Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 24, 2021 (referred to herein as our Annual Report).
In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. These statements are often identified by the use of words such as “believe,” “contemplate,” “continue,” “due,” “goal,” “objective,” “plan,” “seek,” “target,” “expect,” “believe,” “anticipate,” “intend,” “may,” “will,” “would,” “could,” “should,” “potential,” “predict,” “project,” or “estimate,” and similar expressions or variations. These statements are based on the beliefs and assumptions of management based on information currently available to management. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except as may be required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
These forward-looking statements are subject to numerous risks, including, without limitation, the following:
•We have incurred net losses since our incorporation and anticipate that we will continue to incur net losses for the foreseeable future. We will need significant additional funding to continue our operating activities and for the advancement of our product development programs, including potential commercialization efforts, beyond what is currently included in our operating forecast and related cash projection. As of September 30, 2021, we had an accumulated deficit of $270.7 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 our commercialization efforts.
•Raising additional capital, including through the issuance of shares of our common stock to Aspire Capital Fund, LLC, or Aspire Capital, pursuant to the common stock purchase agreement that we entered into with Aspire Capital on July 21, 2020, or the July 2020 Aspire CSPA, may reduce the trading price of our common stock. Our equity issuances during the year ended December 31, 2020 and the nine months ended September 30, 2021, have resulted in significant dilution to our existing stockholders. Any future additional issuances of equity, or debt convertible into equity, may result in significant dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
•The price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for our existing stockholders.
•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.
•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. Clinical drug development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of earlier studies and trials may not be predictive of future trial results. 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. Ongoing or future product development activities may not be successful, including in that our preclinical studies may not prove successful in demonstrating proof-of concept or may show adverse toxicological findings, and our clinical trials may not show the requisite safety and efficacy 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 on a timely basis or at all, our business will be substantially harmed.
•Delays or disruptions in the qualification of manufacturing facilities and processes or in the manufacture of our (i) active pharmaceutical ingredients, or APIs, including NVN1000 or any other NITRICIL™ new chemical entities, or NCEs, or (ii) clinical trial materials or commercial supplies of any approved product candidates, whether by us or any third-party manufacturer with whom we contract, including any delays in the upfit of our new facility under the TBC Lease (as defined below) or in the transfer of technology to third-party manufacturers, could adversely affect our development and commercialization timelines and result in increased costs of our development programs or in our breaching our obligations to others.
•We currently rely on third-party suppliers to provide the raw materials and equipment that are used by us or our third-party manufacturers in the manufacture of our product candidates. There are a limited number of suppliers for raw materials, including nitric oxide, and the equipment used to manufacture our product candidates. Any delay or disruption, especially in light of current global supply chain constraints, could adversely impact the timing or cost of our manufacturing activities or other associated development activities.
•We currently rely on third-party logistics vendors to transport our raw materials, API, and drug products through our supply chain. Certain materials, including our API, have designated hazard classifications that limit available transportation modes or quantities. Third-party logistics vendors may choose to delay or defer transportation of materials from time to time, which could adversely impact the timing or cost of our manufacturing activities or other associated development activities.
•We currently rely on third-party suppliers and the usage of third-party vendors to supply goods, materials and equipment in connection with our business, including in connection with the build-out of our new facility that we began to occupy earlier in 2021. We expect to complete the build-out of our new facility to support various research and development and cGMP activities, including small-scale manufacturing capabilities for API and drug product, by the end of 2021. We continue to assess global supply chain constraints, including any further impact of the COVID-19 pandemic, on our related suppliers and vendors. Any further delay or disruption could adversely impact the timing for completing the build-out of our new facility, which would cause us to rely solely on other third parties for any small-scale manufacturing or other research and development and cGMP activities.
•If we are unable to establish sales, marketing and distribution capabilities for our product candidates or any future product candidate that receives regulatory approval, either through a commercial partner or internally, we may not be successful in commercializing and generating potential revenues from those product candidates, if approved.
•We rely on third parties to conduct some of our preclinical studies, clinical trials, stability and analytical testing, and regulatory activities. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or are adversely impacted by the COVID-19 pandemic, we may be unable to obtain regulatory approval for or commercialize any of our product candidates as planned or at all.
•Delay or termination of planned clinical trials for our product candidates, including as a result of disruptions caused by the COVID-19 pandemic, would result in unplanned expenses and adversely impact our remaining developmental activities and potential commercial prospects with respect to, and ability to generate potential revenues from, such product candidates.
•If we encounter difficulties or delays enrolling patients in our clinical trials, our clinical development activities would be delayed or otherwise adversely affected.
•We may expend our limited resources to pursue one or more product candidates or indications within our product development strategy, which may change over time, and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
•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.
•Changes to our leadership team or operational resources could prove disruptive to our operations and have adverse consequences for our business and operating results.
•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.
•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, 2020 financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.
•We may not be able to achieve the objectives described in the sections entitled “Priority Development Pipeline,” “Pipeline Expansion Opportunities,” “Manufacturing and Supplies,” “Business Updates” and “Corporate Updates” below.
For a further discussion of risks that could cause or contribute to differences between actual results and those implied by forward-looking statements, see the “Risk Factors” section in our Annual Report and in this Quarterly Report on Form 10-Q.
Novan® is a registered trademark of our company in the United States. This Quarterly Report on Form 10-Q also includes trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q appear without any “™” or “®” symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of any applicable licensor, to these trademarks and trade names.
Overview
We are a pre-commercial nitric oxide-based pharmaceutical company focused on dermatology and anti-infective therapies. Our vision is to create the world’s leader in nitric oxide-based science, technology, and clinical translation in support of delivering safe and efficacious therapies using our proprietary nitric oxide-based technology platform, NITRICIL™ to generate macromolecular NCEs.
Our proprietary technology platform leverages nitric oxide’s naturally occurring anti-viral, anti-bacterial, anti-fungal and immunomodulatory mechanisms of action to treat a range of diseases with significant unmet needs. Nitric oxide plays a vital role in the natural immune system response against microbial pathogens and is a critical regulator of inflammation. Our ability to harness nitric oxide and its multiple mechanisms of action has enabled us to create a platform with the potential to generate differentiated product candidates.
The two key components of our nitric oxide platform are our proprietary Nitricil technology, which drives the creation of NCEs, and our formulation science, both of which we use to tune our product candidates for specific indications. Our ability to deploy nitric oxide in a solid form, on demand and in localized formulations allows us the potential to improve patient outcomes in a variety of diseases.
We have advanced strategic development programs in the field of dermatology, while also further expanding the platform into infectious diseases, men’s and women’s health, and various other medical conditions with significant unmet needs. This decision was based on the connection between the multi-factorial pathologies of diseases in these areas and the demonstrable anti-microbial, anti-viral and anti-inflammatory properties of Novan’s nitric oxide technology.
We have clinical-stage dermatology and anti-infective drug candidates with multi-factorial (SB204), anti-viral (SB206), anti-fungal (SB208) and anti-inflammatory (SB414) mechanisms of action. We have also introduced a possible anti-viral
product candidate for treatment of external genital warts (SB207). We have or are currently conducting preclinical work on NCEs, including berdazimer sodium, and formulations for the potential treatment of (i) SARS-CoV-2, the virus that causes COVID-19 (SB019); (ii) antimicrobial indications for the adjacent companion animal health market (NVN4100); (iii) cervical intraepithelial neoplasia caused by high-risk human papilloma virus in the men’s and women’s health field (WH504 and WH602); and (iv) inflammatory disorders.
We are currently focusing our efforts and resources on our priority development pipeline candidates, which include (i) progressing our lead program, SB206, as a treatment for molluscum contagiosum, or molluscum, including preparing for and seeking U.S. regulatory approval, and implementing prelaunch strategy and U.S. commercial preparation; (ii) advancing our late-stage product candidate, SB204, for the treatment of acne vulgaris, or acne, within the U.S., as our second lead program toward a registrational Phase 3 study, based on two prior Phase 3 trials; and (iii) progressing our SB019 development program into a Phase 1 trial for a potential intranasal prophylaxis or therapeutic for mild-to-moderate COVID-19 infection.
Business Updates
During 2021, our primary programmatic focus has been on our molluscum product candidate, SB206, and we intend to continue to focus our near term development efforts on this program. Following the positive top-line results from the B-SIMPLE4 trial announced on June 11, 2021 and the comprehensive B-SIMPLE4 safety data announced on September 23, 2021, we are targeting a potential NDA submission of SB206 for molluscum during the third quarter of 2022.
Thus, we are preparing for regulatory submission and potential approval of SB206 as a treatment for molluscum. The timing of the targeted NDA submission is dependent upon: (i) completion of the B-SIMPLE 4 clinical study report; (ii) completion of our new manufacturing facility to have the infrastructure and capability necessary to produce cGMP API registration batches; (iii) continued technical transfer activities to our drug product contract manufacturing organization, or CMO, and preparing the necessary registration batches of drug product; (iv) preparatory activities and data accumulation related to the NDA submission including conducting customary drug substance and drug product stability protocols; and (v) regulatory and quality documentation compilation related to our preclinical, clinical and chemistry, manufacturing and control, or CMC, data related to the B-SIMPLE trials, and our drug manufacturing and related processes.
We have also selected Syneos Health, a fully integrated biopharmaceutical solutions organization, as our commercial solutions provider for SB206 as a treatment for molluscum. Our relationship with Syneos Health will focus on implementing the SB206 prelaunch strategy and commercial preparation, followed by commercial sales of SB206, if approved by the FDA.
In September 2021, we also announced our updated strategic priorities and outlined potential key milestones. In addition to the regulatory progression of SB206, including implementing prelaunch strategy and commercial preparation, we also announced our intention to progress (a) SB204, a topical monotherapy for the treatment of acne, by (i) preparing for a pivotal Phase 3 study during 2022; (ii) targeting the conduct of a potential pivotal Phase 3 trial in 2023; and (iii) targeting a potential NDA submission of SB204 for acne in 2024; and (b) SB019, as a potential intranasal treatment option for COVID-19, by (i) initiating a Phase 1 study in healthy volunteers targeted for the first half of 2022; (ii) targeting the conduct of a potential Phase 2/3 study(s) in 2023; and (iii) targeting a potential NDA submission of SB019 for COVID-19 in 2024. The progression of the SB019 program, subsequent to the execution of a Phase 1 study, and the progression of the SB204 program, including the execution of the potentially registrational SB204 Phase 3 trial, is subject to obtaining additional financing or strategic partnering.
Further advancement of our molluscum program beyond the potential NDA submission of SB206, or advancement of any other early-stage or late-stage clinical program across our platform, has been and may be further impacted by the COVID-19 pandemic and is subject to our ability to secure additional capital. Sources of additional capital may potentially include (i) equity or debt financings, including through sales under the July 2020 Aspire CSPA; or (ii) non-dilutive sources, such as partnerships, collaborations, licensing, grants or other strategic relationships. Our equity issuances during the year ended December 31, 2020, and the nine months ended September 30, 2021, have resulted in significant dilution to our existing stockholders. Any issuance of equity, or debt convertible into equity, would result in further significant dilution to our existing stockholders.
Working Capital and Additional Capital Needs
As of September 30, 2021, we had a total cash and cash equivalents balance of $60.0 million and positive working capital of $48.8 million. As of September 30, 2021, we had $12.0 million in remaining availability for sales of our common stock under the July 2020 Aspire CSPA.
We believe that our existing cash and cash equivalents balance as of September 30, 2021, plus expected contractual payments to be received in connection with existing licensing agreements, will provide us with adequate liquidity to fund our planned operating needs into the fourth quarter of 2022. This operating forecast and related cash projection includes: (i) costs through the completion of the B-SIMPLE4 Phase 3 trial, including final data accumulation and reporting in addition to other supporting activities; (ii) costs associated with preparing for and seeking U.S. regulatory approval of SB206 as a treatment for molluscum; (iii) costs associated with the completion of the build-out of our new corporate headquarters and manufacturing capability necessary to support small-scale drug substance and drug product manufacturing; (iv) conducting drug manufacturing capability transfer activities to external third-party CMOs, including a drug delivery device technology enhancement project; (v) developmental and regulatory activities for our SB019 program (Coronaviridae (COVID-19)), including a Phase 1 study, targeted for initiation in 2022; (vi) preparatory activities for a potential Phase 3 trial, targeted for initiation in 2023, related to SB204 as a treatment for acne; and (vii) initial efforts to support potential commercialization of SB206, but excludes: (a) any potential costs associated with other late-stage clinical programs, including executing the potentially registrational Phase 3 trial of SB204 for acne; (b) progression of the SB019 program subsequent to execution of a Phase 1 study; (c) operating costs that
could occur between a potential NDA submission for SB206 through NDA approval, specifically including marketing and commercialization efforts to achieve potential launch of SB206; and (d) proceeds from any potential future sales of common stock under the July 2020 Aspire CSPA. We may decide to revise our development and operating plans or the related timing, depending on information we learn through our research and development activities, including regulatory submission efforts related to SB206, potential commercialization strategies, the impact of outside factors such as the COVID-19 pandemic, our ability to enter into strategic arrangements, our ability to access additional capital and our financial priorities.
We will need significant additional funding to continue our operating activities and make further advancements in our product development programs beyond what is currently included in our operating forecast and related cash projection. Please refer to “Liquidity and Capital Resources” for further discussion of our current liquidity and our future funding needs.
COVID-19 Overview
While certain COVID-19 vaccines have been approved and are now available for use in the United States and certain other countries, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume. Vaccine resistance, coupled with the emergence of fast-spreading variants have introduced renewed uncertainty into whether additional measures will be implemented to combat the spread of COVID-19 including in the locations where we do business. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, disrupted clinical trials and created significant volatility in and disruption of financial markets. The full extent of the pandemic, related business and travel restrictions and changes to behavior intended to reduce its spread remain uncertain as the pandemic and the potential impact of variants of the virus that causes COVID-19 continue to evolve globally.
We have continued to closely monitor and rapidly respond to the ongoing impact of the COVID-19 pandemic on our employees, our community and our business operations. We have worked to continue our critical business functions, including continued operation of our development efforts, and we have adopted a series of precautionary measures and will continue to do so as the circumstances warrant, including increased sanitization of our facilities, use of personal protective equipment, as appropriate, and physical distancing practices to help protect our employees’ health and safety as they continue to advance important research related to our product candidates.
The timetable for development of our product candidates has been impacted and may face further disruption and our business could be further adversely affected by the outbreak of COVID-19 and its variants. In particular, COVID-19 impacted the timing of trial initiation of our B-SIMPLE4 Phase 3 trial. Therefore, we continue to assess any potential further impact of COVID-19 on our operations.
Despite disruptions to our business operations and the business operations of third parties on which we rely, the COVID-19 pandemic has not significantly impacted our operating results and financial condition to date. Although it is not possible at this time to estimate the entirety of the impact that the COVID-19 pandemic has had or will have on our business, operations and employees, our CMOs, our contract research organizations, or CROs, our partners, our collaborators in clinical research, and our contractors, suppliers and vendors supporting our ongoing facility build-out and cGMP manufacturing capability project, any continued spread of COVID-19 and its variants, measures taken by governments, actions taken to protect employees from the pandemic, and the broad impact of the pandemic on all business activities and financial markets may materially and adversely affect our business, results of operations and financial condition and stock price. Please refer to “Results of Operations” for further discussion of these items. Due to numerous uncertainties surrounding the COVID-19 pandemic, we are unable to predict the nature and extent of the future impacts that the pandemic will have on our financial condition and operating results. These uncertainties include, among other things, the ultimate severity and duration of the pandemic, including the efficacy or availability of a treatment or vaccine for COVID-19 and its variants; governmental, business or other actions that have been, or will be, taken in response to the pandemic, including continued restrictions on travel and mobility, business closures and operating restrictions and imposition of social distancing measures; impacts of the pandemic on the conduct of our previous or potential future clinical trials, including with respect to availability of investigators and clinical trial sites, patients’ ability to complete the necessary visits and clinical trial site operations, and monitoring of clinical trial data; impacts of the pandemic on regulatory authorities; and impacts of the pandemic on the United States and global economies more broadly. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see the “Risk Factors” section in our Annual Report.
Supply Chain
We currently rely on third-party suppliers to provide the raw materials that are used by us or our third-party manufacturers in the manufacture of our product candidates. There are a limited number of suppliers for raw materials, including nitric oxide, that we use to manufacture our product candidates. We also rely on third-party logistics vendors to transport our raw materials, API, and drug products through our supply chain. Certain materials, including our API, have designated hazard classifications that limit available transportation modes or quantities. Third-party logistics vendors may choose to delay or defer transportation of materials from time to time, especially in light of the pandemic and related global supply chain constraints, which could adversely impact the timing or cost of our manufacturing supply chain activities or other associated development activities.
We continue to assess any further impact of COVID-19 on our supply chain and related vendors and global supply chain constraints across various industries, including interruption of, or delays in receiving, supplies of raw materials, API or drug product from third-party manufacturers due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems. We are also continuing to evaluate the impacts of COVID-19 and global supply chain constraints on our work to build-out our new facility. We expect to complete the construction of our new facility to support various research and development and cGMP activities, including small-scale manufacturing capabilities for API and drug product, by the end of 2021. Once the build-out is completed and occupied, we will proceed with the related preparatory activities associated with qualifying, commissioning and validating the manufacturing equipment for use in API production.
Priority Development Pipeline
SB206, a Topical Anti-viral Treatment for Molluscum Contagiosum (a Viral Skin Infection)
We are developing SB206 as a topical gel with anti-viral properties for the treatment of viral skin infections, with a current focus on molluscum contagiosum. Molluscum is a contagious skin infection caused by the molluscipoxvirus that affects up to six million people in the United States annually. The greatest incidence is in children aged one to 14 years. The average time to resolution is 13 months, however, 13% of children experience lesions that may not resolve in 24 months. There is no FDA-approved treatment for molluscum. More than half of patients diagnosed with the infection are untreated. The majority of patients in the United States that receive treatment are treated with painful procedures and the remaining are often prescribed products indicated for the treatment of external genital warts.
As discussed below, the 12% dose of berdazimer sodium, our drug substance (NVN1000), being used in the development of SB206 for molluscum is comprised of 10.3% berdazimer. We refer to 12% berdazimer sodium, or 10.3% berdazimer, interchangeably.
Based on the results of our initial Phase 3 trials for SB206 (referred to as B-SIMPLE1 and B-SIMPLE2), announced in January 2020, we held a Type C meeting with the FDA on April 1, 2020 seeking feedback on our proposal to conduct one additional, well-controlled pivotal study of SB206 to support a future NDA. Based on feedback, the FDA provided guidance indicating that the FDA would consider one additional pivotal trial, the B-SIMPLE4 Phase 3 trial, that, if successful, could be supported by the previously completed B-SIMPLE2 trial for a future NDA submission. In addition, the FDA provided guidance with regard to both the study design for the B-SIMPLE4 Phase 3 trial and expectations for a future NDA submission.
B-SIMPLE4 was designed as a multi-center, randomized, double-blind, vehicle-controlled study to evaluate the efficacy and safety of SB206 12% once daily that exceeded its enrollment target by randomizing 891 total patients (1:1 active:vehicle randomization), ages 6 months and above, with molluscum, across 55 clinical sites. Patients were treated once-daily with SB206 12% or Vehicle Gel for a minimum of 4 weeks and up to 12 weeks to all treatable lesions (baseline and new). There were visits at Screening/Baseline, Week 2, Week 4, Week 8 and Week 12, and a safety follow-up at Week 24. As part of B-SIMPLE4’s study design, we also implemented additional patient and caregiver training and patient engagement efforts and offered decentralized visit capabilities for conducting visits during the COVID-19 pandemic. The primary endpoint for B-SIMPLE4 was the proportion of patients achieving complete clearance of all treatable molluscum lesions at Week 12.
We initiated the B-SIMPLE4 trial in August 2020, the first patient was enrolled and dosed in September 2020, the trial completed patient enrollment during the first quarter of 2021 and the final patient completed their last Week-12 visit in late April 2021. We announced positive top-line efficacy and safety results on June 11, 2021. In the B-SIMPLE4 trial, 32.4% of patients experienced total clearance at Week 12 and 43.5% experienced total clearance or one remaining lesion at Week 12. B-SIMPLE4 achieved statistical significance for the primary endpoint with a p-value less than 0.0001. B-SIMPLE4 also achieved statistical significance for all secondary endpoints. P-value is a conventional statistical method for measuring the statistical significance of clinical results. A p-value of less than 0.050 is generally considered to represent statistical significance, meaning there is less than five percent likelihood that the observed results occurred by chance. We announced the B-SIMPLE4 trial’s
last patient visit in late July 2021 and the final safety profile through Week 24 was released in the third quarter of 2021. The comprehensive safety data readout demonstrated a favorable safety profile, consistent with previous studies and met our expectations. Based on these data, we believe that SB206, if approved, can provide a powerful treatment option for children and adults with molluscum. We are targeting submitting a potential NDA submission of SB206 for molluscum during the third quarter of 2022 and are preparing for regulatory submission and potential approval of SB206 as a treatment for molluscum.
Amended Sato Agreement
In 2018, we licensed rights to Sato Pharmaceutical Co., Ltd., or Sato, to develop, use, and sell SB206 in certain topical dosage forms in Japan for the treatment of viral skin infections, and to manufacture the finished form of SB206 for sale in Japan, which are in addition to the rights granted to Sato related to SB204 for the treatment of acne vulgaris. The significant terms and the related accounting considerations of our licensing arrangement with Sato are further described in “Note 4—Licensing Arrangements” to the accompanying condensed consolidated financial statements.
In April 2020, Sato informed us of its intention to progress the SB206 development program in Japan with a Phase 1 clinical trial given the observed treatment benefit and favorable safety profile in the B-SIMPLE program. In November of 2020, Sato determined its initial Japanese Phase 1 study for SB206 would require an amended design, including evaluation of potential lower dose strengths, to further refine dose tolerability in a subsequent Phase 1 study. In the fourth quarter of 2020 we concluded that a prospective delay in Sato’s overall SB206 development plan had occurred and we estimated the program timeline to be extended by 1.75 years from our previous estimate, and a corresponding extension of the performance period estimate to 9.25 years, completing in the second quarter of 2026.
In late July 2021, Sato communicated an updated plan regarding its amended design for its additional Japanese Phase 1 study for SB206. The amended study design includes evaluation of potential lower dose strengths, including potential further refinement in a subsequent dose tolerability study. As part of the communication regarding these Phase 1 studies, Sato also communicated an updated comprehensive timeline for the Japanese SB206 program. The updated timeline assumes that the 12% formulation is appropriate to proceed for development in Japan, and is to be reassessed based on the findings of the Phase 1 study.
Based upon (i) the expected timing of the additional Phase 1 study, including a subsequent dose tolerability study; (ii) Sato’s estimated comprehensive developmental schedule for SB206, including additional post-Phase 1 clinical trials; and (iii) current and future Japanese clinical trial material manufacturing and technical transfer considerations, including the manufacturing site for drug product, we concluded that a prospective delay in Sato’s overall SB206 Japanese development plan had occurred in July 2021. We estimate the program timeline to be extended by 0.75 years from our previous estimate, and a corresponding extension of the performance period estimate to 10 years, completing in the first quarter of 2027. We understand that the progression of the Japanese SB204 program could follow the same timeline as the Japanese SB206 program, subject to the nature of the results of Sato’s comprehensive asset developmental program, including SB206. This estimated timeline remains subject to prospective reassessment and adjustment based upon Sato’s interaction with the Japanese regulatory authorities and other developmental and timing considerations. The details of this development are further described in “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements.
SB204, for the Treatment of Acne Vulgaris
SB204 is a product candidate designed as a once-daily, topical monotherapy for the treatment of acne vulgaris, a multi-factorial disease with multiple aspects of the disease pathology (anti-inflammatory and anti-bacterial). Acne vulgaris is the most common skin condition in the United States. The disease ranges in severity from mild to severe cystic acne and causes both physical and psychological effects, including permanent scarring, anxiety, depression and poor self-esteem. Acne is a multi-factorial disease with several mechanistic contributors to the disease pathology, often requiring treatments that address more than one of the major causes of acne pathogenesis. Localized nitric oxide delivery may provide anti-inflammatory and anti-bacterial mechanisms of action from a single active ingredient.
We believe that acne continues to be characterized as an unmet medical need due to the difficulty of balancing efficacy, systemic safety and cutaneous tolerability, as well as the growing concerns with anti-bacterial resistance with existing therapies. In our SB204 clinical development program, topical application of SB204 has been well-tolerated with no significant safety concerns identified. In maximal-use pharmacokinetic trials that we have conducted in adult and pediatric patients with acne vulgaris, we observed no detectable systemic exposure from SB204 following its topical application.
In the first quarter of 2017, we reported top-line results from two identically designed Phase 3 pivotal clinical trials for SB204. SB204 demonstrated statistical significance compared to vehicle on all three co-primary endpoints in one of the trials but demonstrated statistical significance on only one of three co-primary endpoints in the other trial. We conducted an in-depth examination of the full data sets from these trials, including post hoc analyses in pooled and sub populations, with extensive assistance from third-party expert consultants in biostatistics and regulatory affairs. In mid-2017 we completed our 40-week long term safety trial in eligible patients with acne who had previously completed 12 weeks of treatment in the related Phase 3 pivotal trials of SB204. No serious adverse events were observed with over 400 patients followed for six months and over 200 patients followed for one year.
We have had several interactions with the FDA since mid-2017 regarding SB204 and the acne indication. In September 2017, we conducted a guidance meeting with the FDA to obtain clinical and regulatory guidance by reviewing the previously completed parallel Phase 3 pivotal trials in patients with moderate-to-severe acne. The FDA’s specific feedback noted that there were no additional safety requirements and that one additional pivotal trial, in moderate-to-severe acne, would be required for submission of an NDA. In the third quarter of 2018, the FDA provided feedback on two potential paths forward for the acne indication, confirming the need for one additional pivotal trial for moderate-to-severe acne patients prior to an NDA submission.
Based on the recent positive pivotal Phase 3 results in the SB206 molluscum development program, we believe we can optimize the trial design of a pivotal Phase 3 study for SB204 that has the potential to serve as a second pivotal trial to support an NDA submission. As such, we plan to prepare for a pivotal Phase 3 study during 2022; target the conduct of a potential pivotal Phase 3 trial in 2023, subject to obtaining additional financing or strategic partnering; and target a potential NDA submission of SB204 for acne in 2024.
In January 2017, we licensed rights to Sato to develop, use, and sell SB204 in certain topical dosage forms in Japan for the treatment of acne vulgaris, and to manufacture the finished form of SB204 for sale in Japan. The significant terms and the related accounting considerations of our licensing arrangement with Sato are further described in “Note 4—Licensing Arrangements” to the accompanying condensed consolidated financial statements. For further information regarding the current status of the Japanese SB204 program see “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements.
SB019, an intranasal treatment option for Coronaviridae (COVID-19)
We continue to explore the use of our proprietary Nitricil technology to progress SB019, a potential intranasal treatment option for COVID-19, targeting the reduction of viral shedding and transmission. Nitric oxide has generally demonstrated the ability to inhibit viral replication of viruses within the Coronaviridae family, and we have an extensive body of in vitro and in vivo data demonstrating the efficacy of our proprietary technology for other anti-viral indications. Based on the scientific literature and data available to-date related to berdazimer sodium and SB206, we believe that nitric oxide may inhibit viral replication by disrupting protein function critical for viral replication and infection through generation of reactive intermediates.
In October 2020, we announced positive in vitro results showing the potential efficacy of our Nitricil platform technology, berdazimer sodium (NVN1000), as an anti-viral against SARS-CoV-2, the virus that causes COVID-19. To evaluate the ability of our Nitricil platform technology as a potential nasal treatment option for COVID-19, we initiated in vitro assessments targeting the reduction of viral burden in differentiated normal human bronchial epithelial cells. The studies were conducted at the Institute for Antiviral Research at Utah State University, and these results demonstrate the first instance of an anti-viral effect from a nitric oxide-based medicine in a 3-D tissue model that has similar structure to the human airway epithelium. The results from the in vitro assessment of concentrations as low as 0.75 mg/mL demonstrated that berdazimer sodium reduced 90% of virus after repeat dosing, once daily.
In December 2020, we entered into a Master Services Agreement with Catalent, Inc., a leading global provider of integrated services, delivery technologies and manufacturing solutions, relating to our COVID-19 program. This agreement includes work to support CMC activities and development of an intranasal formulation of berdazimer sodium for use in that program.
To further evaluate the potential of our Nitricil platform technology as an intranasal treatment option for COVID-19, we initiated preliminary preclinical in vivo studies to evaluate the efficacy of berdazimer sodium in reducing viral burden in infected animals and to deter viral transmission to uninfected animals.
In June 2021, we announced positive results from two separate studies that independently demonstrated the ability of berdazimer sodium to prevent progression of infection into the lungs after transmission, significantly limiting severity of
disease in this model. The intranasal treatment was well-tolerated during these studies, and no treatment-related adverse effects were observed.
In November 2021, we announced favorable results of a Good Laboratory Practices, or GLP, 14-day repeat dose intranasal study. The preclinical safety data indicated that intranasal administration of SB019 formulation is well tolerated and safe. The GLP study evaluated repeated dosing with the SB019 product candidate (i.e., 5 times daily) for a period of 14 days and concluded with a 7-day recovery period without drug exposure. There were no treatment-related adverse events up to the highest dose tested of 14 mg/day berdazimer sodium, and the SB019 formulation was concluded to be well-tolerated under the conditions of this study.
Based on the positive preclinical and clinical data demonstrating anti-viral effect of berdazimer sodium against multiple viruses, as well as the public health need to reduce breakthrough infections and transmission, we plan to advance our SB019 product candidate. Pre-investigational new drug, or IND, application activities are underway with a target of an IND submission no later than Q2 2022. Subject to regulatory guidance, our targeted timeline includes (i) initiating a Phase 1 study in healthy volunteers in the first half of 2022; (ii) conducting a potential Phase 2/3 study(s) in 2023, subject to obtaining additional financing or strategic partnering; and (iii) a potential NDA submission of SB019 for COVID-19 in 2024.
Pipeline Expansion Opportunities
SB414, for the Treatment of Inflammatory Skin Diseases, including Atopic Dermatitis and Psoriasis
SB414 is a product candidate designed as a topical cream-based gel for the treatment of inflammatory skin diseases, with a focus on the treatment of atopic dermatitis and psoriasis. In 2018, we completed two complementary Phase 1b clinical trials with SB414 in patients with atopic dermatitis and psoriasis. The design of these complementary trials was to evaluate the safety, tolerability and pharmacokinetics of SB414. The trials were also designed to assess overall and specific target engagement through a reduction of key inflammatory biomarkers, also known as pharmacodynamic assessment.
Atopic Dermatitis
We initiated a Phase 1b trial with SB414 in adults with mild-to-moderate atopic dermatitis in December 2017. In the Phase 1b trial, 48 adults with mild-to-moderate atopic dermatitis with up to 30% body surface area at baseline, were randomized to receive one of 2% SB414 cream, 6% SB414 cream, or vehicle, twice daily for two weeks. In the complementary Phase 1b trial for mild-to-moderate chronic plaque psoriasis, 36 adults received SB414 6% cream or vehicle twice daily for four weeks.
We received and analyzed the preliminary top-line results from the Phase 1b clinical trials during the second and third quarters of 2018. In the atopic dermatitis trial, biomarkers from the Th2, Th17 and Th22 inflammatory pathways known to be highly relevant and indicative of atopic dermatitis, including Interleukin-13, or IL-13, IL-4R, IL-5, IL-17A and IL-22, were downregulated after two weeks of treatment with SB414 2%. The changes in Th2 and Th22 biomarkers and clinical efficacy assessed as the percent change in Eczema Area Severity Index scores were highly correlated in the SB414 2% group. Additionally, the proportion of patients achieving a greater than or equal to 3-point improvement on the pruritus (itch) numeric rating scale after two weeks of treatment was greater for patients treated with SB414 2% compared to patients treated with vehicle.
The 2% or 6% doses of SB414 in the trial did not result in any serious adverse events, and SB414 2% was more tolerable with no patients discontinuing treatment in the trial due to application site reactions. SB414 at the 6% dose was not consistently effective in reducing biomarkers across both the atopic dermatitis and psoriasis trials. This lack of consistent biomarker movement could potentially be explained by the increased irritation score experienced by patients treated with SB414 6%. Additionally, SB414 6% showed detectable systemic exposure in a subset of patients, which cleared in nearly all affected patients within 12 hours, in both the atopic dermatitis and psoriasis trials. Given the successful downregulation of key biomarkers, favorable tolerability and lack of systemic exposure with SB414 2%, we conducted non-clinical studies and completed our Phase 2 clinical development plan during 2019 to support a potential future Phase 2 clinical program launch. The SB414 program is currently on hold with further advancement subject to obtaining additional financing or strategic partnering.
Psoriasis
We initiated clinical development of SB414, our first use of our nitric oxide platform in the field of immunology by dosing the first patient in October 2017 in a Phase 1b clinical trial to evaluate SB414 as a cream for the treatment of psoriasis. In the Phase 1b trial for mild-to-moderate chronic plaque psoriasis, 36 adults received SB414 6% cream or vehicle twice daily for four weeks. SB414 at the 6% dose did not result in any serious adverse events, but SB414 at the 6% dose was not consistently effective in reducing biomarkers across the trial. This lack of consistent biomarker movement could potentially be explained by the increased irritation score experienced by patients treated with SB414 6%. Additionally, SB414 6% showed detectable systemic exposure in a subset of patients, which cleared in nearly all affected patients within 12 hours. Based on the results of the Phase 1b trial in psoriasis, we could potentially explore the use of lower doses of SB414 in psoriasis, subject to obtaining additional financing or strategic partnering.
SB208, for the Treatment of Athlete’s Foot (Tinea Pedis) and Fungal Nail Infections (Onychomycosis)
SB208 is a product candidate designed as a topical broad-spectrum anti-fungal gel for the potential treatment of fungal infections of the skin and nails, including athlete’s foot (tinea pedis) and fungal nail infections (onychomycosis). Studies have demonstrated enhanced efficacy when tinea pedis and onychomycosis are treated concurrently, suggesting that an effective topical treatment, suitable for simultaneous application to the nail plate and skin, may lead to lower rates of recurrence and enhanced efficacy.
We conducted a Phase 2 proof-of-concept trial in patients with clinical signs and symptoms of tinea pedis and announced top-line results in the second quarter of 2017. SB208 demonstrated a statistically significant effect compared to vehicle in (i) the primary endpoint of achieving negative fungal culture at day 14; and (ii) the secondary endpoint of achieving mycological cure at day 14 (mycological cure is defined by having a negative laboratory culture and negative fungal clinical diagnosis). At the end of a 4-week post treatment follow-up period, mycological cure was maintained at day 42 in both dose groups.
We conducted a Phase 1, single-center, double-blinded, randomized clinical trial in 32 adult females to evaluate the rate of fingernail growth associated with SB208 16% cream and the local tolerability of the gel when used over the course of 29 days. SB208 16% cream demonstrated a statistically significant greater mean daily nail growth rate for the treatment period when compared to the same patient’s own growth rate in the run-in period and was well tolerated by patients.
The SB208 program is currently on hold with further advancement subject to obtaining additional financing or strategic partnering.
SB207, for the Treatment of External Genital Warts
Genital warts are among the world’s most common sexually transmitted diseases. We have previously evaluated SB206’s anti-viral activity in a Phase 2 randomized, double-blinded, vehicle-controlled clinical trial in 107 patients with genital warts caused by HPV. We announced top-line results from this Phase 2 clinical trial in the fourth quarter of 2016. SB206 demonstrated statistically significant results in the clearance of external genital and perianal warts. Once-daily treatment arms were generally well-tolerated, including the most effective dose, SB206 12% once-daily. With the full results from this Phase 2 trial made available, a Type B meeting was held with the FDA in the second quarter of 2017 with minutes received shortly thereafter.
In response to our identification of targeted viral opportunities of high unmet need where we believe our nitric oxide releasing technology could provide clinical benefit to patients, we developed SB207, a new anti-viral product candidate for the treatment of external genital warts. The SB207 product candidate incorporates our existing drug substance, berdazimer sodium (NVN1000), including the nitric oxide release profile of SB206, in a new formulation specifically tailored for external genital warts. Following the FDA’s December 2019 feedback from a pre-IND meeting request with the FDA, we have determined that further advancement of SB207 is subject to further evaluation of clinical plans and developmental timelines, as well as obtaining additional financing or strategic partnering.
Advancement in Men’s and Women’s Health
In February 2020, following the successful progression of a Phase 1 grant received in August 2019, we were awarded a Phase 2 federal grant of approximately $1.0 million from the National Institute of Health, or NIH, that will enable the conduct of IND-enabling toxicology and pharmacology studies and other preclinical activity of a nitric oxide containing intravaginal gel (WH602) designed to treat high-risk HPV infections that can lead to cervical intraepithelial neoplasias, or CIN. In March 2021, we were awarded additional funding of $0.1 million as part of this Phase 2 grant. Under the terms of the aforementioned NIH grant, we are entitled to receive the grant funds in the form of periodic reimbursements of our allowable direct expenses, allocated overhead, general and administrative expenses and payment of other specified amounts.
This product candidate, in addition to a non-gel formulation product candidate (WH504) supported by a federal grant from the U.S. Department of Defense’s, or DoD, Congressionally Directed Medical Research Programs, or CDMRP, currently in development, together represent the core of our Men’s and Women’s Health business unit. This unit has continued to be supported through a collaboration with Health Decisions, Inc., or Health Decisions, a Premier Research company.
Companion Animal Health
We have initiated exploratory work to evaluate our new chemical entity, NVN4100, as a potential product candidate for antimicrobial indications in companion animal health. On June 7, 2021, we announced positive proof-of-concept in vitro results and informative in vivo results with NVN4100. This program is currently on hold, pending the engagement of potential collaborators or strategic partners to progress this asset, including the conduct of additional studies and formulation work.
Manufacturing and Supplies
We have adopted a strategy of engaging with third parties through partnerships, collaborations, licensing or other strategic relationships that includes utilization of and an increased reliance upon third-party vendors and strategic partners for the performance of activities, processes and services that (i) do not typically result in the generation of significant new intellectual property; and (ii) can leverage their existing robust infrastructure, systems and facilities as well as associated subject matter expertise. A parallel and inter-related strategic objective has been to manage our own internal resources, including our manufacturing capabilities.
Drug Substance
Upon successful completion of the required technology transfer, we intend for a new third-party API manufacturer to be able to manufacture berdazimer sodium in compliance with established manufacturing processes, applicable regulatory guidelines and as appropriate for potential large-scale commercial quantities.
In June 2019, we established an operating and business relationship with a third-party full-scale API manufacturer, with the goal being for this third-party API manufacturer to become the primary external supplier of our proprietary berdazimer sodium (NVN1000) drug substance. We executed a master contract manufacturing agreement, which included the process and analytical method transfer necessary to advance the production of our drug substance for future clinical trials and potentially for commercial purposes on a global basis if any of our product candidates are approved.
Through January 2021, we remained engaged in technical transfer efforts with this third-party API manufacturer. However, in February 2021, based on progress to date, including timing considerations relating to top-line results for the B-SIMPLE4 Phase 3 trial, we terminated our existing work orders related to technical transfer activities with this third-party API manufacturer. The master services agreement remains in place with this third-party API manufacturer for potential longer term needs.
We recently entered into development services agreements with third-party full-scale API manufacturers for certain manufacturing process feasibility services including process familiarization, safety assessments, preliminary engineering studies, and initial process and analytical methods determination. Following the successful completion of such preliminary activities with a third-party API manufacturer and other preparatory activities, we would then proceed with a third-party API manufacturer beyond the initial stages noted above, in which case we would expect to incur substantial costs associated with technical transfer efforts, capital expenditures, manufacturing capabilities, and ultimately, potential large-scale commercial quantities of our drug substance.
Internal Capability
We manufactured the API necessary for the B-SIMPLE4 Phase 3 trial using internal manufacturing capabilities at our former facility. In addition, we currently have an inventory of API that allows us to continue certain preclinical and/or developmental activities.
With the B-SIMPLE4 Phase 3 trial positive top-line efficacy results, we are targeting a potential NDA submission of SB206 for molluscum in the third quarter of 2022. In order to ensure that we have the API necessary to enable the SB206 NDA submission on our targeted timeline, we are preparing our new facility to have the infrastructure necessary to produce cGMP API registration batches, among other manufacturing capabilities. We are in the process of building out our new facility, which we expect to complete by the end of 2021, to support various research and development and cGMP activities, including the production of cGMP API registration batches necessary to support the SB206 NDA submission as well as other small-scale manufacturing capabilities for API and drug product. Once the build-out is completed and occupied, we will proceed with the
related preparatory activities associated with qualifying, commissioning and validating the manufacturing equipment for use in API production.
The anticipated additional manufacturing capabilities include the ability to act as a supportive, or potentially primary, component of, or as a back up to, elements of a potential future commercial supply chain, and the ability to produce limited quantities of clinical trial materials. We believe the new facility, once completed, will have the capability to support our planned potential NDA submission for SB206 and potential commercial launch quantities of API for SB206. The timing of our efforts to submit an NDA and to have a third-party full-scale API manufacturer ready for production are expected to inform our future decisions on the expected duration and utilization level of the capabilities of our new facility.
We expect to continue to work toward completion of technical transfer activities with a third-party full-scale API manufacturer to provide the API needed for long-term commercial supply of drug substance, if any of our product candidates are approved. We believe this strategy of increasing utilization of and reliance upon third-party vendors and strategic partners for the performance of activities, processes and services can ultimately provide enhanced capabilities and operating efficiencies for us or any of our potential partnerships, collaborations, licensing or other strategic relationships. At the same time, we are attempting to balance the need to have internal capabilities to allow flexibility for the progression of our product development programs on our targeted timelines.
Drug Product
On October 15, 2018, we established a strategic alliance with Orion Corporation, or Orion, a Finnish full-scale pharmaceutical company with broad experience in drug manufacturing. The alliance enables Orion to manufacture our topical nitric oxide-releasing product candidates on our behalf and on the behalf of our global strategic partners. We have executed a master contract manufacturing agreement to enable technology transfer and manufacturing of clinical trial materials for future clinical trials with our topical product candidates. We are engaged in the transfer of technology for the manufacture of both SB204 and SB206, and, upon completion, we intend for Orion to be able to manufacture the drug product, or the finished dosage form of the gel, in accordance with our established manufacturing processes, in compliance with applicable regulatory guidelines and as appropriate for clinical trials. A completed manufacturing technology transfer to Orion will enable the manufacture of multiple assets for supply of clinical trial materials and, potentially, commercial quantities if any of our product candidates are approved. Importantly, this alliance is being structured to support major global markets in which we and our partners pursue regulatory approvals for our product candidates.
Based on the results of the B-SIMPLE1 and B-SIMPLE2 clinical trials in January 2020, during the first quarter of 2020, at our request, Orion reduced certain near-term activities and extended certain timelines in an effort to reduce our near-term cash utilization at that time. We resumed technical transfer efforts with Orion during the third quarter of 2020. We will continue to work toward completion of technical transfer and manufacturing activities to provide the necessary regulatory registration batches of drug product for our planned NDA submission of SB206 for molluscum, and if any of our product candidates are approved, commercial supply of drug product.
As we move forward with these initiatives, we will need significant additional funding to continue our operating activities, including these technical transfer projects, potential utilization and development of internal capabilities and cost structure changes, and to make further advancements in our product development programs beyond what is currently included in our operating forecast and related cash projection, as described below in “Liquidity and Capital Resources”.
Corporate Updates
Commercial Solutions Provider
In September 2021, we announced that we engaged Syneos Health, a fully integrated biopharmaceutical solutions organization, as our commercial solutions provider for SB206 as a treatment for molluscum. This relationship with Syneos Health, structured as a fee-for-service arrangement, will focus on implementing the SB206 prelaunch strategy and commercial preparation, followed by commercial sales of SB206, if approved by the FDA.
Chief Medical Officer
On August 24, 2021, Tomoko Maeda-Chubachi, MD, PhD, MBA was appointed as our Chief Medical Officer after previously serving as our Senior Vice President, Medical since March of 2021 and our Vice President, Medical Dermatology since joining us in September of 2017.
June 2021 Public Offering
On June 17, 2021, we entered into an underwriting agreement with Cantor Fitzgerald & Co. relating to the offering, issuance and sale of 3,636,364 shares of common stock. We also granted Cantor Fitzgerald & Co., as underwriter, a 30-day option to purchase up to 545,454 additional shares of common stock, which was not exercised. The June 2021 Public Offering closed on June 21, 2021.
Net proceeds from the June 2021 Public Offering were approximately $37.2 million after deducting underwriting discounts and commissions and offering expenses of approximately $2.8 million.
See “Note 10—Stockholders’ Equity (Deficit)” to the accompanying condensed consolidated financial statements for additional information regarding the June 2021 Public Offering.
Reverse Stock Split
As previously disclosed, on July 28, 2020, our stockholders approved a proposal to amend our restated certificate of incorporation to effect a reverse stock split of our common stock at a ratio of not less than one-for-two and not more than one-for-fifteen, with such ratio and the implementation and timing of such reverse stock split to be determined by our board of directors in its sole discretion. On May 18, 2021, our board of directors approved a one-for-ten reverse stock split of our issued and outstanding common stock, or the Reverse Stock Split. On May 24, 2021, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Restated Certificate of Incorporation in order to effect the Reverse Stock Split, or the Charter Amendment. The Reverse Stock Split became effective at 5:00 pm Eastern Time on May 25, 2021. Pursuant to the Charter Amendment, on the effective date thereof, each outstanding ten (10) shares of common stock combined into and became one (1) share of common stock and the number of our issued and outstanding shares of common stock was reduced to 15,170,678. The new CUSIP number for our common stock is 66988N205.
All references to numbers of shares of common stock and per-share information in this Quarterly Report on Form 10-Q have been adjusted retroactively, as appropriate, to reflect the Reverse Stock Split.
Paycheck Protection Program
On April 22, 2020, we entered into a promissory note for an unsecured loan in the amount of approximately $1.0 million under the Paycheck Protection Program, or PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act and is administered by the U.S. Small Business Administration. The loan to the Company under the PPP was made through PNC Bank, National Association. We previously applied for and during the second quarter of 2021 received notification of forgiveness of the entire loan balance, including any accrued interest.
Triangle Business Center Facility Lease
On January 18, 2021, we entered into a Lease dated as of January 18, 2021, as amended as of March 18, 2021, or the TBC Lease, by and between us and Copper II 2020, LLC, pursuant to which we are leasing 15,623 rentable square feet located at a new location, or the Premises. The Premises serves as our new corporate headquarters. We are building out the Premises to support various cGMP activities, including research and development and small-scale manufacturing capabilities. These capabilities include the infrastructure necessary to support small-scale drug substance manufacturing and the ability to act as a component of, or as a back up to, elements of a potential future commercial supply chain. See “Note 8—Commitments and Contingencies” to the accompanying condensed consolidated financial statements for a further discussion of the terms of the TBC Lease.
Financial Overview
Since our incorporation in 2006, we have devoted substantially all of our efforts to developing our nitric oxide platform technology and resulting product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. We conduct these activities in a single operating segment. To date, we have focused our funding activities primarily on equity financings, while generating additional liquidity and capital through other sources, including payments received from licensing and supply arrangements, strategic arrangements and government research contracts.
We have never generated revenue from product sales and have incurred net losses in each year since our incorporation. As of September 30, 2021, we had an accumulated deficit of $270.7 million, and we incurred net losses of $6.5 million and $21.5 million during the three and nine months ended September 30, 2021, respectively, and $8.4 million and $22.7 million during the three and nine months ended September 30, 2020, respectively. We expect to continue to incur substantial losses in the future as we conduct our planned operating activities. We do not expect to generate revenue from product sales unless and until we obtain regulatory approval from the FDA for our clinical-stage product candidates. If we obtain regulatory approval for any of our product candidates, we and/or our commercial partners would expect to incur significant expenses related to product sales, marketing, manufacturing and distribution.
Please refer to “Liquidity and Capital Resources” for further discussion of our current liquidity and our future funding needs.
Components of our Results of Operations
Revenue
License and collaboration revenue consists of the amortization of certain fixed and variable consideration under the Sato license agreement that was entered into during the first quarter of 2017, as amended in October 2018, or the Amended Sato Agreement, that (i) has been received to date in the form of upfront and milestone payments; or (ii) are future, 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.
In November of 2020, Sato determined its initial Japanese Phase 1 study for SB206 would require an amended design, including evaluation of potential lower dose strengths, to further refine dose tolerability in a subsequent Phase 1 study. Based upon (i) the need for an additional Phase 1 study; (ii) Sato’s estimated comprehensive developmental schedule for SB206 including additional post-Phase 1 clinical trials; and (iii) current and future Japanese clinical trial material manufacturing and technical transfer considerations, we concluded that a prospective delay in Sato’s overall SB206 development plan had occurred. We estimated the program timeline to be extended by 1.75 years from our previous estimate, and a corresponding extension of the performance period estimate to 9.25 years, completing in the second quarter of 2026.
In late July 2021, Sato communicated an updated plan regarding its amended design for its additional Japanese Phase 1 study for SB206. The amended study design includes evaluation of potential lower dose strengths, including potential further refinement in a subsequent dose tolerability study. As part of the communication regarding these Phase 1 studies, Sato also communicated an updated comprehensive timeline for the Japanese SB206 program. The updated timeline assumes that the 12% formulation is appropriate to proceed for development in Japan, and is to be reassessed based on the findings of the Phase 1 study.
Based upon (i) the expected timing of the additional Phase 1 study, including a subsequent dose tolerability study; (ii) Sato’s estimated comprehensive developmental schedule for SB206, including additional post-Phase 1 clinical trials; and (iii) current and future Japanese clinical trial material manufacturing and technical transfer considerations, including the manufacturing site for drug product, we concluded that a prospective delay in Sato’s overall SB206 Japanese development plan had occurred in July 2021. We estimate the program timeline to be extended by 0.75 years from our previous estimate, and a corresponding extension of the performance period estimate to 10 years, completing in the first quarter of 2027. We understand that the progression of the Japanese SB204 program could follow the same timeline as the Japanese SB206 program, subject to the nature of the results of Sato’s comprehensive asset developmental program, including SB206. This estimated timeline remains subject to prospective reassessment and adjustment based upon Sato’s interaction with the Japanese regulatory authorities and other developmental and timing considerations.
The material terms of the Amended Sato Agreement and related revenue recognition are described in “Note 4—Licensing Arrangements” and “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements.
Government Contracts and Grants Revenue
Government research contracts and grant revenue relates to the research and development of our nitric oxide platform for preclinical advancement of NCEs and formulations related to potential treatments for illnesses in the women’s health field. Revenue related to conditional government contracts and grants is recognized when qualifying expenses are incurred.
Research and Development Expenses
Since our incorporation, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. Research and development expenses, including those paid to third parties for which there is no alternative use, are expensed as they are incurred. Research and development expenses include:
•external research and development expenses incurred under agreements with CROs, 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 with external CMOs and to enhance drug delivery device technologies through partnerships with technology manufacturing vendors;
•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 stock-based compensation, 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.
From our incorporation through September 30, 2021, we have incurred approximately $197.8 million in research and development expenses to develop, expand or otherwise improve our nitric oxide platform and resulting product candidates. This amount is net of $10.3 million of aggregate contra-research and development expense representing amortization of the liability related to the $12.0 million of funding received from Ligand Pharmaceuticals Incorporated, or Ligand, to pursue the development and regulatory approval of SB206. For the three and nine months ended September 30, 2021, we recognized accretion, or a decrease in contra-research and development expense of $0.1 million and amortization, or an increase in contra-research and development expense of $0.1 million, respectively. For the three and nine months ended September 30, 2020, we recognized amortization of $0.3 million and $2.2 million, respectively. For a description of the methodology and assumptions used to recognize the ratable amortization of this liability, as well as other information about the development funding and royalties agreement, or the Funding Agreement, with Ligand, please see “Note 6—Research and Development Arrangements” to the accompanying condensed consolidated financial statements.
For the nine months ended September 30, 2021 and 2020, our total research and development expense was $15.9 million and $13.5 million, respectively. During the first nine months of 2021, our major clinical development activities were primarily associated with the continued conduct of our current SB206 Phase 3 clinical program. The total external clinical program expense related to the SB206 program was $8.3 million and $4.3 million for the nine months ended September 30, 2021 and 2020, respectively.
In addition, other research and development expenses were $7.6 million and $9.0 million for the nine months ended September 30, 2021 and 2020, respectively. Other research and development expenses include: (i) all preclinical program and development costs, including WH504, WH602 and SB019; (ii) manufacturing capability and campaign costs; (iii) external costs to establish drug substance and drug product manufacturing capabilities at third-party CMOs; (iv) facility and infrastructure costs; and (v) costs related to all research and development salaries and related personnel costs.
Our plan and timelines for further clinical development of SB206 have been and may be further impacted by the COVID-19 pandemic. We expect that for the foreseeable future, the substantial majority of our research and development efforts will be focused on: (i) costs through the completion of the B-SIMPLE4 Phase 3 trial, including final data accumulation and reporting in addition to other supporting activities; (ii) costs associated with preparing for and seeking U.S. regulatory approval of SB206 as a treatment for molluscum; (iii) conducting drug manufacturing capability transfer activities to external third-party CMOs, including a drug delivery device technology enhancement project; (iv) developmental and regulatory activities for our SB019 program (Coronaviridae (COVID-19)), including a Phase 1 study, targeted for initiation in 2022; and (v) preparatory activities for a potential Phase 3 trial, targeted for initiation in 2023, related to SB204 as a treatment for acne.
We also expect to incur substantial costs in 2021 associated with our research and development personnel, and certain manufacturing capability costs related to the infrastructure build-out necessary to support small-scale drug substance and drug product manufacturing operations at our new corporate headquarters, including capital costs subject to depreciation and various ongoing operating costs. We may decide to revise our development and operating plans or the related timing, depending on information we learn through our research and development activities, including regulatory submission efforts related to SB206, potential SB206 commercialization strategies developed in conjunction with Syneos Health, the impact of outside factors such as the COVID-19 pandemic, our ability to enter into strategic arrangements, our ability to access additional capital and our financial priorities.
The successful development and potential regulatory approval of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of our current product candidates or any future product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. See the “Risk Factors” section in our Annual Report for a discussion of the risks and uncertainties associated with our research and development projects.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation expenses for personnel in our executive, finance, corporate development and other administrative functions. Other general and administrative expenses include market research costs, prelaunch strategy costs, including medical affairs, and commercial preparation activities for SB206, allocated depreciation and facility-related costs, legal costs of pursuing patent protection of our intellectual property, insurance coverage and professional services fees for auditing, tax, general legal, business development, litigation defense and other corporate and administrative services.
We expect to continue to incur substantial general and administrative expenses in 2021 in support of our prelaunch strategy and commercial preparation activities for SB206. We may decide to revise our plans or the related timing associated with our prelaunch strategy and commercial preparation activities for SB206, depending on information we learn through our regulatory submission process and potential SB206 commercialization strategies developed in conjunction with Syneos Health.
We also expect to continue to incur substantial general and administrative expenses in 2021 in support of our operating activities and as necessary to operate in a public company environment. Significant general and administrative expenses associated with operations in a public company environment include legal, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors’ and officers’ liability insurance premiums and investor relations activities.
Impairment loss on long-lived assets
As of June 29, 2020, we evaluated all of our long-lived assets for potential held for sale classification, and assessed our remaining long-lived assets classified as held and used for potential impairment pursuant to our accounting policies described in “Note 1—Organization and Significant Accounting Policies” to our audited consolidated financial statements contained in our Annual Report. This evaluation and assessment was triggered by the decommissioning of our large scale drug manufacturing capability at our former Morrisville, North Carolina facility and by preparatory actions taken in connection with the planned lease termination transaction for the facility that was executed in July 2020. In connection with this evaluation and impairment assessment, during the three months ended June 30, 2020, we recognized an impairment loss on long-lived assets that represented the carrying value in excess of fair value of assets held and used or the carrying value in excess of fair value less cost to sell for assets held for sale.
During the second quarter of 2021, we assessed the carrying value of a disposal group classified as assets held for sale in the accompanying condensed consolidated balance sheets. The disposal group and related assets consisted of certain manufacturing and laboratory equipment associated with our previous large scale drug manufacturing capability that was being sold over time through a consignment seller. Based on our assessment of the disposal group’s recoverability, during the three months ended June 30, 2021, we recognized an impairment loss on long-lived assets that represented the full write off of its remaining carrying value.
Loss on facility asset group disposition
In conjunction with the lease termination transaction executed in July 2020, as described above, all assets and liabilities within the related facility asset group were disposed of on July 16, 2020. As of the disposition date, the net aggregate carrying value of
the assets and liabilities was written off, combined with certain other direct costs incurred in connection with the lease termination transaction, which resulted in a loss on disposition.
Other Income (Expense), net
Other income (expense), net consists primarily of (i) foreign currency adjustments related to the contract asset and contract receivables related to the Amended Sato Agreement; (ii) gain on extinguishment of debt related to the forgiveness of our PPP loan; (iii) interest income earned on cash and cash equivalents; and (iv) other miscellaneous income and expenses.
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2020
The following table sets forth our results of operations for the periods indicated:
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Three Months Ended September 30,
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2021
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2020
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$ Change
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% Change
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(in thousands, except percentages)
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License and collaboration revenue
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$
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680
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$
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1,100
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$
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(420)
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(38)
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%
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Government research contracts and grants revenue
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57
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217
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(160)
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(74)
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%
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Total revenue
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737
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1,317
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(580)
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(44)
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%
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Operating expenses:
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Research and development
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4,251
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4,836
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(585)
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(12)
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%
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General and administrative
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2,969
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3,108
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(139)
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(4)
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%
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Loss on facility asset group disposition
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—
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1,772
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(1,772)
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(100)
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%
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Total operating expenses
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7,220
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9,716
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(2,496)
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(26)
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%
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Operating loss
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(6,483)
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(8,399)
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1,916
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(23)
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%
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Other income (expense), net:
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Interest income
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4
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2
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2
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100
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%
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Other income (expense)
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(5)
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(8)
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3
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(38)
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%
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Total other income (expense), net
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(1)
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(6)
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5
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(83)
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%
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Net loss and comprehensive loss
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$
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(6,484)
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$
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(8,405)
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$
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1,921
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(23)
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%
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Revenue
License and collaboration revenue of $0.7 million and $1.1 million for the three months ended September 30, 2021 and 2020, respectively, was associated with our performance during the period and the related amortization of the non-refundable upfront and expected milestone payments under the Amended Sato Agreement.
Government research contracts and grants revenue totaled $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, we recognized no and $0.1 million of revenue, respectively, related to the grant we received in September 2019 from the DoD’s CDMRP as part of its Peer Reviewed Cancer Research Program and $0.1 million and $0.1 million related to the grant we received in February 2020 from the NIH.
For additional information regarding our accounting for revenue-generating contracts and agreements, see “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements.
Research and development expenses
Research and development expenses were $4.3 million for the three months ended September 30, 2021, compared to $4.8 million for the three months ended September 30, 2020. The net decrease of $0.6 million, or 12%, was primarily related to a $1.1 million net decrease in the SB206 program; partially offset by a $0.5 million increase in other research and development expenses.
In the SB206 program, we experienced (i) a $1.8 million decrease in gross costs incurred due primarily to the completion and wind down of the B-SIMPLE4 Phase 3 trial during the third quarter of 2021, compared to relatively higher costs for B-
SIMPLE4 Phase 3 trial start-up activities and certain B-SIMPLE 1 and B-SIMPLE 2 Phase 3 trial wind down activities conducted during the comparative period in 2020, (ii) a $0.5 million increase in regulatory consulting services, stability and other analytical testing services, and chemistry, manufacturing and controls consulting services and materials in support of our planned SB206 NDA submission and (iii) a $0.2 million decrease in contra-research and development expense from the ratable amortization of the Funding Agreement with Ligand liability, which represents Ligand’s contribution to specified clinical development and regulatory activities for SB206 as a treatment for molluscum.
The $0.5 million increase in other research and development expenses was primarily due to (i) an increase of $0.5 million related to costs incurred during the third quarter of 2021 related to our in vitro and in vivo studies to evaluate our SB019 product candidate as an intranasal treatment option for COVID-19, (ii) a $0.1 million net increase in external drug manufacturing technology transfer projects ongoing with our contract manufacturing partners, (iii) a $0.1 million net increase in rent expenses as we transitioned into our new facility in Durham, North Carolina, and (iv) a $0.3 million net increase in other facility preparation and operating service costs; partially offset by (i) a $0.2 million decrease in research and development personnel costs, (ii) a $0.2 million decrease in our preclinical, grant-funded WH602 and WH604 programs, and (iii) $0.1 million of discrete facility decommissioning costs incurred in the third quarter of 2020 associated with our former Morrisville, North Carolina facility.
The $0.2 million net decrease in research and development personnel costs was primarily due to (i) a $0.1 million net decrease in recurring salary, cash bonus and benefits costs due to changes in the composition of our research and development personnel between the two comparative periods and (ii) the decrease in non-cash compensation expense related to the change in the fair value of our Tangible Stockholder Return Plan, or our Performance Plan, liability, which is a long-term incentive plan that expires on March 1, 2022.
General and administrative expenses
General and administrative expenses were $3.0 million for the three months ended September 30, 2021, compared to $3.1 million for the three months ended September 30, 2020. The net $0.1 million decrease in general and administrative expenses for the three months ended September 30, 2021 was primarily due to (i) a $0.3 million increase in insurance premium expenses associated with our directors’ and officers’ liability policies, (ii) a $0.2 million net increase in general and administrative personnel and related costs, (iii) a $0.3 million increase in SB206 prelaunch strategy and commercial preparation costs, and (iv) a $0.1 million increase in intellectual property and related legal costs; partially offset by a $0.8 million non-cash expense recognized in the third quarter of 2020 related to the issuance of commitment shares in consideration for entering into the July 2020 Aspire CSPA.
The $0.2 million net increase in general and administrative personnel and related costs is primarily due to (i) a $0.1 million increase in recurring salary and benefits costs, and (ii) a $0.1 million net increase in non-cash stock-based incentive compensation expense.
Loss on facility asset group disposition
For the three months ended September 30, 2020 we reported a $1.8 million loss on facility group disposition, in conjunction with a lease termination transaction executed in July 2020, as described above. All assets and liabilities within the related facility asset group were disposed of on July 16, 2020. As of the disposition date, the net aggregate carrying value of the assets and liabilities was written off, combined with certain other direct costs incurred in connection with the lease termination transaction.
Comparison of Nine Months Ended September 30, 2021 and 2020
The following table sets forth our results of operations for the periods indicated:
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Nine Months Ended September 30,
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2021
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2020
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$ Change
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% Change
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(in thousands, except percentages)
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License and collaboration revenue
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$
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2,174
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$
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3,224
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$
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(1,050)
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(33)
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%
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Government research contracts and grants revenue
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129
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627
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(498)
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(79)
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%
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Total revenue
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2,303
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3,851
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(1,548)
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(40)
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%
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Operating expenses:
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Research and development
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15,926
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13,513
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2,413
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18
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%
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General and administrative
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8,086
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8,847
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(761)
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(9)
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%
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Impairment loss on long-lived assets
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114
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2,421
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(2,307)
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(95)
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%
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Loss on facility asset group disposition
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—
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1,772
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(1,772)
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(100)
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%
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Total operating expenses
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24,126
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26,553
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(2,427)
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(9)
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%
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Operating loss
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(21,823)
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(22,702)
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879
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(4)
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%
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Other income (expense), net:
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Interest income
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10
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47
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(37)
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(79)
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%
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Gain on debt extinguishment
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956
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—
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956
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100
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%
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Other (expense) income
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(602)
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(3)
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(599)
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*
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Total other income (expense), net
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364
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44
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320
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*
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Net loss
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$
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(21,459)
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$
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(22,658)
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$
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1,199
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(5)
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%
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* Not meaningful
Revenue
License and collaboration revenue of $2.2 million and $3.2 million for the nine months ended September 30, 2021 and 2020, respectively, was associated with our performance during the period and the related amortization of the non-refundable upfront and expected milestone payments under the Amended Sato Agreement.
Government research contracts and grants revenue totaled $0.1 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, we recognized no and $0.5 million of revenue, respectively, related to the grant we received in September 2019 from the DoD’s CDMRP as part of its Peer Reviewed Cancer Research Program and $0.1 million and $0.1 million, respectively, related to the grant we received in February 2020 from the NIH.
For additional information regarding our accounting for revenue-generating contracts and agreements, see “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements.
Research and development expenses
Research and development expenses were $15.9 million for the nine months ended September 30, 2021, compared to $13.5 million for the nine months ended September 30, 2020. The net increase of $2.4 million, or 18%, was primarily related to a $4.1 million net increase in the SB206 program; partially offset by (i) a $1.4 million decrease in other research and development expenses, and (ii) a $0.3 million decrease in our SB414 program.
In the SB206 program, we experienced (i) a $0.8 million increase in gross costs incurred primarily due to the conduct and completion of the B-SIMPLE4 Phase 3 trial during the first nine months of 2021, compared to the relatively lower cost of B-SIMPLE4 Phase 3 trial start-up activities and B-SIMPLE 1 and B-SIMPLE 2 Phase 3 trial wind down activities during the comparative period in 2020, (ii) a $1.0 million increase in regulatory consulting services, stability and other analytical testing services, and chemistry, manufacturing and controls consulting services and materials in support of our planned SB206 NDA submission, and (iii) a $2.3 million decrease in contra-research and development expense from the ratable amortization of the Ligand Funding Agreement liability, which represents Ligand’s contribution to specified clinical development and regulatory activities for SB206 as a treatment for molluscum. The SB206 clinical development activities conducted during the comparative period in 2020, including but not limited to the B-SIMPLE 1 and B-SIMPLE 2 Phase 3 trials, were eligible for Ligand contribution and associated amortized contra-research and development expense recognition, but the B-SIMPLE 4 Phase 3 trial conducted during the current period in 2021 was not eligible for Ligand contributions and therefore no contra-research and development expense was recognized against the gross B-SIMPLE 4 trial costs. During the nine months ended September 30, 2021, we recorded a $0.1 million reduction to contra-research and development expense related to the Ligand SB206 developmental program, related to accretion of the Funding Agreement with Ligand liability, based on our reassessment of the estimated total cost to progress the SB206 program to a potential United States regulatory approval. Further information regarding our reassessment of the SB206 program is described in “Note 6—Research and Development Arrangements” to the accompanying condensed consolidated financial statements.
The $1.4 million decrease in other research and development expenses was primarily driven by (i) a $1.6 million net decrease in research and development personnel costs, (ii) a $0.8 million net decrease in rent and depreciation expense following the reduction of our real estate footprint due to the exit and the lease termination of our former Morrisville, North Carolina facility completed in the third quarter of 2020, (iii) $0.3 million of discrete facility decommissioning costs incurred in the second and third quarters of 2020 associated with our former Morrisville, North Carolina facility, and (iv) a $0.6 million decrease in our preclinical, grant-funded WH602 and WH604 programs; partially offset by (i) $1.0 million costs incurred during the first nine months of 2021 related to our in vitro and in vivo studies to evaluate our SB2019 product candidate as an intranasal treatment option for COVID-19, (ii) a $0.5 million net increase in external drug manufacturing technology transfer projects ongoing with our contract manufacturing partners, (iii) a $0.3 million net increase in other facility preparation and operating service costs, and (iv) $0.1 million costs incurred during the first nine months of 2021 associated with exploratory work to evaluate our new chemical entity, NVN4100, as a potential product candidate for antimicrobial indications in companion animal health.
The $1.6 million net decrease in research and development personnel costs is primarily due to (i) a $0.5 million decrease in non-cash compensation expense related to the change in the fair value of our Tangible Stockholder Return Plan, (ii) a $0.4 million decrease in non-cash compensation expense associated with stock option compensation, (iii) a $0.4 million decrease in discrete severance charges and retention incentive compensation associated with business realignment and personnel reduction actions taken during the first quarter of 2020, and (iv) a $0.3 million decrease in recurring salary and benefits costs due to a reduced number of research and development personnel between the two comparative periods.
General and administrative expenses
General and administrative expenses were $8.1 million for the nine months ended September 30, 2021, compared to $8.8 million for the nine months ended September 30, 2020. The decrease of approximately $0.8 million, or 9%, was primarily due to $1.7 million of aggregate non-cash expense recognized during the nine months ended September 30, 2020 related to the issuance of commitment shares in consideration for entering into the June 2020 Aspire CSPA and July 2020 Aspire CSPA. In addition we experienced (i) a $0.9 million increase in insurance premium expenses associated with our directors’ and officers’ liability policies, (ii) a $0.2 million net increase in general and administrative personnel and related costs, and (iii) a $0.3 million increase in SB206 prelaunch strategy and commercial preparation costs; partially offset by a $0.3 million decrease in rent and depreciation expense following the reduction of our real estate footprint within our Morrisville, North Carolina facility after the lease termination completed in the third quarter of 2020.
The $0.2 million net increase in general and administrative personnel and related costs includes (i) a $0.3 million increase in cash-based compensation expenses related, in part, to a success bonus paid to all employees following the announcement of the positive top-line results of our B-SIMPLE 4 study, (ii) a $0.1 million decrease in non-cash compensation expenses related to the change in the fair value of our Performance Plan liability, which was offset by a $0.1 million increase in non-cash compensation expense associated with stock option compensation, and (iii) a $0.1 million decrease in recurring salary and benefits costs.
Impairment loss on long-lived assets
As of June 29, 2020, we evaluated all of our long-lived assets for potential held for sale classification, and assessed our remaining long-lived assets classified as held and used for potential impairment pursuant to our accounting policies. Our evaluation resulted in a $2.4 million non-cash impairment loss on long-lived assets for the nine months ended September 30, 2020.
During the second quarter of 2021, we assessed the carrying value of a disposal group classified as assets held for sale in the accompanying condensed consolidated balance sheets. The disposal group and related assets consisted of certain manufacturing and laboratory equipment associated with our previous large scale drug manufacturing capability that was being sold over time through a consignment seller. Based on our assessment of the disposal group’s recoverability, during the second quarter of 2021, we recognized a $0.1 million non-cash impairment loss on long-lived assets that represented the full write off of its remaining carrying value.
Loss on facility asset group disposition
For the nine months ended September 30, 2020 we reported a $1.8 million loss on facility group disposition, in conjunction with a lease termination transaction executed in July 2020, as described above. All assets and liabilities within the related facility asset group were disposed of on July 16, 2020. As of the disposition date, the net aggregate carrying value of the assets and liabilities was written off, combined with certain other direct costs incurred in connection with the lease termination transaction.
Other income (expense), net
Other income (expense), net was $0.4 million income for the nine months ended September 30, 2021, and was negligible for the nine months ended September 30, 2020. During the second quarter of 2021, we experienced a $1.0 million gain on debt extinguishment related to the forgiveness of our PPP loan in June 2021. This gain was partially offset by $0.6 million of other expense related to the impact of foreign currency exchange rate fluctuations for certain time-based milestones related to the Amended Sato Agreement.
Liquidity and Capital Resources
As of September 30, 2021, we had an accumulated deficit of $270.7 million. We incurred net losses of $6.5 million and $21.5 million during the three and nine months ended September 30, 2021, respectively, and $8.4 million and $22.7 million during the three and nine months ended September 30, 2020, respectively, and there is substantial doubt about our ability to continue as a going concern. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and potentially begin commercialization activities. We are subject to all of the risks inherent in the development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We do not expect to generate revenue from product sales unless and until we obtain regulatory approval from the FDA for our clinical-stage product candidates. If we obtain regulatory approval for any of our product candidates, we and/or our commercial partners and commercial solutions providers would expect to incur significant expenses related to product sales, marketing, manufacturing and distribution.
As of September 30, 2021, we had total cash and cash equivalents of $60.0 million and positive working capital of $48.8 million. As of September 30, 2021, we had $12.0 million in remaining availability for sales of our common stock under the July 2020 Aspire CSPA, subject to certain limitations.
From January 1, 2019 through September 30, 2021, we have raised total equity and debt proceeds of $97.7 million to fund our operations, including (i) $37.2 million in net proceeds from the sale of common stock in the June 2021 public offering (as defined below); (ii) $5.2 million in net proceeds from the sale of common stock (or pre-funded warrants in lieu thereof) and accompanying common warrants in the March 2020 Public Offering (as defined below); (iii) $7.2 million in net proceeds from the sale of common stock (or pre-funded warrants in lieu thereof) in the March 2020 Registered Direct Offering (as defined below); (iv) an additional $6.0 million of proceeds associated with exercises through September 30, 2021 of common warrants issued as part of the March 2020 Public Offering and March 2020 Registered Direct Offering; (v) $41.0 million in proceeds from the sale of common stock under our August 2019 and June 2020 common stock purchase agreements with Aspire Capital and the July 2020 Aspire CSPA; and (vi) less than $0.1 million of proceeds from the exercise of stock options. We also obtained a loan under the PPP (as defined below) of approximately $1.0 million in April 2020 to support certain qualified expenses, including payroll and rental expense, which is described below. The PPP loan was forgiven in June 2021.
To date, we have focused our funding activities primarily on equity financings, while generating additional liquidity and capital through other sources, including: (i) governmental research contracts and grants totaling $12.9 million; (ii) our licensing and supply arrangements with Sato, totaling $28.8 million; and (iii) $25.0 million and $12.0 million in proceeds from two funding transactions during the second quarter of 2019 with Reedy Creek Investments LLC, or Reedy Creek, and Ligand, respectively, as described below.
We believe that our existing cash and cash equivalents balance as of September 30, 2021, plus expected contractual payments to be received in connection with existing licensing agreements, will provide us with adequate liquidity to fund our planned operating needs into the fourth quarter of 2022. This operating forecast and related cash projection includes: (i) costs through the completion of the B-SIMPLE4 Phase 3 trial, including final data accumulation and reporting in addition to other supporting activities; (ii) costs associated with preparing for and seeking U.S. regulatory approval of SB206 as a treatment for molluscum; (iii) costs associated with the completion of the build-out of our new corporate headquarters and manufacturing capability necessary to support small-scale drug substance and drug product manufacturing; (iv) conducting drug manufacturing capability transfer activities to external third-party CMOs, including a drug delivery device technology enhancement project; (v) developmental and regulatory activities for our SB019 program (Coronaviridae (COVID-19)), including a Phase 1 study, targeted for initiation in 2022; (vi) preparatory activities for a potential Phase 3 trial, targeted for initiation in 2023, related to SB204 as a treatment for acne; and (vii) initial efforts to support potential commercialization of SB206, but excludes: (a) any potential costs associated with other late-stage clinical programs, including executing the potentially registrational Phase 3 trial of SB204 for acne; (b) progression of the SB019 program subsequent to execution of a Phase 1 study; (c) operating costs that could occur between a potential NDA submission for SB206 through NDA approval, specifically including marketing and commercialization efforts to achieve potential launch of SB206; and (d) proceeds from any potential future sales of common stock under the July 2020 Aspire CSPA. We may decide to revise our development and operating plans or the related timing, depending on information we learn through our research and development activities, including regulatory submission efforts related to SB206, potential commercialization strategies, the impact of outside factors such as the COVID-19 pandemic, our ability to enter into strategic arrangements, our ability to access additional capital and our financial priorities.
We will need significant additional funding to continue our operating activities, make further advancements in our product development programs and potentially commercialize any of our product candidates beyond those activities currently included in our operating forecast and related cash projection. Therefore, we will need to secure additional capital or financing and/or delay, defer or reduce our cash expenditures by the fourth quarter of 2022. There can be no assurance that we will be able to obtain additional capital or financing on terms acceptable to us, on a timely basis or at all.
We do not currently have sufficient funds to complete commercialization of any of our product candidates, and our funding needs will largely be determined by our commercialization strategy for SB206, subject to the NDA submission timing and the regulatory approval process and outcome. We have selected Syneos Health, a fully integrated biopharmaceutical solutions organization, as our commercial solutions provider for SB206. Our relationship with Syneos Health will focus on implementing the SB206 prelaunch strategy and commercial preparation, followed by commercial sales of SB206, if approved by the FDA.
Our inability to obtain significant additional funding on acceptable terms could have a material adverse effect on our business and cause us to alter or reduce our planned operating activities, including but not limited to delaying, reducing, terminating or eliminating planned product candidate development activities, to conserve our cash and cash equivalents. We may pursue additional capital through equity or debt financings, including potential sales under the July 2020 Aspire CSPA, or from non-dilutive sources, including partnerships, collaborations, licensing, grants or other strategic relationships. Alternatively, we may seek to engage in one or more potential transactions, which could include the sale of the Company, or the sale or divestiture of some of our assets, such as a sale of our dermatology platform assets, but there can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis or at all on terms that are favorable to us.
Our cash and cash equivalents are held in a variety of interest-bearing instruments, including money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.
Development Services Agreement
In July 2021, we entered into a development services agreement with a third-party full-scale API manufacturer for certain manufacturing process feasibility services including process familiarization, safety assessments, preliminary engineering studies, and initial process and analytical methods determination. Following the successful completion of certain preliminary activities with this third-party API manufacturer and other preparatory activities, we would then proceed with the third-party
API manufacturer beyond the initial stages noted above, in which case we expect to incur substantial costs associated with technical transfer efforts, capital expenditures, manufacturing capabilities, and certain quantities of our drug substance.
Purchase Agreements with Aspire Capital
Prior Aspire Common Stock Purchase Agreements
On August 30, 2019, we entered into a common stock purchase agreement with Aspire Capital, or the 2019 Aspire CSPA, and on June 15, 2020, we entered into a common stock purchase agreement with Aspire Capital, or the June 2020 Aspire CSPA, which provided that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $25.0 million and $20.0 million, respectively, of shares of our common stock at our request from time to time during the 30-month term of each agreement. The June 2020 Aspire CSPA replaced the 2019 Aspire CSPA, which was terminated under the terms of the June 2020 Aspire CSPA. On July 21, 2020, the June 2020 Aspire CSPA was replaced by the July 2020 Aspire CSPA described below.
From the inception through the termination of the 2019 Aspire CSPA, we sold 486,571 shares of common stock at an average price of $6.22 per share under such agreement. These amounts, combined with the 34,562 shares issued as part of the commitment fee related to the agreement’s execution, resulted in a total of 521,133 shares issued to Aspire Capital under that agreement as of September 30, 2021. From the inception through the termination of the June 2020 Aspire CSPA, we sold 3,776,428 shares of common stock at an average price of $5.30 per share under that agreement. These amounts, combined with the 144,927 shares issued as part of the commitment fee related to the agreement’s execution, resulted in a total of 3,921,355 shares issued to Aspire Capital under the agreement, which was fully utilized prior to entry into the July 2020 Aspire CSPA. The 2019 Aspire CSPA and June 2020 Aspire CSPA had substantially similar terms to the July 2020 Aspire CSPA.
July 2020 Aspire Common Stock Purchase Agreement
On July 21, 2020, we entered into the July 2020 Aspire CSPA, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of shares of our common stock at our request from time to time during the 30-month term of the agreement. Upon execution of the July 2020 Aspire CSPA, we agreed to sell to Aspire Capital 555,555 shares of our common stock at $9.00 per share for proceeds of $5.0 million. In addition, as consideration for entering into the July 2020 Aspire CSPA, we issued to Aspire Capital 100,000 shares of our common stock as a commitment fee.
Concurrently with entering into the July 2020 Aspire CSPA, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended, registering the sale of the shares of our common stock that have been and may be issued to Aspire Capital under the July 2020 Aspire CSPA. On July 23, 2020, we filed with the SEC a prospectus supplement to our effective shelf Registration Statement on Form S-3 (File No. 333-236583) registering all of the shares of common stock that may be offered to Aspire Capital from time to time under the July 2020 Aspire CSPA.
Under the terms of the July 2020 Aspire CSPA, on any trading day we select, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, or the Purchase Notice, directing Aspire Capital (as principal) to purchase up to 30,000 shares of our common stock per business day, up to an aggregate of $30.0 million of our common stock, at a per share price equal to the lesser of (i) the lowest sale price of our common stock on the purchase date; or (ii) the arithmetic average of the three lowest closing sale prices for our common stock during the ten consecutive trading days ending on the trading day immediately preceding the purchase date. The aggregate purchase price payable by Aspire Capital on any one purchase date may not exceed $0.5 million, unless otherwise mutually agreed. The parties may mutually agree to increase the number of shares of our common stock that may be purchased per trading day pursuant to the terms of the July 2020 Aspire CSPA to up to 200,000 shares.
In addition, on any date on which we submit a Purchase Notice in an amount equal to 30,000 shares, we can also, in our sole discretion, present Aspire Capital with a volume-weighted average price purchase notice, or a VWAP Purchase Notice, directing Aspire Capital to purchase an amount of our common stock equal to up to 30% of the aggregate shares of our common stock traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of shares determined by us. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for our common stock traded on our principal market on the VWAP Purchase Date.
Under the terms of the July 2020 Aspire CSPA, the number of shares that may be sold to Aspire Capital is limited to 2,543,364 shares, or the Exchange Cap, which represents 19.99% of our outstanding shares of common stock on July 21, 2020, unless
stockholder approval or an exception pursuant to the rules of our principal market, currently the Nasdaq Capital Market, is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all shares issued under the July 2020 Aspire CSPA is equal to or greater than $5.907, which is the arithmetic average of the five closing sale prices of our common stock immediately preceding the execution of the July 2020 Aspire CSPA. The July 2020 Aspire CSPA provides that we and Aspire Capital shall not effect any sales under the July 2020 Aspire CSPA on any purchase date where the closing sale price of our common stock is less than $0.15.
There are no trading volume requirements or restrictions under the July 2020 Aspire CSPA, and we control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us, but is obligated to make purchases from us as we may direct in accordance with the July 2020 Aspire CSPA. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financing transactions, rights of first refusal, participation rights, penalties or liquidated damages in the July 2020 Aspire CSPA. The July 2020 Aspire CSPA may be terminated by us at any time, at our discretion, without any penalty or additional cost to us. Any proceeds we receive under the July 2020 Aspire CSPA are expected to be used for the advancement of our research and development programs and for general corporate purposes, capital expenditures and working capital.
As of September 30, 2021, we have sold 2,221,040 shares of our common stock at an average price of $8.10 per share under the July 2020 Aspire CSPA for total proceeds of $18.0 million. These amounts, combined with the 100,000 shares issued as part of the commitment fee related to the agreement’s execution, resulted in a total of 2,321,040 shares issued to Aspire Capital under the agreement as of September 30, 2021. As of September 30, 2021, there was $12.0 million of remaining availability for sales of common stock under the July 2020 Aspire CSPA.
See “Note 10—Stockholders’ Equity (Deficit)” to the accompanying condensed consolidated financial statements for additional information regarding the July 2020 Aspire CSPA.
Paycheck Protection Program
On April 22, 2020, and as subsequently amended, we entered into the Note for an unsecured loan of approximately $1.0 million made to us, or the Loan, under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by the United States Small Business Administration, or the SBA. The Loan was made through PNC Bank, National Association. Subject to the terms of the Note, the Loan bore interest at a fixed rate of one percent (1%) per annum. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of loan proceeds for payment of permitted and program-eligible expenses. Interest payable on the Note may be forgiven only if the SBA agrees to pay such interest on the forgiven principal amount of the Note. We previously applied for and during the second quarter of 2021 received notification of forgiveness of the entire loan balance, including any accrued interest.
See “Note 9—Paycheck Protection Program” to the accompanying condensed consolidated financial statements for additional information regarding the Loan.
Equity Offerings
June 2021 Public Offering
On June 17, 2021, we entered into an underwriting agreement with Cantor Fitzgerald & Co. relating to the offering, issuance and sale of 3,636,364 shares of common stock. We also granted Cantor Fitzgerald & Co., as underwriter, a 30-day option to purchase up to 545,454 additional shares of common stock, which was not exercised. The June 2021 Public Offering closed on June 21, 2021.
Net proceeds from the June 2021 Public Offering were approximately $37.2 million after deducting underwriting discounts and commissions and offering expenses of approximately $2.8 million.
See “Note 10—Stockholders’ Equity (Deficit)” to the accompanying condensed consolidated financial statements for additional information regarding the June 2021 Public Offering.
March 2020 Registered Direct Offering
On March 24, 2020, we entered into a securities purchase agreement with several institutional and accredited investors, pursuant to which we agreed to sell and issue in a registered direct offering priced at-the-market under Nasdaq rules, or the March 2020 Registered Direct Offering, an aggregate of 1,055,000 shares of our common stock and pre-funded warrants to purchase 805,465 shares of common stock. The March 2020 Registered Direct Offering closed on March 26, 2020. At closing, we also issued to H.C. Wainwright, as placement agent, warrants to purchase an aggregate of up to 55,814 shares of common stock representing 3.0% of the aggregate number of shares of common stock and shares of common stock underlying the pre-funded warrants sold in this offering.
Net proceeds from the March 2020 Registered Direct Offering were approximately $7.2 million after deducting the fees and commissions and offering expenses of approximately $0.8 million.
See “Note 10—Stockholders’ Equity (Deficit)” to the accompanying condensed consolidated financial statements for additional information regarding the March 2020 Registered Direct Offering.
March 2020 Public Offering
On February 27, 2020, we entered into an underwriting agreement with H.C. Wainwright relating to the offering, issuance and sale of 1,400,000 shares of common stock, pre-funded warrants to purchase 433,333 shares of common stock, and accompanying common warrants to purchase up to an aggregate of 1,833,333 shares of common stock, or, collectively, the March 2020 Public Offering. We also granted H.C. Wainwright, as underwriter, a 30-day option to purchase up to 275,000 additional shares of common stock and/or common warrants to purchase up to an aggregate of 275,000 shares of common stock, which H.C. Wainwright partially exercised on March 2, 2020 to purchase 149,860 shares of common stock and common warrants to purchase 275,000 shares of common stock. The March 2020 Public Offering closed on March 3, 2020. At closing, we also issued to designees of H.C. Wainwright, as underwriter, warrants to purchase an aggregate of up to 59,496 shares of common stock representing 3.0% of the aggregate number of shares of common stock sold and shares of common stock underlying the pre-funded warrants sold in this offering.
Net proceeds from the March 2020 Public Offering were approximately $5.2 million after deducting underwriting discounts and commissions and offering expenses of approximately $0.8 million. As of September 30, 2021, 1,855,917 common warrants issued as part of the March 2020 Public Offering have been exercised for an additional $5.6 million of proceeds associated with this offering.
See “Note 10—Stockholders’ Equity (Deficit)” to the accompanying condensed consolidated financial statements for additional information regarding the March 2020 Public Offering.
Research and Development Arrangements
Royalty and Milestone Payments Purchase Agreement with Reedy Creek Investments LLC
On April 29, 2019, we entered into a royalty and milestone payments purchase agreement, or the Purchase Agreement, with Reedy Creek, pursuant to which Reedy Creek provided us funding in an initial amount of $25.0 million for us to use primarily to pursue the development, regulatory approval and commercialization (including through out-license agreements and other third-party arrangements) activities for SB206, as a treatment for molluscum, and advancing programmatically other activities with respect to SB414, for atopic dermatitis, and SB204, for acne.
Pursuant to the Purchase Agreement, we will pay Reedy Creek ongoing quarterly payments, calculated based on an applicable percentage per product of any upfront fees, milestone payments, royalty payments or equivalent payments received by us pursuant to any out-license agreement for the products in the United States, Mexico or Canada, net of any upfront fees, milestone payments, royalty payments or equivalent payments paid by us to third parties pursuant to any agreements under which we have in-licensed intellectual property with respect to the products.
The applicable percentage used for determining the ongoing quarterly payments, applied to amounts received directly by us pursuant to any out-license agreement for each product, ranges from 10% for SB206 to 20% for SB414 and SB204. However, the agreement provides that the applicable percentage for each product will be 25% for fees or milestone payments received by us (but not royalty payments received by us) until Reedy Creek has received payments under the Purchase Agreement equal to the total funding amount provided by Reedy Creek under the Purchase Agreement. If we decide to commercialize any product on our own following regulatory approval, as opposed to commercializing through an out-license agreement or other third-party arrangement, we will only be obligated to pay Reedy Creek a low single digits royalty on net sales of the products.
See “Note 6—Research and Development Arrangements” to the accompanying condensed consolidated financial statements for additional information related to the Purchase Agreement.
Development Funding and Royalties Agreement with Ligand Pharmaceuticals Incorporated
On May 4, 2019, we entered into the Funding Agreement with Ligand, pursuant to which Ligand provided us funding of $12.0 million, which we used to pursue the development and regulatory approval of SB206, as a treatment for molluscum.
Pursuant to the Funding Agreement, we will pay Ligand up to $20.0 million in milestone payments upon the achievement by us of certain regulatory and commercial milestones associated with SB206 or any product that incorporates or uses NVN1000, the API for our clinical stage product candidates, as a treatment for molluscum. In addition to the milestone payments, we will pay Ligand tiered royalties ranging from 7% to 10% based on annual aggregate net sales of the products in the United States, Mexico or Canada.
See “Note 6—Research and Development Arrangements” to the accompanying condensed consolidated financial statements for additional information related to the Funding Agreement.
Licensing Arrangements
Expansion of Partnership with Sato in Japanese Territory
On October 5, 2018, we and Sato entered into the second amendment to the initial license agreement dated January 12, 2017, or the Sato Amendment. The initial license agreement had focused on the development and commercialization of SB204 for the treatment of acne vulgaris in Japan. The Sato Amendment also provides Sato with the exclusive rights to develop and commercialize SB206 and related dosage forms for the treatment of viral skin infections, including but not limited to molluscum contagiosum and external genital warts, in Japan. We have received approximately $28.8 million from Sato beginning January 2017 through September 30, 2021 under the Amended Sato Agreement, including (i) a $10.8 million upfront payment received following the execution of the agreement in January 2017; (ii) a $2.2 million payment related to the initiation of a Phase 1 trial in Japan in the third quarter of 2018; (iii) $11.2 million of installment payments received following the execution of the Sato Amendment; and (iv) a $4.6 million payment related to a time-based developmental milestone received in the second quarter of 2021. In addition to the upfront payment paid in three installments in 2018 and 2019 that we received from Sato under the terms of the Sato Amendment, the Sato Amendment also provides for an aggregate of 1.0 billion JPY in additional non-contingent milestone payments that become payable upon the earlier occurrence of specified fixed dates in the future or the achievement of specified milestone events, of which we received 0.5 billion JPY in the second quarter of 2021.
See “Note 4—Licensing Arrangements” and “Note 5—Revenue Recognition” to the accompanying condensed consolidated financial statements regarding the Amended Sato Agreement.
Cash Flows
The following table sets forth our cash flows for the periods indicated:
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Nine Months Ended September 30,
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2021
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2020
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(in thousands)
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Net cash (used in) provided by:
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Operating activities
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$
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(16,036)
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$
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(21,868)
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Investing activities
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(3,500)
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(90)
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Financing activities
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44,089
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50,779
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Net increase in cash, cash equivalents and restricted cash
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$
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24,553
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$
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28,821
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Net Cash Used in Operating Activities
During the nine months ended September 30, 2021, net cash used in operating activities was $16.0 million and consisted primarily of a net loss of $21.5 million, with adjustments for non-cash amounts related primarily to (i) depreciation expense of $0.2 million, (ii) impairment of long-lived assets of $0.1 million, (iii) a net favorable adjustment to stock-based compensation of $0.1 million, caused by fair market value adjustments to the Tangible Stockholder Return Plan, (iv) a foreign currency transaction loss of $0.7 million related to fair value adjustments for payments received and to be received under the Amended Sato Agreement, (v) a $1.0 million gain on debt extinguishment related to forgiveness of the PPP loan, and (vi) a $5.4 million
favorable change in cash related to changes in other operating assets and liabilities. The favorable change in cash related to changes in assets and liabilities was primarily due to (i) a $4.4 million decrease in contracts and grants receivable primarily related to receipt of a $4.6 million time-based developmental milestone payment, (ii) a $2.1 million decrease in prepaid insurance, prepaid expenses and other current assets primarily related to the amortization of prepaid service contracts and directors and officers insurance premiums, (iii) a $1.6 million increase in other accrued expenses primarily related to accrued goods and services associated with the planning, design and build-out of our new facility in Durham, North Carolina, (iv) a $0.1 million increase in accrued legal and professional fees, (v) a $0.1 million increase in research and development service obligation liabilities related to the accretion of the liability associated with Ligand, and (vi) a $0.2 million increase in other long-term assets and liabilities. These increases in cash were partially offset by (i) a $2.2 million decrease in deferred revenue associated with our performance under, and revenue recognition of, the Amended Sato Agreement during the nine months ended September 30, 2021, (ii) a $0.7 million decrease in accrued outside research and development services primary related to payments for services related to the SB206 Phase 3 development program, and (iii) a $0.1 million decrease in accrued compensation primarily related to the payment of 2020 performance bonuses in March 2021.
During the nine months ended September 30, 2020, net cash used in operating activities was $21.9 million and consisted primarily of a net loss of $22.7 million, with adjustments for non-cash amounts related primarily to (i) depreciation expense of $1.1 million, (ii) impairment of long-lived assets of $2.4 million, (iii) loss on facility asset group disposition of $0.8 million, (iv) stock-based compensation expense of $0.8 million, (v) fees of $1.7 million related to commitment shares for the June 2020 Aspire CSPA and July 2020 Aspire CSPA, (vi) a loss on disposal of equipment of $0.1 million, and (vii) a $6.1 million net decrease in other operating assets and liabilities. The net decrease in assets and liabilities was primarily due to (i) a $2.2 million decrease in research and development service obligation liabilities related to the amortization of the liability associated with Ligand, (ii) a $3.3 million decrease in deferred revenue associated with our performance under, and revenue recognition of, the Amended Sato Agreement, (iii) $0.3 million decrease in accrued legal and professional fees, and (iv) a $1.4 million decrease in accounts payable. These decreases were partially offset primarily by (i) a $0.7 million decrease in prepaid expenses and other current assets, (ii) a $0.3 million increase in accrued compensation, and (iii) a $0.3 million decrease in contracts and grants receivable. The changes in accounts payable during the nine months ended September 30, 2020 were primarily related to timing of invoice receipts and payments associated with the SB206 Phase 3 development program.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2021, the $3.5 million of net cash used in investing activities was primarily related to purchases of property, equipment and services associated with the planning, design and build-out of our new corporate headquarters and small-scale manufacturing facility in Durham, North Carolina; offset by payments received related to the landlord funded tenant improvement allowance. As of September 30, 2021, we also had goods and services associated with the planning, design and build-out of our new facility of $3.9 million included in accounts payable or other accrued expenses in the accompanying balance sheets, which we expect to settle through cash payments during the fourth quarter of 2021.
During the nine months ended September 30, 2020, the $0.1 million of net cash used in investing activities was primarily related to installment payments made to a drug delivery device technology manufacturing vendor in connection with an ongoing drug delivery device technology enhancement project of $0.4 million, offset by $0.3 million of proceeds from the sale of equipment.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2021, net cash provided by financing activities was $44.1 million and consisted primarily of (i) $37.6 million of proceeds from the sale of our common stock pursuant to the June 2021 Public Offering, (ii) $6.3 million of proceeds from the sale of our common stock pursuant to the July 2020 Aspire CSPA, (iii) $0.5 million of proceeds from the exercise of common warrants associated with the March 2020 Public Offering and March 2020 Registered Direct Offering, and (iv) $0.1 million of proceeds from the exercise of stock options; partially offset by $0.4 million of payments of costs related to the June 2021 Public Offering.
During the nine months ended September 30, 2020, net cash provided by financing activities was $50.8 million and consisted primarily of (i) $5.3 million of proceeds, net of underwriting fees, from closing of our March 2020 Public Offering, (ii) $5.5 million of proceeds from the exercise of common warrants associated with the March 2020 Public Offering, (iii) $7.3 million of proceeds, net of placement agent fees, from our March 2020 Registered Direct Offering, (iv) $1.0 million from the entry into a promissory note for an unsecured loan under the PPP, and (v) $31.9 million of proceeds from the sale of our common stock pursuant to the 2019 Aspire CSPA, the June 2020 Aspire CSPA, and the July 2020 Aspire CSPA. These financing cash inflows
were partially offset by $0.2 million of other offering costs, including legal and professional fees, directly associated with the March 2020 Public Offering, March 2020 Registered Direct Offering and the February 2020 shelf registration statement filing.
Capital Requirements
As of September 30, 2021, we had a total cash and cash equivalents balance of $60.0 million and positive working capital of $48.8 million. To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate revenue from product sales unless, and until, we obtain regulatory approval of one of our current or future product candidates and achieve successful commercialization by a strategic partner or by ourselves. As of September 30, 2021, we had an accumulated deficit of $270.7 million.
We will need significant additional funding to support our planned and future operating activities and make further advancements in our product development programs beyond what is currently included in our operating forecast and related cash projection. We do not currently have sufficient funds to complete commercialization of any of our product candidates, and our funding needs will largely be determined by our commercialization strategy for SB206, subject to the NDA submission timing and the regulatory approval process and outcome. We are working with Syneos Health to focus on implementing the SB206 prelaunch strategy and commercial preparation, followed by commercial sales of SB206, if approved by the FDA.
Our ability to continue to operate our business, including our ability to advance development programs unrelated to SB206, as well as our ability to progress SB206 for molluscum subsequent to an NDA submission, is dependent upon our ability to access additional sources of capital, including, but not limited to (i) equity or debt financings, including through potential sales using the remaining availability under the July 2020 Aspire CSPA; or (ii) non-dilutive sources, such as partnerships, collaborations, licensing, grants or other strategic relationships. There can be no assurance that we will be able to obtain new funding on terms acceptable to us, on a timely basis, or at all. Our inability to obtain significant additional funding on acceptable terms could have a material adverse effect on our business and cause us to alter or reduce our planned operating activities, including but not limited to delaying, reducing, terminating or eliminating planned product candidate development activities, to conserve our cash and cash equivalents. Our anticipated expenditure levels may change if we adjust our current operating plan. Such actions could delay development timelines and have a material adverse effect on our business, results of operations, financial condition and market valuation. We are also exploring the potential for alternative transactions, such as strategic acquisitions or in-licenses, sales or divestitures of some of our assets, or other potential strategic transactions, which could include a sale of the Company. If we were to pursue such a transaction, we may not be able to complete the transaction on a timely basis or at all or on terms that are favorable to us.
Our equity issuances during the year ended December 31, 2020 and the nine months ended September 30, 2021, have resulted in significant dilution to our existing stockholders. Any future additional issuances of equity, or debt that could be convertible into equity, would result in further significant dilution to our existing stockholders.
As of September 30, 2021, we had 18,815,142 shares of common stock outstanding. In addition, as of September 30, 2021, we had reserved 3,066,703 shares of common stock for future issuance related to (i) outstanding warrants to purchase common stock; (ii) outstanding stock options and stock appreciation rights; and (iii) future issuance under the 2016 Incentive Award Plan. Our common stock consists of 200,000,000 authorized shares as of September 30, 2021.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount or timing of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•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 new 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;
•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.
Contractual Obligations and Contingent Liabilities
Except for items described in note “Note 8—Commitments and Contingencies” and the forgiveness of the Loan we received under the PPP as described in “Note 9—Paycheck Protection Program” to the accompanying condensed consolidated financial statements, there were no material changes during the nine months ended September 30, 2021 in our commitments under contractual obligations, as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Jumpstart Our Business Startups Act of 2012 (JOBS Act)
In April 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable. We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act; and (iii) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. We may remain an emerging growth company until the last day of 2021. However, if certain events occur prior to such date, including if we become a “large accelerated filer,” our annual gross revenue equals or exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to such date.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
Our significant accounting policies are more fully described in “Note 1—Organization and Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in “Note 1—Organization and Significant Accounting Policies” to our audited consolidated financial statements contained in our Annual Report. During the nine months ended September 30, 2021, there were no material changes to our critical accounting policies.
Recent Accounting Pronouncements
Recently issued accounting pronouncements that we have adopted or are currently evaluating are described in detail within “Note 1—Organization and Significant Accounting Policies” to the accompanying condensed consolidated financial statements.