinguishment of debt		806			1,045
Noncash consideration associated with common stock purchase agreement		602			—
Changes in operating assets and liabilities:
Prepaid expenses, other assets, deferred costs, and other		1,069			6,504
Accounts payable, accrued expenses, and other		(3,833	)		1,488
Deferred revenue		—			(121	)
Net cash used in operating activities		(22,913	)		(14,259	)
Cash flows from investing activities:
Maturities of investments		17,142			43,202
Purchases of property and equipment		(4	)		—
Purchases of investments		(14,235	)		(26,585	)
Net cash provided by investing activities		2,903			16,617
Cash flows from financing activities:
Proceeds from common stock issued		2,751			6,761
Payments of offering costs and underwriting discounts and commissions		(123	)		(203	)
Proceeds from common stock issuance under employee stock purchase plan		18			21
Repurchase of shares to satisfy tax withholdings		(73	)		—
Proceeds from senior convertible notes		10,000			16,000
Payments of senior convertible notes issuance costs		(462	)		(1,253	)
Payment of loan payable expected to be refinanced		—			(15,973	)
Net cash provided by financing activities		12,111			5,353
Net (decrease) increase in cash, cash equivalents, and restricted cash		(7,899	)		7,711
Cash, cash equivalents, and restricted cash at beginning of period		42,193			11,767
Cash, cash equivalents, and restricted cash at end of period	$	34,294		$	19,478
Supplemental cash flow information:
Cash paid for interest	$	420		$	411
Cash received for interest	$	173		$	540
Noncash financing and investing activities:
Operating lease liabilities arising from obtaining right-of-use assets	$	—		$	3,365
Deferred offering costs reclassified to additional-paid-in capital	$	—		$	4
Common stock issued for settlement of senior convertible notes	$	2,784		$	2,984
Deferred offering and issuance costs included in accounts payable and accrued expenses	$	106		$	—
Common stock issued for Commitment Shares	$	602		$	—

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

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SCYNEXIS, INC.

NOTES TO THE CONDENSED CONSOLIDATED 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, pioneering innovative medicines to help millions of patients worldwide in need of new options to overcome and prevent difficult-to-treat and drug resistant infections. The Company is developing its lead product candidate, ibrexafungerp, as a broad-spectrum, intravenous (IV)/oral agent in late stage development for multiple indications, ranging from the treatment of vaginal yeast infections in the community setting to life-threatening invasive fungal infections in hospitalized patients.

The Company has incurred significant losses and negative cash flows from operations since its initial public offering in May 2014 and expects to continue to incur losses and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of $284.8 million at June 30, 2020 and limited capital resources to fund ongoing operations. These capital resources primarily comprised cash and cash equivalents of $34.0 million and short-term investments of $3.6 million at June 30, 2020. The Company believes its existing cash and cash equivalents, and short-term investments may not be sufficient to enable it to meet its obligations and fund operations over the next twelve months without generating positive cash flows by raising additional capital from outside sources. While the Company plans to continue to pursue its plan to launch products and generate positive cash flows from operations, as well as pursue sources of additional capital from outside sources, the Company's liquidity could be materially affected over this period by, among other things: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to its development of ibrexafungerp; or (4) any other unanticipated material negative events or costs. These financial conditions raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan.

As noted in Note 8, the Company entered into a Common Stock Purchase Agreement with Aspire Capital, pursuant to which the Company has the right to sell to Aspire Capital from time to time in its sole discretion up to $20.0 million in shares of the Company’s common stock through October 2022. The number of shares issued would be determined based on the closing price of the Company’s common stock as of the date the Company elects to issue shares to Aspire Capital, however, the total number of shares the Company may issue to Aspire Capital under this agreement may not exceed 1,956,547 shares of our common stock (which is equal to approximately 19.99% of the Company’s total common stock outstanding on the date of the Common Stock Purchase Agreement) without obtaining shareholder approval prior to such issuances. The Company has not sold any shares to Aspire Capital pursuant to this agreement as of June 30, 2020.

The accompanying unaudited interim condensed consolidated financial information has been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying unaudited interim condensed consolidated financial information does not include any adjustments that might result from the outcome of this uncertainty.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany balances and transactions are eliminated in consolidation.

Shelf Registration Filing

On August 31, 2018, the Company filed a shelf registration statement on Form S-3 (File No. 333-227167) with the Securities and Exchange Commission (“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;

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•

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 Agreement^SM (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 421,869 shares of the Company’s common stock at an exercise price of $30.00 per share originally issued by the Company on June 24, 2016, (ii) warrants to purchase 1,319,807 shares of the Company’s common stock at an exercise price of $18.50 per share originally issued by the Company on March 8, 2018, and (iii) warrants to purchase 798,810 shares of the Company’s common stock at an exercise price of $20.00 per share originally issued by the Company on March 8, 2018. The warrants to purchase 1,319,807 shares of the Company’s common stock expired on March 14, 2019. Upon full exercise for cash of the warrants covered by this warrant prospectus that were outstanding on June 30, 2020, 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. As of June 30, 2020, approximately $124.8 million of securities registered under the base prospectus are available to be offered, issued and sold by the Company.

December 2019 Public Offering

On December 12, 2019, the Company completed a public offering (the "December 2019 Public Offering") of its common stock and warrants pursuant to the Company's effective Shelf Registration. The Company sold an aggregate of 3,888,888 shares of the Company’s common stock and warrants to purchase up to an aggregate of 3,888,888 shares of the Company’s common stock at a public offering price of $9.00 per share and accompanying warrant. Net proceeds from the December 2019 Public Offering were approximately $32.5 million, after deducting the underwriting discount and offering expenses. In addition, the Company granted to the underwriters an option to purchase up to 583,333 additional shares of common stock and/or warrants to purchase up to an aggregate of an additional 583,333 shares of common stock, in each case at the public offering price, less underwriting discounts and commissions. The underwriters exercised their option to purchase 583,333 warrants in December 2019. The option to purchase up to 583,333 additional shares of common stock was not exercised by the underwriters and the option expired in January 2020. See Note 8 for further details.

April 2020 Note Purchase Agreement

In April 2020, the Company entered into a Senior Convertible Note Purchase Agreement (“April 2020 Note Purchase Agreement”) with Puissance Life Science Opportunities Fund VI (“Puissance”). Pursuant to the April 2020 Note Purchase Agreement, on April 9, 2020, the Company issued and sold to Puissance $10.0 million aggregate principal amount of its 6.0% Senior Convertible Notes due 2026 (“April 2020 Notes”). See Note 6 for details.

Common Stock Purchase Agreement

On April 10, 2020, the Company entered into a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), pursuant to which the Company has the right to sell to Aspire Capital from time to time in its sole discretion up to $20.0 million in shares of the Company’s common stock over the next 30 months, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. See Note 8 for details.

New Jersey Technology Business Tax Certificate Transfer (NOL) Program

The New Jersey Technology Business Tax Certificate Transfer (NOL) program, administered by the New Jersey Economic Development Authority, enables approved biotechnology companies to sell their unused net operating losses (“NOLs”) and research and development tax credits to unaffiliated, profitable corporate taxpayers in the State of New Jersey up to a maximum lifetime benefit of $15 million per business. For the three and six months ended June 30, 2020, the Company recognized a $3.1 million income tax benefit for the sale of a portion of the Company’s unused New Jersey NOLs and research and development credits. As of June 30, 2020, the Company has received approximately $9.8 million under the program.

Reverse Stock Split

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On July 16, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Amendment”), which became effective on Friday, July 17, 2020, (a) implementing a 1-for-10 reverse stock split of the Company’s common stock and (b) decreasing the number of authorized shares of the Company’s common stock from 250,000,000 shares to 100,000,000 shares. On the effective date of July 17, 2020, the number of the Company’s issued and outstanding shares of common stock was decreased from 105,083,291 to 10,508,302 and the par value per common share remained unchanged. No fractional shares were issued as a result of the reverse stock split. Stockholders who would otherwise have been entitled to receive a fractional share received a cash payment in lieu thereof. All share and per share amounts presented in these unaudited condensed consolidated financial statements have been retroactively adjusted for the reverse stock split and certain items in the prior period financial statements have been revised to conform to the current presentation.

The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the reverse stock split, as well as the number of shares of common stock available for issuance under the Company’s equity incentive plans. In addition, the reverse stock split effected a reduction in the number of shares of common stock issuable upon the conversion of outstanding convertible notes or upon the exercise of stock options or warrants outstanding.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“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 and six months ended June 30, 2020, are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited condensed consolidated 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 11, 2020.

Use of Estimates

The preparation of unaudited condensed consolidated 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; and the estimates and assumptions utilized in measuring the fair values of the warrant and derivative liabilities each reporting period.

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2.	Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated 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, 2019, 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 ASC 260, Earnings Per Share. Basic net loss per common share for the three and six months ended June 30, 2020 and 2019 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 the three and six months ended June 30, 2020 and 2019, as the result would be anti-dilutive:

	Three and Six Months Ended June 30,
	2020		2019
Warrants to purchase common stock associated with Solar loan agreement		12,243		12,243
Warrants to purchase common stock associated with June 2016 public offering		421,867		421,867
Warrants to purchase common stock associated with March 2018 public offering – Series 2		798,810		798,810
Outstanding stock options		781,685		557,769
Outstanding restricted stock units		84,929		96,720
Common stock associated with March 2019 Notes		1,138,200		1,138,200
Common stock associated with April 2020 Notes		1,622,138		—
Warrants to purchase common stock associated with December 2019 Public Offering		4,472,205		—
Total		9,332,077		3,025,609

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which revised the effective dates for ASU 2016-13 for public business entities that meet the SEC definition of a smaller reporting company to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. As a smaller reporting company, the Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, Fair Value Measurement. ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the three and six months ended June 30, 2020 and as a result, included the required additional disclosures for its Level 3 fair value measurements in its unaudited condensed consolidated financial statements (see Note 10). The Company did not identify any other material impacts of ASU 2018-13 on its unaudited condensed consolidated financial statements.

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3.	Short-term Investments

The following table summarizes the held-to-maturity securities held at June 30, 2020 and December 31, 2019 (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of June 30, 2020
Commercial paper	$	3,594		—		—		$	3,594
Total short-term investments	$	3,594		—		—		$	3,594

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of December 31, 2019
U.S. government securities	$	1,996	$	15	$	(14	)	$	1,997
Commercial paper		998		—		—			998
Overnight repurchase agreement		3,500		—		—			3,500
Total short-term investments	$	6,494	$	15	$	(14	)	$	6,495

All held-to-maturity short-term investments at June 30, 2020 and December 31, 2019 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):

	June 30, 2020		December 31, 2019
Prepaid research and development services	$	1,254	$	3,043
Prepaid insurance		773		252
Other prepaid expenses		62		19
Other current assets		863		674
Total prepaid expenses and other current assets	$	2,952	$	3,988

5.	Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Accrued research and development expenses	$	654	$	1,296
Accrued employee bonus compensation		759		1,798
Other accrued expenses		974		707
Total accrued expenses	$	2,387	$	3,801

6.	Borrowings

April 2020 Note Purchase Agreement

On April 9, 2020, the Company entered into the April 2020 Note Purchase Agreement with Puissance and issued and sold to Puissance $10.0 million aggregate principal amount of its April 2020 Notes, resulting in net proceeds of approximately $9.5 million after deducting $0.5 million for an advisory fee and other issuance costs The April 2020 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 April 2020 Notes being issued to one financially sophisticated investor.

The April 2020 Notes will bear interest at a rate of 6.0% per annum, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2020. The April 2020 Notes will mature on April 15, 2026, unless earlier converted, redeemed or repurchased. The April 2020 Notes constitute general, senior unsecured obligations of the Company.

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As of June 30, 2020, the Company’s April 2020 Notes consists of the convertible debt balance of $1.5 million, presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.1 million, and the bifurcated embedded conversion option derivative liability of $5.2 million. In connection with the Company’s issuance of its April 2020 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 $8.1 million as the interest make-whole provision is settled in shares of common stock. Debt issuance costs of $0.4 million initially allocated to the derivative liability were written off upon issuance of the April 2020 Notes and were recognized in the loss on the fair value adjustment for the derivative liability for the three months ended June 30, 2020. For each of the three and six months ended June 30, 2020, the Company recognized a gain of $1.3 million on the fair value adjustment for the derivative liability and recognized $0.1 million in amortization of debt issuance costs and discount for each of the three and six months ended June 30, 2020, related to the April 2020 Notes.

In June 2020, Puissance converted $2.0 million of the April 2020 Notes for 316,461 shares of common stock. Upon conversion of the $2.0 million of the April 2020 Notes, the Company recognized a $0.8 million extinguishment loss which represents the difference between the total net carrying amount of the convertible debt and derivative liability of $2.0 million and the fair value of the consideration issued of $2.8 million.

The Company estimated the fair value of the convertible debt and derivative liability for the April 2020 Notes using a binomial lattice valuation model and Level 3 inputs. At June 30, 2020, the fair value of the April 2020 Notes is $9.6 million.

The holders of the April 2020 Notes may convert their April 2020 Notes at their option at any time prior to the close of business on the business day immediately preceding April 15, 2026 into shares of the Company’s common stock. The initial conversion rate is 111.1108 shares of common stock per $1,000 principal amount of the April 2020 Notes, which is equivalent to an initial conversion price of approximately $9.00 per share, and is subject to adjustment in certain events described in the April 2020 Note Purchase Agreement. Holders who convert may also be entitled to receive, under certain circumstances, an “interest make-whole payment” (as defined in the April 2020 Note Purchase Agreement) 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 for a holder who elects to convert its April 2020 Notes in connection with such a corporate event. Unless the Company seeks and receives stockholder approval, the number of shares that the Company may deliver in connection with a conversion of the April 2020 Notes, including those delivered in connection with an “interest make-whole payment” or a “make-whole fundamental change” (each as defined in the April 2020 Note Purchase Agreement), will not exceed a cap of 1,938,600 shares of common stock.

On or after April 15, 2023, the Company has the right, at its election, to redeem all or any portion of the April 2020 Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of 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 April 2020 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If a “fundamental change” (as defined in the April 2020 Note Purchase Agreement) occurs, then, subject to certain exceptions, the Company must offer to repurchase the April 2020 Notes for cash at a repurchase price of 100% of the principal amount of the April 2020 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

March 2019 Note Purchase Agreement

On March 7, 2019, the Company entered into a Senior Convertible Note Purchase Agreement (the “March 2019 Note Purchase Agreement”) with Puissance. Pursuant to the March 2019 Note Purchase Agreement, on March 7, 2019, the Company issued and sold to Puissance $16.0 million aggregate principal amount of its 6.0% Senior Convertible Notes due 2025 (“March 2019 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.

As of June 30, 2020, the Company’s March 2019 Notes consists of the convertible debt balance of $8.9 million, presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.5 million, and the bifurcated embedded conversion option derivative liability of $2.7 million. In connection with the Company’s issuance of its March 2019 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

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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 March 2019 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 June 30, 2020 and 2019, the Company recognized a loss of $0.2 million and a gain of $1.3 million, respectively, on the fair value adjustment for the derivative liability. For the six months ended June 30, 2020 and 2019, the Company recognized a $0.5 million gain and a $2.1 million loss, respectively, on the fair value adjustment for the derivative liability. The Company recognized $0.2 million and $0.4 million in amortization of debt issuance costs and discount for the three months ended June 30, 2020 and 2019, respectively, related to the March 2019 Notes. For each of the six months ended June 30, 2020 and 2019, the Company recognized $0.5 million in amortization of debt issuance costs and discount.

In April 2019, Puissance converted $2.0 million of the March 2019 Notes for 162,600 shares of common stock. Upon conversion of the $2.0 million of the March 2019 Notes, the Company recognized a $0.2 million extinguishment loss which represents the difference between the total net carrying amount of the convertible debt and derivative liability of $2.8 million and the fair value of the consideration issued of $3.0 million.

The Company estimated the fair value of the convertible debt and derivative liability for the March 2019 Notes using a binomial lattice valuation model and Level 3 inputs. At June 30, 2020, the fair value of the convertible debt and derivative liability for the March 2019 Notes is $11.2 million.

The March 2019 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 March 2019 Notes being issued to one financially sophisticated investor. The March 2019 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 March 2019 Notes will mature on March 15, 2025, unless earlier converted, redeemed or repurchased. The March 2019 Notes constitute general, senior unsecured obligations of the Company.

The holder of the March 2019 Notes may convert their March 2019 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 73.9096 shares of common stock per $1,000 principal amount of March 2019 Notes, which is equivalent to an initial conversion price of approximately $13.53 and is subject to adjustment in certain events described in the March 2019 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 March 2019 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 March 2019 Notes, including those delivered in connection with an interest make-whole payment, will not exceed a cap of 81 shares of common stock per $1,000 principal amount of the March 2019 Notes.

On or after March 15, 2022, the Company has the right, at its election, to redeem all or any portion of the March 2019 Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of 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 March 2019 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If a “fundamental change” (as defined in the March 2019 Note Purchase Agreement) occurs, then, subject to certain exceptions, the Company must offer to repurchase the March 2019 Notes for cash at a repurchase price of 100% of the principal amount of the March 2019 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

Solar Loan Agreement

On September 30, 2016, the Company entered into a loan agreement with Solar Capital Ltd. (“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%. The Solar term loan was paid in full in March 2019.

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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 842 (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 furnished a security deposit in the form of a standby letter of credit in the amount of $0.3 million, which was reduced by fifty-five thousand dollars on the first anniversary of the commencement date. The security deposit will continue to be reduced by fifty-five thousand dollars every two years on the commencement date anniversary for eight years. The security deposit is classified as restricted cash in the accompanying unaudited condensed consolidated balance sheets.

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. The incremental borrowing rate utilized 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 unaudited condensed consolidated financial statements for the Lease (dollars in thousands):

	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Operating lease cost	$	166	$	332
Variable lease cost		6		27
Total operating lease expense	$	172	$	359

Cash paid for amounts included in the measurement of operating lease liability	$	56	$	223

			June 30, 2020
Remaining Lease term (years)				9.09
Discount rate				15	%

Future minimum lease payments for the Lease as of June 30, 2020 are as follows (in thousands):

	June 30, 2020
2020	$	284
2021		517
2022		527
2023		715
2024		730
Thereafter		3,533
Total	$	6,306

The presentation of the operating lease liability and right-of-use asset as of June 30, 2020 are as follows (in thousands):

	June 30, 2020
Present value of future minimum lease payments	$	3,373

Operating lease liability, current portion	$	43
Operating lease liability, long-term portion		3,330
Total operating lease liability	$	3,373

Difference between future minimum lease payments and discounted cash flows	$	2,933

Operating lease right-of-use asset