Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x   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

 

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

 

Commission file number: 001-36020

 

Onconova Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		22-3627252
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
375 Pheasant Run, Newtown, PA		18940
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (267) 759-3680

 

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.        x     Yes       o     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).        x     Yes       o     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. (Check one):

 

Large accelerated filer     o		Accelerated filer     o
Non-accelerated filer    x		Smaller reporting company     x
		Emerging growth company     o

 

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.    o

 

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

 

The number of outstanding shares of the registrant’s Common Stock, par value $0.01 per share, as of May 1, 2019 was 5,895,004

 

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $.01 per share		ONTX		The Nasdaq Stock Market LLC
Common Stock Warrants		ONTXW		The Nasdaq Stock Market LLC

 

 

 

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ONCONOVA THERAPEUTICS, INC.

 

TABLE OF CONTENTS FOR QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

 

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Comprehensive Loss	4
Consolidated Statement of Stockholders’ (Deficit) Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	46
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3. Defaults Upon Senior Securities	48
Item 4. Mine Safety Disclosures	48
Item 5. Other Information	48
Item 6. Exhibits	49
SIGNATURES	51

 

All common stock, equity, share and per share amounts have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Onconova Therapeutics, Inc.

Condensed Consolidated Balance Sheets

 

		March 31,			December 31,
		2019			2018
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	10,396,000		$	16,970,000
Receivables		35,000			35,000
Prepaid expenses and other current assets		759,000			760,000
Total current assets		11,190,000			17,765,000
Property and equipment, net		1,000			9,000
Other non-current assets		150,000			149,000
Total assets		$	11,341,000		$	17,923,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	4,334,000		$	4,039,000
Accrued expenses and other current liabilities		3,849,000			4,173,000
Deferred revenue		226,000			226,000
Total current liabilities		8,409,000			8,438,000
Warrant liability		603,000			176,000
Deferred revenue, non-current		3,865,000			3,922,000
Total liabilities		12,877,000			12,536,000
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock, $0.01 par value, 5,000,000 authorized at March 31, 2019 and December 31, 2018, none issued and outstanding at March 31, 2019 and December 31, 2018		—			—
Common stock, $0.01 par value, 250,000,000 authorized at March 31, 2019 and December 31, 2018, 5,895,004 and 5,674,220 shares issued and outstanding at March 31, 2019 and December 31, 2018		59,000			57,000
Additional paid in capital		387,919,000			387,238,000
Accumulated other comprehensive loss		(18,000		)	(12,000		)
Accumulated deficit		(389,496,000		)	(381,896,000		)
Total Onconova Therapeutics, Inc. stockholders’ (deficit) equity		(1,536,000		)	5,387,000
Non-controlling interest		—			—
Total stockholders’ (deficit) equity		(1,536,000		)	5,387,000
Total liabilities and stockholders’ (deficit) equity		$	11,341,000		$	17,923,000

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Operations (unaudited)

 

		Three Months Ended March 31,
		2019			2018
Revenue		$	68,000		$	564,000
Operating expenses:
General and administrative		3,234,000			1,889,000
Research and development		4,075,000			4,577,000
Total operating expenses		7,309,000			6,466,000
Loss from operations		(7,241,000		)	(5,902,000		)
Change in fair value of warrant liability		(427,000		)	812,000
Interest income		68,000			—
Net loss		(7,600,000		)	(5,090,000		)
Net loss attributable to non-controlling interest		—			—
Net loss attributable to Onconova Therapeutics, Inc.		(7,600,000		)	(5,090,000		)
Net loss per share of common stock, basic and diluted		$	(1.29	)	$	(5.04	)
Basic and diluted weighted average shares outstanding		5,890,098			1,009,244

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

 

		Three Months Ended March 31,
		2019			2018
Net loss		$	(7,600,000	)	$	(5,090,000	)
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments, net		(6,000		)	8,000
Other comprehensive (loss) income, net of tax		(6,000		)	8,000
Comprehensive loss		(7,606,000		)	(5,082,000		)
Comprehensive loss attributable to non-controlling interest		—			—
Comprehensive loss attributable to Onconova Therapeutics, Inc.		$	(7,606,000	)	$	(5,082,000	)

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Consolidated Statement of Stockholders’ (Deficit) Equity (unaudited)

 

		Three Months Ended March 31, 2018
													Accumulated
							Additional						other
		Common Stock					Paid in			Accumulated			comprehensive			Non-controlling
		Shares		Amount			Capital			deficit			income (loss)			interest			Total
Balance at December 31, 2017		718,078		$	7,000		$	350,615,000		$	(362,316,000	)	$	3,000		$	830,000		$	(10,861,000	)
Net loss		—		—			—			(5,090,000		)	—			—			(5,090,000		)
Other comprehensive income		—		—			—			—			8,000			—			8,000
Stock-based compensation		—		—			327,000			—			—			—			327,000
Issuance of common stock and pre-funded warrants, net		467,000		5,000			8,720,000			—			—			—			8,725,000
Issuance of common stock upon exercise of warrants		110,000		1,000			15,000			—			—			—			16,000
Balance at March 31, 2018		1,295,078		$	13,000		$	359,677,000		$	(367,406,000	)	$	11,000		$	830,000		$	(6,875,000	)

 

		Three Months Ended March 31, 2019
													Accumulated
							Additional						other
		Common Stock					Paid in			Accumulated			comprehensive			Non-controlling
		Shares		Amount			Capital			deficit			income (loss)			interest			Total
Balance at December 31, 2018		5,674,220		$	57,000		$	387,238,000		$	(381,896,000	)	$	(12,000	)	$	—		$	5,387,000
Net loss		—		—			—			(7,600,000		)	—			—			(7,600,000		)
Other comprehensive loss		—		—			—			—			(6,000		)	—			(6,000		)
Stock-based compensation		—		—			650,000			—			—			—			650,000
Issuance of common stock upon exercise of warrants		220,784		2,000			31,000			—			—			—			33,000
Balance at March 31, 2019		5,895,004		$	59,000		$	387,919,000		$	(389,496,000	)	$	(18,000	)	$	—		$	(1,536,000	)

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

		Three Months Ended March 31,
		2019			2018
Operating activities:
Net loss		$	(7,600,000	)	$	(5,090,000	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,000			16,000
Change in fair value of warrant liabilities		427,000			(812,000		)
Stock compensation expense		650,000			278,000
Changes in assets and liabilities:
Receivables		—			(418,000		)
Prepaid expenses and other current assets		—			6,000
Accounts payable		295,000			848,000
Accrued expenses and other current liabilities		(324,000		)	(223,000		)
Deferred revenue		(57,000		)	(114,000		)
Net cash used in operating activities		(6,601,000		)	(5,509,000		)
Investing activities:
Net cash provided by investing activities		—			—
Financing activities:
Proceeds from the sale of common stock and warrants, net of costs		—			8,725,000
Proceeds from the exercise of warrants		33,000			16,000
Net cash provided by financing activities		33,000			8,741,000
Effect of foreign currency translation on cash		(6,000		)	8,000
Net (decrease) increase in cash and cash equivalents		(6,574,000		)	3,240,000
Cash and cash equivalents at beginning of period		16,970,000			4,024,000
Cash and cash equivalents at end of period		$	10,396,000		$	7,264,000

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Nature of Business

 

Reverse Stock Split

 

All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

The Company

 

Onconova Therapeutics, Inc. (the “Company”) was incorporated in the State of Delaware on December 22, 1998 and commenced operations on January 1, 1999. The Company’s headquarters are located in Newtown, Pennsylvania. The Company is a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule product candidates primarily to treat cancer. Using its proprietary chemistry platform, the Company has created an extensive library of targeted anti-cancer agents designed to work against specific cellular pathways that are important to cancer cells. The Company believes that the product candidates in its pipeline have the potential to be efficacious in a variety of cancers. The Company has three clinical-stage product candidates and several preclinical programs. In 2011, the Company entered into a license agreement, as subsequently amended, with SymBio Pharmaceuticals Limited (“SymBio”), which grants SymBio certain rights to commercialize rigosertib in Japan and Korea. On March 2, 2018, the Company entered into a License, Development and Commercialization Agreement with Pint International SA (which, together with its affiliate Pint Pharma GmbH, are collectively referred to as “Pint”).  Under the terms of the agreement, the Company granted Pint an exclusive, royalty-bearing license, with the right to sublicense, under certain Company patent rights and know-how to develop and commercialize any pharmaceutical product containing rigosertib in all uses of rigosertib in certain Latin America countries. In 2012, the Company entered into a development and license agreement with Baxter Healthcare SA, the predecessor in interest to Baxalta GmbH (together with its affiliates, “Baxalta”), pursuant to which the Company granted an exclusive, royalty-bearing license for the research, development, commercialization and manufacture (in specified instances) of rigosertib in all therapeutic indications in Europe. The Baxalta agreement terminated effective August 30, 2016, at which time the rights the Company licensed to Baxalta reverted to the Company at no cost. The Company has retained development and commercialization rights to rigosertib in the rest of the world, including the United States. During 2012, Onconova Europe GmbH was established as a wholly owned subsidiary of the Company for the purpose of further developing business in Europe. In December 2017, the Company entered into a license and collaboration agreement with HanX Biopharmaceuticals, Inc. (“HanX”), a company focused on development of novel oncology products, for the further development, registration and commercialization of ON 123300 in Greater China. ON 123300 is a preclinical compound which the Company believes has the potential to overcome the limitations of current generation CDK 4/6 inhibitors. The key feature of the collaboration is that HanX will provide all funding required for future Chinese IND enabling studies necessary for filing an IND with the Chinese Food and Drug Administration.  The studies would be conducted to meet the Good Laboratory Practice (“GLP”) requirements of the FDA such that the Company could simultaneously file an IND with the US FDA. The Company and HanX will oversee the IND enabling studies. The Company will maintain global rights to ON 123300 outside of China. In April 2013, GBO, LLC, a Delaware limited liability company, (“GBO”) was formed pursuant to an agreement with GVK Biosciences Private Limited, a private limited company located in India, (“GVK”) to collaborate and develop two programs using the Company’s technology platform. The two preclinical programs sublicensed to GBO were not developed to clinical stage as initially hoped, and GBO was dissolved in June 2018.

 

On March 21, 2018, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock par value $0.01 per share from 25,000,000 to 100,000,000. On June 7, 2018, the Company amended its certificate of incorporation again to increase the number of authorized shares of common stock, par value $0.01 per share, from 100,000,000 to 250,000,000.

 

On September 25, 2018, the Company amended its certificate of incorporation to effect a one-for-fifteen reverse stock split of its common stock.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Liquidity

 

The Company has incurred recurring operating losses since inception. For the three months ended March 31, 2019, the Company incurred a net loss of $7,600,000 and as of March 31, 2019 the Company had generated an accumulated deficit of $389,496,000. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of its product candidates and its preclinical programs, strategic alliances and its administrative organization. At March 31, 2019, the Company had cash and cash equivalents of $10,396,000. The Company will require substantial additional financing to fund its ongoing clinical trials and operations, and to continue to execute its strategy. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

From its inception through July 2013, the Company raised capital through the private issuance of preferred stock. On July 30, 2013, the Company completed its initial public offering (the “IPO”) of 39,611 shares of Common Stock, at a price of $2,250.00 per share. The Company received net proceeds of $79,811,000 from the sale, net of underwriting discounts and commissions and other estimated offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of preferred stock automatically converted into shares of Common Stock at the applicable conversion ratio then in effect. From the IPO through December 31, 2016, the Company closed on several offerings which included Common Stock and warrants. Total net proceeds from these offerings was approximately $24.9 million.

 

On April 26, 2017 the Company closed on an underwritten public offering of 165,079 shares of Common Stock. On May 17, 2017, the Company sold an additional 24,239 shares as a result of the underwriter’s exercise of its over-allotment option. Net proceeds from these transactions were approximately $5.3 million.

 

On November 14, 2017 the Company closed on a registered direct offering to select accredited investors of 61,333 shares of common stock. Net proceeds were approximately $1.1 million.

 

On February 12, 2018 the Company closed on an offering of units of common stock and warrants. The Company issued 467,000 shares of common stock, pre-funded warrants to purchase 196,167 share of common stock, and preferred stock warrants to purchase shares of Series A convertible preferred stock convertible into 696,325 shares of common stock. Net proceeds were approximately $8.7 million. (See Note 13)

 

On May 1, 2018 the Company closed on an offering of units of common stock and warrants. The Company issued 3,694,118 shares of common stock, pre-funded warrants to purchase 815,686 shares of common stock, and preferred stock warrants to purchase shares of Series B convertible preferred stock convertible into 4,509,804 shares of common stock. Net proceeds were approximately $25.6 million. (See Note 13)

 

In February and March 2019 the Company implemented a workforce reduction. Six employees were terminated, which represented approximately 24% of the Company’s workforce. A severance related charge of approximately $1,843,000, which includes a non-cash charge of approximately $415,000 related to the accelerated vesting of outstanding stock options, was recorded in the three months ended March 31, 2019. The severance expense will be paid in periodic amounts through February 2020. The accrued severance balance remaining at March 31, 2019 was $1,276,000.

 

On May 10, 2019, the Company entered into a License and Collaboration Agreement (the “License Agreement”) and two Securities Purchase Agreements (the “Securities Purchase Agreements”) with affiliates of HanX.  Under the terms of the agreements, the Company granted to HanX an exclusive, royalty bearing license to study and commercialize rigosertib in greater China. In exchange for these rights, HanX will make upfront payments to the Company totaling $4 million, including a $2 million fee and an investment totaling $2 million to purchase shares of the Company at a premium to market. In addition, HanX will dedicate $2 million in local currency, to be placed in escrow, for clinical development expenses in greater China.  In addition, the Company could receive regulatory, development and sales-based milestone payments to Onconova of up to $45.5 million and receive tiered royalties up to double digits on net sales in greater China. The Company will supply the finished product for sale in the licensed territories.  HanX will also support the Company’s clinical trial initiatives in the territory.

 

The Company has and may continue to delay, scale-back, or eliminate certain of its research and development activities and other aspects of its operations until such time as the Company is successful in securing additional funding. The Company continues to explore various dilutive and non-dilutive sources of funding, including equity financings, strategic alliances, business development and other sources. The future success of the Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. The Company currently anticipates that current cash and cash equivalents will be sufficient to meet its anticipated cash requirements into the fourth quarter of 2019. Accordingly, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial statements include the consolidated accounts of the Company, its wholly-owned subsidiary, Onconova Europe GmbH, and GBO (through the date of its dissolution in June 2018). All significant intercompany transactions have been eliminated.

 

Unaudited Interim Financial Information

 

The accompanying condensed consolidated balance sheet as of March 31, 2019, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2019 and 2018, the consolidated statement of stockholders’ (deficit) equity for the three months ended March 31, 2019 and the condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2019, the results of its operations for the three months ended March 31, 2019 and 2018, and its cash flows for the three months ended March 31, 2019 and 2018. The financial data and other information disclosed in these notes related to the three months ended March 31, 2019 and 2018 are unaudited. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K filed with the SEC on April 1, 2019.

 

Certain prior year amounts have been reclassified to conform to current period presentation.  All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

Segment Information

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, which is the identification and development of oncology therapeutics.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K filed with the SEC on April 1, 2019. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies, with the exception of the adoption of new FASB guidance related to leases.

 

Fair Value Measurements

 

The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, accounts payable, and accrued liabilities approximate their respective fair values because of the short-term nature of these accounts. The fair value of the warrant liability is discussed in Note 7, “Fair Value Measurements.”

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers   (ASC 606), which the Company adopted effective January 1, 2018 using the modified retrospective method. There was no material impact to our financial position and results of operations as a result of the adoption. The Company applies ASC 606 to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC 606, determines those that are performance obligations and assesses whether each promised good or service is distinct.  The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company derives revenue from collaboration and licensing agreements and from the sale of products associated with material transfer, collaboration and supply agreements.

 

License, Collaboration and Other Revenues

 

The Company enters into licensing and collaboration agreements, under which it licenses certain of its product candidates’ rights to third parties.  The Company recognizes revenue related to these agreements in accordance with ASC 606. The terms of these arrangements typically include payment from third parties of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; and royalties on net sales of the licensed product.

 

In determining the appropriate amount of revenue to be recognized as it fulfills its obligation under each of its agreements, the Company performs the five steps described above. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement of personnel costs, discount rates and probabilities of technical and regulatory success.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Licensing of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front-fees. The Company evaluates the measure of progress each reporting period, and, if necessary, adjusts the measure of performance and related revenue recognition.

 

Milestone Payments : At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.  If it is probable that a significant revenue reversal will not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensees, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint and, if necessary, adjusts its estimate of the overall transaction price.  Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in their period of adjustment.

 

Manufacturing supply services. Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options. The Company assesses if these options provide material rights to the licensee and if so, they are accounted for as separate performance obligations. If the Company is entitled to additional payments when the customer exercises these options, any additional payments are recorded when the customer obtains control of the goods, which is upon shipment.

 

Royalties : For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some of all of the royalty has been allocated has been satisfied (or partially satisfied).  To date, the Company has not recognized any royalty revenue from its license agreements.

 

Leases

 

The Company accounts for leases in accordance with Accounting Standards Codification Topic 842, Leases (ASC 842), which the Company adopted effective January 1, 2019. The Company determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.

 

Right of Use (ROU) Assets and Lease Liabilities are recognized at the lease commencement date based on the present value of all minimum lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, when the implicit rate is not readily determinable. Lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.

 

The Company has elected the following policy elections on adoption: use of portfolio approach on leases of assets under master service agreements, exclusion of short term leases (term of 12 months or less) on the balance sheet, and not separating lease and non-lease components.

 

At January 1, 2019 and March 31, 2019 the Company had one lease, which was for office space. The lease qualifies for the short term lease exception. Consequently, no ROU Asset or Lease Liability was recorded. The lease payments are being recognized as an expense on a straight-line basis over the lease term. Lease payments for the three months ended March 31, 2019 were $47,000. Remaining payments due under the lease at March 31, 2019 are $177,000.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Recent Accounting Pronouncements

 

In February 2016 and through subsequent amendments, the FASB issued guidance which supersedes much of the previous guidance for leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all the leases with terms greater than twelve months. Based on certain criteria, leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The guidance was effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors were permitted to recognize and measure leases at the date of adoption using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of the new guidance, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company adopted the guidance in ASC 842 effective January 1, 2019 using the modified retrospective method, which does not require the restatement of prior period amounts. There was no impact to the Company’s financial position and results of operations as a result of the adoption.

 

In August 2018, the FASB issued guidance which changes the disclosure requirements for fair value measurement. The guidance amends the disclosure requirements in ASC Topic 820 by adding, changing, or removing certain disclosures. The guidance is effective for fiscal years beginning after December 15, 2019. The Company believes that the adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. The Company is evaluating the impact of the adoption of the standard on its financial statement disclosures.

 

In November 2018, the FASB issued guidance, which clarifies the interaction between ASC Topic 808, Collaborative Arrangements , and ASC Topic 606, Revenue from Contracts with Customers . The guidance, among other items, clarifies that certain transactions between collaborative participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. The guidance is effective for fiscal years beginning after December 15, 2019. The Company is still evaluating the impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

3.  Revenue

 

The Company’s revenue during the three months ended March 31, 2019 and 2018 was from its license and collaboration agreements with SymBio, HanX and Pint (See Note 10).

 

		Three Months Ended March 31,
		2019			2018
Symbio
Upfront license fee recognition over time		$	57,000		$	114,000
Supplies		11,000			—
Hanx
Upfront license payment recognized at a point in time		—			450,000
		$	68,000		$	564,000

 

Deferred revenue is as follows:

 

		Symbio
		Upfront Payment
Deferred balance at December 31, 2018		$	4,148,000
Recognition to revenue		57,000
Deferred balance at March 31, 2019		$	4,091,000

 

See Note 10, “License and Collaboration Agreements,” for a further discussion of the agreements with SymBio and HanX.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

4.  Net Loss Per Share of Common Stock

 

The following potentially dilutive securities outstanding at March 31, 2019 and 2018 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive (reflects the number of common shares as if the dilutive securities had been converted to common stock):

 

		March 31,
		2019		2018
Warrants		5,504,722		1,015,476
Stock options		345,794		74,590
		5,850,516		1,090,066

 

5.  Warrants

 

Common Stock warrants are accounted for in accordance with applicable accounting guidance provided in ASC Topic 815,   Derivatives and Hedging — Contracts in Entity’s Own Equity   (ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Some of the Company’s warrants are classified as liabilities because in certain circumstances they could require cash settlement.

 

Warrants outstanding and warrant activity (reflects the number of common shares as if the warrants were converted to common stock) for the three months ended March 31, 2019 is as follows:

 

									Balance								Balance
				Exercise			Expiration		Decemeber 31,		Warrants		Warrants		Warrants		March 31,
Description		Classification		Price			Date		2018		Issued		Exercised		Expired		2019
Non-tradable warrants		Liability		$	172.50		July 2021		6,456		—		—		—		6,456
Tradable warrants		Liability		$	73.80		July 2021		212,801		—		—		—		212,801
Non-tradable pre-funded warrants		Equity		$	0.15		July 2023		394		—		—		—		394
Non-tradable warrants		Equity		$	6.69375		*		663,167		—		—		—		663,167
Non-tradable warrants		Equity		$	7.96875		*		33,158		—		—		—		33,158
Non-tradable warrants		Equity		$	14.10		March 2021		5,000		—		—		—		5,000
Non-tradable warrants		Equity		$	21.15		March 2021		8,333		—		—		—		8,333
Non-tradable warrants		Equity		$	7.7895		June 2021		15,000		—		—		—		15,000
Non-tradable pre-funded warrants		Equity		$	0.15		none		86,167		—		(33,333	)	—		52,834
Non-tradable warrants		Equity		$	6.375		**		4,432,962		—		—		—		4,432,962
Non-tradable pre-funded warrants		Equity		$	0.15		none		262,068		—		(187,451	)	—		74,617
									5,725,506		—		(220,784	)	—		5,504,722

 

---

* These preferred stock warrants expire on the earlier of (A) the one-month anniversary of the date on which the Company publically releases topline results of the INSPIRE Pivotal phase 3 that compare the overall survival (OS) of patients in the rigosertib group vs the Physician’s Choice group, in all patients and in a subgroup of patients with IPSS-R very high risk and (B) December 31, 2019. These preferred stock warrants may be exercised on a cashless basis in certain circumstances specified therein.

 

** These preferred stock warrants expire on the 18-month anniversary of June 8, 2018, the date on which the Company publicly announced through the filing of a Current Report on Form 8-K that a Certificate of Amendment to the Company’s Tenth Amended and Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock from 100,000,000 to 250,000,000, was filed with the Secretary of State of the State of Delaware. These preferred stock warrants may be exercised on a cashless basis in certain circumstances specified therein.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

6. Balance Sheet Detail

 

Prepaid expenses and other current assets:

 

		March 31,			December 31,
		2019			2018
Research and development		$	432,000		$	415,000
Manufacturing		73,000			111,000
Insurance		152,000			166,000
Other		102,000			68,000
		$	759,000		$	760,000

 

Property and equipment:

 

		March 31,			December 31,
		2019			2018
Property and equipment		$	2,228,000		$	2,228,000
Accumulated depreciation		(2,227,000		)	(2,219,000		)
		$	1,000		$	9,000

 

Accrued expenses and other current liabilities:

 

		March 31,			December 31,
		2019			2018
Research and development		$	2,113,000		$	2,285,000
Employee compensation		1,645,000			1,650,000
Professional fees		77,000			225,000
Other		14,000			13,000
		$	3,849,000		$	4,173,000

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7. Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

On January 5, 2016, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional investor providing for the issuance and sale by the Company of 12,912 shares of Common Stock, at a purchase price of $142.50 per share and warrants to purchase up to 6,456 shares of Common Stock (the “Warrants”) for aggregate gross proceeds of $1,840,000. The Company has classified the warrants as a liability (see Note 5). The estimated fair value using the Black-Scholes pricing model was approximately $0 at March 31, 2019 and December 31, 2018.

 

On July 29, 2016 the Company closed on a Rights Offering, issuing 239,986 shares of Common Stock, 212,801 Tradable Warrants and 43,760 Pre-Funded Warrants. The Tradable Warrants are exercisable for a period of five years for one share of Common Stock at an exercise price of $73.80 per share. After the one-year anniversary of issuance, the Company may redeem the Tradable Warrants for $0.001 per Tradable Warrant if the volume weighted average price of its Common Stock is above $184.50 for each of 10 consecutive trading days. The Company has classified the Tradable Warrants as a liability (see Note 5). The Tradable Warrants have been listed on the Nasdaq Capital Market since issuance and the Company regularly monitors the trading activity. The Company has determined that an active and orderly market for the Tradable Warrants has developed and that the Nasdaq Capital Market price is the best indicator of fair value of the warrant liability. The quoted market price was used to determine the fair value at December 31, 2018 and March 31, 2019.

 

The Company estimated the fair value of the non-tradable warrant liability at March 31, 2019, using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Risk-free interest rate		2.24	%
Expected volatility		83.68	%
Expected term		2.29 years
Expected dividend yield		0	%

 

Expected volatility is based on the historical volatility of the Company’s Common Stock since its IPO in July 2013.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7. Fair Value Measurements (Continued)

 

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:

 

		Fair Value Measurement as of:
		March 31, 2019												December 31, 2018
		Level 1			Level 2			Level 3			Balance			Level 1			Level 2			Level 3			Balance
Tradable warrants liability		$	603,000		$	—		$	—		$	603,000		$	176,000		$	—		$	—		$	176,000
Non-tradable warrants liability		—			—			—			—			—			—			—			—
Total		$	603,000		$	—		$	—		$	603,000		$	176,000		$	—		$	—		$	176,000

 

There were no transfers between Level 1 and Level 2 in any of the periods reported.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

8.  Stock-Based Compensation

 

The 2007 Equity Compensation Plan as amended (the “2007 Plan”), amended, restated and renamed the Company’s 1999 Stock Based Compensation Plan (the “1999 Plan”), which provided for the granting of incentive and nonqualified stock options and restricted stock to its employees, directors and consultants at the discretion of the board of directors.

 

The 2013 Equity Compensation Plan (the “2013 Plan”), amended, restated and renamed the 2007 Plan. Under the 2013 Plan, the Company may grant incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, deferred share awards, performance awards and other equity-based awards to employees, directors and consultants. The Company initially reserved 40,719 shares of Common Stock for issuance, subject to adjustment as set forth in the 2013 Plan. The 2013 Plan included an evergreen provision, pursuant to which the maximum aggregate number of shares that may be issued under the 2013 Plan is increased on the first day of each fiscal year by the lesser of (a) a number of shares equal to four percent (4%) of the issued and outstanding Common Stock of the Company, without duplication, (b) 13,333 shares and (c) such lesser number as determined by the Company’s board of directors, subject to specified limitations.

 

The 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”) was unanimously approved by the Company’s Board of Directors on May 24, 2018 and was approved by the Company’s stockholders on June 27, 2018. The 2018 Plan replaces the 2013 Plan. Upon stockholders’ approval of the 2018 Plan, no further awards will be made under the 2013 Plan. Awards granted under the 2013 Plan will continue in effect in accordance with the terms of the applicable award agreement and the terms of the 2013 Plan in effect when the awards were granted.

 

Under the 2018 Plan, the Company may grant incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards to employees, non-employee directors and consultants, and advisors. The maximum aggregate number of shares of the Company’s common stock that may be issued under the 2018 Plan is 402,354, which is equal to the sum of (i) 400,000 shares of the Company’s common stock, plus (ii) 2,354 shares, which is the number of shares of the Company common stock reserved for issuance under the 2013 Plan that remained available as of the effective date of the 2018 Plan. In addition, the number of shares of common stock subject to outstanding awards under the 2013 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Plan after the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. At March 31, 2019, there were 118,890 shares available for future issuance.

 

Stock-based compensation expense includes stock options granted to employees and non-employees and has been reported in the Company’s statements of operations and comprehensive loss in either research and development expenses or general and administrative expenses depending on the function performed by the optionee. No net tax benefits related to the stock-based compensation costs have been recognized since the Company’s inception. The Company recognized stock-based compensation expense as follows for the three months ended March 31, 2019 and 2018:

 

		Three Months ended March 31,
		2019			2018
General and administrative		$	538,000		$	158,000
Research and development		112,000			120,000
		$	650,000		$	278,000

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

8.  Stock-Based Compensation (Continued)

 

A summary of stock option activity for the three months ended March 31, 2019 is as follows:

 

				Options Outstanding
		Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance, December 31, 2018		95,264		379,328		$	76.33		9.19		$	0
Authorized		—		—
Granted		—		—		$	—
Exercised		—		—		$	—
Forfeitures		23,626		(33,534	)	$	61.68		9.14
Balance, March 31, 2019		118,890		345,794		$	77.75		8.92		$	0
Vested or expected to vest, March 31, 2019				336,847		$	194.95		8.19		$	0
Exercisable at March 31, 2019				129,447		$	194.95		8.19		$	0

 

Information with respect to stock options outstanding and exercisable at March 31, 2019 is as follows:

 

Exercise Price		Shares		Exercisable
$3.41 – $7.05		278,246		71,040
$16.35 – $97.50		48,133		39,167
$222.00 - $225.00		1,871		1,744
$348.00 – $597.00		4,867		4,832
$651.00 – $1,129.50		5,432		5,419
$1,992.00 - $2,268.00		6,910		6,910
$4,156.50 - $4,371.00		335		335
		345,794		129,447

 

The Company accounts for all stock-based payments made after April 23, 2013 to employees and directors using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of forfeitures. Compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to the Company using the straight-line single option method. In accordance with authoritative guidance, the fair value of non-employee stock-based awards is re-measured as the awards vest, and the resulting increase in fair value, if any, is recognized as expense in the period the related services are rendered.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

8.  Stock-Based Compensation (Continued)

 

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s Common Stock, assumptions related to the expected price volatility of the Common Stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s stock.

 

As of March 31, 2019, there was $922,000 of unrecognized compensation expense related to the unvested stock options issued from April 24, 2013 through March 31, 2019, which is expected to be recognized over a weighted-average period of approximately 2.07 years.

 

The weighted-average assumptions underlying the Black-Scholes calculation of grant date fair value include the following:

 

		Three Months ended March 31,
		2018
Risk-free interest rate		2.60		%
Expected volatility		74.13		%
Expected term		5.78 years
Expected dividend yield		0		%
Weighted average grant date fair value		$	0.84

 

There were no stock option grants during the three months ended March 31, 2019.

 

The weighted-average valuation assumptions were determined as follows:

 

· Risk-free interest rate: The Company based the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

 

· Expected term of options: Due to its lack of sufficient historical data, the Company estimates the expected life of its employee stock options using the “simplified” method, as prescribed in Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.

 

· Expected stock price volatility:  Expected volatility is based on the historical volatility of the Company’s Common Stock since its IPO in July 2013.

 

· Expected annual dividend yield: The Company has never paid, and does not expect to pay, dividends in the foreseeable future.  Accordingly, the Company assumed an expected dividend yield of 0.0%.

 

· Estimated forfeiture rate: The Company’s estimated annual forfeiture rate on stock option grants during the three months ended March 31, 2018 was 4.14%.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

9. Research Agreements

 

The Company has entered into various licensing and right-to-sublicense agreements with educational institutions for the exclusive use of patents and patent applications, as well as any patents that may develop from research being conducted by such educational institutions in the field of anticancer therapy, genes and proteins. Results from this research have been licensed to the Company pursuant to these agreements. Under one of these agreements with Temple University (“Temple”), the Company is required to make annual maintenance payments to Temple and royalty payments based upon a percentage of sales generated from any products covered by the licensed patents, with minimum specified royalty payments. As no sales had been generated through March 31, 2019 under the licensed patents, the Company has not incurred any royalty expenses related to this agreement. In addition, the Company is required to pay Temple a percentage of any sublicensing fees received by the Company.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

10. License and Collaboration Agreements

 

SymBio Agreement

 

In July 2011, the Company entered into a license agreement with SymBio, which has been subsequently amended, granting SymBio an exclusive, royalty-bearing license for the development and commercialization of rigosertib in Japan and Korea. Under the SymBio license agreement, SymBio is obligated to use commercially reasonable efforts to develop and obtain market approval for rigosertib inside the licensed territory and the Company has similar obligations outside of the licensed territory. The Company has also entered into an agreement with SymBio providing for it to supply SymBio with development-stage product. Under the SymBio license agreement, the Company also agreed to supply commercial product to SymBio under specified terms that will be included in a commercial supply agreement to be negotiated prior to the first commercial sale of rigosertib. The supply of development-stage product and the supply of commercial product will be at the Company’s cost plus a defined profit margin. Sales of development-stage product have been de minimis. The Company has additionally granted SymBio a right of first negotiation to license or obtain the rights to develop and commercialize compounds having a chemical structure similar to rigosertib in the licensed territory.

 

Under the terms of the SymBio license agreement, the Company received an upfront payment of $7,500,000 in 2011. The Company is eligible to receive milestone payments of up to an aggregate of $22,000,000 from SymBio upon the achievement of specified development and regulatory milestones for specified indications. Of the regulatory milestones, $5,000,000 is due upon receipt of marketing approval in the United States for rigosertib IV in higher-risk MDS patients, $3,000,000 is due upon receipt of marketing approval in Japan for rigosertib IV in higher-risk MDS patients, $5,000,000 is due upon receipt of marketing approval in the United States for rigosertib oral in lower-risk MDS patients, and $5,000,000 is due upon receipt of marketing approval in Japan for rigosertib oral in lower-risk MDS patients. Furthermore, upon receipt of marketing approval in the United States and Japan for an additional specified indication of rigosertib, which the Company is currently not pursuing, an aggregate of $4,000,000 would be due. In addition to these pre-commercial milestones, the Company is eligible to receive tiered milestone payments based upon annual net sales of rigosertib by SymBio of up to an aggregate of $30,000,000.

 

Further, under the terms of the SymBio license agreement, SymBio will make royalty payments to the Company at percentage rates ranging from the mid-teens to 20% based on net sales of rigosertib by SymBio.

 

Royalties will be payable under the SymBio agreement on a country-by-country basis in the licensed territory, until the later of the expiration of marketing exclusivity in those countries, a specified period of time after first commercial sale of rigosertib in such country, or the expiration of all valid claims of the licensed patents covering rigosertib or the manufacture or use of rigosertib in such country. If no valid claim exists covering the composition of matter of rigosertib or the use of or treatment with rigosertib in a particular country before the expiration of the royalty term, and specified competing products achieve a specified market share percentage in such country, SymBio’s obligation to pay the Company royalties will continue at a reduced royalty rate until the end of the royalty term. In addition, the applicable royalties payable to the Company may be reduced if SymBio is required to pay royalties to third-parties for licenses to intellectual property rights necessary to develop, use, manufacture or commercialize rigosertib in the licensed territory. The license agreement with SymBio will remain in effect until the expiration of the royalty term. However, the SymBio license agreement may be terminated earlier due to the uncured material breach or bankruptcy of a party, or force majeure. If SymBio terminates the license agreement in these circumstances, its licenses to rigosertib will survive, subject to SymBio’s milestone and royalty obligations, which SymBio may elect to defer and offset against any damages that may be determined to be due from the Company. In addition, the Company may terminate the license agreement in the event that SymBio brings a challenge against it in relation to the licensed patents, and SymBio may terminate the license agreement without cause by providing the Company with written notice within a specified period of time in advance of termination.

 

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