UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______.
Commission File Number: 001-38552
PROVENTION BIO, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 81-5245912 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| P.O. Box 666, Oldwick, New Jersey | 08858 | |
| (Address of registrant’s principal executive offices) | (Zip code) |
(908) 336-0360
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☒ |
| Non-accelerated filer ☐ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchanged on Which Registered | ||
| Common Stock, $0.0001 par value per share | PRVB | The Nasdaq Global Select Market |
As of the close of business on August 3, 2020, 56,280,086 common shares, $0.0001 par value per share, of the registrant were issued and outstanding.
Provention Bio, Inc.
Form 10-Q
For the Quarter Ended June 30, 2020
Table of Contents
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “believe,” “may,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements concerning the following:
| ● | our lack of operating history; | |
| ● | the expectation that we will incur operating losses for the foreseeable future; | |
| ● | our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs; | |
| ● | our dependence on our product candidates, which are in various stages of clinical development or still in preclinical development; | |
| ● | the potential safety and efficacy of our product candidates in target patient populations and their commercial potential; | |
| ● |
our ability to obtain, or potential delays in obtaining, regulatory approval from the US Food and Drug Administration (FDA), the European Medicines Agency (EMA), and other regulatory authorities for our product candidates, such as PRV-031 in the At-Risk indication, including the potential impact of insufficient clinical data, requirements to demonstrate the comparability of our current third party manufacturing process with that of previous manufacturing processes by other companies, and the complexity of the review process by the FDA; |
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| ● | failure to maintain regulatory approval for our product candidates, if received; | |
| ● | our, or that of our third-party manufacturers, ability to manufacture Good Manufacturing Practice (GMP) batches of our product candidates as required for pre-clinical and clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates; | |
| ● | our ability to attract and retain key executives and medical, scientific and commercial personnel; | |
| ● | our ability to complete required clinical trials for our product candidates; | |
| ● | our ability to build a commercial organization, including sales and marketing, and successfully commercialize our product candidates if we obtain regulatory approval; | |
| ● | our dependence on third-parties to manufacture our product candidates; | |
| ● | our reliance on third-party contract research organizations (CROs) to conduct our clinical trials, including those in the U.S. and internationally; | |
| ● | the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic on our ability to recruit candidates for clinical trials or to raise capital to support the development and commercialization of our product candidates; | |
| ● | our ability to maintain or protect the validity of our licensed patents and other intellectual property; | |
| ● | our ability to internally develop new inventions and intellectual property; | |
| ● | our ability to compete within the market for our product candidates, if approved; | |
| ● | interpretations of current laws and the passages of future laws; | |
| ● | acceptance of our business model by investors; | |
| ● | the accuracy of our estimates regarding expenses and capital requirements; and | |
| ● | our ability to adequately support organizational and business growth. |
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and 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 these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtain this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.
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PART I. FINANCIAL INFORMATION
| ITEM 1. | CONDENSED FINANCIAL STATEMENTS |
PROVENTION BIO, INC.
CONDENSED BALANCE SHEETS (unaudited)
(in thousands, except share and per share data)
| June 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 145,887 | $ | 39,165 | ||||
| Marketable securities | 26,268 | 46,208 | ||||||
| Prepaid expenses and other current assets | 3,600 | 623 | ||||||
| Total assets | $ | 175,755 | $ | 85,996 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 7,828 | $ | 1,775 | ||||
| Accrued expenses | 4,151 | 2,065 | ||||||
| Total current liabilities | 11,979 | 3,840 | ||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.0001 par value; 25,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019 | — | — | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 56,215,596 shares issued and outstanding at June 30, 2020; 47,658,361 shares issued and outstanding at December 31, 2019 | 6 | 5 | ||||||
| Additional paid-in capital | 277,437 | 161,212 | ||||||
| Accumulated other comprehensive income | 98 | — | ||||||
| Accumulated deficit | (113,765) | (79,061) | ||||||
| Total stockholders’ equity | 163,776 | 82,156 | ||||||
| Total liabilities, preferred stock and stockholders’ equity | $ | 175,755 | $ | 85,996 | ||||
The accompanying unaudited notes are an integral part of the condensed financial statements.
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PROVENTION BIO, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in thousands, except per share data)
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 15,032 | $ | 10,550 | $ | 24,122 | $ | 20,572 | ||||||||
| General and administrative | 7,764 | 1,707 | 11,539 | 2,944 | ||||||||||||
| Total operating expenses | 22,796 | 12,257 | 35,661 | 23,516 | ||||||||||||
| Loss from operations | (22,796) | (12,257) | (35,661) | (23,516) | ||||||||||||
| Interest income | 151 | 253 | 434 | 540 | ||||||||||||
| Loss before income tax benefit | (22,645) | (12,004) | (35,227) | (22,976) | ||||||||||||
| Income tax benefit | 523 | — | 523 | — | ||||||||||||
| Net loss | $ | (22,122) | $ | (12,004) | (34,704) | (22,976) | ||||||||||
| Net loss per common share, basic and diluted | $ | (0.45) | $ | (0.32) | $ | (0.72) | $ | (0.61) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 49,199 | 37,363 | 48,449 | 37,362 | ||||||||||||
| Net loss | $ | (22,122) | $ | (12,004) | $ | (34,704) | $ | (22,976) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Unrealized gain (loss) on marketable securities | (112) | — | 98 | — | ||||||||||||
| Total comprehensive loss | $ | (22,234) | $ | (12,004) | $ | (34,606) | $ | (22,976) | ||||||||
The accompanying unaudited notes are an integral part of the condensed financial statements.
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PROVENTION BIO, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except per share data)
| Common Stock | ||||||||||||||||||||||||
| Common Stock |
Additional
Paid-In |
Accumulated
Other Comprehensive |
Accumulated |
Total
Stockholders’ |
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| Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| Balance at January 1, 2020 | 47,658 | $ | 5 | $ | 161,212 | $ | — | $ | (79,061) | $ | 82,156 | |||||||||||||
| Stock-based compensation | — | — | 1,236 | — | — | 1,236 | ||||||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs, shares | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs, shares | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises, shares | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | 55 | — | 194 | — | — | 194 | ||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax | — | — | — | 210 | — | 210 | ||||||||||||||||||
| Net loss | — | — | — | — | (12,582) | (12,582) | ||||||||||||||||||
| Balance at March 31, 2020 | 47,713 | $ | 5 | $ | 162,642 | $ | 210 | $ | (91,643) | $ | 71,214 | |||||||||||||
| Balance at April 01, 2020 | 47,713 | $ | 5 | $ | 162,642 | $ | 210 | $ | (91,643) | $ | 71,214 | |||||||||||||
| Stock-based compensation | — | — | 1,277 | — | — | 1,277 | ||||||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs | 7,590 | 1 | 103,269 | — | — | 103,270 | ||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | 725 | — | 9,869 | — | — | 9,869 | ||||||||||||||||||
| Issuance of common stock in connection with warrant exercises | 130 | — | — | — | — | — | ||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | 58 | — | 380 | — | — |
380 |
||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax | — | — | — | (112) | — | (112) | ||||||||||||||||||
| Net loss | — | — | — | — | (22,122) | (22,122) | ||||||||||||||||||
| Balance at June 30, 2020 | 56,216 | $ | 6 | $ | 277,437 | $ | 98 | $ | (113,765) | $ | 163,776 | |||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Common Stock |
Additional
Paid-In |
Accumulated
Other Comprehensive |
Accumulated |
Total
Stockholders’ |
||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| Balance at January 1, 2019 | 37,362 | $ | 4 | $ | 95,430 | $ | — | $ | (35,776) | $ | 59,658 | |||||||||||||
| Stock-based compensation | — | — | 244 | — | — | 244 | ||||||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises, shares | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises, shares | ||||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax | ||||||||||||||||||||||||
| Net loss | — | — | — | — | (10,972) | (10,972) | ||||||||||||||||||
| Balance at March 31, 2019 | 37,362 | $ | 4 | $ | 95,674 | $ | — | $ | (46,748) | $ | 48,930 | |||||||||||||
| Balance at April 01, 2019 | 37,362 | $ | 4 | $ | 95,674 | $ | — | $ | (46,748) | $ | 48,930 | |||||||||||||
| Stock-based compensation | — | — | 461 | — | — | 461 | ||||||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises | ||||||||||||||||||||||||
| Issuance of common stock in connection with warrant exercises, shares | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | 8 | — | 21 | — | — | 21 | ||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax | ||||||||||||||||||||||||
| Net loss | — | — | — | — | (12,004) | (12,004) | ||||||||||||||||||
| Balance at June 30, 2019 | 37,370 | $ | 4 | $ | 96,156 | $ | — | $ | (58,752) | $ | 37,408 | |||||||||||||
The accompanying unaudited notes are an integral part of the condensed financial statements.
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PROVENTION BIO, INC.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (34,704) | $ | (22,976) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | 2,513 | 705 | ||||||
| Amortization of premium and discounts on marketable securities | 44 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (2,977) | 1,803 | ||||||
| Accounts payable | 6,053 | 3,233 | ||||||
| Accrued interest receivable | 43 | — | ||||||
| Accrued expenses | 2,086 | (66) | ||||||
| Net cash used in operating activities | (26,942) | (17,301) | ||||||
| Investing activities | ||||||||
| Purchase of marketable securities | (9,049) | — | ||||||
| Maturities of marketable securities | 29,000 | — | ||||||
| Net cash provided by investing activities | 19,951 | — | ||||||
| Financing activities | ||||||||
| Proceeds from underwritten public offering, net | 103,270 | — | ||||||
| Proceeds from at-the-market stock sales, net | 9,869 | — | ||||||
| Proceeds from stock option exercises | 574 | 21 | ||||||
| Net cash provided by financing activities | 113,713 | 21 | ||||||
| Net increase (decrease) in cash and cash equivalents | 106,722 | (17,280) | ||||||
| Cash and cash equivalents at beginning of period | 39,165 | 58,539 | ||||||
| Cash and cash equivalents at end of period | $ | 145,887 | $ | 41,259 | ||||
The accompanying unaudited notes are an integral part of the condensed financial statements.
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PROVENTION BIO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
(tabular dollars and shares in thousands, except per share data)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business
Provention Bio, Inc. (the “Company”) was incorporated on October 4, 2016 under the laws of the State of Delaware. The Company is a clinical stage biopharmaceutical company, focused on the development and commercialization of novel therapeutics and innovative approaches to intercept and prevent immune-mediated diseases. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and will be dependent on raising substantial additional capital before it becomes profitable and it may never achieve profitability.
Basis of Presentation
The accompanying unaudited financial information as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2019 Condensed Balance Sheet was derived from the Company’s audited financial statements. These interim financial statements should be read in conjunction with the notes to the financial statements contained in the Company’s Annual Report on Form 10-K (“Annual Report”) for 2019, as filed with the SEC on March 12, 2020, as amended by Amendment No. 1 on Form 10-K/A, and filed with the SEC on April 8, 2020 and as further amended by Amendment No. 2 on Form 10-K/A, and filed with the SEC on August 6, 2020.
In the opinion of management, the unaudited financial information as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019, reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of the financial position, results of operations and cash flows of the Company. The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period.
2. LIQUIDITY
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses since inception and as of June 30, 2020, the Company had an accumulated deficit of $113.8 million. To date, the Company has not generated any revenues and has financed its operations primarily through equity offerings.
In April 2017, the Company completed its private placement of Series A Convertible Redeemable Preferred Stock (the “Series A Offering”). The Company issued an aggregate 11,381,999 shares of Series A Convertible Redeemable Preferred Stock at $2.50 per share. The Company received net proceeds of $26.7 million.
In July 2018, the Company issued and sold an aggregate of 15,969,563 shares of common stock in its initial public offering (“IPO”) at a public offering price of $4.00 per share. In connection with the IPO, the Company issued to MDB Capital Group, LLC (“MDB”), the underwriter in the IPO, and its designees warrants to purchase 1,596,956 shares of Common Stock at an exercise price of $5.00 per share. The Company received net proceeds from the IPO of $59.3 million, after deducting underwriting discounts and commissions of approximately $3.7 million and other offering expenses of approximately $0.8 million. Upon the closing of the IPO, all of the Company’s shares of redeemable convertible preferred stock outstanding at the time of the offering were automatically converted into 11,381,999 shares of common stock. In addition, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock also converted to warrants for the purchase of 558,740 shares of the Company’s common stock.
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In September 2019, the Company completed an underwritten public offering in which it sold 5,750,000 shares of common stock at a public offering price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000 shares at a price of $8.00 per share. Concurrent with the underwritten public offering, the Company sold 2,500,000 shares of common stock to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of the Company’s License and Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions and other offering expenses of $0.5 million.
In August 2019, the Company established an at-the-market (“ATM”) program through which the Company may sell, from time to time at its sole discretion, up to $50 million of shares of its common stock. The Company has sold 725,495 shares of common stock for aggregate net proceeds of approximately $9.9 million, net of $0.3 million in sales commissions, under the ATM program, all of which occurred during the quarter ended June 30, 2020.
In June 2020, the Company completed an underwritten public offering in which it sold 7,590,000 shares of common stock at a public offering price of $14.50 per share. The 7,590,000 shares sold included the full exercise of the underwriters’ option to purchase 990,000 shares at a price of $14.50 per share. The Company received net proceeds from the underwritten public offering of $103.3 million, after deducting underwriting discounts and commissions of approximately $6.6 million and other offering expenses of $0.2 million.
The Company has devoted substantially all of its financial resources and efforts to research and development and expects to continue to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related to research funding, development of its product candidates and its preclinical programs, strategic alliances, the development of its administrative and commercial organization and pre-commercial activities for PRV-031. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.
The Company will require substantial additional financing to fund its operations and to continue to execute its strategy. The Company intends to raise capital through public or private equity or debt financings. The sale of equity and other securities may result in dilution to the Company’s stockholders and certain of those securities may have rights senior to those of the Company’s existing shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or eliminate some or all of the Company’s planned operations.
Based on the Company’s business plans, management believes that its cash, cash equivalents and marketable securities on hand at June 30, 2020 are sufficient to meet the Company’s obligations for at least the next 12 months from the issuance of these financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:
Use of estimates
The process of preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
| 9 |
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
Cash, cash equivalents and concentration of credit risk
The Company considers only those investments which are highly liquid, readily convertible to cash, or that mature within 90 days from the date of purchase to be cash equivalents. Marketable securities are those investments with original maturities in excess of 90 days. The carrying amounts reported in the balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company holds cash and cash equivalents in banks in excess of FDIC insurance limits. However, the Company believes risk of loss is minimal as the cash and cash equivalents are held by large, highly-rated financial institutions.
Marketable securities
The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Available for sale securities are classified as either current or non-current assets based on the nature of the securities and their availability for use in current operations. Available for sale securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive income. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity.
On a quarterly basis, the Company reviews the status of each security in an unrealized loss position, to evaluate the existence of potential credit losses. The Company first considers whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company considers a number of factors to determine if the decline in fair value has resulted from credit losses or other factors, including but not limited to: (1) the extent of the decline; (2) changes to the rating of the security by a rating agency; (3) any adverse conditions specific to the security; and (4) other market conditions that may affect the fair value of the security. If this assessment indicates that a credit loss exists and the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is required for the credit loss. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. As of June 30, 2020, the Company had no available for sale securities in an unrealized loss position.
The Company’s available for sale securities are solely invested in U.S. Treasury and U.S. Government Agency securities.
Financial instruments
Cash, cash equivalents and marketable securities are reflected in the accompanying financial statements at fair value. The carrying amount of accounts payable and accrued expenses, including accrued research and development expenses, approximates fair value due to the short-term nature of those instruments.
Foreign currency translation
The Company considers the U.S. dollar to be its functional currency. Expenses denominated in foreign currencies are translated at the exchange rate on the date the expense is incurred. The effect of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is included in the Statements of Comprehensive Loss. Foreign exchange transaction gains and losses are included in the results of operations and are not material in the Company’s financial statements.
| 10 |
Research and development expenses
Research and development expenses primarily consist of costs associated with the preclinical and clinical development of our product candidate portfolio, including the following:
| ● | external research and development expenses incurred under arrangements with third parties, such as contract research organizations (CROs) and other vendors and contract manufacturing organizations (CMOs) for the production of drug substance and drug product; and | |
| ● | employee-related expenses, including salaries, benefits and share-based compensation expense. |
Research and development expenses also include costs of acquired product licenses and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to certain of our collaborative partners.
All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic, or ASC, 730, Research and Development. The Company accounts for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.
Accrued research and development expenses
As part of the process of preparing our financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to the Company at that time. The Company periodically confirms the accuracy of its estimates with the service providers and make adjustments if necessary. The significant estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.
The Company bases its expense related to CROs and CMOs on its estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.
Stock-based compensation expense
The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employees, including stock options. Stock-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period. For grants containing performance-based vesting provisions, the grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. The Company accounts for actual forfeitures in the period the forfeiture occurs.
| 11 |
Stock Options
The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Due to the lack of trading history, the Company’s computation of stock-price volatility is based on the volatility rates of comparable publicly held companies over a period equal to the expected term of the options granted by the Company. The Company’s computation of expected term is determined using the “simplified” method, which is the midpoint between the vesting date and the end of the contractual term. The Company believes that it does not have sufficient reliable exercise data in order to justify the use of a method other than the “simplified” method of estimating the expected exercise term of employee stock option grants. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon U.S. Treasury yield at the date of grant for a term equivalent to the expected term of the option.
Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the Statements of Comprehensive Loss.
Income taxes
The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense.
Recent accounting pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. Effective January 1, 2019, the Company adopted ASU 2016-02. The adoption had no impact on the Company’s financial statements and related disclosures as the Company did not have any lease agreements at the time of adoption. See Note 13 – Subsequent Events for disclosure of a lease the Company entered into in July 2020.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (Financial Instruments - Credit Losses), while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of this ASU had no impact on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including, among other changes, the consideration of costs and benefits when evaluating disclosure requirements. Effective January 1, 2020, the Company adopted ASU 2018-13. The adoption had no impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Effective January 1, 2020, the Company adopted ASU 2018-15. The adoption had no impact on the Company’s financial statements and related disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808), which clarifies the interaction between the guidance for collaborative arrangements (Topic 808) and the new revenue recognition standard (Topic 606). Effective January 1, 2020, the Company adopted ASU 2018-18. The adoption had no impact on the Company’s financial statements and related disclosures.
| 12 |
4. CAPITALIZATION
As of June 30, 2020, the Company had authorized 100,000,000 shares of Common Stock, $0.0001 par value per share, of which 56,215,596 shares were issued and outstanding. In addition, as of June 30, 2020, the Company had authorized 25,000,000 shares of Preferred Stock, $0.0001 par value per share, of which, none were issued and outstanding.
As of December 31, 2019, the Company had authorized 100,000,000 shares of Common Stock, $0.0001 par value per share, of which 47,658,361 shares were issued and outstanding. In addition, as of December 31, 2019, the Company had authorized 25,000,000 shares of Preferred Stock, $0.0001 par value per share, of which none were issued and outstanding.
5. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents as of June 30, 2020 and December 31, 2019 were $145.9 million and $39.2 million, respectively, and included cash, investments in money market funds, and U.S. Treasury securities with original maturities of 90 days or less.
The Company considers securities with original maturities of greater than 90 days at the date of purchase to be available for sale securities. The Company held available for sale securities with a fair value totaling $26.3 million and $46.2 million at June 30, 2020 and December 31, 2019, respectively. These available for sale securities consisted solely of U.S. Treasury securities and U.S Government Agency bonds and had expected maturities of less than one year. The Company may sell certain of its marketable securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.
The Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from credit loss or other factors. As of June 30, 2020, the Company had no available for sale securities in an unrealized loss position. While the Company classifies these securities as available for sale, the Company does not currently intend to sell its investments and the Company currently believes it has the ability to hold these investments until maturity.
The following table summarizes the amortized cost, fair value and allowance for credit losses of the Company’s available for sale securities:
Schedule of Available for Sale Securities
| June 30, 2020 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasury securities | $ | 25,166 | $ | 98 | $ | — | $ | 25,264 | ||||||||
| U.S. Government Agency securities | 1,004 | — | — | 1,004 | ||||||||||||
| Total | $ | 26,170 | $ | 98 | $ | — | $ | 26,268 | ||||||||
| December 31, 2019 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasury securities | $ | 46,208 | $ | — | $ | — | $ | 46,208 | ||||||||
| Total | $ | 46,208 | $ | — | $ | — | $ | 46,208 | ||||||||
The Company’s available for sale securities are reported at fair value on the Company’s Balance Sheets. Unrealized gains (losses) are reported within accumulated other comprehensive income (loss) in the statements of comprehensive income (loss). The cost of securities sold and any realized gains/losses from the sale of available for sale securities are based on the specific identification method. The changes in accumulated other comprehensive income (loss) associated with the unrealized gain (loss) on available for sale securities during the three and six months ended June 30, 2020 and 2019, respectively, were as follows:
Schedule of Accumulated Other Comprehensive Income (Loss)
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Beginning balance | $ | 210 | $ | — | $ | — | $ | — | ||||||||
| Current period changes in fair value before reclassifications, net of tax | (112) | — | 98 | — | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | — | — | — | — | ||||||||||||
| Other comprehensive income (loss) | (112) | — | 98 | — | ||||||||||||
| Balance as of June 30, 2020 | $ | 98 | $ | — | $ | 98 | $ | — | ||||||||
| 13 |
6. LICENSE AND OTHER AGREEMENTS
In May 2018, the Company entered into an Asset Purchase Agreement with MacroGenics (the “MacroGenics Asset Purchase Agreement”) pursuant to which the Company acquired MacroGenics’ interest in teplizumab (renamed PRV-031), a humanized mAb for the treatment of Type 1 Diabetes (T1D). As partial consideration for the MacroGenics Asset Purchase Agreement, the Company granted MacroGenics a warrant to purchase 2,162,389 shares of the Company’s common stock at an exercise price of $2.50 per share. The Company is obligated to pay MacroGenics contingent milestone payments totaling $170.0 million upon the achievement of certain regulatory approval milestones, including $60.0 million payable within 90 days of an approval of a Biologics License Application (“BLA”) in the United States, which could occur in 2021. In addition, the Company is obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit royalty on net sales of the product. The Company has also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to MacroGenics, aggregate milestone payments of up to approximately $1.3 million and other consideration, for certain third-party intellectual property under agreements the Company assumed pursuant to the MacroGenics Asset Purchase Agreement. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain consideration to the extent it is received in connection with a future grant of rights to PRV-031 by the Company to a third party. The Company is obligated to use reasonable commercial efforts to develop and seek regulatory approval for PRV-031.
In May 2018, the Company entered into a License Agreement with MacroGenics, Inc. (the “MacroGenics License Agreement”), pursuant to which MacroGenics, Inc. (“MacroGenics”) granted the Company exclusive global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a humanized protein and a potential treatment for systemic lupus erythematosus (SLE) and other similar diseases. As partial consideration for the MacroGenics License Agreement, the Company granted MacroGenics a warrant to purchase 270,299 shares of the Company’s common stock at an exercise price of $2.50 per share. The Company is obligated to make contingent milestone payments to MacroGenics totaling $42.5 million upon the achievement of certain developmental and approval milestones for the first indication, and an additional $22.5 million upon the achievement of certain regulatory approvals for a second indication. In addition, the Company is obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit royalty on net sales of the product. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain consideration to the extent received in connection with a future grant of rights to PRV-3279 by the Company to a third party. The Company is obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without cause upon prior notice to MacroGenics, and by MacroGenics in the event that the Company challenges the validity of any licensed patent under the agreement, but only with respect to the challenged patent.
As of June 30, 2020, the Company has not achieved any milestones that would trigger payments to MacroGenics.
The Company recorded the warrants issued under the MacroGenics Asset Purchase Agreement and the MacroGenics License Agreement at an estimated fair value of $1.64 per share, approximately $4.0 million in the aggregate, as license fee expense included as part of Research & Development Expense during the second quarter of 2018.
In July 2019, MacroGenics elected to exercise its warrants for an aggregate of 2,432,688 shares on a cashless basis, resulting in the Company’s net issuance of 1,948,474 shares. Following the MacroGenics’ July 2019 warrant exercises, there were no additional warrants outstanding in connection with the MacroGenics License Agreement and the MacroGenics Asset Purchase Agreement.
| 14 |
In November 2018, the Company entered into a License and Collaboration Agreement (the “Amgen Agreement”) with Amgen, Inc. (“Amgen”) for PRV-015 (formerly AMG 714), a novel anti-IL-15 monoclonal antibody being developed for the treatment of gluten-free diet non-responsive celiac disease (NRCD). Under the terms of the agreement, the Company will conduct and fund a Phase 2b trial in NRCD and lead the development and regulatory activities for the program. Amgen agreed to make an equity investment of up to $20.0 million in the Company, subject to certain terms and conditions set forth in the agreement. Amgen is also responsible for the manufacturing of PRV-015. Upon completion of the Phase 2b trial, a $150.0 million milestone payment is due from Amgen to the Company, plus an additional regulatory milestone payment, and single digit royalties on future sales. If Amgen elects not to pay the $150.0 million milestone, AMG 714 rights will be transferred to Company pursuant to a termination license agreement from Amgen and the Company. The Company will be obligated to make certain contingent milestone payments to Amgen and other third parties totaling up to $70.0 million upon the achievement of certain clinical and regulatory milestones and a low double-digit royalty on net sales of any approved product based on the IL-15 technology. The agreement may be terminated by the Company without cause (in which case the exclusive global rights to the technology will transfer back to Amgen) and by either party upon a material breach. The agreement expires upon the expiration of Amgen’s last obligation to make royalty payments to Provention (or, the Company’s last obligation to make royalty payments to Amgen, if the program rights are transferred to the Company). In September 2019, in a private placement completed concurrently with the Company’s underwritten public offering, Amgen purchased 2,500,000 shares of the Company’s common stock at the underwritten public offering price of $8.00 per share, for a total investment of $20.0 million.
In April 2017, the Company entered into a License Agreement with Vactech Ltd. (the “Vactech License Agreement”), pursuant to which Vactech Ltd. (“Vactech”) granted the Company exclusive global rights for the purpose of developing and commercializing the group B coxsackie virus vaccine (CVB) platform technology. In consideration of the licenses and other rights granted by Vactech, the Company issued two million shares of its common stock to Vactech. The Company recorded the issuance of the shares at their estimated fair value of approximately $1.70 per share for a total of $3.4 million as a license fee expense included as part of Research & Development Expense for the year ended December 31, 2017. Provention paid Vactech a total of approximately $0.5 million for transition and advisory services during the first 18 months of the term of the agreement. In addition, Provention may be obligated to make a series of contingent milestone payments to Vactech totaling up to an additional $24.5 million upon the achievement of certain clinical development and regulatory filing milestones. In addition, the Company has agreed to pay Vactech tiered single-digit royalties on net sales of any approved product based on the CVB platform technology and three additional payments totaling $19.0 million upon the achievement of certain annual net sales levels. The Vactech Agreement may be terminated by the Company on a country by country basis without cause (in which case the exclusive global rights to the technology will transfer back to Vactech) and by either party upon a material breach or insolvency of the other party. If the Company terminates the agreement with respect to two or more specified European countries, the agreement will be deemed terminated with respect to all of the EU, and if the Company terminates the agreement with respect to the United States, the agreement will be deemed terminated with respect to all of North America. The agreement expires upon the expiration of the Company’s last obligation to make royalty payments to Vactech. As of June 30, 2020, the Company has not achieved any milestones that would trigger payments to Vactech.
In March 2018, the Company entered into a Development Services Agreement with The Institute of Translational Vaccinology (the “Intravacc Development Services Agreement”), pursuant to which The Institute of Translational Vaccinology (“Intravacc”) will provide services related to process development, non-GMP and GMP manufacturing of the Company’s polyvalent CVB vaccine, including providing proprietary technology for manufacturing purposes. The Company will pay Intravacc approximately 10 million euros for their services over the development and manufacturing period which the Company currently expects will last for approximately 24 to 30 months. Each party retains its existing intellectual property and will share newly developed intellectual property via a fully-paid non-exclusive license between the parties for all development work through phase 1 clinical trials. Any future use, including commercial use, of Intravacc’s technology will be subject to a separate nonexclusive license agreement. The Intravacc Development Services Agreement may be terminated by us with ninety days’ notice without cause and by either party upon a material breach or insolvency of the other party. As of June 30, 2020, the Company had paid Intravacc a total of approximately 9.0 million euros, or approximately $10.5 million, for services provided by Intravacc under the Intravacc Development Services Agreement.
In April 2017, the Company entered into the Janssen CSF-1R License Agreement, pursuant to which Janssen Pharmaceutica NV granted the Company exclusive global rights for the purpose of developing and commercializing a colony stimulating factor 1 receptor (CSF-1R) inhibitor named JNJ-40346527 (renamed PRV-6527) for inflammatory bowel diseases including Crohn’s disease and UC. The Company evaluated PRV-6527 for Crohn’s disease in a recently completed Phase 2a clinical trial (the PRINCE study). In December 2019, Janssen declined its option to buy back the rights to PRV-6527 and as such, all rights will remain with the Company. The Company will be obligated to make contingent milestone payments to Janssen totaling $35.0 million upon the achievement of certain clinical and regulatory milestones for the first indication and an additional $20.0 million upon the achievement of certain clinical and regulatory milestones for a second indication. In addition, the Company has agreed to pay Janssen tiered single-digit royalties on net sales of any approved product based on the CSF-1R technology and three additional payments totaling $100.0 million upon the achievement of certain annual net sales levels. As of June 30, 2020, no milestones have been achieved that would trigger payments to Janssen under the CSF-1R License Agreement.
| 15 |
7. NET LOSS PER SHARE OF COMMON STOCK
Basic and diluted net income (loss) per common share is determined by dividing net income (loss) by the weighted average common shares outstanding during the period. For the periods where there is a net loss, stock options and warrants have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.
The following table sets forth the computation of basic and diluted net loss per share of common stock for the periods indicated:
Schedule of Computation of Basic and Diluted Loss Per Share
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net loss | $ | (22,122) | $ | (12,004) | $ | (34,704) | $ | (22,976) | ||||||||
| Weighted average shares of common stock outstanding - basic and diluted | 49,199 | 37,363 | 48,449 | 37,362 | ||||||||||||
| Net loss per share of common stock, basic and diluted | $ | (0.45) | $ | (0.32) | $ | (0.72) | $ | (0.61) | ||||||||
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be antidilutive:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Stock options | 6,846 | 5,768 | 6,846 | 5,768 | ||||||||||||
| Warrants | 1,972 | 4,588 | 1,972 | 4,588 | ||||||||||||
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
Schedule of Accrued Expenses
| June 30, 2020 | December 31, 2019 | |||||||
| Accrued research and development costs | $ | 1,747 | $ | 1,700 | ||||
| Accrued pre-commercial costs | 1,089 | — | ||||||
| Accrued compensation | 739 | 54 | ||||||
| Accrued professional fees | 514 | 221 | ||||||
| Other accrued liabilities | 62 | 90 | ||||||
| Total accrued expenses | $ | 4,151 | $ | 2,065 | ||||
9. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.
In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:
| 16 |
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The following is a summary of assets and their related classifications under the fair value hierarchy:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
| June 30, 2020 | ||||||||||||||||
| Financial Instruments Carried at Fair Value | ||||||||||||||||
| Quoted prices in | ||||||||||||||||
| active markets for | Significant other | Significant | ||||||||||||||
| identical items | observable inputs | unobservable inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents1 | $ | 145,887 | $ | — | $ | — | $ | 145,887 | ||||||||
| Investments in U.S. Treasury securities2 | $ | 25,264 | $ | — | $ | — | $ | 25,264 | ||||||||
| Investments in U.S. Government Agency securities2 | $ | — | $ | 1,004 | $ | — | $ | 1,004 | ||||||||
| December 31, 2019 | ||||||||||||||||
| Financial Instruments Carried at Fair Value | ||||||||||||||||
| Quoted prices in | ||||||||||||||||
| active markets for | Significant other | Significant | ||||||||||||||
| identical items | observable inputs | unobservable inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents 1 | $ | 39,165 | $ | — | $ | — | $ | 39,165 | ||||||||
| Investments in U.S. Treasury securities2 | $ | 46,208 | $ | — | $ | — | $ | 46,208 | ||||||||
| 1 | Cash and cash equivalents primarily include investments in money market funds and U.S. Treasury securities with maturity dates within 90 days from the purchase date |
| 2 | Investments in U.S. Treasury and U.S. Government Agency securities are classified as available for sale securities |
10. STOCK OPTIONS
In 2017, the Company adopted the Provention Bio, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). Pursuant to the 2017 Plan, the Company’s Board of Directors may grant incentive stock options, nonqualified stock options, and restricted stock to employees, officers, directors, consultants and advisors. As of June 30, 2020, there were options to purchase an aggregate of 6,846,220 shares of Common Stock outstanding under the 2017 Plan. Options issued under the 2017 Plan are exercisable for up to 10 years from the date of issuance.
In connection with the evergreen provisions of the 2017 Plan, the number of shares available for issuance under the 2017 Plan was increased by 3,000,000 shares, as determined by the board of directors under the provisions described below, effective as of January 1, 2020. As of June 30, 2020, there were 2,872,664 shares available for future grants.
In connection with the completion of its IPO, the Company amended and restated its 2017 Plan to, among other things, include an evergreen provision, which would automatically increase the number of shares available for issuance under the 2017 Plan in an amount equal to (1) the difference between (x) 18% of the total shares of the Company’s common stock outstanding, on a fully diluted basis, on December 31st of the preceding calendar year, and (y) the total number of shares of the Company’s common stock reserved under the 2017 Plan on December 31st of such preceding calendar year or (2) an amount less than this calculated increase as determined by the board of directors.
| 17 |
Stock-based compensation
Total stock-based compensation expense recognized for both employees and non-employees was as follows:
Schedule of Stock-based Compensation Expense
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| General and administrative | $ | 848 | $ | 184 | $ | 1,561 | $ | 329 | ||||||||
| Research and development | 429 | 277 | 952 | 376 | ||||||||||||
| Total share-based compensation expense | $ | 1,277 | $ | 461 | $ | 2,513 | $ | 705 | ||||||||
Option activity
The Company grants options with service-based vesting requirements as well as options with performance-based vesting requirements. Generally, the service-based requirements vest over a four-year period in multiple tranches. Each tranche of the performance-based component vests upon the achievement of a specific milestone. These milestones are related to the Company’s clinical trials, manufacturing activities, regulatory activities, commercial activities and certain other performance metrics.
A summary of option activity for the six months ended June 30, 2020 are presented below:
Summary of Stock Option Activity
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | |||||||||||||||
| Underlying | Exercise | Contractual | Intrinsic | |||||||||||||
| Stock Option Awards | Shares | Price | Term | Value | ||||||||||||
| Outstanding at December 31, 2019 | 5,894 | $ | 6.33 | 8.5 years | $ | — | ||||||||||
| Granted | 1,189 | $ | 13.09 | |||||||||||||
| Exercised | (113) | $ | 5.12 | |||||||||||||
| Forfeited or expired | (124) | $ | 5.23 | |||||||||||||
| Outstanding at June 30, 2020 | 6,846 | $ | 7.54 | 8.3 years | $ | 45,648 | ||||||||||
| Exercisable at June 30, 2020 | 2,482 | $ | 3.92 | 7.4 years | $ | 25,304 | ||||||||||
The weighted average grant-date fair value of options granted during the six months ended June 30, 2020 was $8.48 per share. As of June 30, 2020, there were approximately 1,999,000 unvested options subject to performance-based vesting criteria with approximately $13.9 million of unrecognized compensation expense. This expense will be recognized when each milestone becomes probable of occurring. In addition, as of June 30, 2020, there were approximately 2,365,000 unvested options outstanding subject to time-based vesting with approximately $12.2 million of unrecognized compensation expense which will be recognized over a period of 3.2 years.
Cash proceeds from, and the aggregate intrinsic value of, stock options exercised during the periods presented below were as follows:
Schedule of Aggregated Intrinsic Value of Stock Option Exercised
|
Three
Months Ended
June 30, |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Cash proceeds from options exercised | $ | 380 | $ | 21 | $ | 574 | $ | 21 | ||||||||
| Aggregate intrinsic value of options exercised | 323 | 81 | 953 | 81 | ||||||||||||
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The Company uses the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average assumptions for the period indicated:
Schedule of Share-based Compensation Valuation of Assumptions
|
Six
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||
| 2020 | 2019 | |||||||
| Exercise price | $ | 13.09 | $ | 10.45 | ||||
| Expected volatility | 73% | 72% | ||||||
| Expected dividends | — | — | ||||||
| Expected term (in years) | 6.2 | 6.3 | ||||||
| Risk-free interest rate | 1.05% | 1.94% | ||||||
The weighted-average valuation assumptions were determined as follows:
| ● | Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term. | |
| ● | Expected annual dividends: The estimate for annual dividends is 0%, because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend. | |
| ● | Expected stock price volatility: The expected volatility used is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption. | |
| ● | Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and contractual period due to the limited operating history. |
11. WARRANTS
In connection with the April 2017 sale of Series A Convertible Redeemable Preferred Stock, the Company issued warrants to MDB, the Placement Agent, and its designees to purchase 558,740 shares of Series A Convertible Redeemable Preferred Stock with an exercise price of $2.50 per share with a seven-year term. Upon completion of the IPO in July 2018, the warrants automatically became warrants for the purchase of 558,740 shares of the Company’s common stock. In June 2020, certain warrant holders from the Series A offering elected to exercise warrants for an aggregate of 153,000 shares on a cashless basis, resulting in the Company’s net issuance of 129,719 shares. As of June 30, 2020, a total of 157,065 warrants have been exercised on a cashless basis and there were 401,675 warrants outstanding related to the Series A Offering.
In connection with the Company’s completion of its IPO, in July 2018, the Company issued to MDB, the underwriter in the IPO, and its designees warrants to purchase 1,596,956 shares of the Company’s common stock at an exercise price of $5.00 per share. These warrants have a five-year term.
The Company used valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants. The fair values of these instruments were determined using models based on inputs that require management judgment and estimates.
The fair value of the warrants issued to MDB were measured at issuance on July 19, 2018 using the Black-Scholes option pricing model based on the following assumptions:
Schedule of Fair Value of Warrants Issued
| Equity value upon issuance on July 19, 2018 | $ | 4.00 | ||
| Exercise price | $ | 5.00 | ||
| Expected volatility | 60.0% | |||
| Expected dividends | — | |||
| Contractual term (in years) | 5.0 | |||
| Risk-free interest rate | 2.74% |
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The Company estimated the fair value of the warrants issued to MDB to be $1.90 per share, approximately $3.0 million in the aggregate, which was recorded as a cost of the IPO. The MDB warrants were evaluated under ASC 480 and ASC 815 and the Company determined that equity classification was appropriate. Through June 30, 2020, certain warrant holders from the IPO elected to exercise warrants for an aggregate of 27,063 shares on a cashless basis, resulting in the Company’s net issuance of 15,746 shares. As of June 30, 2020, there were 1,569,893 warrants outstanding related to the IPO.
12. INCOME TAXES
The Company recorded a benefit from state income taxes of approximately $0.5 million for the three and six months ended June 30, 2020. The benefit from state income taxes solely reflects the reversal of valuation allowances previously recorded against the Company’s New Jersey State net operating losses (‘NOLs”) that resulted from the Company’s sale of approximately $6.8 million of its New Jersey state NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash proceeds of $0.5 million. The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined research and development tax credits.
On March 27, 2020, the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits. Given the Company’s history of losses, the CARES Act is not expected to have a material impact on its income tax positions.
13. SUBSEQUENT EVENTS
In July 2020, the Company entered into an agreement to lease its new corporate headquarters in Red Bank, NJ, for which the initial lease term expires 70 months from the lease commencement date, with base annual lease payments of approximately $0.2 million. Upon commencement of the lease, which is anticipated to occur in the second half of 2020, the lease will be accounted for as an operating lease. The Company is still evaluating the impact of this lease on its financial statements.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2020, as amended. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Impact of COVID-19 on our Business
We are closely monitoring developments related to the COVID-19 pandemic and are making every effort to ensure we remain focused on the health and well-being of our patients and our employees while maintaining business continuity. At this time, it is too early to predict what the long-term impact this pandemic, and the associated economic downturn, will have on our business. We have experienced some level of disruption to two of our current or planned clinical trials. In March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into our global Phase 3 PROTECT study teplizumab. During the second quarter of 2020, we began enrolling patients in the PROTECT study on a country by country and site by site basis. We expect that a majority of sites will be actively enrolling patients by the end of the third quarter of 2020, subject to potential additional COVID-19 related interruptions and other local conditions. In addition, we, with our partner Amgen, decided that we will now start our PRV-015 Phase 2b trial in gluten free diet non-responsive celiac disease in the third quarter of 2020 instead of in the second quarter of 2020. Our rolling BLA submission for teplizumab in the At-risk indication has been initiated and is currently on track to be finalized upon completion of the CMC module in the fourth quarter of 2020.
Overview
We are a clinical stage biopharmaceutical company, focused on the development and commercialization of novel therapeutics and innovative approaches aimed at intercepting and preventing immune-mediated diseases. Since our inception, we have devoted substantially all of our efforts to business planning, research and development, pre-commercial activities, recruiting management and technical staff, acquiring operating assets, partnering and raising capital. We have not yet commenced any revenue-generating operations, do not have any positive cash flows from operations and we will need to raise additional capital to finance our operations. Our business is subject to significant risks and uncertainties and we will be dependent on raising substantial additional capital before we become profitable and if we never achieve profitability.
We have not generated any revenue to date and through June 30, 2020, and we had an accumulated deficit of $113.8 million. We have financed our operations primarily through equity offerings.
In April 2017, we completed our private placement of Series A Convertible Redeemable Preferred Stock. We issued an aggregate 11,381,999 shares of Series A Convertible Redeemable Preferred Stock at $2.50 per share. We received net proceeds of $26.7 million.
In July 2018, we issued and sold an aggregate of 15,969,563 shares of common stock in our IPO at a public offering price of $4.00 per share. In connection with the IPO, we issued to MDB, the underwriter in the IPO, and its designees warrants to purchase 1,596,956 shares of Common Stock at an exercise price of $5.00 per share. We received net proceeds from the IPO of $59.3 million, after deducting underwriting discounts and commissions of approximately $3.7 million and other offering expenses of approximately $0.8 million. Upon the closing of the IPO, all of our shares of Series A Convertible Redeemable Preferred Stock outstanding at the time of the IPO were automatically converted into 11,381,999 shares of common stock. In addition, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock also converted to warrants for the purchase of 558,740 shares of our common stock.
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In September 2019, we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000 shares at a price of $8.00 per share. Concurrent with the underwritten public offering, we sold 2,500,000 shares of common stock to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of our License and Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions and other offering expenses of $0.5 million.
In August 2019, we established an ATM program through which we may sell, from time to time at our sole discretion, up to $50.0 million of shares of its common stock. We have sold 725,495 shares of our common stock for aggregate net proceeds of approximately $9.9 million, net of $0.3 million in sales commissions, under the ATM program, all of which occurred during the quarter ended June 30, 2020.
In June 2020, we completed an underwritten public offering in which we sold 7,590,000 shares of common stock at a public offering price of $14.50 per share. The 7,590,000 shares sold included the full exercise of the underwriters’ option to purchase 990,000 shares at a price of $14.50 per share. We received net proceeds from the underwritten public offering of $103.3 million, after deducting underwriting discounts and commissions of approximately $6.6 million and other offering expenses of $0.2 million.
We expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our regulatory submissions, clinical trials and other development activities, as well as costs to support our commercialization efforts to launch teplizumab, if we receive regulatory approval in the U.S. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay certain development activities.
Recent Company Developments
Clinical Development & Safety
PRV-031 (teplizumab, anti-CD3 mAb)
On June 15, 2020, we announced new data from the “At-Risk” TN-10 Study which demonstrated that a single 14-day course of our lead drug candidate, teplizumab (PRV-031), significantly delayed the onset of clinical T1D, as compared to placebo, by a median of three years in at-risk patients. These new data from the “At-Risk” TN-10 Study added one year to the two-year median delay that was previously observed.
The “At-Risk” TN-10 Study, a pivotal Phase 2 clinical trial, conducted at TrialNet sites and sponsored by NIDDK, part of the National Institute of Health, or NIH, evaluated teplizumab for the delay of clinical T1D in at-risk patients. At-risk was defined by the presence of two or more T1D-related autoantibodies and dysglycemia (abnormal glucose metabolism). Seventy-six subjects were enrolled, ages 8 to 49, with 72 percent under the age of 18, and randomized to receive a single course of either teplizumab or placebo. Subjects were followed in a blinded fashion until a minimum 40 subjects developed clinical T1D, and then indefinitely after the analysis of the primary data.
The trial results showed the median time to clinical diagnosis of T1D after one course of teplizumab was approximately five years (an improvement of 12 months from previously published data) compared to approximately two years for the placebo group (unchanged from previously published data). Nearly half of those treated with teplizumab are estimated to be free of clinical T1D at five years. The hazard ratio was 0.457 or a 54 percent reduction in risk of developing clinical T1D (p=0.01).
In addition, teplizumab treatment was associated with a greater on-study C-peptide (p=0.009), a measure of a persons’ own insulin production, compared to placebo. For both groups, C-peptide area under the curve (AUC) mean slopes preceding study entry were similar and declining. In the placebo group, this decline continued over the 6 months after study entry. By contrast, the teplizumab-treated group showed an increased C-peptide AUC over this period (p=0.02 relative to study entry).
Mechanistically, the association between the expansion of partially exhausted CD8 T cells and the delay of clinical T1D conferred by teplizumab, previously described in newly diagnosed T1D patients, was also confirmed in subjects at-risk. C-peptide levels at 3, 6 and 18 months post-teplizumab administration correlated with the levels of exhausted CD8+ T cells in the circulation (p=0.01 vs placebo). Subjects with the highest increase (top quartile) in exhausted CD8 T cells had no progression to clinical T1D in the period of observation of the study (p=0.005 vs placebo). Finally, inflammatory cytokines IFN-gamma and TNF-alpha were lower in the exhausted CD8 T cells in teplizumab vs placebo-treated subjects (p<0.0001).
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In summary, while no additional safety signals have been noted, the results showed that teplizumab’s effect on delaying the onset of clinical T1D was not only consistent from previous analyses, but was durable and now extended to a median of at least three years.
In August 2019, the U.S. Food and Drug Administration granted breakthrough therapy designation (“BTD”) to PRV-031 for the delay or prevention of clinical T1D in individuals at-risk of developing the disease. BTD is an FDA program designed to expedite the development and review of therapeutic candidates intended to treat serious or life-threatening diseases.
In October 2019, the European Medicines Agency (EMA) granted PRIority MEdicines (“PRIME”) eligibility to teplizumab (PRV-031) for the prevention or delay of clinical T1D in individuals at-risk of developing the disease. The PRIME initiative is designed to expedite the development and review of promising therapies that target an unmet need and show potential clinical benefit so the medicine can reach patients earlier. The designation offers the opportunity for enhanced interaction and dialogue with the EMA to optimize development, as well as the potential for accelerated assessment at the time of application for a marketing authorization.
In April 2020, we announced the initiation of the rolling submission of the Company’s BLA to the FDA and we are targeting completion of the submission in the fourth quarter of 2020. We had previously completed a Type B multidisciplinary meeting with the FDA to discuss the proposed contents of a BLA for PRV-031 (teplizumab) for the prevention or delay of T1D in individuals at-risk of developing T1D. Based on official FDA meeting minutes, we do not anticipate the need to conduct any additional clinical trials in the at-risk population prior to BLA submission.
In March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into our global Phase 3 PROTECT study teplizumab. This pause was taken out of an abundance of caution to protect patients, caregivers, clinical site staff, company employees and contractors at this critical juncture in the collective global efforts to combat the COVID-19 pandemic. Patients that were undergoing study therapy were allowed to complete their course, as recommended by the PROTECT study’s Data Safety Monitoring Board, which was recently expanded to include infectious diseases expertise. In June 2020, we resumed enrollment on a country by country, site by site basis based upon review of local COVID-19 infection rates and the site’s ability to maintain the safety of participants.
In addition, in March 2020 we initiated a Phase 2 open-label extension study of the NIH-sponsored At-Risk (TN-10) T1D study. The purpose of this study is to evaluate the safety and tolerability of a single 12-day course of teplizumab treatment, administered intravenously to participants in the NIH-sponsored trial who have developed clinical type 1 diabetes and are able to start teplizumab treatment within 1 year of diagnosis.
PRV-3279 (humanized anti-CD32B and CD79B bispecific)
In March 2020, we announced positive top-line results from the Phase 1b portion of the PREVAIL (PRV-3279 EVAluation In Lupus) study, which evaluated PRV-3279 in 16 healthy volunteers.
PRV-3279 was well-tolerated, with no serious adverse events, and as expected, did not deplete B cells and demonstrated profound and sustained binding to circulating B lymphocytes, with reduction of circulating immunoglobulin M levels in a dose-proportional manner. While anti-drug antibody production was observed at both dose levels tested, immunogenicity was found not to affect exposure, safety or pharmacodynamic parameters.
Based on the results, we plan to commence the Phase 2a portion of the PREVAIL study in lupus patients in the first half of 2021.
PRV-015 (anti-interleukin 15)
In April 2020, we, with our partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b trial in gluten free diet non-responsive celiac disease and enable patients to comply fully with COVID-19 pandemic states of emergency and social isolation, we will stagger study startup throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled.
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Our Focus and Pipeline
Inflammation is a natural consequence of most infections, as it is the immune system’s first response to invading pathogens in the event of injury or acute illness. Most of the time, this response is beneficial and well-controlled; helping to repair tissue damage and clear pathogens from the body. In addition to directly damaging tissues and organs, an infection can sometimes result in the excessive release of toxic immune mediators leading to a potentially life-threatening acute pathological immune response. When patients have the requisite genetic predisposition, infections can also trigger chronic autoimmune responses that persist and progress long after the original insult has subsided. These sustained pathological responses have been linked to an increased susceptibility to chronic debilitating and potentially life-threatening diseases like inflammatory bowel disease, diabetes, cancer, and certain neurological disorders.
Our “predict” and “preempt” therapeutic development approach is to intercept the underlying pathological immune and inflammatory responses in susceptible individuals. Our pipeline includes:
| ● | PRV-031: a humanized, anti-CD3 mAb for the interception of T1D in pediatric patients with newly-diagnosed T1D and for delaying and/or preventing disease progression in individuals at risk of developing clinical stage T1D. PRV-031 has been designated by the FDA as an orphan drug for the treatment of newly-diagnosed T1D. PRV-031 was also granted breakthrough therapy designation from the FDA in August 2019 and PRIME eligibility from the EMA in October 2019 for the delay or prevention of T1D; | |
| ● | PRV-101: a CVB vaccine to prevent acute CVB infections and, in those patients at risk, preventing the CVB-triggered autoimmune damage to pancreatic beta cells that progresses to T1D and damage to intestinal cells that leads to celiac disease; | |
| ● | PRV-3279: a humanized bispecific scaffold molecule targeting the B-cell surface proteins, CD32B and CD79B, for the treatment of systemic lupus erythematosus (SLE) and for the prevention of immunogenicity of biotherapeutics such as those used in gene therapy; | |
| ● | PRV-015: a human anti-interleukin 15 (IL-15), mAb for the treatment of gluten-free diet non-responsive celiac disease (NRCD), intercepting the effects of contaminating gluten in the most common autoimmune disorder without any approved medication; and | |
| ● | PRV-6527: an oral small molecule CSF-1R inhibitor targeting the differentiation and activation of antigen-presenting cells (APCs), to prevent chronic inflammatory responses and progression or relapse in Crohn’s disease. We are not actively developing PRV-6527. |
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The table below summarizes the current status and anticipated milestones for our principal product candidates:
| Product Candidate / Indication | Status | Next Expected Milestone | ||
| PRV-031 (teplizumab, anti-CD3 mAb) for the interception of T1D | ||||
| At-Risk Indication – for the delay or prevention of clinical T1D in individuals at-risk of developing the disease |
In June 2020, extended follow-up data from the At-Risk Study was announced which showed that a single 14-day course of teplizumab significantly delayed the onset of T1D in At-Risk patients by a median of approximately three years compared to the placebo. This data added one year to the two-year median delay that was previously reported at the American Diabetes Association meeting in June 2019 and published in the New England Journal of Medicine
In August 2019, the FDA granted BTD to PRV-031 for the delay or prevention of clinical T1D in individuals at-risk of developing the disease.
In October 2019, the EMA granted PRIME eligibility to teplizumab to PRV-031 for the delay or prevention of clinical T1D in individuals at-risk of developing the disease. |
In April 2020, we initiated the non-clinical module of the rolling submission of our BLA to the FDA and expect to submit the clinical module in the third quarter of 2020 and the CMC module (the completion of the submission) in the fourth quarter of 2020.
|
||
| Newly Diagnosed Indication – for the delay or prevention of clinical T1D in individuals diagnosed with early onset T1D |
We commenced a Phase 3 clinical trial (the PROTECT study) in approximately 300 pediatric and adolescent patients with newly diagnosed type one diabetes. The first patient was dosed in the second quarter of 2019.
In March 2020, in connection with the COVID-19 pandemic, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into the PROTECT study. |
In June 2020, we resumed enrollment of the PROTECT study on a country by country, site by site basis. We now expect to report top line results from the Phase 3 PROTECT study in mid-2023, subject to change for any potential COVID-19 related interruptions. | ||
| PRV-101 (polyvalent CVB vaccine) for the prevention of acute CVB and the prevention of CVB triggered T1D and celiac disease. | We are developing a polyvalent vaccine at Intravacc, our strategic partner in vaccine manufacturing process development. | We expect to commence a first-in-human safety study in the second half of 2020. We expect to report top-line first-in-human data in 2021. | ||
| PRV-3279 (humanized anti-CD32B and CD79B bispecific) for the treatment of SLE and for the prevention of immunogenicity biotherapeutics such as gene therapy. | We announced positive top-line results from our Phase 1b clinical trial (the PREVAIL study), which evaluated PRV-3279 in 16 healthy volunteers. | We expect to commence a phase 2a study in first half of 2021. | ||
| PRV-015 (anti-IL-15 mAb) for the treatment of gluten-free diet non-responding celiac disease. | We designed a Phase 2b clinical trial (the PROACTIVE trial) in celiac patients with gluten-free diet non-responsive celiac disease and completed additional chronic toxicology studies to support this trial as needed. | We expect to commence the Phase 2b PROACTIVE study in the third quarter of 2020. | ||
| PRV-6527 (oral CSF-1R inhibitor) for the treatment of Crohn’s disease. | We announced top-line results from our Phase 2a clinical trial (the PRINCE study), which evaluated PRV-6527 in 93 patients with moderate-to-severe Crohn’s disease. In December 2019, Janssen declined its option to buy back PRV-6527. | We are not actively developing PRV-6527. We expect to engage with third parties for the potential sublicense of PRV-6527. |
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We intend to leverage our distinctive competences and drug development strategy; advance our carefully selected portfolio of product candidates; in-license or acquire additional targeted development assets and apply our disease interception and prevention approach to multiple autoimmune and immune-mediated inflammatory diseases.
Financial operations overview
Research and Development Expenses
Research and development expenses consist primarily of clinical studies, the cost of manufacturing our drug candidates for clinical study, regulatory costs, other internal operating expenses, and the cost of conducting preclinical activities. Expenses also include the cost of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions. In addition, our research and development expenses include payments to third parties, as well as the fair value of equity issuances to third parties for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at contract research organizations (CROs) and other consultants, that design, obtain regulatory approval, and conduct clinical trials on our behalf. Our expenses related to the production of drug substance or drug product for our clinical trials and development programs are primarily related to activities performed by licensors, strategic partners or contract manufacturing organizations (CMOs) and other consultants, on our behalf. Our development efforts from inception through June 30, 2020, were principally related to the acquisition and development of our programs detailed in the pipeline description immediately above.
All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic, or ASC, 730, Research and Development. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our personnel serving in our executive, business development, pre-commercial and finance and accounting functions. General and administrative expenses also include professional fees for marketing and other pre-commercial activities, legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our general and administrative expenses will increase significantly in the future as a result of the build out of our commercial organization and pre-commercial activities for PRV-031.
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents and marketable securities.
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RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 2020 and 2019
| Three Months Ended June 30, | Three Months Ended June 30, | Increase | ||||||||||
| 2020 | 2019 | (Decrease) | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Statement of Comprehensive Loss Data: | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 15,032 | $ | 10,550 | $ | 4,482 | ||||||
| General and administrative | 7,764 | 1,707 | 6,057 | |||||||||
| Total operating expenses | 22,796 | 12,257 | 10,539 | |||||||||
| Loss from operations | (22,796) | (12,257) | 10,539 | |||||||||
| Interest income | 151 | 253 | (102) | |||||||||
| Loss before income tax benefit | (22,645) | (12,004) | 10,641 | |||||||||
| Income tax benefit | 523 | — | 523 | |||||||||
| Net loss | $ | (22,122) | $ | (12,004) | $ | 10,118 | ||||||
| Net loss per common share, basic and diluted | $ | (0.45) | $ | (0.32) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 49,199 | 37,363 | ||||||||||
Research and Development Expenses
Research and development expenses were $15.0 million for the three months ended June 30, 2020, an increase of $4.5 million, compared to $10.5 million for the three months ended June 30, 2019. The increase related primarily to increased manufacturing and BLA submission costs for our PRV-031 program and start-up costs for our PRV-015 program, offset by a decrease in clinical development expenses for the PRINCE study (PRV-6527) and PULSE study (PRV-300), which were completed in 2019 and the PROTECT study (PRV-031), which was paused in March 2020 due to the COVID-19 pandemic. See the status of the PROTECT study in the description of our pipeline on page 25. Specifically, during the three months ended June 30, 2020, we incurred $7.5 million in manufacturing costs for PRV-031, including production costs for GMP and process performance qualification (PPQ) batches of drug supply and drug product. During the three months ended June 30, 2019, manufacturing costs for PRV-031 were $0.3 million. Research and development expenses for the three months ended June 30, 2020 and 2019 also included $1.7 million and $1.5 million, respectively, in personnel costs, including stock-based compensation.
General and Administrative Expenses
General and administrative expenses were $7.8 million for the three months ended June 30, 2020, an increase of $6.1 million, compared to $1.7 million for the three months ended June 30, 2019. General and administrative expenses for the three months ended June 30, 2020 and June 30, 2019 were comprised of the following:
| Three Months Ended June 30, | Three Months Ended June 30, | Increase | ||||||||||
| 2020 | 2019 | (Decrease) | ||||||||||
| (in thousands) | ||||||||||||
| Pre-commercial expenses | $ | 4,939 | $ | — | $ | 4,939 | ||||||
| General and administrative expenses | 2,825 | 1,707 | 1,118 | |||||||||
| Total general and administrative expenses | $ | 7,764 | $ | 1,707 | $ | 6,057 | ||||||
Pre-commercial expenses were $4.9 million for the three months ended June 30, 2020 and primarily consisted of $4.3 million in costs of pre-commercial activities for PRV-031 and $0.6 million in personnel costs, including stock-based compensation. There were no pre-commercial expenses during the three months ended June 30, 2019.
General and administrative expenses were $2.8 million for the three months ended June 30, 2020 and primarily consisted of $1.4 million in personnel costs, including stock-based compensation, $1.0 million in professional fees and legal expenses and approximately $0.4 million in insurance and other costs associated with being a public company. General and administrative expenses were $1.7 million for the three months ended June 30, 2019 and were primarily comprised of $0.7 million in personnel costs, including stock-based compensation, $0.5 million in professional fees and legal expenses and approximately $0.4 million in insurance and other costs associated with being a public company.
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Interest Income
Interest income was $0.2 million during the three months ended June 30, 2020, compared to $0.3 million during the three months ended June 30, 2019. The decrease in interest income during the three months ended June 30, 2020 primarily related to an overall reduction in interest rates in 2020, which is largely a result of changes in the economic environment related to the COVID-19 pandemic.
Income Tax Benefit
We recorded an income tax benefit of $0.5 million during the three months ended June 30, 2020, which related to proceeds from the sale of certain of our prior year New Jersey net operating losses. We did not record any income tax benefit or provision during the three months ended June 30, 2019.
Comparison of the six months ended June 30, 2020 and 2019
| Six Months Ended June 30, | Six Months Ended June 30, | Increase | ||||||||||
| 2020 | 2019 | (Decrease) | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Statement of Comprehensive Loss Data: | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 24,122 | $ | 20,572 | $ | 3,550 | ||||||
| General and administrative | 11,539 | 2,944 | 8,595 | |||||||||
| Total operating expenses | 35,661 | 23,516 | 12,145 | |||||||||
| Loss from operations | (35,661) | (23,516) | 12,145 | |||||||||
| Interest income | 434 | 540 | (106) | |||||||||
| Loss before income tax benefit | (35,227) | (22,976) | 12,251 | |||||||||
| Income tax benefit | 523 | — | 523 | |||||||||
| Net loss | $ | (34,704) | $ | (22,976) | $ | 11,728 | ||||||
| Net loss per common share, basic and diluted | $ | (0.72) | $ | (0.61) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 48,449 | 37,362 | ||||||||||
Research and Development Expenses
Research and development expenses were $24.1 million for the six months ended June 30, 2020, an increase of $3.5 million, compared to $20.6 million for the six months ended June 30, 2019. The increase related primarily to increased costs for manufacturing and BLA submission costs for our PRV-031 program and start-up costs for our PRV-015 program, offset by a decrease in clinical development expenses for the PRINCE study (PRV-6527) and PULSE study (PRV-300), which were completed in 2019 and the PROTECT study (PRV-031), which was paused in March 2020 due to the COVID-19 pandemic. See the status of the PROTECT study in the description of our pipeline on page 25. Specifically, during the six months ended June 30, 2020, we incurred $9.8 million in manufacturing costs for PRV-031, including production costs for GMP and PPQ batches of drug supply and drug product. During the three months ended June 30, 2019, manufacturing costs for PRV-031 were $1.4 million. Research and development expenses for the six months ended June 30, 2020 and 2019 also included $3.3 million and $2.4 million, respectively, in personnel costs, including stock-based compensation.
General and Administrative Expenses
General and administrative expenses were $11.5 million for the six months ended June 30, 2020, an increase of $8.6 million, compared to $2.9 million for the six months ended June 30, 2019. General and administrative expenses for the six months ended June 30, 2020 and June 30, 2019 were comprised of the following:
| Six Months Ended June 30, | Six Months Ended June 30, | Increase | ||||||||||
| 2020 | 2019 | (Decrease) | ||||||||||
| (in thousands) | ||||||||||||
| Pre-commercial expenses | $ | 6,005 | $ | — | $ | 6,005 | ||||||
| General and administrative expenses | 5,534 | 2,944 | 2,590 | |||||||||
| Total general and administrative expenses | $ | 11,539 | $ | 2,944 | $ | 8,595 | ||||||
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Pre-commercial expenses were $6.0 million for the six months ended June 30, 2020 and primarily consisted of $4.9 million in costs of pre-commercial activities for PRV-031 and $1.1 million in personnel costs, including stock-based compensation. There were no pre-commercial expenses during the six months ended June 30, 2019.
General and administrative expenses were $5.5 million for the six months ended June 30, 2020 and primarily consisted of $2.7 million in personnel costs, including stock-based compensation, $1.7 million in professional fees and legal expenses and approximately $0.9 million in insurance and other costs associated with being a public company. General and administrative expenses were $2.9 million for the six months ended June 30, 2019 and were primarily comprised of $1.1 million in personnel costs, including stock-based compensation, $0.9 million in professional fees and legal expenses and approximately $0.7 million in insurance and other costs associated with being a public company.
Interest Income
Interest income was $0.4 million during the six months ended June 30, 2020, compared to $0.5 million during the six months ended June 30, 2019. The decrease in interest income during the six months ended June 30, 2020 primarily related to an overall reduction in interest rates in 2020, which is largely a result of changes in the economic environment related to the COVID-19 pandemic.
Income Tax Benefit
We recorded an income tax benefit of $0.5 million during the six months ended June 30, 2020, which related to proceeds from the sale of certain of our prior year New Jersey net operating losses. We did not record any income tax benefit or provision during the six months ended June 30, 2019.
LIQUIDITY AND CAPITAL RESOURCES
Overview
There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. We have funded our operations to date through offerings of equity securities. We expect to continue to incur losses, as we plan to continue to fund development activities.
As of June 30, 2020, we had cash, cash equivalents and marketable securities of $172.2 million. We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least 12 months from the issuance of these financial statements.
We will need to raise additional capital to fund our operations, to develop and commercialize PRV-031, PRV-015, PRV-3279 and PRV-101 and to develop, acquire, or in-license other products. We plan to raise additional capital through equity offerings, debt, or potential out-licensing transactions. Such additional funding will be necessary to continue to develop our potential product candidates, to pursue the license or purchase of other technologies, to commercialize our product candidates or to purchase other products. We may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. In addition, we may consider raising additional capital to fund operating activities, to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our development programs, dispose of assets or technology or cease operations.
Our cash requirements in 2020 and beyond will be impacted by a number of factors, the most significant of which are expenses related to PRV-031, including the PROTECT clinical trial, which commenced in April 2019, manufacturing activities, costs related to our BLA submission in the At-Risk indication, costs to build out our commercial infrastructure and pre-commercial activities for PRV-031. Other factors include costs related to our planned Phase 2b clinical study of PRV-015 and our continued development efforts for PRV-101.
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In April 2017, we completed a private offering of 11,381,999 shares of our Series A Convertible Redeemable Preferred Stock, at a price of $2.50 per share, resulting in net cash proceeds from the sale of the shares, after deducting the underwriter’s discount and offering expenses, of $26.7 million.
In July 2018, we closed our initial public offering of 15,969,563 shares of common stock at a price of $4.00 per share. The net proceeds to the Company were $59.3 million, after deducting underwriters’ commissions of approximately $3.7 million and other offering expenses of approximately $0.8 million. In connection with the closing of the IPO, all of our shares of redeemable convertible preferred stock outstanding at the time of the IPO were automatically converted into 11,381,999 shares of common stock. In addition, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock also converted to warrants for the purchase of 558,740 shares of our common stock.
In August 2019, we entered into the Sales Agreement with SVB Leerink LLC (“SVBLeerink”) and Cantor Fitzgerald & Co. (“Cantor”) pursuant to which SVBLeerink and Cantor will serve as our sales agent to sell up to $50.0 million of shares of our common stock through an “at the market offering.” We have sold 725,495 shares of our common stock for aggregate net proceeds of approximately $9.9 million, net of $0.3 million in sales commissions, under the ATM program, all of which occurred during the quarter ended June 30, 2020. As a result, up to $39.8 million of shares of our common stock remain available for sale under the ATM program.
In September 2019, we completed an underwritten public offering in which we sold 5,750,000 shares of common stock at a public offering price of $8.00 per share. The 5,750,000 shares sold included the full exercise of the underwriters’ option to purchase 750,000 shares at a price of $8.00 per share. Concurrent with the underwritten public offering, we sold 2,500,000 shares of common stock to Amgen, Inc. at the public offering price of $8.00 per share in a private placement, pursuant to the terms of our License and Collaboration Agreement with Amgen Inc, dated as of November 5, 2018. Aggregate net proceeds from the underwritten public offering and the concurrent private placement were $62.7 million, net of approximately $2.8 million in underwriting discounts and commissions and other offering expenses of $0.5 million.
In June 2020, we completed an underwritten public offering in which we sold 7,590,000 shares of common stock at a public offering price of $14.50 per share. The 7,590,000 shares sold included the full exercise of the underwriters’ option to purchase 990,000 shares at a price of $14.50 per share. We received net proceeds from the underwritten public offering of $103.3 million, after deducting underwriting discounts and commissions of approximately $6.6 million and other offering expenses of $0.2 million.
Cash Flows
As of June 30, 2020, we had cash, cash equivalents and marketable securities totaling $172.2 million. We currently have invested our cash, cash equivalents and marketable securities primarily in money market funds, U.S. Treasury securities and U.S. Government Agency securities.
The following table shows a summary of our cash flows for the six months ended June 30, 2020 and 2019:
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2020 | 2019 | |||||||
| (in thousands) | ||||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (26,942) | $ | (17,301) | ||||
| Investing activities | 19,951 | — | ||||||
| Financing activities | 113,713 | 21 | ||||||
| Net change in cash and cash equivalents | $ | 106,722 | $ | (17,280) | ||||
Cash Flows from Operating Activities
Net cash used in operating activities was $26.9 million for the six months ended June 30, 2020 and primarily related to cash used to fund clinical development, manufacturing, and pre-commercial activities for PRV-031, clinical development activities for PRV-015, development activities for PRV-101, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Our working capital was $163.8 million as of June 30, 2020.
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Net cash used in operating activities was $17.3 million for the six months ended June 30, 2019 and primarily related to cash used to fund clinical development activities for PRV-031, PRV-6527, PRV-300, PRV-3279 and PRV-015, and development activities for PRV-101. Our working capital was $37.4 million as of June 30, 2019.
Cash Flows from Investing Activities
Net cash provided by investing activities was $20.0 million for the six months ended June 30, 2020 and primarily related to the proceeds received from the maturity of marketable securities totaling $29.0 million offset by purchases of marketable securities totaling $9.0 million.
There was no cash used in or provided by investing activities for the six months ended June 30, 2019.
Cash Flows from Financing Activities
Net cash provided by financing activities was $113.7 million and primarily related to net proceeds received from our underwritten public offering which closed in June 2020 of $103.3 million, net proceeds received from the sale of our common stock under our ATM program of $9.9 million, as well as cash received from stock option exercises during the period.
Net cash provided by financing activities was $21 thousand for the six months ended June 30, 2019 and related to proceeds from stock option exercises during the period.
Commitments and Contractual Obligations
In May 2018, we entered into the MacroGenics Asset Purchase Agreement with MacroGenics pursuant to which we acquired MacroGenics’ interest in teplizumab (renamed PRV-031), a humanized mAb for the treatment of T1D. We are obligated to pay MacroGenics contingent milestone payments totaling $170.0 million upon the achievement of certain regulatory approval milestones, including $60.0 million payable within 90 days of an approval of a BLA in the United States, which could occur in 2021. In addition, we are obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. We have also agreed to pay MacroGenics a single-digit royalty on net sales of the product. We have also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to MacroGenics, aggregate milestone payments of up to approximately $1.3 million and other consideration, for certain third-party intellectual property under agreements we assumed pursuant to the Asset Purchase Agreement. Further, we are required to pay MacroGenics a low double-digit percentage of certain consideration to the extent it is received in connection with a future grant of rights to PRV-031 by us to a third party. We are obligated to use reasonable commercial efforts to develop and seek regulatory approval for PRV-031. As of June 30, 2020, we have not achieved any milestones that would trigger payments to MacroGenics under the MacroGenics Asset Purchase Agreement.
In April 2017, we entered into the Vactech License Agreement, pursuant to which Vactech Ltd. (Vactech) granted us exclusive global rights for the purpose of developing and commercializing the group B coxsackie virus vaccine (CVB) platform technology. In consideration of the licenses and other rights granted by Vactech, we issued two million common shares to Vactech. We paid Vactech a total of approximately $0.5 million for transition and advisory services during the first 18 months of the term of the agreement. In addition, we are obligated to make a series of contingent milestone payments to Vactech totaling up to an additional $24.5 million upon the achievement of certain clinical development and regulatory filing milestones. In addition, we have agreed to pay Vactech tiered single-digit royalties on net sales of any approved product based on the CVB platform technology and three additional payments totaling $19.0 million upon the achievement of certain annual net sales levels. As of June 30, 2020, we have not achieved any milestones that would trigger payments to Vactech.
In March 2018, we entered into the Intravacc Development Services Agreement with The Institute of Translational Vaccinology, pursuant to which Intravacc will provide services related to process development, non-GMP and GMP manufacturing of our polyvalent CVB vaccine, including providing proprietary technology for manufacturing purposes. We will pay Intravacc approximately 10 million euros for their services over the development and manufacturing period which we currently expect will last for approximately 24 to 30 months. Each party retains its existing intellectual property and will share newly developed intellectual property via a fully-paid non-exclusive license between the parties for all development work through phase 1 clinical trials. Any future use, including commercial use, of Intravacc’s technology will be subject to a separate nonexclusive license agreement. The Intravacc Development Services Agreement may be terminated by us with ninety-days’ notice without cause and by either party upon a material breach or insolvency of the other party. As of June 30, 2020, we have paid Intravacc a total of approximately 9.0 million euros, or approximately $10.5 million, for services provided by Intravacc under the Intravacc Development Services Agreement.
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In May 2018, we entered into the MacroGenics License Agreement with MacroGenics, Inc., pursuant to which MacroGenics granted us exclusive global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a humanized protein and a potential treatment for SLE and other similar diseases. We are obligated to make contingent milestone payments to MacroGenics totaling $42.5 million upon the achievement of certain developmental and approval milestones for the first indication, and an additional $22.5 million upon the achievement of certain regulatory approvals for a second indication. In addition, we are obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. We have also agreed to pay MacroGenics a single-digit royalty on net sales of the product. Further, we are required to pay MacroGenics a low double-digit percentage of certain consideration to the extent received in connection with a future grant of rights to PRV-3279 by us to a third party. We are obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without cause upon prior notice to MacroGenics, and by MacroGenics in the event that we challenge the validity of any licensed patent under the agreement, but only with respect to the challenged patent. As of June 30, 2020, we have not achieved any milestones that would trigger payments to MacroGenics under the MacroGenics License Agreement.
In November 2018, we entered into the Amgen Agreement with Amgen for PRV-015 (formerly AMG 714), a novel anti-IL-15 monoclonal antibody being developed for the treatment of gluten-free diet NRCD. Under the terms of the agreement, we will conduct and fund a Phase 2b trial in NRCD and lead the development and regulatory activities for the program. Amgen has agreed to make an equity investment of up to $20.0 million in us, which was completed in September 2019. See Note 6 – License and Other Agreements for further details. Amgen is also responsible for the manufacturing of PRV-015. Upon completion of the Phase 2b trial, a $150.0 million milestone payment is due from Amgen to us, plus an additional regulatory milestone payment, and single digit royalties on future sales. If Amgen elects not to pay the $150.0 million milestone, AMG 714 rights will be transferred to us pursuant to a termination license agreement from Amgen and us. We will be obligated to make certain contingent milestone payments to Amgen and other third parties totaling up to $70.0 million upon the achievement of certain clinical and regulatory milestones and a low double-digit royalty on net sales of any approved product based on the IL-15 technology. The agreement may be terminated by us without cause (in which case the exclusive global rights to the technology will transfer back to Amgen) and by either party upon a material breach. The agreement expires upon the expiration of Amgen’s last obligation to make royalty payments to Provention (or, our last obligation to make royalty payments to Amgen, if the program rights are transferred to us). As of June 30, 2020, we have not achieved any milestones that would trigger payments to Amgen under the Amgen Agreement.
In April 2017, we entered into the Janssen CSF-1R License Agreement, pursuant to which Janssen Pharmaceutica NV granted us exclusive global rights for the purpose of developing and commercializing a colony stimulating factor 1 receptor (CSF-1R) inhibitor named JNJ-40346527 (renamed PRV-6527) for inflammatory bowel diseases including Crohn’s disease and UC. We evaluated PRV-6527 for Crohn’s disease in a recently completed Phase 2a clinical trial (the PRINCE study). In December 2019, Janssen declined its option to buy back the rights to PRV-6527 and as such, all rights will remain with us. We will be obligated to make contingent milestone payments to Janssen totaling $35.0 million upon the achievement of certain clinical and regulatory milestones for the first indication and an additional $20.0 million upon the achievement of certain clinical and regulatory milestones for a second indication. In addition, we have agreed to pay Janssen tiered single-digit royalties on net sales of any approved product based on the CSF-1R technology and three additional payments totaling $100.0 million upon the achievement of certain annual net sales levels. As of June 30, 2020, no milestones have been achieved that would trigger payments to Janssen under the CSF-1R License Agreement.
In February 2019, we entered into a services agreement with AGC Biologics (“AGC”) to manufacture and supply teplizumab, PRV-031, for our anticipated clinical supply needs. We may terminate the agreement or any statement of work thereunder with approximately 12 months’ prior written notice to AGC. If we provide less than 12 months’ notice of termination, we may incur a cancellation fee depending on the timing of such notice. AGC may terminate the agreement if we do not, over a specified period, purchase and take delivery from AGC of a specified minimum quantity of API for teplizumab. Each party also has the right to terminate the agreement for other customary reasons such as material breach and bankruptcy. The agreement contains provisions relating to compliance by AGC with current Good Manufacturing Practices, cooperation by AGC in connection with potential marketing applications for PRV-031, indemnification, confidentiality, dispute resolution and other customary matters for an agreement of this kind.
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The table below presents a summary of our contractual obligations as of June 30, 2020:
| Payments Due By Period | ||||||||||||||||||||
| Within | More than | |||||||||||||||||||
| Total | 1 year | 1-3 Years | 3-5 Years | 5 years | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Purchase obligations (1) | $ | 1,550 | $ | 1,550 | $ | — | $ | — | $ | — | ||||||||||
| Total (2) | $ | 1,550 | $ | 1,550 | $ | — | $ | — | $ | — | ||||||||||
| (1) | Purchase obligations represent our commitments under binding forecasts, and purchase orders (inclusive of cancellation fees), including those provided under our agreement(s) with AGC. The actual amounts incurred will be determined based on the amount of goods purchased and the pricing then in effect under the applicable arrangement. |
| (2) | This table does not include (a) any milestone payments which may become payable to third parties under license agreements as the timing and likelihood of such payments are not known with certainty, (b) any royalty payments to third parties as the amounts, timing and likelihood of such payments are not known, and (c) contracts that are entered into in the ordinary course of business that are not material in the aggregate in any period presented above. |
In July 2020, we entered into an agreement to lease our new corporate headquarters in Red Bank, NJ, for which the initial lease term expires 70 months from the lease commencement date, with base annual lease payments of approximately $0.2 million. Upon commencement of the lease, which is anticipated to occur in the second half of 2020, the lease will be accounted for as an operating lease. We are still evaluating the impact of this lease on our financial statements.
In addition, in the course of normal business operations, we have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. Expenditures to CROs, CMOs and other clinical development related vendors represent significant costs in clinical development. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and even long-term commitments of cash.
We also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.
Future Funding Requirements
To date, we have not generated revenue, and we do not know when, or if, we will generate revenue. We do not expect to generate revenue unless or until we obtain marketing approval of, secure reimbursement for, and commercialize, our product candidates. We will need to raise additional capital to fund our operations, to develop and commercialize our product candidates, and to develop, acquire, in-license or co-promote other products. Our future capital requirements may be substantial and will depend on many factors.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.
Critical Accounting Policies and Estimates
Preparation of financial statements in accordance with generally accepted accounting principles in the US requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, and expenses and the disclosures of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions. We continually evaluate these estimates and assumptions. The amounts of assets and liabilities reported in our balance sheets and the amounts of expenses reported in our statements of comprehensive loss are affected by estimates and assumptions, which are used for, but not limited to, the accounting for research and development, stock-based compensation, accrued expenses and equity-classified warrants. The accounting policies discussed below are considered critical to an understanding of our financial statements because their application places the most significant demands on our judgment. Actual results could differ from our estimates. For additional accounting policies, see Note 3 to our Financial Statements— Summary of Significant Accounting Policies.
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Research and Development
Research and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving our development functions, and other internal operating expenses, the cost of clinical studies, and the cost of our drug candidates for clinical study. In addition, research and development expenses include payments to third parties for the development and manufacturing of our product candidates and the estimated fair value for the issuance of equity for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at contract research organizations that design, gain approval for and conduct clinical trials on our behalf. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.
Stock-Based Compensation
We recognize stock-based compensation expense for awards of equity instruments based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. We also grant performance-based stock options. The grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. We record actual forfeitures in the period the forfeiture occurs.
We used the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average assumptions for the period indicated:
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2020 | 2019 | |||||||
| Exercise price | $ | 13.09 | $ | 10.45 | ||||
| Expected volatility | 73% | 72% | ||||||
| Expected dividends | — | — | ||||||
| Expected term (in years) | 6.2 | 6.3 | ||||||
| Risk-free interest rate | 1.05% | 1.94% | ||||||
The weighted-average valuation assumptions were determined as follows:
| ● | Risk-free interest rate: we base the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term. | |
| ● | Expected annual dividends: the estimate for annual dividends is 0%, because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend. | |
| ● | Expected stock price volatility: the expected volatility used is based on historical volatilities of similar entities within our industry which were commensurate with our expected term assumption. | |
| ● | Expected term of options: the expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and contractual period due to our limited operating history. |
Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the Statement of Comprehensive Loss.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.
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We base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.
Recent Accounting Pronouncements
See Note 3, “Significant Accounting Policies”, in the accompanying notes to financial statements, which is incorporated herein by reference.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of June 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. From time to time, we make changes to our internal control over financial reporting that are intended to enhance our effectiveness, and which do not have a material effect on our overall internal control over financial reporting. As a newly public company, we continue the process of reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
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PART II. Other Information
| ITEM 1. | LEGAL PROCEEDINGS |
We are not currently subject to any material legal proceedings.
| ITEM 1A. | RISK FACTORS |
In addition to other information set forth in this report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our 2019 Annual Report on Form 10-K, which was filed with the SEC on March 12, 2020, as amended by Amendment No. 1 on Form 10-K/A, and filed with the SEC on April 8, 2020 and as further amended on Amendment No. 2 on Form 10-K/A, and filed with the SEC on August 6, 2020. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K for the year ended December 31, 2019.
The recent outbreak of the novel coronavirus 2019 (COVID-19) has caused delays to our clinical trials. Moreover, the longer the pandemic persists, the more impact it will have on our clinical trial plans and timelines.
The COVID-19 pandemic continues to drive global uncertainty and has caused, and may continue to cause, delays to the development of certain of our product candidates. Out of an abundance of caution to protect patients, caregivers, clinical site staff, company employees as well as due to facility closures, quarantine, travel restrictions and other governmental restrictions in March 2020 we temporarily paused the enrollment and randomization of new patients with newly diagnosed type 1 diabetes (T1D) into our global Phase 3 PROTECT study teplizumab. During the second quarter of 2020, we began enrolling patients in the PROTECT study on a country by country and site by site basis. We expect that a majority of sites will be actively enrolling patients by the end of the third quarter of 2020, subject to potential additional COVID-19 related interruptions and other local conditions. Also, we, with our partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b trial in gluten free diet non-responsive celiac disease, we will stagger study startup throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled. Delays in completing our clinical trials are expected to increase our costs, slow our development and approval process and could negatively impact our ability to commence product sales and generate revenues.
The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.
Commencing January 1, 2021, we will no longer be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies will no longer apply to us.
We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Because, as of June 30, 2020, the market value of our common stock that was held by non-affiliates exceeded $700 million, we will no longer qualify for such status commencing January 1, 2021. As a large-accelerated filer, we will be subject to certain disclosure requirements that are applicable to other public companies that have not been applicable to us as an emerging growth company. These requirements include:
| ● | compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting; | |
| ● | compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
| ● | full disclosure obligations regarding executive compensation; and | |
| ● | compliance with the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
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We have incurred increased costs as a result of operating as a public company, and our management is now required to devote substantial time to additional compliance initiatives and corporate governance practices.
As a public company, and particularly commencing January 1, 2021 when we will no longer be an “emerging growth company” or a “smaller reporting company,” we do and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Select Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, commencing January 1, 2021, because we will no longer be an emerging growth company, we will be required to include with our annual report an attestation report on internal control over financial reporting issued by our independent registered public accounting firm, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and potentially increase our efforts to assess and document the adequacy of our systems of internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude, within the prescribed timeframe or at all, that our internal controls over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Initial Public Offering of Common Stock
The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-224801), which was filed with the Securities and Exchange Commission (SEC), on May 9, 2018 and amended subsequently and declared effective on July 3, 2018, and Form S-1MEF (File No. 333-226198), which was filed with the SEC on July 16, 2018 and was effective on filing with the SEC. These registration statements, collectively, registered a maximum offering amount of $65.5 million of our common stock in connection with our IPO, pursuant to which we sold 15,969,563 shares of common stock to the public at a price of $4.00 per share. The IPO closed on July 19, 2018, generating net proceeds of approximately $59.3 million after deducting underwriting commissions of approximately $3.7 million and other offering expenses of $0.8 million payable by us. The offering terminated before all of the securities registered on the registration statements had been sold.
MDB Capital Group, LLC acted as sole book-running manager for the offering. Dougherty & Company LLC acted as qualified independent underwriter for the offering. Anthony DiGiandomenico, a former member of our board of directors, is a co-founder of MDB.
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As of June 30, 2020, we have used all of the net proceeds from our initial public offering to fund ongoing development activities for PRV-031, PRV-6527, PRV-300, PRV-101, PRV-3279, pre-commercial activities for PRV-031 and for working capital and other general corporate purposes. There was no material change in our planned use of the net proceeds from the offering as described in our final prospectus filed with the SEC on July 17, 2018 pursuant to Rule 424(b) under the Securities Act.
We did not use any of the net proceeds from the offering to make payments by us, directly or indirectly, to any director or officer of ours (other than payment in the ordinary course of business of salaries and/or director fees) or to any of their associates, or to any persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than the underwriting commission paid to MDB Capital Group and underwriter warrants issued to MDB.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
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| ITEM 6. | EXHIBITS |
| 10.1 | Employment Agreement, effective August 3, 2020, between the Company and Heidy Abreu King-Jones. | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (filed herewith, Exhibit 31.1). | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (filed herewith, Exhibit 31.2). | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith, Exhibit 32.1). | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith, Exhibit 32.2). | |
| 101 | The following materials from Provention Bio, Inc.’s Form 10-Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Balance Sheets at June 30, 2020 and December 31, 2019, (ii) Condensed Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019, (iii) Condensed Statements of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019 (iv) Condensed Statements of Cash Flows for the six months ended June 30, 2020 and 2019, and (v) Notes to Condensed Financial Statements. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROVENTION BIO, INC. | |||
| August 6, 2020 | |||
| By: | /s/ Andrew Drechsler | ||
| Andrew Drechsler | |||
| Chief Financial Officer | |||
| (Authorized Officer and Principal Financial Officer) | |||
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Exhibit 10.1
Execution Copy
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”), effective August 3, 2020 (the “Effective Date”), is by and between PROVENTION BIO, INC., a Delaware corporation (the “Company”) and Heidy Abreu King-Jones, Esq. (the “Executive”).
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive as its Chief Legal Officer, and the Executive desires to accept such employment, on the terms and conditions set forth in this Agreement; and
WHEREAS, the Company and the Executive have mutually agreed that, as of the Effective Date, this Agreement shall govern the terms of employment between the Executive and the Company;
NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1
EMPLOYMENT; TERM OF AGREEMENT
Section 1.1. Employment and Acceptance. During the Term (as defined in Section 1.2), the Company shall employ the Executive, and the Executive shall accept such employment and serve the Company, in each case, subject to the terms and conditions of this Agreement.
Section 1.2. Term. The employment relationship hereunder shall be for the period commencing on the Effective Date until terminated by either party as provided in ARTICLE 4 (the “Term”). In the event that the Executive’s employment with the Company terminates, the Company’s obligation to continue to pay, after the Termination Date, Base Salary, Annual Bonus, and other unaccrued benefits shall terminate, except as may be provided for in ARTICLE 4.
ARTICLE 2
TITLE, DUTIES AND OBLIGATIONS; LOCATION
Section 2.1. Title. The Company shall employ the Executive to render full-time services to the Company on the terms and conditions hereinafter set forth. The Executive shall serve in the capacity of Chief Legal Officer. The Executive represents and warrants that she is a licensed attorney with bar admissions in good standing in the States of Massachusetts and New York and that she will promptly after the Effective Date take all necessary steps to timely register for a limited New Jersey in house counsel license-given the Company’s headquarters are in New Jersey. If the Executive’s fully completed application for a limited New Jersey in house counsel license is irreversibly rejected by the New Jersey Bar, the Company shall have the right to terminate this Agreement. If the Company exercises its right to terminate the Executive under this Section, the Executive shall, in full discharge of all of the Company’s obligations to the Executive, be entitled to receive compensation under the terms of Section 4.2(b) hereof.
Section 2.2. Duties. The Executive shall report to the Company’s Chief Executive Officer. The Executive agrees to perform to the best of her ability, experience and talent those acts and duties, consistent with his/her position as Chief Legal Officer from time to time as the Company may lawfully direct. During the Term, the Executive also shall serve in such other positions or capacities as may, from time to time, be reasonably requested by the Company or any of its Affiliates.
Section 2.3. Compliance with Policies, etc. During the Term, the Executive shall be bound by, and comply fully with, all of the Company’s policies and procedures for employees and officers in place from time to time, including, but not limited to, all terms and conditions set forth in the Company’s employee handbook, compliance manual, codes of conduct and any other memoranda and communications applicable to the Executive pertaining to the policies, procedures, rules and regulations, as currently in effect and as may be amended from time to time. These policies and procedures include, among other things and without limitation, the Executive’s obligations to comply with the Company’s rules regarding confidential and proprietary information and trade secrets.
Section 2.4. Time Commitment. During the Term, the Executive shall use his/her best efforts to promote the interests of the Company (including its subsidiaries and other Affiliates) and shall devote all of her business time, ability and attention to the performance of her duties for the Company and shall not, directly or indirectly, render any services to any other person or organization, whether for compensation or otherwise, except with the Company’s prior written consent, except that, without such written consent, the Executive may (i) participate in charitable, civic, educational, professional, community or industry affairs; and (ii) manage the Executive’s passive personal investments. As used in this Agreement, “Affiliate” of any individual or entity means any other individual or entity that directly or individual controls, is controlled by, or is under common control with, the individual or entity.
Section 2.5. Location. The Executive’s principal place of business for the performance of her duties under this Agreement shall be remotely or such other place as permitted by the Company. Notwithstanding the foregoing, the Executive shall be required to travel as necessary to perform her duties hereunder.
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ARTICLE 3
COMPENSATION AND BENEFITS; EXPENSES
Section 3.1. Compensation and Benefits. For all services rendered by the Executive in any capacity during the Term (including, without limitation, serving as an officer, director or member of any committee of the Company or any of its subsidiaries or other Affiliates), the Executive shall be compensated as follows (subject, in each case, to the provisions of ARTICLE 4 below):
(a) Base Salary. During the Term, the Company shall pay the Executive a base salary (the “Base Salary”) at the annualized rate of $400,000, which shall be subject to customary withholdings and authorized deductions and be payable in equal installments in accordance with the Company’s customary payroll practices in place from time to time. The Executive’s Base salary shall be subject to periodic adjustments as the Company shall in its discretion deem appropriate.
(b) Annual Bonus. For each calendar year ending during the Term, the Executive shall be eligible to receive an annual bonus (the “Annual Bonus”) with a target amount equal to forty percent (40%) of the Base Salary earned by the Executive for such calendar year (the “Target Annual Bonus”). The actual amount of each Annual Bonus will be based upon the level of achievement of the Company’s corporate objectives and the Executive’s individual objectives, in each case, as established by the Company and the Executive for the calendar year with respect to which such Annual Bonus relates. The determination of the level of achievement of the corporate objectives and the Executive’s individual performance objectives for a year shall be made by the Company in its reasonable discretion. Each Annual Bonus for a calendar year, to the extent earned, will be paid in a lump sum in the following calendar year, within the first 75 days of such following year. The Annual Bonus shall not be deemed earned until the date that it is paid. Accordingly, except as otherwise provided herein, in order for the Executive to receive an Annual Bonus, the Executive must be actively employed in good standing by the Company at the time of such payment for such Annual Bonus to be due and payable.
(c) Equity Compensation. The Executive shall be eligible to receive equity compensation in the form of a stock option grant for 300,000 shares, the details of which shall be provided under separate cover pursuant to a stock grant agreement (each, a “Stock Option Agreement”).
(d) Benefit Plans. The Executive shall be entitled to participate in all employee benefit plans and programs (excluding severance plans, if any) generally made available by the Company to senior executives of the Company, to the extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof. The Company may amend, modify or rescind any employee benefit plan or program and/or change employee contribution amounts to benefit costs in its discretion.
(e) Paid Vacation. The Executive shall be eligible to take paid vacation days in accordance with the Company’s vacation policies in effect from time to time for its executive team.
Section 3.2. Expense Reimbursement. The Company shall reimburse the Executive during the Term, in accordance with the Company’s expense reimbursement policies in place from time to time, for all reasonable out-of-pocket business and travel expenses incurred by the Executive in the performance of her duties hereunder. In addition, the Company shall reimburse Executive for all costs and fees incurred by Executive in the process of obtaining and maintaining the required limited New Jersey in house counsel license, license renewal fees for the state bars of Massachusetts and New York, and continuing education requirements and bar associations fees for these aforementioned states. In order to receive such reimbursement, the Executive shall furnish to the Company documentary evidence of each such expense in the form required to comply with the Company’s policies in place from time to time.
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ARTICLE 4
TERMINATION OF EMPLOYMENT
Section 4.1. Termination Without Cause or Resignation for Good Reason.
(a) The Company may terminate the Executive’s employment hereunder at any time without Cause (other than by reason of death or Disability) upon fourteen days prior written notice to the Executive. Executive may terminate her employment hereunder for Good Reason upon written notice to the Company in accordance with the provisions set forth in Section 4.1(c).
(b) As used in this Agreement, “Cause” means: (i) a material act, or act of fraud, committed by the Executive that is intended to result in the Executive’s personal enrichment to the detriment or at the expense of the Company or any of its Affiliates; (ii) the Executive is convicted of a felony; (iii) gross negligence or willful misconduct by the Executive, or failure by the Executive to perform the duties or obligations reasonably assigned to the Executive from time to time, which is not cured upon at least thirty (30) days prior written notice (unless such negligence, misconduct or failure is not susceptible to cure, as determined in the Company’s reasonable discretion ); or (iv) the Executive violates this Agreement or the Covenants Agreement (as defined in Section 5.1 below).
(c) As used in this Agreement, “Good Reason” means the occurrence of any of the following: (1) a material breach by the Company of the terms of this Agreement; (2) a material reduction in the Executive’s Base Salary (other than pursuant to a reduction uniformly applicable to all senior executives of the Company; (3) a material diminution or change in the Executive’s title, authority, duties or responsibilities; or (4) a change in the geographic location at which the Executive performs services for the Company of more than fifty (50) miles; provided, however, that the Executive must notify the Company within ninety (90) days of the occurrence of any of the foregoing conditions that she considers it to be a “Good Reason” condition and provide the Company with at least thirty (30) days in which to cure the condition. If the Executive fails to provide this notice and cure period prior to her resignation, or resigns more than six (6) months after the initial existence of the condition, her resignation will not be deemed to be for “Good Reason.”
(d) If the Executive’s employment is terminated pursuant to Section 4.1(a), other than during the Post-Change in Control Period (as defined in Section 4.1(e), the Executive shall, in full discharge of all of the Company’s obligations to the Executive, be entitled to receive, and the Company’s sole obligation to the Executive under this Agreement or otherwise shall be to pay or provide to the Executive, the following:
(i) the Accrued Obligations (as defined in Section 4.2(b));
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(ii) each outstanding stock option held by the Executive under the Company’s 2017 Equity Incentive Plan (or any successor plan) (the “Equity Plan”) that provides for vesting solely based on continued service (“time based” vesting) shall become fully vested and all of the Executive’s outstanding vested stock options (whether providing time based or performance based vesting) shall remain exercisable for a period of twelve (12) months following the Termination Date (but in no event later than the expiration date of the term thereof); and
(iii) subject to Section 4.4 and Section 4.5: (A) payments equal to nine (9) months of Executive’s Base Salary at the rate in effect immediately prior to the Termination Date (provided that if such salary has been reduced, the pre-reduction Base Salary); and (B) nine (9) months of COBRA premiums, in each case less applicable withholdings and authorized deductions (the “Pre-CIC Severance Payments”), to be paid (subject to Section 5.16) in equal installments in accordance with the Company’s regular payroll practices, commencing on the next regular payroll date that occurs on or after the sixtieth (60th) day following the Termination Date; provided, however, that payments under subsection (B) of this section will cease in the event that Executive secures substantially gainful employment from a new employer prior to the expiration of the time such payments are to be paid, and Executive agrees to immediately inform the Company in writing if she becomes employed by a new employer. In addition Executive shall (X) receive accelerated vesting of any equity awards (other than stock options) to the extent such awards would have become vested during the nine (9) month period following the Termination Date had Executive continued to be employed by the Company, and (Y) be eligible to receive the pro rata portion of her Annual Bonus based on objectives achieved at the termination date which shall be paid on the date the subject annual bonus would have been paid had Executive’s employment continued.
(e) If the Executive’s employment is terminated pursuant to Section 4.1(a) within twelve (12) months following a Change in Control (the “Post-Change in Control Period”), the Executive shall, in full discharge of all of the Company’s obligations to the Executive (and in lieu of any payments and benefits set forth in Section 4.1(d)), be entitled to receive, and the Company’s sole obligation to the Executive under this Agreement or otherwise shall be to pay or provide to the Executive, the following:
(i) the Accrued Obligations; and
(ii) subject to Section 4.4, Section 4.5, Section 4.6 and Section 4.7, (A) payments equal to twelve (12) months of Executive’s Base Salary at the rate in effect immediately prior to the Termination Date (provided that if such salary has been reduced, the pre-reduction Base Salary) and (B) twelve (12) months of COBRA premiums, in each case less applicable withholdings and authorized deductions (the “Post-CIC Severance Payments”), to be paid (subject to Section 5.16) in twelve equal installments in accordance with the Company’s regular payroll schedule, commencing on the next regular payroll date that occurs on or after the sixtieth (60th) day following the Termination Date; provided, however, that payments under subsection (B) of this section will cease in the event that Executive secures substantially gainful employment from a new employer prior to the expiration of the time such payments are to be paid, and Executive agrees to immediately inform the Company in writing if she becomes employed by a new employer. In addition Executive shall (X) be deemed to be fully vested in any and all outstanding equity awards of Executive and each of Executive’s outstanding stock options shall remain exercisable until the expiration date of the term of such option, and (Y) be eligible to receive the pro rata portion of her Annual Bonus based on objectives achieved at the termination date which shall be paid on the date the subject annual bonus would have been paid had Executive’s employment continued.
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Section 4.2. Termination for Cause; Voluntary Termination
(a) The Company may terminate the Executive’s employment hereunder at any time for Cause upon written notice to the Executive. The Executive may voluntarily terminate her employment hereunder at any time without Good Reason upon sixty (60) days prior written notice to the Company; provided, however, the Company reserves the right, upon written notice to the Executive, to accept the Executive’s notice of resignation and to accelerate such notice and make the Executive’s resignation effective immediately, or on such other date prior to Executive’s intended last day of work as the Company deems appropriate. It is understood and agreed that the Company’s election to accelerate Executive’s notice of resignation shall not be deemed a termination by the Company without Cause for purposes of Section 4.1 of this Agreement or otherwise or constitute Good Reason (as defined in Section 4.1) for purposes of Section 4.1 of this Agreement or otherwise.
(b) If the Executive’s employment is terminated pursuant to Section 2.1 or Section 4.2(a), the Executive shall, in full discharge of all of the Company’s obligations to the Executive, be entitled to receive, and the Company’s sole obligation under this Agreement or otherwise shall be to pay or provide to the Executive, the following (collectively, the “Accrued Obligations”):
(i) the Executive’s earned, but unpaid, Base Salary through the final date of the Executive’s employment by the Company (the “Termination Date”), payable in accordance with the Company’s standard payroll practices;
(ii) the Executive’s accrued, but unused, vacation (in accordance with the Company’s policies);
(iii) expenses reimbursable under Section 3.2 above incurred on or prior to the Termination Date but not yet reimbursed; and
(iv) any amounts or benefits that are vested amounts or vested benefits or that the Executive is otherwise entitled to receive under any Company plan, program, policy or practice (with the exception of those, if any, relating to severance) on the Termination Date, in accordance with such plan, program, policy, or practice.
(v) Notwithstanding anything to the contrary in any Stock Option Agreement or the Equity Plan, all of the Executive’s outstanding vested stock options as of the Termination Date shall remain exercisable for a period of twelve (12) months following the Termination Date (but in no event later than the expiration of their term thereof.)
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Section 4.3. Termination Resulting from Death or Disability.
(a) As the result of any Disability suffered by the Executive, the Company may, upon five (5) days prior notice to the Executive, terminate the Executive’s employment under this Agreement. The Executive’s employment shall automatically terminate upon her death.
(b) “Disability” means a determination by the Company in accordance with applicable law that as a result of a physical or mental injury or illness, the Executive is unable to perform the essential functions of her job with or without reasonable accommodation for a period of (i) ninety 90) consecutive days; or (ii) one hundred twenty (120) days during any twelve (12) month period.
(c) If the Executive’s employment is terminated pursuant to Section 4.3(a), the Executive or the Executive’s estate, as the case may be, shall be entitled to receive, and the Company’s sole obligation under this Agreement or otherwise shall be to pay or provide to the Executive or the Executive’s estate, as the case may be, the Accrued Obligations.
Section 4.4. Release Agreement. In order to receive the Pre-CIC Severance Payments, the Post-CIC Severance Payments, the Executive must timely execute, deliver (and not revoke) a separation agreement and general release (the “Release Agreement”) in a form satisfactory to the Company. If the Executive is eligible for Severance Payments pursuant to Section 4.1, the Company will deliver the Release Agreement to the Executive within seven (7) calendar days following the Termination Date. The Severance Payments are subject to the Executive’s execution and delivery of such Release Agreement within 21 days [or 45 days in the case of a group layoff] of the Executive’s receipt of the Release Agreement and the Executive’s non-revocation of such Release Agreement in accordance with applicable law.
Section 4.5. Post-Termination Breach. Notwithstanding anything to the contrary contained in this Agreement, the Company’s obligations to provide the Severance Payments will immediately cease if the Executive breaches any of the provisions of the Covenants Agreement, the Release Agreement or any other agreement the Executive has with the Company.
Section 4.6. Covenants Regarding Other Employees. During the term of this Agreement, and for a period of twelve (12) months following the Executive’s termination of employment for any reason, the Executive agrees not to directly or indirectly solicit any employee of the Company to terminate his or her employment with the Company or to interfere in any manner with the business of the Company.
ARTICLE 5
GENERAL PROVISIONS
Section 5.1. Company Non-Disclosure and Invention Assignment Agreement. Concurrent with the execution of this Agreement, Executive shall enter into an Employee Non- Disclosure and Invention Assignment Agreement (“Covenants Agreement”), the terms of which are incorporated herein by reference. The Covenants Agreement shall survive the termination of this Agreement and the Executive’s employment by the Company for the applicable period(s) set forth therein.
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Section 5.2. Expenses. Each of the Company and the Executive shall bear its/his own costs, fees and expenses in connection with the negotiation, preparation and execution of this Agreement.
Section 5.3. Entire Agreement. This Agreement, any Stock Option Grant Agreement, and the Covenants Agreement contain the entire agreement of the parties hereto with respect to the terms and conditions of the Executive’s employment during the Term and activities following termination of this Agreement and the Executive’s employment with the Company and supersede any and all prior agreements and understandings, whether written or oral, between the parties hereto with respect to the subject matter of this Agreement, the Covenants Agreement, or any Stock Option Grant Agreement. To the extent there is any conflict with regard to the terms of this Agreement, any Stock Option Grant Agreement and the Covenants Agreement, the terms of this Agreement shall control. Each party hereto acknowledges that no representations, inducements, promises or agreements, whether oral or in writing, have been made by any party, or on behalf of any party, which are not embodied herein, in the Covenants Agreement, or any Stock Option Grant Agreement. The Executive acknowledges and agrees that the Company has fully satisfied, and has no further, obligations to the Executive arising under, or relating to, any other employment or consulting arrangement or understanding (including, without limitation, any claims for compensation or benefits of any kind) or otherwise. No agreement, promise or statement not contained in this Agreement, the Covenants Agreement, or any Stock Option Grant Agreement shall be valid and binding, unless agreed to in writing and signed by the parties sought to be bound thereby.
Section 5.4. No Other Contracts. The Executive represents and warrants to the Company that neither the execution and delivery of this Agreement by the Executive nor the performance by the Executive of the Executive’s obligations hereunder, shall constitute a default under or a breach of the terms of any other agreement, contract or other arrangement, whether written or oral, to which the Executive is a party or by which the Executive is bound, nor shall the execution and delivery of this Agreement by the Executive nor the performance by the Executive of her duties and obligations hereunder give rise to any claim or charge against either the Executive, the Company or any Affiliate, based upon any other contract or other arrangement, whether written or oral, to which the Executive is a party or by which the Executive is bound. The Executive further represents and warrants to the Company that she is not a party to or subject to any restrictive covenants, legal restrictions or other agreement, contract or arrangement, whether written or oral, in favor of any entity or person which would in any way preclude, inhibit, impair or limit the Executive’s ability to perform her obligations under this Agreement or the Covenants Agreement, including, but not limited to, non-competition agreements, non-solicitation agreements or confidentiality agreements. The Executive shall defend, indemnify and hold the Company harmless from and against all claims, actions, losses, liabilities, damages, costs and expenses (including reasonable attorney’s fees and amounts paid in settlement in good faith) arising from or relating to any breach of the representations and warranties made by the Executive in this Section 5.4.
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Section 5.5. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally or sent by nationally recognized overnight courier service (with next business day delivery requested). Any such notice or communication shall be deemed given and effective, in the case of personal delivery, upon receipt by the other party, and in the case of a courier service, upon the next business day, after dispatch of the notice or communication. Any such notice or communication shall be addressed as follows:
If to the Company, to:
Provention Bio, Inc.
PO Box 666
Oldwick, NJ 08858
Attn: Ashleigh Palmer, CEO
With a copy to:
Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, New York 10020
Attn: Michael J. Lerner, Esq., mlerner@lowenstein.com
If to the Executive, to:
Heidy Abreu King-Jones
Any person named above may designate another or an additional notification address and contact person by giving notice in accordance with this Section to the other persons named above.
Section 5.6. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey, without regard to principles of conflicts of law. Any and all actions arising out of this Agreement or Employee’s employment by Company or termination therefrom shall be brought and heard in the state and federal courts of the State of New Jersey and the parties hereto hereby irrevocably submit to the exclusive jurisdiction of any such courts. THE COMPANY AND THE EXECUTIVE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY IN ANY ACTION CONCERNING THIS AGREEMENT OR ANY AND ALL MATTERS ARISING DIRECTLY OR INDIRECTLY HEREFROM AND REPRESENT THAT THEY HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE OR HAVE CHOSEN VOLUNTARILY NOT TO DO SO SPECIFICALLY WITH RESPECT TO THIS WAIVER.
Section 5.7. Waiver. Either party hereto may waive compliance by the other party with any provision of this Agreement. The failure of a party to insist on strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No waiver of any provision shall be construed as a waiver of any other provision. Any waiver must be in writing.
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Section 5.8. Severability. If any one or more of the terms, provisions, covenants and restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid and unenforceable provision in light of the tenor of this Agreement, and, upon so agreeing, shall incorporate such substitute provision in this Agreement. In addition, if any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law.
Section 5.9. Counterparts. This Agreement may be executed in any number of counterparts and each such duplicate counterpart shall constitute an original, any one of which may be introduced in evidence or used for any other purpose without the production of its duplicate counterpart. Moreover, notwithstanding that any of the parties did not execute the same counterpart, each counterpart shall be deemed for all purposes to be an original, and all such counterparts shall constitute one and the same instrument, binding on all of the parties hereto.
Section 5.10. Advice of Counsel. This Agreement was prepared by Lowenstein Sandler LLP in its capacity as legal counsel to the Company. Both parties hereto acknowledge that they have had the opportunity to seek and obtain the advice of counsel before entering into this Agreement and have done so to the extent desired, and have fully read the Agreement and understand the meaning and import of all the terms hereof.
Section 5.11. Assignment. This Agreement shall inure to the benefit of the Company and its successors and assigns (including, without limitation, the purchaser of all or substantially all of its assets) and shall be binding upon the Company and its successors and assigns. This Agreement is personal to the Executive, and the Executive shall not assign or delegate her rights or duties under this Agreement, and any such assignment or delegation shall be null and void.
Section 5.12. Agreement to Take Actions. Each party to this Agreement shall execute and deliver such documents, certificates, agreements and other instruments, and shall take all other actions, as may be reasonably necessary or desirable in order to perform her or its obligations under this Agreement.
Section 5.13. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 5.13 or Section 5.11 shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive or the Executive’s estate and their assigning any rights hereunder to the person or persons entitled thereto.
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Section 5.14. Source of Payment. Except as otherwise provided under the terms of any applicable employee benefit plan, all payments provided for under this Agreement shall be paid in cash from the general funds of Company. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right, without prejudice to rights which employees may have, shall be no greater than the right of an unsecured creditor of the Company. The Executive shall not look to the owners of the Company for the satisfaction of any obligations of the Company under this Agreement.
Section 5.15. Tax Withholding. The Company or other payor is authorized to withhold from any benefit provided or payment due hereunder, the amount of withholding taxes due any federal, state or local authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. The Executive will be solely responsible for all taxes assessed against him under applicable law with respect to the compensation and benefits described in this Agreement, other than typical employer-paid taxes such as FICA, and the Company makes no representations as to the tax treatment of such compensation and benefits.
Section 5.16. 409A Compliance. All payments under this Agreement are intended to comply with or be exempt from the requirements of Section 409A of the Code and regulations promulgated thereunder (“Section 409A”). As used in this Agreement, the “Code” means the Internal Revenue Code of 1986, as amended. To the extent permitted under applicable regulations and/or other guidance of general applicability issued pursuant to Section 409A, the Company reserves the right to modify this Agreement to conform with any or all relevant provisions regarding compensation and/or benefits so that such compensation and benefits are exempt from the provisions of 409A and/or otherwise comply with such provisions so as to avoid the tax consequences set forth in Section 409A and to assure that no payment or benefit shall be subject to an “additional tax” under Section 409A. To the extent that any provision in this Agreement is ambiguous as to its compliance with Section 409A, or to the extent any provision in this Agreement must be modified to comply with Section 409A, such provision shall be read in such a manner so that no payment due to the Executive shall be subject to an “additional tax” within the meaning of Section 409A(a)(1)(B) of the Code. If necessary to comply with the restriction in Section 409A(a)(2)(B) of the Code concerning payments to “specified employees,” any payment on account of the Executive’s separation from service that would otherwise be due hereunder within six (6) months after such separation shall be delayed until the first business day of the seventh month following the Termination Date and the first such payment shall include the cumulative amount of any payments (without interest) that would have been paid prior to such date if not for such restriction. Each payment in a series of payments hereunder shall be deemed to be a separate payment for purposes of Section 409A. In no event may the Executive, directly or indirectly, designate the calendar year of payment. All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit. Notwithstanding anything contained herein to the contrary, the Executive shall not be considered to have terminated employment with the Company for purposes of Section 4.1 unless the Executive would be considered to have incurred a “termination of employment” from the Company within the meaning of Treasury Regulation §1.409A-1(h)(1)(ii). In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Executive by Section 409A or damages for failing to comply with Section 409A.
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Section 5.17. 280G Modified Cutback.
(a) If any payment, benefit or distribution of any type to or for the benefit of the Executive, whether paid or payable, provided or to be provided, or distributed or distributable pursuant to the terms of this Agreement or otherwise (collectively, the “Parachute Payments”) would subject the Executive to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), the Parachute Payments shall be reduced so that the maximum amount of the Parachute Payments (after reduction) shall be one dollar ($1.00) less than the amount which would cause the Parachute Payments to be subject to the Excise Tax; provided that the Parachute Payments shall only be reduced to the extent the after-tax value of amounts received by the Executive after application of the above reduction would exceed the after-tax value of the amounts received without application of such reduction. For this purpose, the after-tax value of an amount shall be determined taking into account all federal, state, and local income, employment and excise taxes applicable to such amount. Unless the Executive shall have given prior written notice to the Company to effectuate a reduction in the Parachute Payments if such a reduction is required, which notice shall be consistent with the requirements of Section 409A to avoid the imputation of any tax, penalty or interest thereunder, then the Company shall reduce or eliminate the Parachute Payments by first reducing or eliminating any cash payments (with the payments to be made furthest in the future being reduced first), then by reducing or eliminating accelerated vesting of stock options or similar awards, and then by reducing or eliminating any other remaining Parachute Payments; provided, that no such reduction or elimination shall apply to any non-qualified deferred compensation amounts (within the meaning of Section 409A) to the extent such reduction or elimination would accelerate or defer the timing of such payment in manner that does not comply with Section 409A.
(b) An initial determination as to whether (x) any of the Parachute Payments received by the Executive in connection with the occurrence of a change in the ownership or control of the Company or in the ownership of a substantial portion of the assets of the Company shall be subject to the Excise Tax, and (y) the amount of any reduction, if any, that may be required pursuant to the previous paragraph, shall be made by an independent accounting firm selected by the Company (the “Accounting Firm”) prior to the consummation of such change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company. The Executive shall be furnished with notice of all determinations made as to the Excise Tax payable with respect to the Executive’s Parachute Payments, together with the related calculations of the Accounting Firm, promptly after such determinations and calculations have been received by the Company.
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(c) For purposes of this Section 5.17, (i) no portion of the Parachute Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the date of payment of the Parachute Payments shall be taken into account; (ii) no portion of the Parachute Payments shall be taken into account which in the opinion of the Accounting Firm does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code; (iii) the Parachute Payments shall be reduced only to the extent necessary so that the Parachute Payments (other than those referred to in the immediately preceding clause (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the auditor or tax counsel referred to in such clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Parachute Payments shall be determined by the Company’s independent auditors based on Sections 280G and 4999 of the Code and the regulations for applying those sections of the Code, or on substantial authority within the meaning of Section 6662 of the Code.
Section 5.18. Recoupment of Erroneously Awarded Compensation. Any incentive-based or other compensation paid to the Executive under this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, stock exchange listing requirement or any clawback policy adopted by the Company from time to time before the date of the award of the incentive based or other compensation will be subject to the deductions and clawback as may be required by such law, government regulation, stock exchange listing requirement or clawback policy. In addition, if the Executive is or becomes an executive officer subject to the incentive compensation repayment requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), then if required by the Dodd-Frank Act or any of its regulations he/she will enter into an amendment to this Agreement or a separate written agreement with the Company to comply with the Dodd-Frank Act and any of its regulations.
Section 5.19. Certain Definitions. As used in this Agreement, “Change in Control” means (x) a change in ownership of the Company under clause (i) below or (y) a change in the ownership of a substantial portion of the assets of the Company under clause (ii) below:
(i) Change in the Ownership of the Company. A change in the ownership of the Company shall occur on the date that any one person, or more than one person acting as a group (as defined in clause (iii) below), acquires ownership of capital stock of the Company that, together with capital stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the capital stock of the Company. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the capital stock of the Company, the acquisition of additional capital stock by the same person or persons shall not be considered to be a change in the ownership of the Company. An increase in the percentage of capital stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires capital stock in the Company in exchange for property will be treated as an acquisition of stock for purposes of this paragraph.
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(ii) Change in the Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets shall occur on the date that any one person, or more than one person acting as a group (as defined in clause (iii) below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 80 percent of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control under this clause (ii) when there is a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer, as provided below in this clause (ii). A transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to (a) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its capital stock, (b) an entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (c) a person, or more than one person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding capital stock of the Company, or (d) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (ii)(c) of this paragraph. For purposes of this clause (ii), a person’s status is determined immediately after the transfer of the assets.
(iii) Persons Acting as a Group. For purposes of clauses (i) and (ii) above, persons will not be considered to be acting as a group solely because they purchase or own capital stock or purchase assets of the Company at the same time. However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets or capital stock, or similar business transaction with the Company. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of assets or capital stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. For purposes of this paragraph, the term “corporation” shall have the meaning assigned such term under Treasury Regulation section 1.280G-1, Q&A-45.
(iv) Each of clauses (i) through (iii) above shall be construed and interpreted consistent with the requirements of Section 409A and any Treasury Regulations or other guidance issued thereunder.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
| COMPANY | ||
| PROVENTION BIO, INC. | ||
| By: | /s/ Ashleigh Palmer | |
| Name: | Ashleigh Palmer | |
| Title: | CEO | |
| EXECUTIVE | ||
| /s/ Heidy Abreu King-Jones, Esq. | ||
| Heidy Abreu King-Jones, Esq. | ||
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Exhibit 31.1
SECTION 302 CERTIFICATION
I, Ashleigh Palmer, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Provention Bio, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 6, 2020
| /s/ Ashleigh Palmer | |
| Ashleigh Palmer | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Andrew Drechsler, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Provention Bio, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 6, 2020
| /s/ Andrew Drechsler | |
| Andrew Drechsler | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Provention Bio, Inc. (“Provention Bio”) on Form 10-Q for the period ending June 30, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Ashleigh Palmer, Chief Executive Officer of Provention Bio, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Provention Bio. |
Date: August 6, 2020
| /s/ Ashleigh Palmer | |
| Ashleigh Palmer | |
| Chief Executive Officer |
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Provention Bio, Inc. (“Provention Bio”) on Form 10-Q for the period ending June 30, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Andrew Drechsler, Chief Financial Officer of Provention Bio, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Provention Bio. |
Date: August 6, 2020
| /s/ Andrew Drechsler | |
| Andrew Drechsler | |
| Chief Financial Officer |