UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

 

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

For the transition period from                      to                     

Commission file number 001-36577

 

 

ContraFect Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		39-2072586
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
28 Wells Avenue, 3rd Floor, Yonkers, NY		10701
(Address of principal executive offices)		(Zip Code)

(914) 207-2300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

 

 

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, $0.0001 par value per share		CFRX		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

The number of shares of the registrant’s Common Stock outstanding as of November 6, 2020 was 27,810,082.

 

 

 

CONTRAFECT CORPORATION

INDEX

 

				Page No.
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements			3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			28
Item 4.		Controls and Procedures			28
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings			29
Item 1A		Risk Factors			29
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3.		Defaults Upon Senior Securities			56
Item 4.		Mine Safety Disclosures			56
Item 5.		Other Information			56
Item 6.		Exhibits			57
SIGNATURES					58

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

 

•

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

 

•

We currently have no source of product revenue and have not yet generated any revenues from product sales.

 

•

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

•

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

•

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

•

The timing of the milestone and royalty payments we are required to make under certain agreements to The Rockefeller University (“Rockefeller”) is uncertain and could adversely affect our cash flows and results of operations.

 

•

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

 

•

The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

 

•

We are heavily dependent on the success of our leading product candidate, exebacase. If we are ultimately unable to obtain regulatory approval for exebacase or any other product candidate our business will be substantially harmed.

 

•

If clinical trials of exebacase or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the Food and Drug Administration (“FDA”) or similar international regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of exebacase or any other product candidate.

 

•

We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of exebacase or any other product candidates.

 

•

Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

 

•

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

 

•

We rely on CROs to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of exebacase or any other product candidates.

 

•

Even if the FDA approves exebacase or any other product candidate, adverse effects discovered after approval could adversely affect our markets.

 

•

Any Breakthrough Therapy Designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

 

•

Risks associated with the manufacture of our product candidates could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes, equipment failures, and lack of timely availability of raw materials.

 

•

Developments by competitors may render our products or technologies obsolete or non-competitive.

 

•

The level of commercial success of exebacase or any other product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.

 

•

Coverage and reimbursement may not be available for exebacase or any other product candidates that we develop.

 

•

If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

 

•

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

 

•

Risks related to regulatory approval of our product candidates and other legal and compliance matters.

 

•

Risks related to employee matters and managing growth.

 

1

•

Risks related to our intellectual property.

 

•

Risks related to our securities and organizational documents.

 

•

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

 

•

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the E.U. and E.E.A.

FORWARD LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, our beliefs regarding lysins, future operations, future financial position, the sufficiency of our cash and cash equivalents and marketable securities, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

 

•

the success, cost, timing and potential indications of our product development activities and clinical trials;

 

•

our ability to advance into and through clinical development and ultimately obtain FDA approval for our product candidates;

 

•

our research and development plans and ability to bring forward additional product candidates into preclinical and clinical development;

 

•

our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;

 

•

the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;

 

•

our future marketing and sales programs;

 

•

the effect of competition and proprietary rights of third parties;

 

•

the availability of and our ability to obtain additional financing and to continue as a going concern;

 

•

the effects of existing and future federal, state and foreign regulations;

 

•

the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and

 

•

the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

As more fully described under the heading “Risk Factors” contained elsewhere in this Quarterly Report on Form 10-Q, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward- looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Quarterly Report on Form 10-Q with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

2

CONTRAFECT CORPORATION PART

I – FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

CONTRAFECT CORPORATION

Consolidated Balance Sheets

 

		September 30, 2020				December 31, 2019
		(unaudited)				(audited)
Assets
Current assets:
Cash and cash equivalents		$	18,152,046			$	24,184,140
Marketable securities			32,082,709				—
Prepaid expenses and other current assets			5,828,086				6,575,375
Total current assets			56,062,841				30,759,515
Property and equipment, net			957,587				1,099,948
Operating lease right-of-use assets			2,870,431				3,043,826
Other assets			105,420				105,420
Total assets		$	59,996,279			$	35,008,709
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	2,190,813			$	2,622,272
Accrued liabilities			1,996,320				6,803,789
Current portion of lease liabilities			641,249				631,889
Total current liabilities			4,828,382				10,057,950
Warrant liabilities			33,659,991				6,068,978
Long-term portion of lease liabilities			3,038,056				3,264,128
Other liabilities			72,747				72,747
Total liabilities			41,599,176				19,463,803
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none outstanding at September 30, 2020 and December 31, 2019			—				—
Common stock, $0.0001 par value, 125,000,000 shares authorized, 27,810,082 shares issued and outstanding at September 30, 2020; 200,000,000 shares authorized, 15,332,042 shares issued and outstanding at December 31, 2019			2,781				1,533
Additional paid-in capital			252,268,303				227,657,758
Accumulated other comprehensive loss			(8,305	)			—
Accumulated deficit			(233,865,676	)			(212,114,385	)
Total stockholders’ equity			18,397,103				15,544,906
Total liabilities and stockholders’ equity		$	59,996,279			$	35,008,709

See accompanying notes.

 

3

CONTRAFECT CORPORATION

Consolidated Statements of Operations

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Operating expenses
Research and development		$	4,706,012			$	5,250,327			$	15,354,453			$	14,161,543
General and administrative			2,607,472				2,376,248				8,186,169				7,234,244
Total operating expenses			7,313,484				7,626,575				23,540,622				21,395,787
Loss from operations			(7,313,484	)			(7,626,575	)			(23,540,622	)			(21,395,787	)
Other income (expense):
Interest income			58,451				80,747				154,019				334,307
Other income (expense)			9,609				—				(2,165,044	)			—
Change in fair value of warrant liabilities			10,689,855				2,186,710				3,800,356				18,622,471
Total other income			10,757,915				2,267,457				1,789,331				18,956,778
Net income (loss)		$	3,444,431			$	(5,359,118	)		$	(21,751,291	)		$	(2,439,009	)
Basic net income (loss) per share		$	0.12			$	(0.67	)		$	(1.03	)		$	(0.31	)
Shares used in computing basic net income (loss) per share			27,809,169				7,940,931				21,069,057				7,940,931
Diluted net loss per share		$	(0.19	)		$	(0.67	)		$	(1.03	)		$	(0.31	)
Shares used in computing diluted net loss per share			29,079,107				7,940,931				21,069,057				7,940,931

See accompanying notes.

 

4

CONTRAFECT CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Net income (loss)		$	3,444,431			$	(5,359,118	)		$	(21,751,291	)		$	(2,439,009	)
Other comprehensive (loss) gain:
Unrealized (loss) gain on available-for-sale securities			(1,176	)			—				(8,305	)			30,300
Comprehensive income (loss)		$	3,443,255			$	(5,359,118	)		$	(21,759,596	)		$	(2,408,709	)

See accompanying notes.

 

5

CONTRAFECT CORPORATION

Consolidated Statements of Stockholders’ Equity

(unaudited)

 

		Common Stock								Additional				Accumulated Other Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Paid-In Capital				Income (Loss)				Deficit				Equity
Balance, December 31, 2019			15,332,042			$	1,533			$	227,657,758			$	—			$	(212,114,385	)		$	15,544,906
Share-based compensation			—				—				632,902				—				—				632,902
Unrealized gain on marketable securities			—				—				—				9,199				—				9,199
Net loss			—				—				—				—				(7,578,486	)			(7,578,486	)
Balance, March 31, 2020			15,332,042			$	1,533			$	228,290,660			$	9,199			$	(219,692,871	)		$	8,608,521
Issuance of securities in registered offering			11,797,752				1,180				21,107,447				—				—				21,108,627
Issuance of securities in private placement			674,156				67				2,999,927				—				—				2,999,994
Financing cost of sale of securities			—				—				(1,462,310	)			—				—				(1,462,310	)
Issuance of common stock for exercise of options			282				—				—				—				—				—
Share-based compensation			—				—				652,266				—				—				652,266
Unrealized loss on marketable securities			—				—				—				(16,328	)			—				(16,328	)
Net loss			—				—				—				—				(17,617,236	)			(17,617,236	)
Balance, June 30, 2020			27,804,232			$	2,780			$	251,587,990			$	(7,129	)		$	(237,310,107	)		$	14,273,534
Issuance of common stock for exercise of warrants			5,850				1				28,664				—				—				28,665
Share-based compensation			—				—				651,649				—				—				651,649
Unrealized loss on marketable securities			—				—				—				(1,176	)			—				(1,176	)
Net income			—				—				—				—				3,444,431				3,444,431
Balance, September 30, 2020			27,810,082			$	2,781			$	252,268,303			$	(8,305	)		$	(233,865,676	)		$	18,397,103
		Common Stock								Additional				Accumulated Other Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Paid-In Capital				Income (Loss)				Deficit				Equity
Balance, December 31, 2018			7,940,931			$	794			$	204,891,358			$	(30,300	)		$	(199,319,892	)		$	5,541,960
Share-based compensation			—				—				323,774				—				—				323,774
Unrealized gain on marketable securities			—				—				—				31,336				—				31,336
Net income			—				—				—				—				11,587,015				11,587,015
Balance, March 31, 2019			7,940,931			$	794			$	205,215,132			$	1,036			$	(187,732,877	)		$	17,484,085
Share-based compensation			—				—				369,927				—				—				369,927
Unrealized gain on marketable securities			—				—				—				960				—				960
Net loss			—				—				—				—				(8,666,906	)			(8,666,906	)
Balance, June 30, 2019			7,940,931			$	794			$	205,585,059			$	1,996			$	(196,399,783	)		$	9,188,066
Share-based compensation			—				—				392,005				—				—				392,005
Unrealized loss on marketable securities			—				—				—				(1,996	)			—				(1,996	)
Net loss			—				—				—				—				(5,359,118	)			(5,359,118	)
Balance, September 30, 2019			7,940,931			$	794			$	205,977,064				—			$	(201,758,901	)		$	4,218,957

See accompanying notes.

 

6

CONTRAFECT CORPORATION

Consolidated Statements of Cash Flows

(unaudited)

 

		Nine Months Ended September 30,
		2020				2019
Cash flows from operating activities
Net loss		$	(21,751,291	)		$	(2,439,009	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			126,143				126,786
Stock-based compensation expense			1,936,817				1,085,706
Change in fair value of warrant liabilities			(3,800,356	)			(18,622,471	)
Issuance costs allocated to warrants			2,174,653				—
Net amortization of premium on marketable securities			161,142				171,111
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other current and non-current assets			720,191				(1,369,020	)
(Decrease) increase in accounts payable, accrued liabilities and other liabilities			(5,238,928	)			1,257,043
Net cash used in operating activities			(25,671,629	)			(19,789,854	)
Cash flows from investing activities
Purchases of marketable securities			(47,555,466	)			—
Proceeds from sales and maturities of marketable securities			15,303,309				21,991,125
Purchases of property and equipment			—				(19,999	)
Net cash (used in) provided by investing activities			(32,252,157	)			21,971,126
Cash flows from financing activities
Proceeds from issuance of securities			55,499,990				—
Payment of financing costs of securities sold			(3,636,963	)			—
Proceeds from the exercise of warrants			28,665				—
Net cash provided by financing activities			51,891,692				—
Net (decrease) increase in cash and cash equivalents			(6,032,094	)			2,181,272
Cash and cash equivalents at beginning of period			24,184,140				8,320,317
Cash and cash equivalents at end of period		$	18,152,046			$	10,501,589
Supplemental disclosures of cash flow information:
Issuance of warrants to purchase common stock		$	31,391,369			$	—
Right-of-use assets obtained in exchange for lease obligations		$	—			$	4,148,672
Leasehold improvement obtained in exchange for lease incentive obligations		$	—			$	189,227

See accompanying notes.

 

7

CONTRAFECT CORPORATION

Notes to Unaudited Consolidated Financial Statements

September 30, 2020

1. Organization and Description of Business

Organization and Business

ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targets Staph aureus, including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis. Staph aureus is also a common cause of biofilm-driven infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy. Exebacase is being studied in a pivotal Phase 3 superiority study to confirm efficacy and safety when used in addition to background standard of care antibiotic therapy for the treatment of Staph aureus bacteremia, including right-sided endocarditis. The Phase 2 data for MRSA-infected patients treated with exebacase, which demonstrated superior outcomes in clinical response at Day 14 and in 30-day all-cause mortality, as well as health economics benefits, provided the basis for the Phase 3 study design and Breakthrough Therapy designation.

The Company has incurred losses from operations since inception as a research and development organization and has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding. Management believes its cash, cash equivalents and marketable securities balances as of September 30, 2020, will be sufficient to fund operations for at least 12 months from the issuance date of these financial statements and expects operating losses and negative cash flows to continue at more significant levels in the future. Transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional public or private debt and equity financings, and may seek additional capital through arrangements with strategic partners or from other sources. There can be no assurances that such financing will be available to the Company on satisfactory terms, or at all.

On May 27, 2020, the Company completed an underwritten public offering of 11,797,752 shares of its common stock and warrants to purchase an additional 8,848,314 shares of its common stock at an exercise price of $4.90 per share (the “2020 Offering”). The public offering price was $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $48.9 million after underwriting discounts and commissions and offering expenses payable by the Company. The Company completed a concurrent private placement to Pfizer Inc. (“Pfizer”) of 674,156 shares of common stock and an accompanying warrant to purchase an additional 505,617 shares of its common stock at an exercise price of $4.90 per share (the “Pfizer Warrant”). The offering price for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock was at a price of $4.45 per share of common stock, resulting in net proceeds to the Company of approximately $3.0 million.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial information as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2019 was derived from the Company’s audited consolidated financial statements. The Company’s audited consolidated financial statements as of and for the year ended December 31, 2019, including all related disclosures and the complete listing of significant accounting policies as described in Note 2 thereof, are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 18, 2020.

In the opinion of management, the unaudited financial information as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

8

Principles of Consolidation

The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for interactions with the European Economic Area. This subsidiary is dormant or is otherwise non-operative. Any inter-company accounts have been eliminated in consolidation.

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, the Company’s ability to raise capital and the effects of the novel coronavirus, or COVID-19, on the Company’s business, operations and financial performance and position.

During the nine months ended September 30, 2020, COVID-19 was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and government measures taken in response have had an impact, both directly and indirectly, on the Company. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, research and development costs and clinical trial progress, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international vendors, suppliers and investors.

There was no impact from the effects of the COVID-19 pandemic on the Company’s financial statements for the three and nine ended September 30, 2020. Given the daily evolution of the pandemic and the global responses to curb its spread, the Company is not currently able to estimate the effects, if any, of the COVID-19 pandemic on its future results of operations, financial condition, or liquidity.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to accruals, stock-based compensation, valuation of warrant liabilities and income taxes. The Company’s actual results may differ from these estimates under different assumptions or conditions, including the effects of significant risks and uncertainties.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Marketable Securities

Marketable securities consist of investments in corporate debt securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. The Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability

 

9

to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Marketable securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive (loss) income in stockholders’ equity and a component of total comprehensive income (loss) in the consolidated statements of comprehensive income (loss), until realized. The fair value of these securities is based on quoted prices for identical or similar assets. The Company utilizes the specific identification method in computing realized gains and losses on sales of its marketable securities. Realized gains and losses are included in other income (expense) in the consolidated statements of operations. There were $9,609 of realized gains on sales of marketable securities for the three and nine months ended September 30, 2020. There were no realized gains or losses for the three and nine months ended September 30, 2019. There were no marketable securities that had been in an unrealized loss position for more than 12 months as of September 30, 2020 or December 31, 2019.

The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than- temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The fair value of the Company’s warrant liabilities are based upon unobservable inputs, as described further below.

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality.

The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reported in the accompanying financial statements for accounts payable and accrued expenses approximate their respective fair values due to their short-term maturities. The fair value of the warrant liabilities is discussed in Note 4, “Fair Value Measurements.”

Stock-based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, non-employees and non-employee directors, including employee stock options. For employee and non-employee directors, compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis. For non-employees, effective January 1, 2019, unvested option compensation expense is based on the adoption date fair value and is amortized over the service period on a straight-line basis.

 

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The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock options on the date of grant for employee and non-employee directors and as of January 1, 2019 for the unvested non-employee stock options based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on historical data.

Grants

The Company recognizes a receivable and the related reduction in its research and development expenses when the actual reimbursable costs have been incurred and there is reasonable assurance that the Company has complied with the conditions of the grants and the amounts will be received. The Company recognized a reduction to its research and development expense in the amount of approximately $1.0 million and $1.3 million for the three months ended September 30, 2020 and 2019 respectively, and $3.4 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively. The receivable for grants as of September 30, 2020 and December 31, 2019 was approximately $0.8 million and $1.1 million, respectively, and is included in prepaid expenses and other current assets on the balance sheet. The Company has approximately $9.1 million of approved grant award funding remaining as of September 30, 2020.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of a dilutive net loss per share calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive given the Company’s net loss. Common stock equivalents may also be excluded from the calculation of diluted net income per share if the exercise prices exceed the average market price for the reporting period.

Recently Adopted Accounting Pronouncements

Disclosure Requirements for Fair Value Measurements

The Company adopted Accounting Standards Update, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (ASU 2018-13), as of January 1, 2020. The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard had no impact on the Company’s disclosures.

Leases

The Company adopted Accounting Standards Update No. 2016-02-Leases (Topic 842), as of January 1, 2019, using the optional modified retrospective approach with no cumulative-effect adjustment to equity as of January 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which among other things, allowed it to carry forward the historical lease classification of those leases in place as of January 1, 2019 and to not separate lease and non-lease components when the requisite criteria is met to be treated as such. The Company determined that the only contract containing a lease was the lease of its corporate headquarters at 28 Wells Avenue in Yonkers, New York (see Note 7, “Commitments” in these consolidated financial statements for a description of the leases).

We recognize right-of-use (“ROU”) assets at the inception of the arrangement as the present value of the lease payments plus our initial direct costs, if any, less any lease incentives. The corresponding liability is computed as the present value of the lease payments at inception. Assets are classified as either operating or finance ROU assets according to the classification criteria in ASC 842. The present value of the lease payments is computed using the rate implicit in the lease, if known, or our incremental borrowing rate. Operating lease costs are charged to operations on a straight- line basis over the term of the lease. Under our policy, we do not record a ROU asset or corresponding liability for arrangements when the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.

Adoption of the new standard resulted in the recording of ROU assets, net of deferred rent and a lease incentive obligation, of $3.3 million and lease liabilities of approximately $4.1 million as of January 1, 2019. The lease liability was classified between a current portion of $0.6 million and a long-term portion of $3.5 million. The standard did not impact our consolidated net income (loss) and had no impact on cash flows.

 

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Non-employee stock compensation

The Company adopted Accounting Standards Update, Compensation-Stock Compensation (ASU 2018-07), as of January 1, 2019. The Company elected to utilize the contractual term for its outstanding option grants to non-employees and to recognize forfeitures of awards when incurred. The adoption of ASU 2018-07 did not have a material impact on its consolidated financial statements.

Statements of equity

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. Additionally, the amendments expanded the disclosure requirements on the consolidated statements of equity for interim financial statements. Under the amendments, a summary of changes in each caption of stockholders’ equity presented in the consolidated balance sheets must be provided in a note or separate statement. The consolidated statements of equity should present a reconciliation of a beginning balance to the ending balance of each period for which the consolidated statement of comprehensive income is required to be filed. This final rule was effective in the fourth quarter of 2018. The SEC provided relief on the effective date until the first quarter of 2019, and we adopted this rule in the first quarter of 2019.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued a new Accounting Standards Update, Financial Instruments-Credit Losses (ASU 2016-13). ASU 2016-13 amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that this new standard will have on its financial statements and related disclosures.

3. Marketable Securities

Marketable securities at September 30, 2020 consisted of the following:

 

		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Current:
Corporate debt		$	32,091,015			$	7,005			$	(15,311	)		$	32,082,709

The Company held no marketable securities as of December 31, 2019.

Corporate debt includes obligations issued by investment-grade corporations, and may include securities that have been guaranteed by governments and government agencies. Investments classified as current have maturities of less than one year, or, for investments that have maturities of greater than one year, management may liquidate within the next twelve months. All of the Company’s marketable securities have an effective maturity of less than two years.

At September 30, 2020, the Company held 15 debt securities that individually and in total were in an unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss position at September 30, 2020 was $19,592,520. The Company evaluated its securities for other- than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It is not more likely than not that the Company will be required to sell the securities prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of September 30, 2020.

 

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4. Fair Value Measurements

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 September 30, 2020 and December 31, 2019:

 

		Fair Value Measurement as of September 30, 2020
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	16,009,456			$	—			$	—
Marketable securities			32,082,709				—				—
Warrant liabilities			—				—				33,659,991
Total		$	48,092,165			$	—			$	33,659,991

 

		Fair Value Measurement as of December 31, 2019
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	21,433,639			$	—			$	—
Warrant liabilities			—				—				6,068,978
Total		$	21,433,639			$	—			$	6,068,978

The Company issued warrants to the purchasers of its July 27, 2016 offering (the “2016 Warrants”), The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The 2016 Warrants are re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2020				As of December 31, 2019
Expected volatility			119.4	%			121.4	%
Remaining contractual term (in years)			0.83				1.58
Risk-free interest rate			0.12	%			1.59	%
Expected dividend yield			—	%			—	%

The Company issued warrants to the purchasers of its July 25, 2017 offering (the “2017 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The 2017 Warrants are re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2020				As of December 31, 2019
Expected volatility			123.6	%			104.2	%
Remaining contractual term (in years)			1.83				2.58
Risk-free interest rate			0.13	%			1.60	%
Expected dividend yield			—	%			—	%

 

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The Company issued warrants to the purchasers of its 2020 Offering (the “2020 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The 2020 Warrants are re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2020				At Issuance May 27, 2020
Expected volatility			109.8	%			106.4	%
Remaining contractual term (in years)			2.67				3.00
Risk-free interest rate			0.16	%			0.22	%
Expected dividend yield			—	%			—	%

The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2020 and 2019:

Warrant liabilities

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Balance at beginning of period		$	44,349,846			$	4,345,902			$	6,068,978			$	20,781,663
Issuance of 2020 Warrants			—				—				31,391,369				—
Decrease in fair value (1)			(10,689,855	)			(2,186,710	)			(3,800,356	)			(18,622,471	)
Balance at end of period		$	33,659,991			$	2,159,192			$	33,659,991			$	2,159,192

 

(1)	The change in fair values of the warrant liabilities is recorded in other income (expense) in the consolidated statement of operations.

The key inputs into the Black-Scholes option pricing model are the current per-share value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities.

5. Accrued Liabilities

Accrued liabilities consist of the following:

 

		September 30, 2020				December 31, 2019
Accrued compensation costs		$	1,082,550			$	1,621,008
Accrued research and development service fees			388,227				3,865,146
Accrued professional fees			369,496				842,613
Accrued facilities operation expenses			154,787				180,158
Other accrued liabilities			1,260				63,387
Accrued insurance costs			—				231,477
Total accrued liabilities		$	1,996,320			$	6,803,789

6. Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding. For the nine months ended September 30, 2020 and each of the three and nine months ended September 30, 2019, the Company incurred a net loss and therefore diluted net loss per share is the same as basic net loss per share as the Company excluded certain potentially dilutive securities from the computation of diluted weighted average shares outstanding as they would have been anti-dilutive. For the three months ended September 30, 2020, the impact of the outstanding 2020 Warrants was determined to be dilutive. As a result, the Company adjusted the numerator amount used in the calculation of net income (loss) per diluted share to remove the gain associated with the change in fair value of $8,826,913. Additionally, the 1,269,938 net shares required under the treasury stock method upon exercise of the 2020 Warrants were included in the denominator in the calculation of diluted net loss per share.

 

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The following table sets forth the computation of basic and diluted net income (loss) per share for common stockholders:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Net income (loss) – basic		$	3,444,431			$	(5,359,118	)		$	(21,751,291	)		$	(2,439,009	)
Less: decrease in fair value of 2020 Warrants, net of tax			(8,826,913	)			—				—				—
Net loss – diluted		$	(5,382,482	)		$	(5,359,118	)		$	(21,751,291	)		$	(2,439,009	)
Shares used in computing basic net income (loss) income per share			27,809,169				7,940,931				21,069,057				7,940,931
Plus: dilutive effect of 2020 Warrants			1,269,938				—				—				—
Shares used in computing diluted net loss per share			29,079,107				7,940,931				21,069,057				7,940,931
Basic net income (loss) per share		$	0.12			$	(0.67	)		$	(1.03	)		$	(0.31	)
Diluted net loss per share		$	(0.19	)		$	(0.67	)		$	(1.03	)		$	(0.31	)

The following table sets forth the potentially dilutive securities outstanding for the three and nine months ended September 30, 2020 and 2019 that were excluded from the computation of diluted weighted average shares outstanding:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Options to purchase common stock			1,864,631				1,246,580				1,864,631				1,246,580
Warrants to purchase common stock			3,006,499				3,033,905				12,354,580				3,033,905
Total			4,871,130				4,280,485				14,219,211				4,280,485

7. Commitments

Leases

As described in Note 2, “Summary of Significant Accounting Policies”, we adopted Topic 842 as of January 1, 2019.

In December 2010, the Company entered into a non-cancellable operating lease for office space and laboratory facilities in Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the term of the lease through December 2027 (the “Third Floor Lease”). The lease provides for the option to renew for two additional five-year terms. The premises were occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.

In January 2012, the Company entered into a non-cancellable operating lease for additional office space and laboratory facilities in the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space under the Fourth Floor Lease and was relieved of its obligations related to such space.

The Company performed an evaluation of its other contracts in accordance with Topic 842 and has determined that, except for the leases described above, none of its contracts contain a lease.

The balance sheet classification of the Company’s lease liabilities was as follows:

 

Description		September 30, 2020				December 31, 2019
Operating lease liabilities:
Current portion of lease liabilities		$	641,249			$	631,889
Long-term portion of lease liabilities		$	3,038,056			$	3,264,128

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. The leases are renewable at the end of the lease term at our option. For the purposes of determining the remaining lease term in contemplation of available extensions, the Company did not consider either renewal to be probable at this time. In determining the present value of lease payments, the Company estimated its incremental borrowing rate based on the information available at the adoption date of Topic 842. As of January 1, 2019, the remaining lease term was 9.0 years and the discount rate used to determine the operating lease liability was 9.93%.

 

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As of September 30, 2020, the maturities of the Company’s operating lease liabilities were as follows:

 

		Amount
October 1, 2020-December 31, 2020		$	166,598
Year ending December 31:
2021			679,719
2022			693,313
2023			707,179
2024			721,323
Thereafter			2,251,688
Total lease payments			5,219,820
Less: Present value adjustment			(1,540,515	)
Operating lease liabilities		$	3,679,305

Lease costs under the terms of the Company’s leases for the three and nine months ended September 30, 2020 and 2019 were as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Operating lease cost (1)		$	153,734			$	153,809			$	460,756			$	460,990
Variable lease costs (2)			43,139				30,034				88,752				81,151
Total lease cost		$	196,873			$	183,843			$	549,508			$	542,141

 

(1)	Operating lease payments included in the measurement of the Company’s lease liabilities are comprised of fixed payments according to the terms of the Company’s leases.

(2)

Variable lease payments consist of the Company’s utility costs billed by and paid to its landlord. Variable lease payments are presented as operating expenses in the Company’s Consolidated Statement of Operations in the same line item as expense arising from fixed lease payments and in net cash used in operating activities in the Company’s Statement of Cash Flows.

8. Capital Structure

Common Stock

In February 2020, the Company’s board of directors approved a 1-for-10 reverse stock-split of the Company’s outstanding shares of common stock, warrants and options and options available for future issuance. The stock split became effective on February 3, 2020. Accordingly, all share and per share amounts for prior periods in the accompanying financial statements and notes have been retroactively adjusted, where applicable, to reflect this reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately decreased and the respective per share value and exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. In addition, the board of directors approved a decrease in the number of authorized shares of common stock from 200,000,000 shares to 125,000,000 shares.

Follow-on Offerings

On May 27, 2020, the Company completed an underwritten public offering of 11,797,752 shares of its common stock and warrants to purchase an additional 8,848,314 shares of its common stock at an exercise price of $4.90 per share. The public offering price was $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $48.9 million after underwriting discounts and commissions and offering expenses payable by the Company. The Company completed a concurrent private placement to Pfizer of 674,156 shares of common stock and an accompanying warrant to purchase an additional 505,617 shares of its common stock at an exercise price of $4.90 per share at a price of $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $3.0 million.

On December 18, 2019, the Company completed an underwritten public offering of 2,565,000 shares of its common stock resulting in gross proceeds to the Company of approximately $10.0 million. On December 12, 2019, the Company completed an underwritten public offering of 3,715,000 shares of its common stock and a concurrent private placement of 1,111,111 shares of common stock to Pfizer resulting in total gross proceeds to the Company of approximately $13.0 million. The combined net proceeds of both public offerings together with the private placement was $21.3 million after underwriting discounts and commissions and offering expenses payable by the Company.

 

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The 2020 Warrants, 2017 Warrants and 2016 Warrants contain a fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Due to this conditional obligation, the Company determined that the 2020 Warrants, the 2017 Warrants and the 2016 Warrants should be classified as liabilities in the Company’s consolidated balance sheet. At issuance, the Company determined the fair value of the 2020 Warrants, the 2017 Warrants and 2016 Warrants to be $31.4 million, $12.4 million and $18.6 million, respectively, and reclassified these balances from stockholders’ equity to warrant liability. The fair value of these warrants is re-measured at each reporting period and changes in fair value are recognized in the consolidated statement of operations (see Note 4, “Fair Value Measurements”). Additionally, the Company allocated approximately $2.2 million, $0.9 million and $1.6 million of issuance costs to the 2020 Warrants, the 2017 Warrants and 2016 Warrants, respectively, based on the proportion of the proceeds allocated to the fair value of the warrants. The allocated issuance costs were expensed as other expense in the Company’s consolidated statement of operations.

The Pfizer Warrant does not contain the same fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Therefore, the Company determined that the Pfizer Warrant should be classified as equity in the Company’s consolidated balance sheet.

On August 14, 2020, the Company filed a new shelf registration statement on Form S-3 (the “Form S-3”) with the SEC. The Form S-3 was declared effective by the SEC on August 31, 2020. The Form S-3 allows the Company to offer and sell from time-to-time up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities.

Private Placement

On June 12, 2015, the Company closed a private placement of its securities with a group of institutional investors (the “PIPE”). Each investor received one share of common stock and a warrant to purchase one-half share of common stock at a price of $42.30 per common share purchased. None of the investor warrants were exercised prior to expiration on June 12, 2018 and therefore have been terminated and are no longer exercisable. The placement agents in the PIPE received warrants to purchase 4% of the total number of shares of common stock sold in the PIPE (the “Placement Agent Warrants”), for a total of 18,915 shares of common stock underlying the Placement Agent Warrants. The Placement Warrants expired on June 11, 2020 and therefore have been terminated and are no longer exercisable.

Voting

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.

Dividends

The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. As of September 30, 2020, no dividends have been declared or paid on the Company’s common stock since inception.

 

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Reserved for Future Issuance

The Company has reserved for future issuance the following number of shares of common stock as of September 30, 2020 and December 31, 2019:

 

		September 30, 2020				December 31, 2019
Outstanding options to purchase common stock			1,864,631				1,216,338
Outstanding warrants to purchase common stock			12,354,580				3,033,910
For future issuance under the 2014 Plan			55,075				101,625
			14,274,286				4,351,873

9. Stock Warrants

As of September 30, 2020 and December 31, 2019, the Company had warrants outstanding as shown in the table below.

 

		September 30, 2020				December 31, 2019
2020 Warrants			8,842,464				—
2017 Warrants			1,599,645				1,599,645
2016 Warrants			1,400,000				1,400,000
Pfizer Warrant			505,617				—
Placement Agent Warrants			—				18,915
Other warrants (1)			6,854				15,350
Warrants to purchase common stock			12,354,580				3,033,910
Weighted-average exercise price per share		$	9.16			$	22.61

 

(1)	Other warrants are comprised of warrants issued prior to the Company’s IPO, generally in exchange for services rendered to the Company.

The following table summarizes information regarding the Company’s warrants outstanding at September 30, 2020:

 

Exercise Prices		Shares Underlying Outstanding Warrants				Expiration Date
£$10.00			9,348,652			September 1, 2021 – May 27, 2023
$10.01 - $19.99			1,599,645			July 25, 2022
³$20.00			1,406,283			October 26, 2020 – January 5, 2022
			12,354,580

10. Stock Option and Incentive Plans

Amended and Restated 2008 Equity Incentive Plan

In July 2008, the Company adopted the 2008 Equity Incentive Plan (the “Plan”). On February 26, 2013, the board of directors approved an amended and restated plan (the “Amended Plan”) under which the number of shares of common stock available for issuance was 157,143. For new awards, the period that vested awards would remain exercisable upon termination of service was reduced from ten years to two years. The board of directors also increased the number of shares of common stock available under the Company’s Amended Plan on February 24, 2014 and April 29, 2014 to 185,714 and 235,714, respectively. As of the closing of the Company’s IPO, there were no further grants made under the Amended Plan.

2014 Omnibus Incentive Plan

In April 2014, the Company’s board of directors adopted the 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders on July 3, 2014. The 2014 Plan allows for the granting of incentive and non-qualified stock options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards to the Company’s employees, members of the board of directors and consultants of the Company. On July 28, 2014, the effective date of the 2014 Plan, the number of shares of common stock reserved pursuant to the 2014 Plan was 57,143. The 2014 Plan provides for an annual increase,

 

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to be added on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2015 and ending on January 1, 2024, equal to the lesser of (i) 4% of the outstanding shares of common stock on December 31 immediately preceding such date or (ii) a lesser amount determined by the Company’s board of directors. Consistent with the provision for an annual increase, an additional 1,582,967 shares of common stock have been reserved under the 2014 Plan as of September 30, 2020.

The Company recognized compensation expense for stock-based compensation based on the fair value of the underlying instrument. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. A summary of stock option activity for the nine months ended September 30, 2020, is summarized as follows:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (in years)				Aggregate Intrinsic Value
Options outstanding at December 31, 2019			1,216,338			$	19.75
Granted			789,000				9.77
Exercised			(750	)			4.50
Expired			(37,988	)			41.78
Forfeited			(101,969	)			12.85
Options outstanding at September 30, 2020			1,864,631			$	15.46				7.57			$	568,320
Vested and exercisable at September 30, 2020			890,955			$	23.73				5.92			$	198,713

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options granted during the three months ended September 30, 2020 and 2019 was $5.66, and $5.02 respectively, and during the nine months ended September 30, 2020 and 2019 was $9.77 and $4.25, respectively. Total compensation expense recognized amounted to $651,649 and $392,005 for the three months ended September 30, 2020 and 2019, respectively, and $1,936,817 and $1,805,706 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the total remaining unrecognized compensation cost related to unvested stock options was approximately $5.8 million which will be recognized over a weighted average period of approximately 2.89 years.

The following assumptions were used to compute the fair value of stock options granted during the period:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Risk free interest rate			0.27	%			1.58	%			1.15	%			2.35	%
Expected dividend yield			—				—				—				—
Expected term (in years)			6.12				5.58				6.03				6.06
Expected volatility			97.4	%			90.6	%			94.6	%			89.7	%

Expected volatility—The Company based the expected volatility on the historical volatility of its own common shares.

Expected term—The Company based expected term on the midpoint of the vesting period and the contractual term of each respective option grant.

Risk-free interest rate—The Company estimated the risk-free interest rate in reference to yield on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award.

Expected dividend yield—The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to common stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in its continued growth.

 

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