The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report. You should carefully read the "Risk Factors" section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Forward-Looking Statements."
Overview
Chimerix is a development-stage biopharmaceutical company dedicated to accelerating the advancement of innovative medicines that make a meaningful impact in the lives of patients living with cancer and other serious diseases. Our three most advanced clinical-stage development programs are brincidofovir (BCV), ONC201 and dociparstat sodium (DSTAT). BCV is an antiviral drug candidate developed as a potential medical countermeasure for smallpox and is currently under review for regulatory approval inthe United States . ONC201 is currently being investigated in a number of efficacy studies for recurrent H3 K27M-mutant glioma and a confirmatory response rate assessment, potentially sufficient for accelerated approval, is expected later this year. DSTAT is in Phase 3 development as a potential first-line therapy in acute myeloid leukemia (AML) and as a potential treatment for acute lung injury (ALI) in COVID-19 patients.
Recent Developments
BCV Oral Treatment for Smallpox
We completed the rolling NDA submission for BCV tablets and for BCV suspension for the approval of BCV as a medical countermeasure for smallpox. InDecember 2020 , we announced that the FDA had accepted the filing of the NDA. The FDA granted priority review and set a Prescription Drug User Fee Act (PDUFA) date ofApril 7, 2021 . InJanuary 2021 , we received notification from the FDA that the PDUFA date for review of BCV as a medical countermeasure for smallpox has been moved toJuly 7, 2021 . Specifically, FDA requested we provide a dose recommendation for infants up to three months of age. In response, we submitted to the FDA the requested modelled analyses, which resulted in the same weight-based dosing recommendation previously proposed for older pediatric patients. The ability to dose across all pediatric age groups with a convenient oral suspension formulation is a unique aspect of the BCV smallpox treatment. The FDA required an additional three months to review this information. We do not expect a delayed FDA action date to impact the timing of the BARDA request for proposal, which is expected this quarter, nor the potential timing of first shipments of BCV to the strategic national stockpile, expected in the second half of this year. Imipridones and ONC201 Imipridones are a potential new class of selective cancer therapies. These drug candidates target specific G protein-coupled receptors (GPCRs) and mitochondrial caseinolytic protease P (ClpP), in an effort to produce cancer cell death. The imipridone 59 -------------------------------------------------------------------------------- chemical scaffold provides an opportunity to target GPCRs and ClpP with differential specificity and function. ONC201 selectively targets Dopamine Receptor D2 (DRD2) and ClpP. ONC201 has selectively induced cell death in cancer by binding to and differentially altering activity of DRD2 and ClpP. Clinical trials of ONC201 in glioma patients with the H3 K27M-mutation are underway at several locations in theU.S. Based on discussions with the FDA, we plan to integrate data from ongoing ONC201 trials into a registration cohort with the potential for an NDA submission seeking accelerated approval. A Blinded Independent Central Review analysis of Overall Response Rate (ORR) is expected to take place in 2021 which, if favorable, may form the basis for an NDA submission seeking accelerated of ONC201 inthe United States .
ONC206 and ONC212
ONC206 is a DRD2 antagonist and ClpP agonist that demonstrated enhanced non-competitive DRD2 antagonism relative to ONC201, in preclinical studies and additionally showed disruption of DRD2 homodimers. The first-in-human clinical trial of ONC206 for adults with recurrent primary central nervous system tumors is ongoing at theNational Institute of Health (NCT04541082). ONC212 is an investigational agonist of the orphan GPCR tumor suppressor GPR132, as well as ClpP. Similar to the potential downstream effects of ONC201 and ONC206, in vitro studies ONC212 has activated the integrated stress response, inhibited Ras signaling and selectively killed tumor cells. Currently ONC212 is in IND-enabling studies.
Dociparstat for the Treatment of Acute Lung Injury (ALI) in COVID-19 Patients
InApril 2020 , we announced the initiation of a Phase 2/3 study of DSTAT in patients with acute lung injury (ALI) from COVID-19. The study is a randomized, double-blind, placebo-controlled, Phase 2/3 trial to determine the safety and efficacy of DSTAT in adults with severe COVID-19 who are at high risk of respiratory failure. Eligible patients have confirmed COVID-19 and require hospitalization and supplemental oxygen therapy. The primary endpoint of the study is the proportion of patients who survive and do not require mechanical ventilation through day 28. Additional endpoints include time to improvement as assessed by the NIAID ordinal scale, time to hospital discharge, time to resolution of fever, number of ventilator-free days, all-cause mortality, and changes in key biomarkers. The Phase 2 portion of the study enrolled two cohorts of 12 patients each to confirm the maximum safe dose with reviews by the Data Safety Management Board (DSMB) after completion of each cohort. Of the 12 patients enrolled in the first cohort, six received a 4mg/kg bolus dose of DSTAT followed by a continuous infusion of 0.25mg/kg/hour and six received placebo. Although in a small number of patients, subject to demographic imbalances, early indications suggest a possible clinical benefit for patients on DSTAT compared to patients on placebo.Chimerix has also completed enrollment of the second cohort of patients randomized 2:1 to receive a 4mg/kg bolus dose of DSTAT followed by a continuous infusion of 0.325mg/kg/hour versus placebo. Based on the safety assessment of the independent safety monitoring committee after these patients have completed treatment,Chimerix will consider advancing to the third cohort of approximately 50 patients at the selected dose. Results from the second cohort are expected to be announced in the second quarter. The second cohort is fully enrolled and the data will be compiled for review by the DSMB. Following review, the DSMB will recommend a dose for the third cohort which will include approximately 50 additional patients (74 total). A formal analysis of all endpoints, including supportive biomarkers will be performed at the conclusion of the third cohort, completing the Phase 2 portion of the study. Contingent upon positive results, the Phase 3 portion of the study will enroll approximately 450 patients.
Dociparstat for First-Line Acute Myeloid Leukemia (AML)
During 2020, we conducted an end of Phase 2 meeting with the FDA related to our
development of DSTAT in AML, which informed the design of the Phase 3 trial. We
recently opened clinical trial sites and are ready to begin screening patients
for our 570-subject Phase 3 Dociparstat in AML with Standard Chemotherapy (DASH
AML) study of DSTAT for the treatment of AML.
DASH AML is a randomized, double-blinded trial of approximately 570 newly
diagnosed AML patients. Patients will receive DSTAT in combination with standard
cytarabine plus anthracycline (7+3) induction and cytarabine consolidation
chemotherapy or will receive standard of care (7+3) induction and consolidation
chemotherapy alone.
In order to supplement the previously reported data from pilot and Phase 2
studies and further evaluate DSTAT's potential mechanism of action, DASH AML
includes an early assessment of comparative CR and MRD rates among the first 80
evaluable patients.
60
-------------------------------------------------------------------------------- The data from the first 80 evaluable patients of the trial are expected to be unblinded, reported publicly, and available for ongoing analysis of later endpoints, unless the independent DMC determines that exceptional pre-specified thresholds have been achieved, in which case the DMC will have the discretion to maintain blinding, which would allow inclusion of these patients in the final analysis.
Public Offering of Common Stock
InJanuary 2021 , we entered into an underwriting agreement (the "Underwriting Agreement") withJefferies LLC andCowen and Company, LLC , as representatives of the several underwriters named therein (collectively, the "Underwriters"), relating to the issuance and sale of 11,765,000 shares (the "Shares") of the Company's common stock, par value$0.001 per share (the "Common Stock"). The price to the public in this offering is$8.50 per share, and the Underwriters agreed to purchase the Shares pursuant to the Underwriting Agreement at a price of$7.99 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of Common Stock at the public offering price which was exercised in full. The net proceeds to the Company from this offering were approximately$107.8 million after deducting underwriting discounts and commissions and estimated offering expenses. The offering closed onJanuary 25, 2021 .
Business Development Review
In addition to our transactions with Cantex and Oncoceutics, management is continuing to conduct a review and assessment of potential transaction opportunities with the goal of building our product candidate pipeline, including, but not limited to, licensing, merger or acquisition transactions, issuing or transferring shares of common stock, or the license, purchase or sale of specific assets, in addition to other potential actions aimed at maximizing stockholder value. There can be no assurance that this review will result in the identification or consummation of any additional transaction.
Financial Overview
Revenues
To date, we have not generated any revenue from product sales. All of our
revenue to date has been derived from a government grant and contract and the
receipt of up-front proceeds under our collaboration and license agreements.
InFebruary 2011 , we entered into a contract with BARDA, aU.S. governmental agency that supports the advanced research and development, manufacturing, acquisition, and stockpiling of medical countermeasures. The contract originally consisted of an initial performance period, referred to as the base performance segment, which ended onMay 31, 2013 , plus up to four extension periods, referred to as option segments, which have all been exercised. The contract is a cost-plus fixed fee development contract. Under the contract as currently in effect, we may receive up to$75.8 million in expense reimbursement and$5.3 million in fees. We are currently performing under the fourth option segment of the contract during which we may receive up to a total of$4.6 million in expense reimbursement and fees. The second and third option segments were completed onAugust 20, 2020 . The fourth option segment is scheduled to end onApril 30, 2021 . As ofDecember 31, 2020 , of the total funding the Company had invoiced an aggregate of$75.5 million with respect to the base performance segment and the four option segments. Under the BARDA contract, we recognized revenue of$5.3 million ,$7.6 million , and$7.2 million during the twelve months endedDecember 31, 2020 , 2019, and 2018, respectively. InSeptember 2019 , we entered into a license agreement withSymBio for worldwide rights to develop, manufacture and commercialize BCV in all human indications, excluding the use for treatment of orthopoxviruses, including smallpox. Under the contract, we received a$5.0 million upfront payment inOctober 2019 and could receive up to an additional$180.0 million in potential regulatory and commercial milestones. Since the license agreement was entered into inSeptember 2019 , we have recognized all of the$5.0 million of revenue related to the upfront payment. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon occurrence of the triggering events. In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of any product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected. 61 --------------------------------------------------------------------------------
Research and Development Expenses
Since our inception, we have focused our resources on our research and
development activities, including conducting preclinical studies and clinical
trials, manufacturing development efforts and activities related to regulatory
filings for our product candidates. We recognize research and development
expenses as they are incurred. Costs for certain development activities are
recognized based on an evaluation of the progress to completion of specific
tasks using information and data provided to us by our vendors. We cannot
determine with certainty the duration and completion costs of the current or
future clinical studies of any product candidates. Our research and development
expenses consist primarily of:
•fees paid to consultants and contract research organizations (CROs), including
in connection with preclinical and clinical trials, and other related clinical
trial fees, such as for investigator grants, patient screening, laboratory work,
clinical trial database management, clinical trial material management and
statistical compilation and analysis;
•salaries and related overhead expenses, which include stock option, restricted
stock units and employee stock purchase program compensation and benefits, for
personnel in research and development functions;
•payments to third-party manufacturers, which produce, test and package drug
substance and drug product (including continued testing of process validation
and stability);
•costs related to legal and compliance with regulatory requirements; and
•license fees for and milestone payments related to licensed products and
technologies.
The table below summarizes our research and development expenses for the periods
indicated (in thousands). Our direct research and development expenses consist
primarily of external costs, such as fees paid to investigators, consultants,
central laboratories and CROs, in connection with our clinical trials,
preclinical development, and payments to third-party manufacturers of drug
substance and drug product. We typically use our employee and infrastructure
resources across multiple research and development programs.
Years Ended
2020 2019 2018
Direct research and development expenses $ 19,125
Research and development personnel costs – excluding
stock-based compensation
11,543 12,705 13,488
Research and development personnel costs – stock-based
compensation
2,969 4,089 5,343 Indirect research and development expenses 2,595 3,393 5,083 Total research and development expenses$ 36,232 $ 42,288 $ 55,239 The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the development of any product candidates or the period, if any, in which material net cash inflows from any product candidates may commence. This is due to the numerous risks and uncertainties associated with our business, as detailed in Part II, Item IA, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with theSEC .
Dociparstat sodium (DSTAT)
In July of 2019, we acquired DSTAT fromCantex Pharmaceuticals . In connection with the transaction, we recorded in 2019 a total of$65.0 million in expense. This is comprised of a$30.0 million upfront payment,$34.9 million for the fair value of the 10.0 million shares of common stock issued and$0.1 million in transaction costs. As we continue to focus on the development of DSTAT for treatment of AML patients and COVID-19, we expect research and development expense to increase with the ongoing and planned clinical trials. We are currently enrolling a Phase 2/3 study of DSTAT in ALI for patients with COVID-19 and have initiated our Phase 3 DASH AML trial.
Brincidofovir
We are developing BCV for the treatment of smallpox. Under our cost-plus-fixed
fee BARDA contract and additional costs we are not seeking reimbursement for
from BARDA, we incurred expense in connection with the development of
orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics
of BCV in the animal models, the conduct of an open label clinical safety study
for subjects with DNA viral infections, the manufacture and process validation
of bulk drug substance and BCV 100 mg tablets, and submission of the NDA to the
FDA. In addition, we have incurred additional supportive costs for the
development of BCV for smallpox that we are not seeking reimbursement for from
BARDA.
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Historically, the majority of our research and development efforts had been
focused on completing our Phase 3 trial of BCV for prevention of CMV in HCT
recipients (SUPPRESS), our trial of BCV as a treatment for AdV (AdVise), the
Adenovirus after Allogeneic Pediatric Transplantation (AdAPT) study in pediatric
HCT recipients and our other clinical and preclinical studies and other work
needed to provide sufficient data supporting the safety, tolerability and
efficacy of BCV for approval in the United States and equivalent health
authority approval outside the United States . In May 2019 , we discontinued both
the oral and IV development programs of BCV in all indications other than
smallpox and the associated clinical trials.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance, marketing, investor relations, information technology, legal, human resources and administrative support functions, including share-based compensation expenses and benefits. Other significant general and administrative expenses include costs related to commercial readiness efforts, accounting and legal services, costs of various consultants, director and officer liability insurance, occupancy costs and information systems.
Interest Income and Other, Net
Interest income and other, net consists primarily of interest earned on our
cash, cash equivalents and short-term investments.
Share-based Compensation
TheFinancial Accounting Standards Board (FASB) authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. Total consolidated share-based compensation expense of$5.6 million ,$9.5 million and$13.1 million was recognized in the years endedDecember 31, 2020 , 2019 and 2018, respectively. The share-based compensation expense recognized included expense for stock options, RSUs and our employee stock purchase plan purchase rights. We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes pricing model. This estimate is affected by our stock price as well as assumptions including the expected volatility, expected term, risk-free interest rate, expected dividend yield, expected rate of forfeiture and the fair value of the underlying common stock on the date of grant.
For performance-based RSUs, we begin to recognize the expense when it is deemed
probable that the performance-based goal will be met. We evaluate the
probability of achieving performance-based goals on a quarterly basis.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business. Our significant accounting policies are described in Note 1 to our audited consolidated financial statements for the year endedDecember 31, 2020 included in this Annual Report. We believe that our accounting policies relating to revenue recognition, research and development prepaids and accruals, investments and share-based compensation are the most critical to understanding and evaluating our reported financial results. We have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods. For more information regarding these policies, you should refer to Note 1 to our audited consolidated financial statements included in this Annual Report.
Revenue Recognition
Our revenues generally consist of (i) contract revenue - revenue generated under
federal contracts, and (ii) collaboration and licensing revenue - revenue
related to non-refundable upfront fees, royalties and milestone payments earned
under license
63
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agreements. Revenue is recognized in accordance with the criteria outlined in
Accounting Standards Codification (ASC) 606 issued by the Financial Accounting
Standards Board (FASB). Following this accounting pronouncement, a five-step
approach is applied for recognizing revenue, including (1) identify the contract
with a customer; (2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue when, or as,
the entity satisfies a performance obligation.
InFebruary 2011 , we entered into a contract with BARDA for the advanced development of brincidofovir as a medical countermeasure in the event of a smallpox release. Under the contract, we may receive up to$75.8 million in expense reimbursement and$5.3 million in fees over the performance of 1 base segment and 4 option segments. Exercise of each option segment is solely at the discretion of BARDA. We assessed the services in accordance with the authoritative guidance and concluded that there is a potential of 5 separate contracts (1 base segment and 4 option segments) within this agreement, each of which has a single performance obligation. At present, all option segments (1 through 4) have been exercised, as well as the base segment. The transaction price for each segment, based on the transaction price as defined in each segment contract, is allocated to the single performance obligation for each contract. The transaction price is recognized over time by measuring the progress toward complete satisfaction of the performance obligation. For reimbursable expenses, this occurs as qualifying research activities are conducted based on invoices from company vendors. For the fixed fee, the progress toward complete satisfaction is estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. We typically invoice BARDA monthly as costs are incurred. Any amounts received in advance of performance are recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606.
SymBio Pharmaceuticals
OnSeptember 30, 2019 , we entered into a license agreement with SymBio Pharmaceuticals Limited (SymBio ) under which we grantedSymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. We assessed the agreement in accordance with the authoritative guidance and concluded that theSymBio contract includes multiple performance obligations. TheSymBio contract has one fixed transaction amount of a$5.0 million upfront payment received inOctober 2019 and several variable transaction amounts, up to$180 million , due to us at certain regulatory and commercial milestones, along with low double-digit percent royalties based on net sales of BCV. All variable transaction amounts are fully constrained, therefore the allocated transaction price is$5.0 million . The majority of the transaction price of the contract has been allocated to the combined performance obligation of the granting of the license to BCV and associated technology transfer which was recognized when the technology transfer was completed in the fourth quarter of 2019. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon the occurrence of the triggering events or when those transaction amounts are no longer fully constrained.
Research and Development Prepaids and Accruals
As part of the process of preparing financial statements, we are required to estimate our expenses resulting from our obligation under contracts with vendors and consultants and clinical site agreements in connection with our research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate research and development expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of our research and development efforts. We determine prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. We adjust our rate of research and development expense recognition if actual results differ from our estimates. We make estimates of our prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. ThroughDecember 31, 2020 , there had been no material adjustments to our prior period estimates of prepaid and accruals for research and development expenses. Our research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. 64
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We have acquired and may continue to acquire the rights to develop and commercialize new drug candidates. In accordance with Accounting Standards Codification, or ASC, Subtopic 730-10-25, Accounting for Research and Development Costs, the up-front payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired IPR&D in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Upon obtaining regulatory approval for marketing, any subsequent milestone payments may be capitalized and amortized over the life of the asset.
Investments
Investments consist primarily of commercial paper, corporate bonds, andU.S. Treasury securities. We invest in high-credit quality investments in accordance with our investment policy which minimizes the probability of loss. Available-for-sale debt securities are carried at fair value as determined by quoted market prices, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' deficit. Realized gains and losses are determined using the specific identification method and transactions are recorded on a settlement date basis in interest income (expense) and other, net. Investments with original maturities beyond three months at the date of purchase and which mature on, or less than twelve months from, the balance sheet date are classified as short-term. Investments with a maturity beyond twelve months from the balance sheet date are classified as long-term. We periodically review available-for-sale debt securities for other-than-temporary declines in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of our amortized cost basis. Any such declines in value judged to be other-than-temporary on available-for-sale securities are reported in other-than-temporary impairment of investment.
Valuation of Share-Based Compensation
We record the fair value of share-based awards issued as of the grant date as
compensation expense. We recognize compensation expense over the requisite
service period, which is equal to the vesting period.
Share-based compensation expense includes stock options, RSUs and employee stock
purchase plan purchase rights and has been reported in our Consolidated
Statements of Operations and Comprehensive Loss as follows (in thousands):
Years Ended December
31,
2020 2019
2018
Income Statement Classification: Research and development expense$ 2,969 $ 4,089 $
5,343
General and administrative expense 2,599 5,439
7,731
Total stock-based compensation expense
RSU compensation expense is based on the grant-date fair value of our common
stock.
We calculate the fair value of share-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlying common stock on the date of grant. In applying these assumptions, we considered the following factors: •We use historical volatility data to estimate the volatility of our common stock price. •We use historical exercise data to estimate expected term. •We determine the risk-free interest rate by reference to implied yields available fromU.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. •The assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future. •We estimate forfeitures based on our historical analysis of actual stock option forfeitures. 65
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The assumptions used in the Black-Scholes option-pricing model for the years
ended
Stock Options
Years Ended December 31,
2020 2019 2018
Expected volatility 93.24 % 88.77 % 85.83 %
Expected term (in years) 6.0 6.0 5.9
Weighted-average risk-free interest rate 1.24 % 2.42 % 2.52 %
Expected dividend yield
- % - % - % Weighted-average fair value per option$ 1.78 $ 1.71 $ 3.43 Employee Stock Purchase Plan Years Ended December 31, 2020 2019 2018 Expected volatility 75.39 % 57.22 % 44.01 % Expected term (in years) 1.28 1.23 1.23
Weighted-average risk-free interest rate 0.37 % 2.36 % 2.56 %
Expected dividend yield
- % - %
– %
Weighted-average option value per share
Utilization of Net Operating Loss Carryforwards
AtDecember 31, 2020 , we had net operating loss carryforwards for federal and state tax purposes of approximately$551.0 million and$388.5 million , respectively. AtDecember 31, 2019 , we had net operating loss carryforwards for federal and state tax purposes of approximately$508.1 million and$384.3 million , respectively. In addition, we had tax credit carryforwards for federal tax purposes of approximately$20.7 million as ofDecember 31, 2020 , which begin to expire in 2022. The future utilization of net operating loss and tax credit carryforwards may be limited due to changes in ownership. In general, if we experience a greater than 50 percent aggregate change in ownership of certain significant stockholders or groups over a three-year period (a Section 382 ownership change), utilization of our pre-change net operating loss carryforwards is subject to an annual limitation under Section 382 of the Code (and similar state laws). The annual limitation generally is determined by multiplying the value of our stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the pre-change net operating loss carryforwards before utilization and may be substantial. We have determined that a Section 382 ownership change occurred in 2002 and 2007 resulting in limitations of at least$64,000 and$762,000 , respectively, of losses incurred prior to the respective ownership change dates. In addition, we have determined that another Section 382 ownership change occurred in 2013 with our initial public offering, our private placements and other transactions that have occurred since 2007, resulting in a limitation of at least$6.7 million of losses incurred prior to the ownership change date. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Furthermore, under the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the Tax Act. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offsetUnited States federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. 66
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RESULTS OF OPERATIONS
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
items in dollars and percentages (in thousands, except percentages):
Years Ended December 31, Dollar Change % Change
2020 2019 Increase/(Decrease)
Revenues:
Contract revenue $ 5,274 $ 7,604 $ (2,330) (30.6) %
Licensing revenue 98 4,915 (4,817) (98.0)
Total revenues 5,372 12,519 (7,147) (57.1) %
Operating expenses:
Research and development 36,232 42,288 (6,056) (14.3) %
General and administrative 13,656 21,169 (7,513) (35.5) %
Acquired in-process research and development - 65,045 (65,045) (100.0) %
Total operating expenses 49,888 128,502 (78,614) (61.2) %
Loss from operations (44,516) (115,983) 71,467 (61.6) %
Other income:
Interest income and other, net 994 3,407 (2,413) (70.8) %
Net loss $ (43,522) $ (112,576) $ 69,054 (61.3) %
Revenue
For the year ended December 31, 2020 , contract revenue decreased to $5.3 million
compared to $7.6 million for the year ended December 31, 2019 . The decrease of
$2.3 million , or 30.6%, was related to a decrease in reimbursable expenses
associated with our contract with BARDA. For the year ended December 31, 2020 ,
license revenue decreased to $0.1 million compared to $4.9 million for the year
ended December 31, 2019 due to our licensing agreement with SymBio .
Research and Development Expenses
For the year ended
decreased to
to the following:
•a decrease of$9.1 million related to the discontinuation of both the oral and IV BCV development programs and the BCV expanded access programs; •a decrease of$3.5 million in smallpox program expenses; •a decrease of$2.7 million related to compensation expenses as headcount was reduced as part of the Company's restructuring activities inMay 2019 ; offset by •an increase of$9.5 million in DSTAT research and development expenses, consisting of an increase of$5.4 million in clinical trial initiation activities and$4.1 million to conclude animal studies and to develop and manufacture clinical trial material.
General and Administrative Expenses
For the year endedDecember 31, 2020 , our general and administrative expenses decreased to$13.7 million compared to$21.2 million for the year endedDecember 31, 2019 . The decrease of$7.5 million , or 35.5%, was primarily related to the following: •a decrease of$5.1 million related to compensation expense as headcount was reduced as part of the Company's restructuring activities inMay 2019 ; •a decrease of$2.2 million related to business development expenses and to out-license BCV for non-smallpox indications; and •a decrease of$0.2 million in legal fees, other professional fees and operational expenses. 67 --------------------------------------------------------------------------------
We recorded$65.0 million of acquired in-process research and development expenses for the year endedDecember 31, 2019 , which included$30.0 million for an upfront payment to Cantex,$34.9 million related to the fair value of common stock issued to Cantex, and$0.1 million related to Cantex transaction costs, primarily legal and professional fees. There was no expense related to this for the year endedDecember 31, 2020 .
Interest Income and Other, net
For the year ended
lower interest rates and lower cash and investment balances.
Comparison of the Years ended
The following table summarizes our results of operations for the years ended
items in dollars and percentages (in thousands, except for percentages):
Years Ended December 31, Dollar Change % Change
2019 2018 Increase/(Decrease)
Contract revenue $ 7,604 $ 7,216 $ 388 5.4 %
Licensing revenue 4,915 - 4,915 *
Total revenues 12,519 7,216 5,303 73.5 %
Operating expenses:
Research and development 42,288 55,239 (12,951) (23.4) %
General and administrative 21,169 23,582 (2,413) (10.2) %
Acquired in-process research and development 65,045 - 65,045 *
Total operating expenses 128,502 78,821 49,681 63.0 %
Loss from operations (115,983) (71,605) (44,378) 62.0 %
Other income:
Interest income and other, net 3,407 2,131 1,276 59.9 %
Net loss $ (112,576) $ (69,474) $ (43,102) 62.0 %
* Not meaningful or not calculable
Contract Revenue
For the year endedDecember 31, 2019 , contract revenue increased to$7.6 million compared to$7.2 million for the year endedDecember 31, 2018 . The increase of$0.4 million , or 5.4%, was related to an increase in reimbursable expenses associated with our contract with BARDA. License revenue was$4.9 million for the year endedDecember 31, 2019 due to our licensing agreement withSymBio .
Research and Development Expenses
For the year ended
decreased to
related to the following:
•a decrease of$8.4 million related to the discontinuation of both the oral and IV BCV development programs and CMX521 for norovirus; •a decrease of$2.0 million related to compensation expenses as headcount was reduced as part of the Company's restructuring activities inMay 2019 ; •a decrease of$1.9 million in oral brincidofovir smallpox program expenses; and •a decrease of$1.5 million in legal fees and operational expenses; 68 --------------------------------------------------------------------------------
•offset by an increase of
expenses to initiate and conduct animal studies and to develop and manufacture
clinical trial material.
General and Administrative Expenses
For the year endedDecember 31, 2019 , our general and administrative expenses decreased to$21.2 million compared to$23.6 million for the year endedDecember 31, 2018 . The decrease of$2.4 million , or 10.2%, was primarily related to the following: •a decrease of$2.9 million in commercial readiness costs; •a decrease of$0.8 million related to compensation expense; and •a decrease of$0.6 million in legal fees and operational expenses; offset by •an increase of$1.9 million related to business development expenses and to out-license BCV for non-smallpox indications.
We recorded$65.0 million of acquired in-process research and development expenses for the year endedDecember 31, 2019 , which included$30.0 million for an upfront payment to Cantex,$34.9 million related to the fair value of common stock issued to Cantex, and$0.1 million related to Cantex transaction costs, primarily legal and professional fees.
Interest Income and Other, net
For the year endedDecember 31, 2019 , our interest income and other, net was$3.4 million compared to interest income and other, net of$2.1 million for the year endedDecember 31, 2018 . The increase of$1.3 million was largely attributable to higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
As ofDecember 31, 2020 , we had capital available to fund operations of approximately$79.0 million . Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. We have incurred losses since our inception in 2000 and as ofDecember 31, 2020 , we had an accumulated deficit of$712.4 million . We may continue to incur losses for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. OnNovember 8, 2017 , we entered into an at-the-market (ATM) sales agreement withCowen and Company, LLC to sell up to$75 million of our common stock under a shelf registration statement filed inNovember 2017 . As ofDecember 31, 2018 , we had sold an aggregate of 2.8 million shares of common stock pursuant to the ATM at a weighted average price per share of$4.00 for net offering proceeds of$10.9 million . We did not sell any shares of our common stock subsequent to 2018 and we terminated the ATM sales agreement withCowen and Company, LLC inJuly 2020 . OnAugust 10, 2020 , we entered into an Open Market Sale AgreementSM (the Jefferies Sales Agreement) withJefferies LLC , as agent, pursuant to which we may offer and sell, from time to time through Jefferies, up to$75 million of shares of our common stock. Sales of our common stock made pursuant to the Jefferies Sales Agreement, if any, will be made under our shelf registration statement on Form S-3 (File No. 333-244146), which was declared effective by theSEC onAugust 17, 2020 . We have not sold any shares of our common stock under the Jefferies Sales Agreement. OnJanuary 20, 2021 , we entered into an underwriting agreement (the "Underwriting Agreement") withJefferies LLC andCowen and Company, LLC , as representatives of the several underwriters named therein (collectively, the "Underwriters"), relating to the issuance and sale of 11,765,000 shares (the "Shares") of the Company's common stock, par value$0.001 per share (the "Common Stock"). The price to the public in this offering was$8.50 per share, and the Underwriters agreed to purchase the Shares from the Company pursuant to the Underwriting Agreement at a price of$7.99 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of Common Stock at the public offering price. The net proceeds to the Company from this offering was approximately$107.8 million , as the Underwriters' option to purchase additional shares was exercised in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering closed onJanuary 25, 2021 . We cannot assure that adequate funding will be available on terms acceptable to us, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt may involve operating covenants that may restrict our business. If 69 -------------------------------------------------------------------------------- adequate funds are not available through these means, we may be required to curtail significantly one or more of our research or development programs, and any launch and other commercialization expenses for any of our products that may receive marketing approval. We cannot assure you that we will successfully develop or commercialize our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit. We believe that our existing cash, cash equivalents, and investments will enable us to fund our current operating expenses and capital requirements for at least the next 12 months. However, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.
Cash Flows
The following table sets forth the significant sources and uses of cash for the
periods (in thousands):
Years Ended December 31,
Cash sources and uses: 2020 2019 2018
Net cash used in operating activities $ (36,038) $ (75,181) $ (53,725)
Net cash provided by investing activities 64,713 10,631 105,095
Net cash provided by financing activities 1,413 345 11,188
Net increase (decrease) in cash and cash equivalents $ 30,088 $ (64,205) $ 62,558
Operating Activities
Net cash used in operating activities of $36.0 million for the year ended
December 31, 2020 was primarily the result of our $43.5 million net loss offset
by the change in operating asset and liabilities and the add-back of non-cash
expenses. The change in operating assets and liabilities includes a decrease in
prepaid expenses and other assets of $1.0 million and a decrease of $0.9 million
in accounts receivable offset by a decrease in accounts payable and accrued
liabilities of $0.2 million . Non-cash expenses included add-backs of $5.6
million for stock based compensation and $0.4 million of depreciation of
property and equipment offset by $0.2 million of amortization of
discount/premium on investments.
Net cash used in operating activities of $75.2 million for the year ended
December 31, 2019 was primarily the result of our $112.6 million net loss and
the change in operating assets and liabilities, offset by the add-back of
non-cash expenses. The change in operating assets and liabilities includes a
decrease in accounts payable and accrued liabilities of $4.3 million , an
increase of $0.9 million in accounts receivable and an increase in prepaid
expenses and other assets of $0.8 million . Non-cash expenses included add-backs
of $34.9 million for the fair value of common stock issued in relation to the
Cantex license agreement, $9.5 million for stock-based compensation, $0.6
million of depreciation of property and equipment, $0.3 million for the loss on
disposal of assets, offset by $1.8 million of amortization of discount/premium
on investments.
Net cash used in operating activities of $53.7 million for the year ended
December 31, 2018 was primarily the result of our $69.5 million net loss, offset
by the change in operating assets and liabilities and the add-back of non-cash
expenses. Non-cash expenses included add-backs of $13.1 million for stock-based
compensation, $0.9 million of depreciation of property and equipment, $0.4
million for a loss on the sale of investments, and $0.3 million for a loss on
equity investment, offset by $0.9 million of amortization of discount/premium on
investments. The change in operating assets and liabilities includes a decrease
in prepaid expenses and other assets of $0.6 million and a decrease of $1.4
million in accounts receivable.
Investing Activities
Net cash provided by investing activities of$64.7 million during the year endedDecember 31, 2020 was primarily the result of maturities and sales of short-term investments, offset by purchases of short-term investments. Net cash provided by investing activities of$10.6 million during the year endedDecember 31, 2019 was primarily the result of maturities and sales of short-term investments, offset by purchases of short-term. Net cash provided by investing activities of$105.1 million during the year endedDecember 31, 2018 was primarily the result of maturities and sales of short-term investments, offset by purchases of short-term and long-term investments.
Financing Activities
Net cash provided by financing activities of$1.4 million for the year endedDecember 31, 2020 was primarily the result of$1.4 million from the exercise of stock options and purchases under the ESPP. Net cash provided by financing activities of$0.3 million for the year endedDecember 31, 2019 was primarily the result of$0.4 million from the exercise of stock options and 70 -------------------------------------------------------------------------------- purchases under the ESPP. Net cash provided by financing activities of$11.2 million for the year endedDecember 31, 2018 was primarily the result of$10.9 million in proceeds from the issuance of common stock,$0.7 million from the exercise of stock options and purchases under the ESPP, offset by$0.4 million in payments of deferred offering costs.
Future Funding Requirements
To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize brincidofovir or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. Furthermore, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. Based upon our current operating plan, we believe that our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital requirements for at least the next 12 months. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements, or other collaborations, strategic alliances or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our contractual obligations atDecember 31, 2020 (in thousands): Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years Operating leases (1)$ 3,718 $ 260$ 2,210 $ 1,248 $ - SPL Supply Purchase Obligation$ 3,600 $ 1,200$ 2,400 $ - $ - Total$ 7,318 $ 1,460$ 4,610 $ 1,248 $ - (1)Consists of our corporate headquarters lease encompassing 24,862 square feet of office space that expires inJuly 2026 , which decreases to 21,325 feet inMarch 2021 as we did not renew the portion of the lease that we subleased out. Additionally, consists of our laboratory lease encompassing a total of approximately 7,925 square feet which is located inDurham, North Carolina and expires inJuly 2026 . In addition to the amounts set forth in the table above, we have payment obligations under license agreements that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones. We will be required to make additional payments when certain milestones are achieved and we are obligated to pay royalties based on future product sales. As ofDecember 31, 2020 , we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above. In connection with the development and commercialization of ONC201 and ONC206, in addition to royalties on product sales, we could be required to pay former Oncoceutics securityholders up to an aggregate of$360.0 million in milestone payments, assuming the achievement of all applicable milestone events under the merger agreement. In connection with the development and commercialization of DSTAT, in addition to royalties on product sales, we could be required to pay Cantex up to an aggregate of$587.5 million in milestone payments, assuming the achievement of all applicable milestone events under the license agreement. 71 -------------------------------------------------------------------------------- Additionally, we enter into contracts in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination or cancellation within 30 days of notice, and therefore are not included in the table above. We also have agreements with our executive officers that require the funding of specific payments, if certain events occur, such as a change in control or the termination of employment without cause. These potential payment obligations are not included in the table above.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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