Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this section in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I. Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the years ended September 30, 2018 and 2017 included in our Annual Report on Form 10-K for the year ended September 30, 2018, filed with the Securities and Exchange Commission, or SEC, on December 18, 2018.

Forward-Looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are identified by words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this report. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause a difference include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2018, filed with the SEC on December 18, 2018, and elsewhere in this report. See “Special Note Regarding Forward-Looking Statements.” Forward-looking statements are based on our management’s current beliefs and assumptions and based on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

Overview

We are a late clinical-stage biopharmaceutical company focused on developing and commercializing ONS-5010, a complex, technically challenging and commercially attractive monoclonal antibody, or mAb, for various ophthalmic indications. Our goal is to launch ONS-5010 as the first, and only, approved bevacizumab in the United States, Europe, Japan and other markets for the treatment of wet age related macular degeneration, or wet AMD, diabetic macular edema, or DME, and branch retinal vein occlusion, or BRVO.

ONS-5010 is an innovative mAb therapeutic product candidate that was reviewed at a successful end of Phase 2 meeting with the FDA conducted in 2018. Our investigational new drug, or IND, application was filed with, and accepted by, the U.S. Food and Drug Administration, or FDA, in the first quarter of calendar 2019. We are currently enrolling patients in a Phase 3 clinical trial in Australia (ONS-5010-001) designed to serve as the first of two adequate and well controlled studies evaluating ONS-5010 against ranibizumab (Lucentis) for wet AMD. Enrollment in ONS-5010-001 is nearly complete with 51 of the planned 60 patients enrolled to date. The second of the two Phase 3 studies (ONS-5010-002) has been initiated and is expected to begin enrolling wet AMD patients in the United States, Australia and New Zealand by the end of June 2019. The ONS-5010-002 study is now expected to enroll a total of at least 220 patients. The endpoint for both studies is a mean increase in baseline visual acuity of at least 5 letters at 11 months for ONS-5010 dosed on a monthly basis compared to Lucentis dosed using the approved alternative dosing regimen of 3 monthly doses followed by quarterly dosing.

Currently, the cancer drug Avastin (bevacizumab) is used off-label for the treatment of wet AMD and other retina diseases such as DME and BRVO even though Avastin has not been approved by regulatory authorities for use in these diseases. If the ONS-5010 clinical program is successful, it will support our plans to submit for regulatory approval in multiple markets in 2020 including the United States, Europe and Japan. Because there are no approved bevacizumab products for the treatment of retinal diseases in such major markets, we are developing ONS-5010 as an innovative therapy and not using the biosimilar drug development pathway that would be normally be required if Avastin were an approved drug for the targeted diseases. If approved, we believe ONS-5010 has potential to mitigate risks associated with off-label use of Avastin or other drugs. Off label use of Avastin is currently estimated to account for at least 50% of all wet AMD prescriptions in the United States.

Through March 31, 2019, we have funded substantially all of our operations with $215.3 million in net proceeds from the sale and issuance of our equity and debt securities. We have also received $29.0 million pursuant to our collaboration and licensing agreements. On November 5, 2018, we entered into a purchase agreement with BioLexis providing for the private placement of $20.0 million of shares of our common stock at $7.4616 per share. We closed this private placement in four monthly tranches for an aggregate of 2,680,390 shares of our common stock for aggregate cash proceeds of $20.0 million in November and December 2018, January and February 2019. We intend to use the net proceeds from the private placement primarily for clinical trials for our lead product candidate, ONS-5010, and for working capital and general corporate purposes, including the agreed repayments on the senior secured notes discussed below.

Also on November 5, 2018, we reached an agreement with the holders of our senior secured notes to extend the maturity of the $13.5 million of senior secured notes up to December 22, 2019, among other items, in exchange for making several payments of principal and interest through August 31, 2019, subject to meeting additional capital raising commitments (which capital raising condition we met in April 2019 through the completed underwritten public offering of our common stock and accompanying warrants). We paid $5.9 million of principal and interest through March 31, 2019. In addition, we agreed to make the senior secured notes convertible into common stock at a price of $8.9539 per share (120% of the price per share paid by BioLexis under the November 2018 purchase agreement) and reduced the exercise price of the warrants held by such holders to $12.00 and extended the expiration of these warrants by three years. In January 2019, we reduced the exercise price of our outstanding Series A warrants (originally issued in connection with our initial public offering, or IPO) from $52.80 to $12.00 and further extended the expiration date of these warrants from February 18, 2019 to February 18, 2022.

On November 30, 2018, we received approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell approximately $3.7 million of our unused New Jersey net operating losses, or NOLs, and research and development tax credits, or R&D credits. We expect to receive approximately $3.4 million of proceeds from the sale of the New Jersey NOLs and R&D credits, of which $0.8 million was received in April 2019.

On April 12, 2019, we completed an underwritten public offering of 10,340,000 shares of our common stock, 15-month warrants to purchase up to an aggregate of 10,340,000 shares of our common stock and five-year warrants to purchase up to an aggregate of 10,340,000 shares of our common stock at a combined public offering price of $2.75 per share and accompanying warrants. The shares of common stock and the warrants were immediately separable and were issued separately. The warrants were exercisable immediately at an exercise price of $2.90 per share. We received approximately $26.2 million in net proceeds from the public offering after payment of fees, expenses and underwriting discounts and commissions.

We have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit at March 31, 2019 of $239.9 million. As of March 31, 2019, we had substantial indebtedness that included $8.5 million of senior secured notes that may become due in fiscal 2019, $3.6 million unsecured notes, that are due on demand, and $1.0 million of unsecured notes that are due but are subject to a forbearance agreement through March 7, 2020. We will need to raise substantial additional capital to fund our planned future operations, commence clinical trials, receive approval for and commercialize ONS-5010, or to develop other product candidates. We plan to finance our future operations with a combination of proceeds from potential licensing and/or marketing arrangements with pharmaceutical companies, the issuance of equity securities, and the issuance of additional debt, potential collaborations and revenues from potential future product sales, if any. There are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of ONS-5010 or any other current or future product candidates. If we are unable to secure adequate additional funding, our business, operating results, financial condition and cash flows may be materially and adversely affected. These matters raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Our current cash resources of $0.2 million as of March 31, 2019, the $26.2 of net proceeds from our April 2019 public offering and the anticipated proceeds from the sale of our remaining New Jersey NOLs and R&D credits, are expected to fund our operations into December 2019, excluding any unscheduled repayment of debt. To provide additional working capital, we continue to engage in active discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to ONS-5010. If we are not successful in raising additional capital or entering into one or more licensing and/or co-development rights agreements, we may be required to, among other things, modify our clinical trial plans for ONS-5010 in additional indications, make reductions in our workforce, discontinue our development programs, liquidate all or a portion of our assets, and/or seek protection under the provisions of the U.S. Bankruptcy Code.

We do not have any products approved for sale and we have only generated revenue from our collaboration agreements. We have incurred operating losses and negative operating cash flows since inception and there is no assurance that we will ever achieve profitable operations, and if achieved, that profitable operations will be sustained. Our net loss for the six months ended March 31, 2019 was $20.0 million. In addition, development activities, clinical and preclinical testing and commercialization of our product candidates will require significant additional financing.

Collaboration and License Agreements

From time to time, we enter into collaboration and license agreements for the research and development, manufacture and/or commercialization of our products and/or product candidates. These agreements generally provide for non-refundable upfront license fees, development and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing.

MTTR, LLC — ONS 5010

In February 2018, we entered into a strategic partnership agreement with MTTR, LLC, or MTTR, to advise on regulatory, clinical and commercial strategy and assist in obtaining approval of ONS-5010, our bevacizumab therapeutic product candidate for ophthalmic indications. Under the terms of the agreement, we paid MTTR a $58,333 monthly consulting fee through December 2018. Beginning January 2019, the monthly fee increased to $105,208 per month, and then, after launch of ONS-5010 in the United States, will increase to $170,833 per month (the amount of which is reduced by 50% in the event net sales of ONS-5010 are below a certain threshold million per year). We also agreed to pay MTTR a tiered percentage of the net profits of ONS-5010 ranging in the low- to mid-teens, with the ability to credit monthly fees paid to MTTR. In March 2018, we amended the MTTR agreement and agreed to pay a one-time fee of $268,553 to MTTR by September 2020 if certain regulatory milestones are achieved earlier than anticipated. MTTR earned an aggregate $ 290,431 and $580,911 during the three and six months ended March 31, 2019, respectively, which includes monthly consulting fees and expense reimbursement.

Selexis SA

In October 2011, we entered into a research license agreement with Selexis SA, or Selexis, whereby we acquired a non-exclusive license to conduct research internally or in collaboration with third parties to develop recombinant proteins from cell lines created in mammalian cells using the Selexis expression technology, or the Selexis Technology. The original research license had a three-year term, but on October 9, 2014, it was extended for an additional three-year term through October 9, 2017, and then a limited scope license was extended for one more year through October 9, 2018. We may sublicense our rights with Selexis’ prior written consent but are prohibited from making commercial use of the Selexis Technology or the resultant recombinant proteins comprising our product candidates in humans, or from filing an investigational new drug, absent a commercial license agreement with Selexis covering the particular product candidate developed under the research license. In connection with the entry into the research license, we paid Selexis an initial fee and agreed to make additional annual license maintenance payments of the same amount for each of the three years that the research license agreement term was extended and for a pro rata amount for the most current one-year license extension that expired on October 9, 2018. As such, we are no longer using the Selexis Technology in our research.

Selexis also granted us a non-transferrable option to obtain a perpetual, non-exclusive, worldwide commercial license under the Selexis Technology to manufacture, or have manufactured, a recombinant protein produced by a cell line developed using the Selexis Technology for clinical testing and commercial sale. We exercised this option in April 2013 and entered into three commercial license agreements with Selexis for our ONS-3010, ONS-1045 (which covers ONS-5010) and ONS-1050 product candidates. We paid an upfront licensing fee to Selexis for each commercial license and also agreed to pay a fixed milestone payment for each licensed product. In addition, we are required to pay a single-digit royalty on a final product-by-final product and country-by-country basis, based on worldwide net sales of such final products by us or any of our affiliates or sub-licensees during the royalty term. At any time during the term, we have the right to terminate our royalty payment obligation by providing written notice to Selexis and paying Selexis a royalty termination fee.

As of March 31, 2019, we have paid Selexis an aggregate of approximately $0.4 million under the commercial license agreements.

IPCA Laboratories Limited -Humira (ONS-3010), Avastin (ONS-1045) and Herceptin (ONS-1050)

In August 2013, we entered into a strategic license agreement with IPCA Laboratories Limited, or IPCA, under which we granted IPCA and its affiliates a license for the research, development, manufacture, use or sale of ONS-3010 and, by amendment in May 2014, ONS-1045. The license is exclusive with respect to India, Sri Lanka and Myanmar, and non-exclusive with respect to Nepal and Bhutan. Under the terms of the August 2013 agreement, we received an upfront payment from IPCA, and are eligible to earn additional regulatory milestone payments for each of ONS-3010 and ONS-1045. In addition, we are eligible to receive royalties at a low teens percentage rate of annual net sales of products by IPCA and its affiliates in the agreed territory.

In January 2014, we entered into an agreement with IPCA to assist IPCA in establishing its research, development and manufacturing capabilities for mAbs and biologics, including, in part, through collaborative development, manufacture and commercialization of ONS-1050 (our Herceptin biosimilar), in the agreed territory (as specified below). The agreed territory for ONS-1050 includes the Republics of India, Sri Lanka, Myanmar, Nepal and Bhutan, while the agreed territory for any product candidates developed independent of our involvement is global without geographical restriction. We also agreed to assist IPCA with its research and development program. Under the terms of the January 2014 agreement, we are eligible to receive development payments and commercialization fees. In addition, we are eligible to receive royalties from IPCA at a mid-single digit rate on annual net sales of ONS-1050 commercialized by IPCA and its affiliates in the agreed territory.

As of March 31, 2019, we have received an aggregate of $5.0 million of payments from IPCA under our various agreements.

Liomont - Humira (ONS-3010) and Avastin (ONS-1045)

In June 2014, we entered into a strategic license agreement with Laboratories Liomont, S.A. de C.V., or Liomont, under which we granted Liomont and its affiliates an exclusive, sublicenseable license in Mexico for the research, development, manufacture, use or sale of the ONS-3010 and ONS-1045 biosimilar product candidates in Mexico. Under the terms of the agreement, we received an upfront payment from Liomont, and we are eligible to earn milestone payments for each of ONS-3010 and ONS-1045. In addition, we are eligible to receive tiered royalties at upper single-digit to low teens percentage rates of annual net sales of products by Liomont and its affiliates in Mexico. As of March 31, 2019, we have received an aggregate of $3.0 million of upfront and milestone payments from Liomont.

Huahai - Humira (ONS-3010) and Avastin (ONS-1045)

In May 2013, we entered into a series of agreements with Zhejiang Huahai Pharmaceutical Co., Ltd., or Huahai, to form an alliance for the purpose of developing and obtaining regulatory approval for, and commercial launch and marketing of licensed products in an agreed territory, as described below. The agreements include a strategic alliance agreement, which sets out the governance framework for the relationship, along with a joint participation agreement regarding joint development and commercialization of ONS-3010, and a co-development and license agreement for each of ONS-3010 and ONS-1045. As of September 30, 2018, we have received an aggregate of $16.0 million of upfront and milestone payments from Huahai.

As contemplated by the strategic alliance agreement, we entered into a joint participation agreement with Huahai where we agreed to co-fund the development and share the value ownership interest of ONS-3010 in the United States, Canada, European Union, Japan, Australia and New Zealand. Under the agreement as amended, we are responsible for completing a defined “Phase-3 Ready Package” at our expense, for which the portion of the funds received from Huahai to date under this joint participation agreement was used.

In the event Huahai funds its proportionate share of development costs incurred after completion of the “Phase-3 Ready Packages,” Huahai would be entitled to retain its 51% value ownership, with us entitled to retain our 49% value ownership, of ONS-3010 in the agreed territories. Similarly, revenues from commercialization of ONS-3010 in the agreed countries (including major markets such as the United States and the European Union, among others), would also be shared based on such proportional ownership interests. In the event that Huahai does not fund its proportionate share of such development costs, the joint participation agreement provides for a proportionate adjustment to our respective value ownership interests based on our respective investments in such development costs, which would increase our value ownership interest in ONS-3010. Under the joint participation agreement, we could also be required to form a joint venture to further develop and commercialize ONS-3010 with Huahai in the agreed countries, if so requested by Huahai.

In conjunction with the strategic alliance agreement, we also entered into a co-development and license agreement with Huahai, under which we granted Huahai and its affiliates an exclusive license, in the territory (as specified below) for the research, development, manufacture, use or sale of ONS-3010 or ONS-1045 in China, including, the People’s Republic of China, Hong Kong, Macau and Taiwan. We will each bear our respective costs under the development plans. Huahai agreed to carry out all clinical, manufacturing and regulatory requirements necessary for approval of the products in the agreed territory. Under the terms of the agreement, we received an upfront payment from Huahai for ONS-3010, and have received regulatory milestone payments for each of ONS-3010 and ONS-1045.

BioLexis — Humira (ONS-3010) and Avastin (ONS-1045)

On September 7, 2017, in connection with the entry into the BioLexis purchase agreement for shares of our Series A convertible preferred stock and warrants, we also entered into a joint development and license agreement providing for the license of rights to ONS-3010 and ONS-1045 in emerging markets, excluding China, India and Mexico, which superseded and replaced a previous strategic licensing agreement dated July 25, 2017. As of March 31, 2019, we have received an aggregate of $5.0 million of payments from BioLexis under our joint development and license agreement.

Components of our Results of Operations

Collaboration Revenue

To date, we have derived revenue only from activities pursuant to our collaboration and licensing agreements. We have not generated any revenue from commercial product sales. For the foreseeable future, we expect all of our revenue, if any, will be generated from our collaboration and licensing agreements. If any of our product candidates currently under development are approved for commercial sale, we may generate revenue from product sales, or alternatively, we may choose to select a collaborator to commercialize our product candidates.

On October 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers , or ASU 2014-09, and changed our revenue recognition policies accordingly. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Our arrangements fall under Accounting Standards Codification, or ASC, 808, Collaborations , or ASC 808. ASC 808 does not address recognition or measurement matters but prescribes that entities look to other GAAP by analogy, namely ASU 2014-09. As such, we completed an analysis of existing contracts with our collaboration partners and assessed the differences in accounting for such contracts under ASU 2014-09 compared with current revenue accounting standards. We previously recognized substantive milestones in the period the milestones were achieved, but ASU 2014-09 prescribes that those milestones are a form of variable consideration and should be recognized when the performance obligation is satisfied, which results in such amounts being recognized over the estimated performance period. We adopted the new accounting standard utilizing the modified retrospective method, and recorded the cumulative effect of adopting the standard as an adjustment to increase accumulated deficit by $3.6 million.

Research and Development Expenses

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:

The successful development of ONS-5010 and any of our other product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from ONS-5010 or any of our other product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals. We may never succeed in achieving regulatory approval for any of ONS-5010 or our other product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Product commercialization will take several years and millions of dollars in development costs.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, complexity and duration of later-stage clinical trials.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, administrative, finance and legal functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expenses include facility related costs, patent filing and prosecution costs and professional fees for business development, legal, auditing and tax services and insurance costs.

We anticipate that our general and administrative expenses will increase if and when we believe a regulatory approval of a product candidate appears likely, and we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, particularly as it relates to the sales and marketing of our product.

Interest Expense

Interest expense consists of cash paid and non-cash interest expense related to our senior secured notes, former bank loans, and notes with current and former stockholders, equipment loans, capital lease and other finance obligations.

Loss on Extinguishment of Debt

We recorded a loss on extinguishment of debt of $0.2 million during the three and six months ended March 31, 2019 in connection with a forbearance and exchange agreement in March 2019 pursuant to which a third party purchased two stockholder notes previously issued in an aggregate original principal amount of $1.0 million with an aggregate outstanding balance of $1.9 million, including accrued interest.

We recorded a loss on the extinguishment of debt of $1.3 million during the six months ended March 31, 2018 related to the exchange of $1.5 million aggregate principal amount of our senior secured notes for shares of our Series B Convertible Preferred Stock.

Change in Fair Value of Warrant Liability

Warrants to purchase our common stock that have been issued in conjunction with our senior secured notes are classified as liabilities and recorded at fair value. The warrants are subject to re-measurement at each balance sheet date and we recognize any change in fair value in our statements of operations.

Income Taxes

On November 30, 2018, we received approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell approximately $3.7 million of our unused New Jersey NOLs and R&D credits. We expect to receive approximately $3.4 million of proceeds from the sale of the New Jersey NOLs and R&D credits, of which approximately $0.8 million was received in April 2019. Since inception, we have not recorded any U.S. federal or state income tax benefits (excluding the sale of New Jersey NOLs and R&D credits) for the net losses we have incurred in each year or on our earned R&D credits, due to our uncertainty of realizing a benefit from those items. As of September 30, 2018, we had federal and state NOL carryforwards of $164.2 million and $67.6 million, respectively that will begin to expire in 2030 and 2036, respectively. As of September 30, 2018, we had federal foreign tax credit carryforwards of $2.4 million available to reduce future tax liabilities, which begin to expire starting in 2023. As of September 30, 2018, we also had federal R&D tax credit carryforwards of $8.5 million that begin to expire in 2032.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We have not completed a study to assess whether an ownership change has occurred in the past. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our NOLs are also subject to international regulations, which could restrict our ability to utilize our NOLs.

Furthermore, our ability to utilize NOLs of companies that we may acquire in the future, if any, may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.

Collaboration Revenues

The following table sets forth a summary of revenue recognized from our collaboration and licensing agreements for the three months ended March 31, 2019 and 2018, all of which was from the recognition of deferred revenues under such agreements:

Collaboration revenues decreased by $0.1 million to $0.7 million for the three months ended March 31, 2019, as compared to $0.8 million for the three months ended March 31, 2018. The decrease is primarily due to the adoption of ASU No. 2014-09, effective October 1, 2018, which changed our revenue recognition policies for milestone payments. We previously recognized substantive milestones in the period the milestones were achieved but ASU 2014-09 prescribes that those milestones are a form of variable consideration and should be recognized when the performance obligation is satisfied, which results in such amounts being recognized over the estimated performance period.

Research and development expenses for the three months ended March 31, 2019 increased by $1.3 million compared to the three months ended March 31, 2018. The increase was primarily due to increased ONS-5010 development costs of $0.6 million as we progressed into Phase 3 clinical trials near the end of fiscal year 2018 and a $0.6 million write off of certain construction in progress assets and laboratory equipment resulting from our decision to focus solely on ONS-5010 and to outsource the commercial manufacturing for the program.

General and administrative expenses for the three months ended March 31, 2019 decreased by $0.6 million compared to the three months ended March 31, 2018. The decrease was due to our ongoing efforts to reduce general and administrative expenses and focus our resources on the development of ONS-5010.

Interest Expense

Interest expense increased by $0.1 million to $1.0 million for the three months ended March 31, 2019 as compared to $0.9 million for the three months ended March 31, 2018. The increase was primarily due to a $0.1 million net increase in interest expense from equipment loans, and capital lease obligations and amortization of debt discount and interest expense on the senior secured notes issued due to the modification made to the notes during the year.

Change in Fair Value of Warrant Liability

During the three months ended March 31, 2019, we recorded expense of $1.3 million related to the increase in the fair value of our common stock warrant liability associated with the warrants issued in connection with our senior secured notes, which resulted from an increase in the price of our common stock.

Collaboration Revenues

The following table sets forth a summary of revenue recognized from our collaboration and licensing agreements for the six months ended March 31, 2019 and 2018, all of which was from the recognition of deferred revenues under such agreements:

Collaboration revenues increased $0.2 million, to $1.7 million, for the six months ended March 31, 2019, as compared to $1.5 million for the six months ended March 31, 2018. The increase is primarily due to the adoption of ASU No. 2014-09, effective October 1, 2018, which changed our revenue recognition policies for milestone payments. We previously recognized substantive milestones in the period the milestones were achieved but ASU 2014-09 prescribes that those milestones are a form of variable consideration and should be recognized when the performance obligation is satisfied, which results in such amounts being recognized over the estimated performance period.

Research and development expenses for the six months ended March 31, 2019 increased by $9.4 million compared to the six months ended March 31, 2018. The increase was primarily due to increased ONS-5010 development costs of $3.0 million as we progressed into Phase 3 clinical trials near the end of fiscal year 2018. A portion of the increase was also due to a $2.9 million write off of certain construction in progress assets and laboratory equipment resulting from our decision to focus on ONS-5010 and to outsource the commercial manufacturing for the program. In addition, 2018 reflects a $3.2 million favorable settlement of a contract related to our inactive biosimilar product candidates in fiscal 2018.

General and administrative expenses for the six months ended March 31, 2019 decreased by $1.2 million compared to the six months ended March 31, 2018. The decrease was primarily due to a reduction in stock-based compensation expense, which decreased because the first quarter of fiscal 2018 reflected the completion of the vesting period for many of our pre-IPO equity grants and a decrease in compensation expense related to the reversal of previously accrued compensation cost. Additionally, our ongoing efforts to reduce expenses to support the ongoing development of ONS-5010 resulted in a reduction in facilities and other costs of approximately $0.6 million which were offset by an increase in professional fees due to advisory services related to the restructuring of our senior secured notes.

Interest Expense

Interest expense increased by $0.6 million to $2.2 million for the six months ended March 31, 2019 as compared to $1.6 million for the six months ended March 31, 2018. The increase was primarily due to a $0.3 million net increase in interest expense from equipment loans, and capital lease obligations and $0.2 million increase in amortization of debt discount and interest expense on the senior secured notes issued due to the modification made to the notes during the six month period.

Change in Fair Value of Warrant Liability

During the six months ended March 31, 2019, we recorded expense of $0.3 million related to the increase in the fair value of our common stock warrant liability associated with the warrants issued in connection with our senior secured notes, which resulted from an increase in the price of our common stock.

Liquidity and Capital Resources

We have not generated any revenue from product sales. Since inception, we have incurred net losses and negative cash flows from our operations. Through March 31, 2019, we have funded substantially all of our operations through the receipt of $215.3 million net proceeds from the issuance of our equity securities, debt securities and borrowings under debt facilities. We have also received an aggregate of $29.0 million pursuant to our collaboration and licensing agreements.

In November and December 2018, we issued 1,608,234 shares of the common stock to BioLexis for aggregate cash proceeds of $12.0 million pursuant our November 2018 purchase agreement. In January and February 2019, we issued 1,072,156 shares of common stock for the remaining $8.0 million aggregate cash proceeds thereunder. In November 2018, we also reached an agreement with the holders of our $13.5 million senior secured notes to extend the maturity of the senior secured notes up to December 22, 2019, among other items, in exchange for making several payments of principal and interest through August 31, 2019, subject to meeting additional capital raising commitments (which capital raising condition was met in April 2019 through the completed underwritten public offering of our common stock and accompanying warrants). In addition, we agreed to make the senior secured notes convertible into common stock at a price of $8.9539 per share (120% of the price per share paid by BioLexis under the purchase agreement) and reduced the exercise price of the warrants held by such holders to $12.00 and extended the expiration of these warrants by three years. We paid $5.9 million of principal and interest on the senior secured notes through March 31, 2019.

In November 2018, we received approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell approximately $3.7 million of our unused New Jersey NOLs and R&D credits for $3.4 million, of which approximately $0.8 million was received in April 2019. We expect to receive the balance of approximately $2.6 million of proceeds from the sale of the New Jersey NOLs and R&D credits in the third quarter of fiscal 2019.

On April 12, 2019, we completed an underwritten public offering of 10,340,000 shares of our common stock, 15-month warrants to purchase up to an aggregate of 10,340,000 shares of our common stock and five-year warrants to purchase up to an aggregate of 10,340,000 shares of our common stock at a combined public offering price of $2.75 per share and accompanying warrants. The shares of common stock and the warrants were immediately separable and were issued separately. The warrants were exercisable immediately at an exercise price of $2.90 per share. We received approximately $26.2 million in net proceeds from the public offering after payment of fees, expenses and underwriting discounts and commissions.

As of March 31, 2019, we had an accumulated deficit of $239.9 million and a cash balance of $0.2 million. In addition, we have $8.5 million of senior secured notes which may become due in fiscal 2019, $3.6 million unsecured notes, which are due on demand as of such date, and $1.0 million of unsecured notes that are due on demand but are subject to a forbearance agreement through March 7, 2020. These matters raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. We anticipate incurring additional losses until such time, if ever, that we can generate significant sales of our product candidates currently in development. We will need substantial additional financing to fund our operations and to commercially develop our product candidates. Management is currently evaluating various strategic opportunities to obtain the required funding for future operations. These strategies may include, but are not limited to payments from potential strategic research and development, licensing and/or marketing arrangements with pharmaceutical companies, private placements and/or public offerings of equity and/or debt securities. There can be no assurance that these future funding efforts will be successful.

Our future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing discussed above, (ii) our ability to complete revenue-generating partnerships with pharmaceutical companies, (iii) the success of our research and development, (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (v) regulatory approval and market acceptance of our proposed future products.

Funding Requirements

We plan to focus in the near term on advancing ONS-5010 through clinical trials to support the filing of a Biologics License Application with the FDA to support the generation of commercial revenues. We anticipate we will incur net losses and negative cash flow from operations for the foreseeable future. We may not be able to complete the development and initiate commercialization of ONS-5010 if, among other things, our clinical trials are not successful or if the FDA does not approve our application arising out of our current clinical trials when we expect, or at all.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, manufacturing and facility costs, external research and development services, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support development of our lead product candidate.

We believe our existing cash as of March 31, 2019, together with the $26.2 million of net proceeds from the April 2019 public common stock and warrants offering and anticipated proceeds from the sale of New Jersey NOLs and R&D credits will provide adequate financial resources to fund our operations into December 2019, excluding any unscheduled repayment of debt. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We will need to raise substantial additional capital in order to complete our planned ONS-5010 development program. We plan to finance our future operations with a combination of proceeds from potential strategic collaborations, sale of the development and commercial rights to our drug product candidates, the issuance of equity securities, the issuance of additional debt, and revenues from potential future product sales, if any. If we raise additional capital through the sale of equity or convertible debt securities, your ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our common stock. There are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of ONS-5010 or any other current or future product candidates. Alternatively, we will be required to, among other things, modify our clinical trial plans for ONS-5010 in additional indications, make reductions in our workforce, scale back our plans and place certain activities on hold, discontinue our development programs, liquidate all or a portion of our assets, and/or seek protection under the provisions of the U.S. Bankruptcy Code.