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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
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Delaware
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20-4427682
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(State or other jurisdiction of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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4105 Hopson Road
Morrisville, North Carolina
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27560
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(Address of principal executive offices)
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(zip code)
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Large Accelerated filer
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¨
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Accelerated filer
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¨
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Non-Accelerated filer
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x
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Smaller reporting company
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x
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Emerging growth company
|
x
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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Common Stock, $0.0001 par value
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NOVN
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Nasdaq Global Market
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Page
|
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Item 1.
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||
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Item 2.
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Item 3.
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Item 4.
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||
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Item 1.
|
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Item 1A.
|
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Item 2.
|
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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March 31, 2019
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December 31, 2018
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||||
ASSETS
|
|
|
|
|
|
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Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
6,077
|
|
|
$
|
8,194
|
|
Deferred offering costs
|
49
|
|
|
49
|
|
||
Prepaid expenses and other current assets
|
1,062
|
|
|
1,107
|
|
||
Total current assets
|
7,188
|
|
|
9,350
|
|
||
Restricted cash
|
539
|
|
|
539
|
|
||
Intangible assets
|
75
|
|
|
75
|
|
||
Other assets
|
501
|
|
|
530
|
|
||
Property and equipment, net
|
11,657
|
|
|
15,868
|
|
||
Right-of-use lease assets
|
1,833
|
|
|
—
|
|
||
Total assets
|
$
|
21,793
|
|
|
$
|
26,362
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
1,510
|
|
|
$
|
1,250
|
|
Accrued compensation
|
2,082
|
|
|
1,467
|
|
||
Accrued outside research and development services
|
817
|
|
|
563
|
|
||
Accrued legal and professional fees
|
258
|
|
|
498
|
|
||
Other accrued expenses
|
516
|
|
|
871
|
|
||
Deferred revenue, current portion
|
4,401
|
|
|
4,401
|
|
||
Lease liabilities, current portion
|
1,139
|
|
|
11
|
|
||
Total current liabilities
|
10,723
|
|
|
9,061
|
|
||
Deferred revenue, net of current portion
|
5,926
|
|
|
2,566
|
|
||
Lease liabilities, net of current portion
|
5,544
|
|
|
10
|
|
||
Warrant liability
|
1,628
|
|
|
1,240
|
|
||
Other long-term liabilities
|
335
|
|
|
289
|
|
||
Facility financing obligation
|
—
|
|
|
7,998
|
|
||
Total liabilities
|
24,156
|
|
|
21,164
|
|
||
Commitments and contingencies (Notes 3, 4, 7, 10 and 11)
|
|
|
|
|
|
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Stockholders’ (deficit) equity
|
|
|
|
|
|
||
Common stock $0.0001 par value; 200,000,000 shares authorized as of March 31, 2019 and December 31, 2018; 26,079,234 and 26,066,235 shares issued as of March 31, 2019 and December 31, 2018, respectively; 26,069,734 and 26,056,735 shares outstanding as of March 31, 2019 and December 31, 2018, respectively
|
3
|
|
|
3
|
|
||
Additional paid-in capital
|
177,855
|
|
|
177,677
|
|
||
Treasury stock at cost, 9,500 shares as of March 31, 2019 and December 31, 2018
|
(155
|
)
|
|
(155
|
)
|
||
Accumulated deficit
|
(180,066
|
)
|
|
(172,327
|
)
|
||
Total stockholders’ (deficit) equity
|
(2,363
|
)
|
|
5,198
|
|
||
Total liabilities and stockholders’ (deficit) equity
|
$
|
21,793
|
|
|
$
|
26,362
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
License and collaboration revenue
|
$
|
1,100
|
|
|
$
|
649
|
|
Research and development services revenue
|
—
|
|
|
9
|
|
||
Total revenue
|
1,100
|
|
|
658
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
4,827
|
|
|
6,335
|
|
||
General and administrative
|
2,994
|
|
|
2,880
|
|
||
Total operating expenses
|
7,821
|
|
|
9,215
|
|
||
Operating loss
|
(6,721
|
)
|
|
(8,557
|
)
|
||
Other (expense) income, net:
|
|
|
|
||||
Interest income
|
28
|
|
|
44
|
|
||
Interest expense
|
—
|
|
|
(262
|
)
|
||
Change in fair value of warrant liability
|
(388
|
)
|
|
3,558
|
|
||
Other income, net
|
56
|
|
|
—
|
|
||
Total other (expense) income, net
|
(304
|
)
|
|
3,340
|
|
||
Net loss and comprehensive loss
|
$
|
(7,025
|
)
|
|
$
|
(5,217
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.27
|
)
|
|
$
|
(0.21
|
)
|
Weighted-average common shares outstanding, basic and diluted
|
26,066,064
|
|
|
25,026,890
|
|
|
Three Months Ended March 31, 2019
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|||||||||||||||||||||
|
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Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
|
|
|
||||||||||||||
|
Common Stock
|
|
|
Accumulated
|
|
|
||||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
Deficit
|
|
Total
|
|||||||||||||
Balance as of December 31, 2018
|
26,056,735
|
|
|
$
|
3
|
|
|
$
|
177,677
|
|
|
$
|
(155
|
)
|
|
$
|
(172,327
|
)
|
|
$
|
5,198
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
—
|
|
|
168
|
|
|||||
Exercise of stock options
|
12,999
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,025
|
)
|
|
(7,025
|
)
|
|||||
Adoption of new accounting standards (Note 1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(714
|
)
|
|
(714
|
)
|
|||||
Balance as of March 31, 2019
|
26,069,734
|
|
|
$
|
3
|
|
|
$
|
177,855
|
|
|
$
|
(155
|
)
|
|
$
|
(180,066
|
)
|
|
$
|
(2,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Three Months Ended March 31, 2018
|
|||||||||||||||||||||
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
|
|
|
||||||||||||||
|
Common Stock
|
|
|
Accumulated
|
|
|
||||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
Deficit
|
|
Total
|
|||||||||||||
Balance as of December 31, 2017
|
16,005,408
|
|
|
$
|
2
|
|
|
$
|
158,091
|
|
|
$
|
(155
|
)
|
|
$
|
(159,654
|
)
|
|
$
|
(1,716
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
887
|
|
|||||
Common stock issued through public offering, net of underwriting discounts, warrants, commissions and offering costs (Note 1)
|
10,000,000
|
|
|
1
|
|
|
17,387
|
|
|
—
|
|
|
—
|
|
|
17,388
|
|
|||||
Exercise of stock options
|
33,334
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,217
|
)
|
|
(5,217
|
)
|
|||||
Balance as of March 31, 2018
|
26,038,742
|
|
|
$
|
3
|
|
|
$
|
176,402
|
|
|
$
|
(155
|
)
|
|
$
|
(164,871
|
)
|
|
$
|
11,379
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Cash flow from operating activities:
|
|
|
|
|
|
||
Net loss
|
$
|
(7,025
|
)
|
|
$
|
(5,217
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
||||
Depreciation and amortization
|
503
|
|
|
401
|
|
||
Share-based compensation
|
214
|
|
|
887
|
|
||
Change in fair value of warrant liability
|
388
|
|
|
(3,558
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Prepaid expenses and other current assets
|
45
|
|
|
(6
|
)
|
||
Accounts payable
|
242
|
|
|
353
|
|
||
Accrued compensation
|
615
|
|
|
(1,191
|
)
|
||
Accrued outside research and development services
|
254
|
|
|
(134
|
)
|
||
Accrued legal and professional fees
|
(199
|
)
|
|
67
|
|
||
Other accrued expenses
|
(406
|
)
|
|
(621
|
)
|
||
Deferred revenue
|
3,360
|
|
|
(645
|
)
|
||
Other long-term assets
|
(101
|
)
|
|
16
|
|
||
Net cash used in operating activities
|
(2,110
|
)
|
|
(9,648
|
)
|
||
Cash flow from investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(17
|
)
|
|
(140
|
)
|
||
Proceeds from the sale of property and equipment
|
—
|
|
|
—
|
|
||
Net cash used in investing activities
|
(17
|
)
|
|
(140
|
)
|
||
Cash flow from financing activities:
|
|
|
|
||||
Proceeds from public offering, net of underwriting fees and commissions
|
—
|
|
|
35,625
|
|
||
Payments related to public offering costs
|
—
|
|
|
(296
|
)
|
||
Proceeds from exercise of stock options
|
10
|
|
|
37
|
|
||
Payments on capital lease obligation
|
—
|
|
|
(2
|
)
|
||
Net cash provided by financing activities
|
10
|
|
|
35,364
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash
|
(2,117
|
)
|
|
25,576
|
|
||
Cash, cash equivalents and restricted cash as of beginning of period
|
8,733
|
|
|
3,063
|
|
||
Cash, cash equivalents and restricted cash as of end of period
|
$
|
6,616
|
|
|
$
|
28,639
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
||||
Purchases of property and equipment with accounts payable and accrued expenses
|
$
|
69
|
|
|
$
|
191
|
|
Non-cash addition to deferred offering costs
|
$
|
—
|
|
|
$
|
25
|
|
Deferred offering costs reclassified to additional paid-in capital
|
$
|
—
|
|
|
$
|
431
|
|
|
|
|
|
||||
Reconciliation to condensed consolidated balance sheets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
6,077
|
|
|
$
|
28,100
|
|
Restricted cash included in noncurrent assets
|
539
|
|
|
539
|
|
||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
$
|
6,616
|
|
|
$
|
28,639
|
|
•
|
The Company has reported a net loss in all fiscal periods since inception and, as of
March 31, 2019
, the Company had an accumulated deficit of $
180,066
.
|
•
|
As described in Note 13—Subsequent Events, in April 2019 and May 2019 the Company entered into (i) a royalty and milestone payments purchase agreement with a stockholder providing
$25,000
of immediate funding, with an additional
$10,000
contingent upon achieving successful top-line results of the SB206 Phase 3 clinical trials no later than March 31, 2020; and (ii) a development funding and royalties agreement with a corporate partner providing
$12,000
of immediate funding. The Company believes that its existing cash and cash equivalents, expected contractual payments to be received in connection with previous licensing agreements, and the addition of the
$25,000
and
$12,000
received through these funding transactions will (i) provide the Company with adequate liquidity to fund its planned operating needs into the first quarter of 2020, including through expected top-line results of the Phase 3 molluscum clinical program targeted in the first quarter of 2020, or before; and (ii) into the second quarter of 2020, if paired with the potential
$10,000
funding contingent upon achieving successful top-line results of the SB206 Phase 3 clinical trials no later than March 31, 2020. As of May 7, 2019, the total of
$37,000
of immediate funds related to these two agreements had been received by the Company.
|
•
|
The Company’s primary use of cash is to fund its operating expenses, which consist principally of research and development expenditures necessary to advance its product candidates. The Company has evaluated its
|
|
March 31,
|
||||
|
2019
|
|
2018
|
||
Warrants to purchase common stock associated with January 2018 public offering (Note 9)
|
10,000,000
|
|
|
10,000,000
|
|
Stock options outstanding under the 2008 and 2016 Plans (Note 10)
|
1,544,857
|
|
|
1,560,134
|
|
Inducement options outstanding (Note 10)
|
100,500
|
|
|
—
|
|
•
|
An upfront payment of
1.25 billion
Japanese Yen, or “JPY”, payable in installments of
0.25 billion
JPY,
0.5 billion
JPY and
0.5 billion
JPY on October 5, 2018,
February 14, 2019
and
September 13, 2019
, respectively. This is in addition to the
1.25 billion
JPY (approximately $
10,813
USD) paid on January 19, 2017 following the execution of the Sato Amendment on January 12, 2017. On October 23, 2018, the Company received the first installment from the Amended Sato Agreement of
0.25 billion
JPY (approximately
$2,224
USD). On March 14, 2019, the Company received the second installment payment related to the Amended Sato Agreement of
0.5 billion
JPY (approximately
$4,460
USD).
|
•
|
Up to an aggregate of
1.75 billion
JPY (adjusted from
2.75 billion
JPY in the Sato Agreement) upon the achievement of various development and regulatory milestones, including (i) a
0.25 billion
JPY (approximately
$2,162
USD) milestone payment received during the fourth quarter of 2018 following Sato’s initiation of a Phase 1 trial in Japan and (ii) an aggregate of
1.0 billion
JPY that becomes payable upon the earlier occurrence of specified fixed future dates or the achievement of milestone events.
|
•
|
Up to an aggregate of
3.9 billion
JPY (adjusted from
0.9 billion
JPY in the Sato Agreement) upon the achievement of various commercial milestones.
|
•
|
A tiered royalty ranging from a mid-single digit to a low-double digit percentage (adjusted from a mid-single digit percentage in the Sato Agreement) of net sales of licensed products in the licensed territory, subject to a reduction in the royalty payments in certain circumstances.
|
•
|
The
1.25 billion
JPY (approximately
$10,813
USD) original upfront payment received on January 19, 2017 following the execution of the Sato Agreement on January 12, 2017.
|
•
|
A milestone payment of
0.25 billion
JPY (approximately
$2,162
USD) received during the fourth quarter of 2018 following Sato’s initiation of a Phase 1 trial in Japan.
|
•
|
The Sato Amendment upfront payment of
1.25 billion
JPY, payable in installments of
0.25 billion
JPY,
0.5 billion
JPY and
0.5 billion
JPY on October 5, 2018, February 14, 2019 and September 13, 2019, respectively. On October 23, 2018, the Company received the first installment from the Amended Sato Agreement of
0.25 billion
JPY (approximately
$2,224
USD). On March 14, 2019, the Company received the second installment payment related to the Amended Sato Agreement of
0.5 billion
JPY (approximately
$4,460
USD).
|
•
|
An aggregate of
1.0 billion
JPY in non-contingent milestone payments that become payable upon the earlier occurrence of specified fixed dates in the future or the achievement of specified milestone events.
|
|
Contract Asset
|
|
Contract Liability
|
|
Net Deferred Revenue
|
||||||
December 31, 2018
|
$
|
17,790
|
|
|
$
|
24,757
|
|
|
$
|
6,967
|
|
|
|
|
|
|
|
||||||
March 31, 2019
|
$
|
13,330
|
|
|
$
|
23,657
|
|
|
$
|
10,327
|
|
|
|
|
|
|
|
||||||
|
Short-term Deferred Revenue
|
|
Long-term Deferred Revenue
|
|
Net Deferred Revenue
|
||||||
December 31, 2018
|
$
|
4,401
|
|
|
$
|
2,566
|
|
|
$
|
6,967
|
|
|
|
|
|
|
|
||||||
March 31, 2019
|
$
|
4,401
|
|
|
$
|
5,926
|
|
|
$
|
10,327
|
|
•
|
The Company entered into an agreement with a third party to assist the Company in exploring the licensing opportunity which led to the execution of the Sato Agreement. The Company is obligated to pay the third party a low-single-digit percentage of all upfront and milestone payments the Company receives from Sato under the Amended Sato Agreement.
|
•
|
The intellectual property rights granted to Sato under the Sato Agreement include certain intellectual property rights which the Company has licensed from UNC. Under the Company’s license agreement with UNC described in Note 3—Research and Development Licenses, the Company is obligated to pay UNC a running royalty percentage in the low single digits on net sales of licensed products, including net sales that may be generated by Sato. Additionally, the Company is obligated to make payments to UNC that represent the portion of the Sato upfront and milestone payments that were estimated to be directly attributable to the UNC intellectual property rights included in the license to Sato.
|
|
March 31,
2019 |
|
December 31,
2018 |
||||
Computer equipment
|
$
|
575
|
|
|
$
|
577
|
|
Furniture and fixtures
|
312
|
|
|
312
|
|
||
Laboratory equipment
|
7,494
|
|
|
7,442
|
|
||
Office equipment
|
400
|
|
|
400
|
|
||
Building related to facility lease obligation
|
—
|
|
|
10,557
|
|
||
Leasehold improvements
|
7,053
|
|
|
1,168
|
|
||
Property and equipment, gross
|
15,834
|
|
|
20,456
|
|
||
Less: Accumulated depreciation and amortization
|
(4,177
|
)
|
|
(4,588
|
)
|
||
Total property and equipment, net
|
$
|
11,657
|
|
|
$
|
15,868
|
|
|
Operating Leases
|
||
2019
|
$
|
1,170
|
|
2020
|
1,205
|
|
|
2021
|
1,241
|
|
|
2022
|
1,278
|
|
|
2023
|
1,317
|
|
|
Thereafter
|
3,467
|
|
|
Total minimum lease payments
|
$
|
9,678
|
|
Less imputed interest
|
(2,871
|
)
|
|
Total lease liability
|
$
|
6,807
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||
Outstanding stock options (Note 10)
|
1,645,357
|
|
|
1,671,666
|
|
Warrants to purchase common stock issued in January 2018 Offering (Note 9)
|
10,000,000
|
|
|
10,000,000
|
|
For possible future issuance under 2016 Stock Plan (Note 10)
|
703,519
|
|
|
699,376
|
|
|
12,348,876
|
|
|
12,371,042
|
|
|
March 31, 2019
|
||||||||||||||
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,628
|
|
|
$
|
1,628
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,628
|
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
|
||||||||
|
December 31, 2018
|
||||||||||||||
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,240
|
|
|
$
|
1,240
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,240
|
|
|
$
|
1,240
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||||
Estimated dividend yield
|
—
|
|
|
—
|
|
||
Expected volatility
|
81.21%-100%
|
|
|
77.74%-100%
|
|
||
Risk-free interest rate
|
2.21
|
%
|
|
2.46
|
%
|
||
Expected term (years)
|
2.78
|
|
|
3.02
|
|
||
Fair value per share of common stock underlying the warrant
|
$
|
0.96
|
|
|
$
|
0.83
|
|
Warrant exercise price
|
$
|
4.66
|
|
|
$
|
4.66
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Beginning Balance
|
$
|
1,240
|
|
|
$
|
—
|
|
Issuance
|
$
|
—
|
|
|
$
|
17,806
|
|
Revaluations Included In Earnings
|
$
|
388
|
|
|
$
|
(3,558
|
)
|
Exercises
|
$
|
—
|
|
|
$
|
—
|
|
Expirations
|
$
|
—
|
|
|
$
|
—
|
|
Ending Balance
|
$
|
1,628
|
|
|
$
|
14,248
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Research and development
|
$
|
61
|
|
|
$
|
420
|
|
General and administrative
|
153
|
|
|
467
|
|
||
|
$
|
214
|
|
|
$
|
887
|
|
|
Shares
Subject to
Outstanding
Options
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
Weighted-
Average
Remaining
Contractual
Term (in years)
|
|
Aggregate
Intrinsic
Value
|
|||||
Options outstanding as of December 31, 2018
|
1,671,666
|
|
|
$
|
5.42
|
|
|
|
|
|
||
Options granted
|
147,500
|
|
|
1.31
|
|
|
|
|
|
|||
Options forfeited
|
(160,810
|
)
|
|
4.64
|
|
|
|
|
|
|||
Options exercised
|
(12,999
|
)
|
|
0.76
|
|
|
|
|
|
|||
Options outstanding as of March 31, 2019
|
1,645,357
|
|
|
$
|
5.17
|
|
|
7.37
|
|
$
|
—
|
|
•
|
We will need substantial additional funding and as of
March 31, 2019
, we had an accumulated deficit of $
180.1 million
. If we are unable to raise capital when needed, we would be forced to delay, reduce, terminate or eliminate our product development programs, or eventual commercialization efforts.
|
•
|
We have entered into and rely on, and may enter into and rely on other, strategic relationships for the further development and commercialization of our product candidates and if we are unable to enter into such relationships on favorable terms or at all, or if such relationships are unsuccessful, if disputes arise between us and our strategic partners or if we fail to trigger contingent payments under such strategic relationships, we may be unable to realize the potential economic benefit of those product candidates.
|
•
|
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
|
•
|
Delay or termination of planned clinical trials for our product candidates could result in unplanned expenses or significantly adversely impact our commercial prospects with respect to, and ability to generate revenues from, such product candidates.
|
•
|
We may not be able to achieve the objectives described in the section entitled “Overview—Key Product Candidate Development Updates” below. The results of any further development activities may not be sufficient to support a new drug application, or NDA, submission for any of our product candidates, or regulatory approval of our product candidates.
|
•
|
The regulatory approval processes of the Food and Drug Administration, or FDA, are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
|
•
|
We specialize solely in developing nitric oxide-based therapeutics to treat a range of diseases with significant unmet needs, and if we do not successfully achieve regulatory approval for any of our product candidates or successfully commercialize them, we may not be able to continue as a business.
|
•
|
The issuance of shares upon exercise of our outstanding warrants and options may cause substantial dilution to our existing stockholders and reduce the trading price of our common stock.
|
•
|
As a result of our operating losses and negative cash flows from operations, the report of our independent registered public accounting firm on our December 31,
2018
financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.
|
•
|
We rely on third parties to conduct some of our preclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates.
|
•
|
We currently manufacture clinical trial materials internally and we intend to utilize third parties, including Orion Corporation, or Orion, to manufacture components of our clinical trial materials and, potentially, commercial supplies of any approved product candidates. If we do not have sufficient quantities of clinical trial materials at acceptable quality levels and within established timelines, it could adversely impact our development and potential future commercialization of any of our product candidates or result in our breaching our obligations to others.
|
•
|
Unexpected delays in our ability to manufacture our NVN1000 active pharmaceutical ingredient, or the associated drug product in a deliverable form, in our facility or at a third party manufacturer, and our ability to complete an agreement for the manufacture of our active pharmaceutical ingredient, for support of our development and/or commercialization activities could adversely affect our development and commercialization timelines and result in increased costs of our development programs.
|
•
|
We intend to rely on third parties to manufacture raw materials and drug product components utilized in clinical trial materials for us and parties with which we contract. Failure to transfer technology and processes to a third party effectively or failure of those third parties to obtain approval of and maintain compliance with the FDA or comparable regulatory authorities, to provide us with sufficient quantities of raw materials and drug product components or to provide such raw materials or drug product components at acceptable quality levels or prices could adversely impact our development and potential future commercialization of any of our product candidates or result in our breaching our obligations to others.
|
•
|
Our product candidates may pose safety issues, cause adverse events, have side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
|
•
|
Our product candidates, if approved, will face significant competition, and our failure to effectively compete may prevent us from achieving significant market penetration.
|
•
|
If we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.
|
•
|
Changes to our leadership team or operational resources could prove disruptive to our operations and have adverse consequences for our business and operating results.
|
•
|
We recently broadened the focus of our product development strategy, and there can be no guarantee that these areas of our platform will be successful or the most profitable.
|
•
|
In January 2019 we announced the following:
|
◦
|
Paula Brown Stafford was promoted to President and the newly created role of Chief Operating Officer while remaining a member of the Board of Directors.
|
◦
|
Dr. Carri Geer was promoted to Senior Vice President and Chief Technology Officer of Novan and will be responsible for integrating formulation and analytical science with clinical translation in order to modify existing molecules and generate NCE opportunities.
|
◦
|
Dr. Elizabeth Messersmith, Senior Vice President, was promoted to the role of Chief Development Officer with oversight of the clinical, medical, statistical, and regulatory activities of the Company. Dr. Messersmith joined us
in the role of Senior Vice President of Clinical Operations in May 2018.
|
◦
|
John M. Gay was promoted to Vice President of Finance and was appointed to serve as our Principal Financial Officer and Corporate Secretary, while continuing to serve as Corporate Controller. Mr. Gay joined us in the role of Senior Director of Finance, Corporate Controller in May 2018.
|
◦
|
Dr. Nathan Stasko stepped down as President and from the Board of Directors, as contemplated by his amended and restated employment agreement to occur following the appointment of G. Kelly Martin as Chief Executive Officer. Dr. Stasko subsequently resigned from all of his positions with the Company, including as Chief Scientific Officer.
|
◦
|
Jeff N. Hunter, our former Executive Vice President and Chief Business Officer, resigned from the Company, including from serving as our principal financial officer and Corporate Secretary, effective January 31, 2019. We entered into a consulting agreement with Mr. Hunter, which provides that Mr. Hunter will provide supporting consulting services related to two ongoing corporate development projects through September 30, 2019.
|
•
|
external research and development expenses incurred under agreements with contract research organizations, investigative sites and consultants to conduct our clinical trials and preclinical studies;
|
•
|
costs to acquire, develop and manufacture supplies for clinical trials and preclinical studies at our facilities;
|
•
|
costs to establish drug substance and drug product manufacturing capabilities, and to develop and manufacture such drug substance and drug product, with external contract manufacturing organizations;
|
•
|
legal and other professional fees related to compliance with FDA requirements;
|
•
|
licensing fees and milestone payments incurred under license agreements;
|
•
|
salaries and related costs, including share-based compensation and travel expenses, for personnel in our research and development functions; and
|
•
|
facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, utilities, equipment and other supplies.
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
External:
|
|
|
|
|
|
||
SB204
|
$
|
77
|
|
|
$
|
600
|
|
SB206
|
649
|
|
|
1,083
|
|
||
SB208
|
7
|
|
|
15
|
|
||
SB414
|
39
|
|
|
785
|
|
||
Unallocated internal research and development expenses
|
4,055
|
|
|
3,852
|
|
||
Total research and development expenses
|
$
|
4,827
|
|
|
$
|
6,335
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|||||||||
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|||||||
|
(in thousands, except percentages)
|
|||||||||||||
License and collaboration revenue
|
$
|
1,100
|
|
|
$
|
649
|
|
|
$
|
451
|
|
|
69
|
%
|
Research and development services revenue
|
—
|
|
|
9
|
|
|
(9
|
)
|
|
(100
|
)%
|
|||
Total revenue
|
1,100
|
|
|
658
|
|
|
442
|
|
|
67
|
%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||
Research and development
|
4,827
|
|
|
6,335
|
|
|
(1,508
|
)
|
|
(24
|
)%
|
|||
General and administrative
|
2,994
|
|
|
2,880
|
|
|
114
|
|
|
4
|
%
|
|||
Total operating expenses
|
7,821
|
|
|
9,215
|
|
|
(1,394
|
)
|
|
(15
|
)%
|
|||
Operating loss
|
(6,721
|
)
|
|
(8,557
|
)
|
|
1,836
|
|
|
(21
|
)%
|
|||
Other (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|||||
Interest income
|
28
|
|
|
44
|
|
|
(16
|
)
|
|
(36
|
)%
|
|||
Interest expense
|
—
|
|
|
(262
|
)
|
|
262
|
|
|
(100
|
)%
|
|||
Change in fair value of warrant liability
|
(388
|
)
|
|
3,558
|
|
|
(3,946
|
)
|
|
(111
|
)%
|
|||
Other income, net
|
56
|
|
|
—
|
|
|
56
|
|
|
100
|
%
|
|||
Total other (expense) income, net
|
(304
|
)
|
|
3,340
|
|
|
(3,644
|
)
|
|
(109
|
)%
|
|||
Net loss and comprehensive loss
|
$
|
(7,025
|
)
|
|
$
|
(5,217
|
)
|
|
$
|
(1,808
|
)
|
|
35
|
%
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
Net cash (used in) provided by:
|
|
|
|
|
|
||
Operating activities
|
$
|
(2,110
|
)
|
|
$
|
(9,648
|
)
|
Investing activities
|
(17
|
)
|
|
(140
|
)
|
||
Financing activities
|
10
|
|
|
35,364
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash
|
$
|
(2,117
|
)
|
|
$
|
25,576
|
|
•
|
the initiation, progress, timing, costs, results, and evaluation of results of trials for our clinical-stage product candidates, including trials conducted by us or potential future partners;
|
•
|
the progress, timing, costs and results of development and preclinical study activities relating to other potential applications of our nitric oxide platform;
|
•
|
the number and characteristics of product candidates that we pursue;
|
•
|
our ability to enter into strategic relationships to support the continued development of certain product candidates and the success of those arrangements;
|
•
|
our success in optimizing the size and capability of our current manufacturing facility and related processes to meet our strategic objectives;
|
•
|
our success in the technical transfer of methods and processes related to our drug substance and drug product manufacturing with our current and/or potential future contract manufacturing partners;
|
•
|
the outcome, timing and costs of seeking regulatory approvals;
|
•
|
the occurrence and timing of potential development and regulatory milestones achieved by Sato, our licensee for SB204 and SB206 in Japan;
|
•
|
the terms and timing of any future collaborations, licensing, consulting, financing or other arrangements that we may enter into;
|
•
|
whether we are able to obtain the contingent $10.0 million payout under the Purchase Agreement with Reedy Creek contingent upon achieving successful top-line results of the SB206 Phase 3 clinical trials no later than March 31, 2020;
|
•
|
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
|
•
|
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights;
|
•
|
defending against intellectual property related claims;
|
•
|
the costs associated with any potential future securities litigation, and the outcome of that litigation;
|
•
|
the extent to which we in-license or acquire other products and technologies; and
|
•
|
subject to receipt of marketing approval, revenue received from commercial sales or out licensing of our product candidates.
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
||||||
EXHIBIT NO.
|
|
DESCRIPTION
|
|
Filed Herewith
|
|
FORM
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
10.1
|
|
|
|
|
8-K
|
|
001-37880
|
|
10.1
|
|
January 7, 2019
|
|
10.2
|
|
|
|
|
10-K
|
|
001-37880
|
|
10.14
|
|
March 27, 2019
|
|
10.3
|
|
|
|
|
10-K
|
|
001-37880
|
|
10.16
|
|
March 27, 2019
|
|
10.4
|
†
|
|
|
|
10-K
|
|
001-37880
|
|
10.17
|
|
March 27, 2019
|
|
31.1
|
|
|
X
|
|
|
|
|
|
|
|
|
|
31.2
|
|
|
X
|
|
|
|
|
|
|
|
|
|
32.1
|
|
|
X
|
|
|
|
|
|
|
|
|
|
32.2
|
|
|
X
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
X
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
X
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Document.
|
|
X
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
|
†
|
Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
|
Novan, Inc.
|
||
|
||
By:
|
|
/s/ G. Kelly Martin
|
|
|
G. Kelly Martin
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
/s/ John M. Gay
|
|
|
John M. Gay
|
|
|
Vice President of Finance and Corporate Controller (Principal Financial Officer)
|
|
|
|
|
|
/s/ Andrew J. Novak
|
|
|
Andrew J. Novak
|
|
|
Vice President of Accounting and Business Operations (Principal Accounting Officer)
|
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Novan, Inc. (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 15, 2019
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/s/ G. Kelly Martin
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G. Kelly Martin
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Chief Executive Officer
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(Principal Executive Officer)
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1.
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I have reviewed this quarterly report on Form 10-Q of Novan, Inc. (the “registrant”);
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 15, 2019
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/s/ John M. Gay
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John M. Gay
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Vice President, Finance and Corporate Controller
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(Principal Financial Officer)
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(1)
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the Quarterly Report on Form 10-Q of the Company for the quarter ended
March 31, 2019
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
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Date: May 15, 2019
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/s/ G. Kelly Martin
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G. Kelly Martin
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Chief Executive Officer
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(Principal Executive Officer)
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(1)
|
the Quarterly Report on Form 10-Q of the Company for the quarter ended
March 31, 2019
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
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Date: May 15, 2019
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/s/ John M. Gay
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John M. Gay
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Vice President, Finance and Corporate Controller
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(Principal Financial Officer)
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