UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-36517
Minerva Neurosciences, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
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26-0784194 |
(State or Other Jurisdiction of |
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(I.R.S. Employer |
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1601 Trapelo Road, Suite 284 |
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02451 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (617) 600-7373
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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¨ (Do not check if smaller reporting company) |
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Smaller reporting company |
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x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
The number of shares of Registrant’s Common Stock, $0.0001 par value per share, outstanding as of July 31, 2015 was 24,721,143.
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Page |
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Item 1. |
Financial Statements: |
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Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 (unaudited) |
4 |
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5 |
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6 |
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7 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 3. |
25 |
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Item 4. |
25 |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
56 |
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Item 3. |
57 |
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Item 4. |
57 |
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Item 5. |
57 |
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Item 6. |
58 |
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59 |
2
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to "Minerva," the "Company," "we," "us," and "our" refer to Minerva Neurosciences, Inc. and, where appropriate, its subsidiaries.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors.”
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
3
PART I – Financial Information
Item 1 – Financial Statements
MINERVA NEUROSCIENCES, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
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June 30, |
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December 31, |
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2015 |
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2014 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
21,735,546 |
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$ |
18,545,702 |
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Marketable securities - current portion |
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13,650,886 |
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- |
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Restricted cash |
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80,000 |
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35,014 |
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Prepaid expenses and other current assets |
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308,976 |
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756,979 |
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Total current assets |
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35,775,408 |
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19,337,695 |
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Marketable securities - noncurrent |
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9,443,843 |
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- |
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Equipment, net |
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34,809 |
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43,446 |
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In-process research and development |
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34,200,000 |
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34,200,000 |
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Goodwill |
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14,869,399 |
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14,869,399 |
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Total assets |
$ |
94,323,459 |
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$ |
68,450,540 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Notes payable - current portion |
$ |
1,087,420 |
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$ |
- |
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Accounts payable |
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564,289 |
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641,813 |
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Accrued expenses and other current liabilities |
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1,082,535 |
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1,645,258 |
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Accrued collaborative expenses |
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1,078,215 |
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1,222,420 |
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Total current liabilities |
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3,812,459 |
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3,509,491 |
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Notes payable - noncurrent |
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8,696,799 |
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- |
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Deferred taxes |
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13,433,760 |
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13,433,760 |
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Other noncurrent liabilities |
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2,565 |
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7,694 |
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Total liabilities |
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25,945,583 |
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16,950,945 |
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Commitments and contingencies |
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Stockholders’ equity |
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Preferred stock; $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding as of June 30, 2015 and December 31, 2014, respectively |
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- |
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- |
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Common stock; $0.0001 par value; 125,000,000 shares authorized; 24,721,143 and 18,439,482 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively |
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2,472 |
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1,844 |
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Additional paid-in capital |
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155,810,015 |
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126,228,981 |
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Accumulated deficit |
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(87,434,611 |
) |
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(74,731,230 |
) |
Total stockholders’ equity |
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68,377,876 |
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51,499,595 |
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Total liabilities and stockholders’ equity |
$ |
94,323,459 |
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$ |
68,450,540 |
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See accompanying notes to condensed consolidated financial statements
4
MINERVA NEUROSCIENCES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Expenses |
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Research and development |
$ |
4,484,688 |
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$ |
14,554,662 |
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$ |
8,445,893 |
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$ |
15,140,598 |
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General and administrative |
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1,847,636 |
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3,095,173 |
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3,764,929 |
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5,132,565 |
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Total expenses |
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6,332,324 |
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17,649,835 |
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12,210,822 |
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20,273,163 |
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Loss from operations |
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(6,332,324 |
) |
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(17,649,835 |
) |
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(12,210,822 |
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(20,273,163 |
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Foreign exchange (losses) gains |
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(29,112 |
) |
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10,549 |
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(13,152 |
) |
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3,987 |
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Interest (expense) |
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(248,698 |
) |
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(1,726,376 |
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(479,407 |
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(2,034,904 |
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Net loss |
$ |
(6,610,134 |
) |
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$ |
(19,365,662 |
) |
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$ |
(12,703,381 |
) |
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$ |
(22,304,080 |
) |
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Net loss per share, basic and diluted |
$ |
(0.27 |
) |
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$ |
(2.55 |
) |
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$ |
(0.58 |
) |
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$ |
(3.07 |
) |
Weighted average shares outstanding, basic and diluted |
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24,721,143 |
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7,604,503 |
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22,083,539 |
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7,255,648 |
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See accompanying notes to condensed consolidated financial statements
5
MINERVA NEUROSCIENCES, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Shares |
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Amount |
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Paid-In Capital |
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Deficit |
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Total |
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Balances at December 31, 2014 |
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18,439,482 |
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$ |
1,844 |
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$ |
126,228,981 |
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$ |
(74,731,230 |
) |
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$ |
51,499,595 |
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Issuance of common stock and warrants pursuant to a private placement, net of issuance costs of $2,466,984 |
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6,281,661 |
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628 |
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28,532,387 |
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- |
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28,533,015 |
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Issuance of warrant pursuant to loan agreement |
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- |
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- |
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166,344 |
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- |
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166,344 |
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Stock-based compensation |
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- |
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- |
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882,303 |
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- |
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882,303 |
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Net loss |
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- |
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- |
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- |
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(12,703,381 |
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(12,703,381 |
) |
Balances at June 30, 2015 |
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24,721,143 |
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$ |
2,472 |
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$ |
155,810,015 |
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$ |
(87,434,611 |
) |
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$ |
68,377,876 |
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See accompanying notes to condensed consolidated financial statements
6
MINERVA NEUROSCIENCES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Six months Ended June 30, |
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2015 |
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2014 |
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Cash flows from operating activities: |
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Net loss |
$ |
(12,703,381 |
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$ |
(22,304,080 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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8,637 |
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4,271 |
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Amortization of debt discount recorded as interest expense |
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146,219 |
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1,949,248 |
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Amortization of marketable securities premium recorded as interest expense |
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67,848 |
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- |
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Stock-based compensation expense |
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882,303 |
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14,816,940 |
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Change in fair value of derivative |
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- |
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(10,093 |
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Changes in operating assets and liabilities |
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Prepaid expenses and other current assets |
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448,003 |
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10,565 |
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Accounts payable |
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(77,524 |
) |
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1,229,363 |
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Accrued expenses and other current liabilities |
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(562,723 |
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520,209 |
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Accrued collaborative expenses |
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(144,205 |
) |
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- |
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Other noncurrent liabilities |
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(5,129 |
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- |
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Net cash used in operating activities |
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(11,939,952 |
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(3,783,577 |
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Cash flows from investing activities: |
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Purchases of marketable securities |
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(23,162,577 |
) |
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- |
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Cash acquired in business combination |
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- |
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1,167,869 |
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Restricted cash |
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(44,986 |
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- |
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Net cash (used in) provided by investing activities |
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(23,207,563 |
) |
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1,167,869 |
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Cash flows from financing activities: |
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Proceeds from loans |
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10,000,000 |
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1,882,817 |
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Repayments of loans |
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- |
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(500,000 |
) |
Costs paid in connection with loans |
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(195,656 |
) |
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- |
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Proceeds from sales of common stock and warrants in private placement |
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30,999,999 |
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- |
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Costs paid in connection with private placement |
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(2,466,984 |
) |
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- |
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Public offering costs paid |
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- |
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(105,417 |
) |
Net cash provided by financing activities |
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38,337,359 |
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1,277,400 |
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Net increase in cash and cash equivalents |
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3,189,844 |
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(1,338,308 |
) |
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Cash and cash equivalents |
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Beginning of period |
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18,545,702 |
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1,818,317 |
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End of period |
$ |
21,735,546 |
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$ |
480,009 |
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Cash paid for interest |
$ |
264,375 |
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$ |
- |
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Supplemental disclosure of noncash investing and financing activities |
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Common stock issued as consideration for business acquisition |
$ |
- |
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$ |
16,541,834 |
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Plus liabilities assumed: |
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Accrued expenses and other |
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- |
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321,417 |
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ProteoSys milestone payable |
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- |
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681,600 |
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Deferred tax liability |
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- |
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5,970,560 |
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Less assets acquired: |
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Prepaid expenses |
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- |
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42,926 |
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Equipment |
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- |
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28,204 |
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In-process research and development |
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- |
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15,200,000 |
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Goodwill |
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- |
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7,076,412 |
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Cash acquired in business merger |
$ |
- |
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$ |
1,167,869 |
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Deferred public offering costs included in accrued expenses and other liabilities |
$ |
- |
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$ |
3,006,327 |
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See accompanying notes to condensed consolidated financial statements
7
MINERVA NEUROSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
As of June 30, 2015 and for the
Six Months Ended June 30, 2015 and 2014
(Unaudited)
NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY
Nature of Operations
Minerva Neurosciences, Inc. (“Minerva” or the “Company”), formerly known as Cyrenaic Pharmaceuticals Inc. (“Cyrenaic”) was incorporated on April 23, 2007. On November 12, 2013, Sonkei Pharmaceuticals, Inc. (“Sonkei”), a biopharmaceutical company focused on the development of an experimental drug for the treatment of depression and an affiliated company through certain common ownership, was merged into Cyrenaic with Cyrenaic being the surviving company. Subsequent to the merger, Cyrenaic changed its name to Minerva Neurosciences, Inc. The Company is a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat central nervous system (“CNS”) diseases.
On February 11, 2014, the Company acquired Mind-NRG (discussed further in Note 3 — Business Acquisition). Mind-NRG is a Swiss development stage biopharmaceutical company focused on the development and commercialization of an experimental drug for the treatment of Parkinson’s disease. The Company acquired 100% of the share capital of Mind-NRG largely to obtain the intellectual property estate which underpins Mind-NRG’s lead product candidate, renamed MIN-301.
On February 12, 2014, subject to the completion of an initial public offering (“IPO”), the Company entered into a co-development and license agreement (discussed further in Note 8 — Co-Development and License Agreement) pursuant to which the licensor, Janssen Pharmaceutica N.V. (“Janssen”), granted the Company an exclusive license, in certain territories, under certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right, as an active ingredient, or MIN-202, for any use in humans. The license became effective on July 7, 2014 at the closing of the IPO and the payment of the $22.0 million license fee was made at that date.
Going Concern
The Company has limited capital resources and has incurred recurring operating losses and negative cash flows from operations since inception. As of June 30, 2015, the Company has an accumulated deficit of approximately $87.4 million. Management expects to continue to incur operating losses and negative cash flows from operations. The Company has financed its business to date from proceeds from the sale of common stock, loans and convertible promissory notes.
In January 2015, the Company entered into a loan and security agreement and drew down on $10.0 million in term loans. In March 2015, the Company closed the sale of 6,281,661 shares of common stock and warrants to purchase an equal number of shares of common stock in a private placement resulting in net proceeds to the Company of $28.5 million after deducting placement fees and issuance costs. The Company believes that based on its operating plan, cash on hand at June 30, 2015 and the proceeds from the term loans and the private placement in March 2015 will be sufficient to fund the Company’s operations into the fourth quarter of 2016.
The Company will need to raise additional capital in order to continue to fund operations and fully fund its clinical development programs. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund operations; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
The accompanying condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
8
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and the requirements of the Securities and Exchange Commission (“SEC”) in accordance with Regulation S-X, Rule 10-01. Under those rules, certain footnotes and financial information that are normally required for annual financial statements can be condensed or omitted. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2015 and the results of operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. The results of operations for the three and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The consolidated balance sheet as of December 31, 2014 was derived from the audited annual financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements for the years ended December 31, 2014 and 2013 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on March 26, 2015.
Consolidation
The accompanying consolidated financial statements include the results of the Company and its wholly-owned subsidiaries, Mind-NRG SA and Minerva Neurosciences Securities Corporation. Intercompany transactions have been eliminated.
Significant risks and uncertainties
The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of and demand for Company products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.
The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include short-term, highly-liquid instruments, consisting of money market accounts and short-term investments with original maturities of less than 90 days. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand and, therefore, bear minimal risk.
Marketable Securities
Marketable securities consists of corporate debt securities maturing in fifteen months or less. Based on the Company’s intentions regarding its marketable securities, all marketable securities are classified as held-to-maturity and are carried under the amortized cost approach. As of June 30, 2015, remaining maturities of marketable securities ranged from November 2015 to September 2016, with a weighted average remaining maturity of approximately 10 months. The following table provides the amortized cost basis, aggregate fair value, unrealized losses (there were no unrealized gains) and the net carrying value of investments in held-to-maturity securities as of June 30, 2015:
9
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June 30, 2015 |
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Amortized |
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Aggregate |
|
|
Unrealized |
|
|
Net Carrying |
|
||||
|
Cost |
|
|
Fair Value |
|
|
Losses |
|
|
Value |
|
||||
|
(in thousands) |
|
|||||||||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds - current |
$ |
13,651 |
|
|
$ |
13,632 |
|
|
$ |
19 |
|
|
$ |
13,651 |
|
Corporate bonds - noncurrent |
|
9,444 |
|
|
|
9,413 |
|
|
|
31 |
|
|
|
9,444 |
|
Marketable securities |
$ |
23,095 |
|
|
$ |
23,045 |
|
|
$ |
50 |
|
|
$ |
23,095 |
|
Research and development costs
Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as employee salaries and benefits, fees paid to consultants and various entities that perform certain research and testing on behalf of the Company. We determine our expenses related to clinical studies based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies 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. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. 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 accordingly. The expenses for some trials may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued expenses.
In July 2014, the Company paid a $22.0 million license fee, which has been included as a component of research and development expense since the licensed rights were not deemed to have an alternative future use. The Company accounts for the co-development and license agreement pursuant to which the license fee was paid as a joint risk-sharing collaboration in accordance with ASC 808, Collaboration Arrangements. Costs between the Company and the licensor with respect to each party’s share of development costs that have been incurred pursuant to the joint development plan are recorded within research and development expense or general and administrative expense, as applicable, in the accompanying condensed consolidated financial statements due to the joint risk-sharing nature of the activities. The Company has included $1.1 million in accrued collaborative expenses as of June 30, 2015 related to this agreement.
In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values. The fair value of the research projects is recorded as intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.
The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, when research and development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At that point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The Company tests its indefinite-lived intangibles, IPR&D assets, for impairment annually on November 30 and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When testing indefinite-lived intangibles for impairment, the Company may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the asset is impaired. Alternatively, the Company may bypass this qualitative assessment for some or all of its indefinite-lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite- lived intangible asset with the asset’s carrying amount. There was no impairment of IPR&D for the three and six months ended June 30, 2015 and 2014.
Stock-based compensation
The Company recognizes compensation cost relating to stock-based payment transactions in operating results using a fair-value measurement method, in accordance with ASC Topic 718 Compensation-Stock Compensation. ASC-718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The Company determines the fair value of stock-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate fair value. The method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, expected forfeiture rate and expected life of the options.
10
Grants to non-employees are accounted for in accordance with ASC Topic 505-50 Equity — Based Payments to Non-Employees. The date of expense recognition is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or the date at which the counterparty’s performance is complete. The Company determines the fair value of stock-based awards granted to non-employees similar to the way fair value of awards are determined for employees except that certain assumptions used in the Black-Scholes option-pricing model, such as expected life of the option, may be different and the fair value of each unvested award is adjusted at the end of each period for any change in fair value from the previous valuation until the award vests.
Loss per share
Basic loss per share excludes dilution and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. During the periods when the Company earns net income, diluted loss per share would reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. The Company had a net loss in all periods presented thus the inclusion of stock options and warrants would be anti-dilutive to net loss per share.
Business combinations
For business combinations the Company utilizes the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. These standards require that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based their respective fair values at the date of acquisition. The allocation of the purchase price is dependent upon certain valuations and other studies. Acquisition costs are expensed as incurred. The Company recognizes separately from goodwill the fair value of assets acquired and the liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the acquisition date fair values of the assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may retroactively record adjustments to the fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.
Goodwill
The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. The Company tests its goodwill for impairment annually at November 30 and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. There was no impairment of goodwill for the three and six months ended June 30, 2015 and 2014.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued but not yet adopted accounting pronouncements will not have a material impact on the condensed consolidated financial position, condensed consolidated results of operations, and condensed consolidated cash flows, or do not apply to the Company.
In April 2015, the FASB issued ASU 2015-03, which simplifies the presentation of debt issuance costs. The Company has elected early adoption of this guidance and recorded its debt issuance costs associated with the Term Loans as a direct reduction to the face amount of the loans.
NOTE 3 — BUSINESS ACQUISITION
On February 11, 2014, the Company acquired Mind-NRG, a Swiss development stage biopharmaceutical company focused on the development and commercialization of an experimental drug for the treatment of Parkinson’s disease. This transaction was accounted for as a business combination by the Company. The purchase price consisted of 1,481,583 shares of the Company’s common stock
11
with an estimated fair value of $11.17 per share, or approximately $16.5 million. The Company acquired 100% of the share capital of Mind-NRG largely to obtain the intellectual property estate that underpins Mind-NRG’s lead product candidate, renamed MIN-301.
The fair value of the Company’s common stock issued was determined based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, discounted cash flows and the likelihood of achieving a liquidity event, such as an IPO or a sale of the Company. The purchase price allocation was based upon an analysis of the fair value of the assets and liabilities acquired from Mind-NRG. Identifying the fair value of the tangible and intangible assets and liabilities acquired required the use of estimates by management and were based upon currently available data, as noted below.
· |
The fair value of current assets and liabilities approximated their book value. |
· |
The Company measured the value of the acquired IPR&D using the income approach — multi period excess earnings method and assembled workforce using the cost approach (for contributory asset charge calculations). The multi-period excess earning method measures the present value of the future earnings expected to be generated during the remaining lives of the subject assets. |
· |
The Company recorded a deferred tax liability for the difference in the book and tax basis of the IPR&D, multiplied by the effective income tax rate. |
The establishment of the fair value of the consideration for an acquisition, and the allocation to identifiable tangible and intangible assets and liabilities requires the extensive use of accounting estimates and management judgment. The fair values assigned to the assets acquired and liabilities assumed are from estimates and assumptions based on data currently available.
The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The goodwill recorded recognizes the value of the overall development program, including both the current pre-clinical development program in process and the future clinical trial development strategy. Such goodwill is not deductible for tax purposes. The aggregate consideration of $16.5 million was allocated to assets acquired and liabilities assumed based on estimated fair values as follows:
Cash |
$ |
1,167,869 |
|
Other assets |
|
71,130 |
|
Goodwill |
|
7,076,412 |
|
In-process research and development |
|
15,200,000 |
|
Deferred tax liability |
|
(5,970,560 |
) |
Accrued expenses |
|
(321,417 |
) |
ProteoSys milestone payable |
|
(681,600 |
) |
|
$ |
16,541,834 |
|
IPR&D, an indefinite-lived asset, has been included as an asset on the Company’s balance sheet until such time that: (i) a marketing approval to commercially sell the drug is received from a regulatory agency, in which case it will be amortized over its expected commercial life, or (ii) such time as the IPR&D is deemed to be impaired, in which case it will be expensed. The transaction is being treated as a stock purchase for income tax purposes and accordingly, the tax bases of Mind-NRG’s assets and liabilities are not adjusted for the effect of purchase accounting. In 2014, the Company corrected the deferred tax rate used to record a deferred tax liability at acquisition date by recording at $0.1 million reduction in deferred tax liability with a corresponding increase to goodwill.
12
NOTE 4 — ACCRUED EXPENSES
Accrued expenses and other liabilities consist of the following:
|
June 30, 2015 |
|
|
December 31, 2014 |
|
||
|
|
|
|
|
|
|
|
Accrued bonus |
$ |
300,000 |
|
|
$ |
327,960 |
|
Research and development costs and other accrued expenses |
|
349,582 |
|
|
|
422,821 |
|
Accrued severance |
|
212,500 |
|
|
|
636,033 |
|
Professional fees |
|
- |
|
|
|
54,350 |
|
Primomed research funding (1) |
|
107,491 |
|
|
|
127,209 |
|
Interest payable |
|
58,750 |
|
|
|
- |
|
Accrued excise and franchise taxes |
|
- |
|
|
|
76,885 |
|
Vacation pay |
|
54,212 |
|
|
|
- |
|
|
$ |
1,082,535 |
|
|
$ |
1,645,258 |
|
(1) |
Under the terms of a research agreement with Primomed, the Company received grant funds that will be used to offset certain costs under the MIN-301 development program. |
NOTE 5 — NET LOSS PER SHARE OF COMMON STOCK
Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive issuances were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for common stockholders:
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net loss |
$ |
(6,610,134 |
) |
|
$ |
(19,365,662 |
) |
|
$ |
(12,703,381 |
) |
|
$ |
(22,304,080 |
) |
Weighted average shares of common stock outstanding |
|
24,721,143 |
|
|
|
7,604,503 |
|
|
|
22,083,539 |
|
|
|
7,255,648 |
|
Net loss per share of common stock – basic and diluted |
$ |
(0.27 |
) |
|
$ |
(2.55 |
) |
|
$ |
(0.58 |
) |
|
$ |
(3.07 |
) |
The following securities outstanding at June 30, 2015 and 2014 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:
|
June 30, |
|
|||||
|
2015 |
|
|
2014 |
|
||
Common stock options |
|
2,905,336 |
|
|
|
2,141,807 |
|
Warrants |
|
6,322,451 |
|
|
|
- |
|
NOTE 6 — LICENSE AGREEMENTS
The Company has entered into a license agreement with Mitsubishi Tanabe Pharma Corporation (“MTPC”) dated as of August 30, 2007, as amended (the “License Agreement”). Under the terms of the License Agreement, the Company acquired an exclusive license to the compound known as CYR-101 (subsequently renamed MIN-101) and other compounds with a similar structure and intended purpose and other data included within the valid claims of certain patents licensed to the Company under the License Agreement. The license is for world-wide rights, excluding certain Asian countries such as China, Japan, India and South Korea. The Company will pay a tiered royalty for net sales of product by it or any of its affiliates or sub-licensees containing the licensed compound equal to a percentage ranging from the high single digits to the low teens depending on net sales of products under the License Agreement. The initial $1.0 million licensing fee paid in 2007 was expensed as research and development expense, as was an additional payment of $0.5 million in 2008 upon the onset of a Phase IIa study. The Company made a $0.5 million extension payment in 2010 which was expensed as part of research and development expense. The Company was also required to make milestone payments upon the achievement of certain development and commercial milestones, potentially up to $57.5 million for MIN-101 and up to $59.5 million for additional products.
In January 2014, the Company renegotiated the structure of the license for MIN-101 such that the Company is required to make milestone payments upon the achievement of one development milestone totaling $0.5 million and certain commercial milestones, which could total up to $47.5 million. In addition, in the event that the Company sells the rights to the license, the licensor will be
13
entitled to a percentage of milestone payments in the low teens and a percentage of royalties received by the Company in the low double digits.
In connection with the merger of Sonkei in November 2013, the Company has a second license agreement with MTPC dated September 1, 2008, as amended. Under the terms of the agreement, the Company has an exclusive license to the compound known as SON-117 (subsequently renamed MIN-117) and other data included within the valid claims of certain patents licensed to the Company under the agreement. The license is for world-wide rights other than certain countries in Asia, including China, Japan, India and South Korea. Under the agreement, the Company will pay a tiered royalty for net sales of product by it or any of its affiliates or sub-licensees containing the licensed compound ranging from the high single digits to the low teens depending on net sales of products. Through the date of the agreement, as amended, the Company was required to make payments up to $57.5 million upon the achievement of certain commercial milestones.
In January 2014, the Company renegotiated the structure of the license for MIN-117 such that the Company is required to make milestone payments upon the achievement of certain commercial milestones up to $47.5 million. In addition, in the event that the Company sells the rights to the license, the licensor will be entitled to a percentage of milestone payments in the low teens and a percentage of royalties received by the Company in the low double digits. Under the terms of the amended agreement, the Company was required to initiate by the end of April 2015 a Phase IIa or Phase IIb study with MIN-117 in patients suffering major mood disorders where initiation is defined as first patient enrolled in the study.
In April 2015, the Company amended the diligence milestone obligation under the license agreement for MIN-117 to extend the deadline to begin enrollment in a Phase IIa or Phase IIb study with MIN-117 in patients suffering major mood disorders from April 30, 2015 to June 30, 2015. As consideration for the two-month extension, the Company paid MTPC and expensed $80,000 in May 2015. The Company met the enrollment milestone obligation in June 2015.
The Company did not make any other license payments under the agreements for the six months ended June 30, 2015 or 2014.
NOTE 7 — DEBT
Loan and Security Agreement
On January 16, 2015, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and, together with Oxford, the “Lenders”), providing for term loans to the Company in an aggregate principal amount of up to $15 million, in two tranches.
The Company drew down the initial term loans in the aggregate principal amount of $10 million (the “Term A Loans”), on January 16, 2015. The Term A Loans bear interest at a fixed rate of 7.05% per annum. On or prior to March 31, 2016, the Company may borrow additional term loans or Term B Loans, together with the Term A Loans, (the “Term Loans”), in the aggregate principal amount up to $5 million, subject to the satisfaction of certain borrowing conditions, including its achievement of primary endpoints on its Phase IIa trials for its MIN-117 and MIN-202 programs. The Term B Loans will bear interest at a fixed rate per annum of the greater of (i) 7.05% or (ii) the sum of (a) the prime rate reported in The Wall Street Journal three (3) business days prior to the funding date of the Term B Loans, plus (b) 3.80%.
The Company paid a facility fee of $75,000 for access to the Term Loans and will be required to pay a final payment of 4.45% (or, if the interest-only period is extended as described below, 5.10%) of the total amount borrowed, which has been included as a component of the debt discount and is amortized to interest expense over the term of the loans. The Term A Loans and debt discount are as follows:
|
June 30, 2015 |
|
|
|
|
|
|
Term A Loans |
$ |
10,000,000 |
|
Less: debt discount and financing costs |
|
(215,781 |
) |
Less: current portion |
|
(1,087,420 |
) |
Long-term portion |
$ |
8,696,799 |
|
For the three and six months ended June 30, 2015, the Company recognized interest expense of $0.3 million and $0.5 million, respectively, related to the Term A Loans, including $0.1 million and $0.1 million, respectively, related to the debt discount.
Through February 1, 2016, the Company is obligated only to make monthly interest payments on the outstanding principal balance on the Term A Loans, followed by 30 months of equal principal and interest payments. If the Company raises at least $30.0 million in capital (including at least $20.0 million from the sale of equity securities) and completes the first dosing of its Phase I/II clinical trial for MIN-117 prior to December 31, 2015, the interest-only period will be extended an additional six months and the repayment period will be reduced by six months. The Term Loans mature on August 1, 2018. The Company may prepay all, but not less than all, of the
14
loaned amount upon 30 days’ advance notice to the Lenders, provided that the Company will be obligated to pay a prepayment fee equal to (i) 3% of the outstanding balance, if the loan is prepaid within 24 months of the funding date, (ii) 2% of the outstanding balance, if the loan is prepaid between 24 and 36 months of the funding date and (iii) 1% of the outstanding balance, if the loan is prepaid thereafter (each, a “Prepayment Fee”). The expected repayment of the $10.0 million Term A loan principal is as follows:
2015 |
|
$ |
- |
|
2016 |
|
|
3,140,089 |
|
2017 |
|
|
4,019,155 |
|
2018 |
|
|
2,840,756 |
|
Total Term A Loans |
|
$ |
10,000,000 |
|
The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets, other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, except that it may grant certain exclusive and non-exclusive licenses of its intellectual property as set forth in the Loan Agreement. In addition, the Company pledged all of its equity interests in Minerva Neurosciences Securities Corporation and 65% of its equity interests in Mind-NRG, SA as security for its obligations under the Loan Agreement.
Upon the occurrence of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Loan Agreement, the breach of certain of its other covenants under the Loan Agreement, or the occurrence of a material adverse change, the Lenders will have the right, among other remedies, to declare all principal and interest immediately due and payable, and will have the right to receive the final payment fee and, if the payment of principal and interest is due prior to maturity, the applicable Prepayment Fee.
Under the Loan Agreement, the Company agreed to issue the Lenders warrants to purchase shares of its common stock upon its draw of each tranche of the Term Loans. The aggregate number of shares of common stock issuable upon exercise of the warrants is equal to 2.25% of the amount drawn of such tranche, divided by the average closing price per share of the Company’s common stock reported on the NASDAQ Global Market for the 10 consecutive trading days prior to the applicable draw. On January 16, 2015, upon the draw of the Term A Loans, the Company issued to the Lenders warrants to purchase 40,790 shares of common stock at a per share exercise price of $5.516. The warrants were immediately exercisable upon issuance, and other than in connection with certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of the warrants was estimated at $0.2 million using a Black-Scholes model and assuming: (i) expected volatility of 100.8%, (ii) risk free interest rate of 1.83%, (iii) an expected life of 10 years and (iv) no dividend payments. The fair value of the warrants was included as a discount to the Term A Loans and also as a component of additional paid-in capital at June 30, 2015.
NOTE 8 — CO-DEVELOPMENT AND LICENSE AGREEMENT
On February 12, 2014, the Company signed a co-development and license agreement with Janssen and Janssen Research & Development, LLC (“JJDC”), subject to the completion of an IPO and the payment of a $22.0 million license fee. Under the agreement, the licensor granted the Company an exclusive license, with the right to sublicense, in the European Union, Switzerland, Liechtenstein, Iceland and Norway, referred to as the Minerva Territory, under (i) certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right as an active ingredient and (ii) MIN-202 for any use in humans. In addition, upon regulatory approval in the Minerva Territory (and earlier if certain default events occur), the Company will have rights to manufacture MIN-202. The Company has granted to the licensor an exclusive license, with the right to sublicense, under all patent rights and know-how controlled by the Company related to MIN-202 to sell MIN-202 outside the Minerva Territory. In consideration of the licenses granted on July 7, 2014, the Company made a license fee payment of $22.0 million, which was included as a component of research and development expense in 2014. The Company will pay a quarterly royalty percentage in the high single digits on aggregate net sales for MIN-202 products sold by the Company, its affiliates and sublicensees in the European Union. The licensor will pay a quarterly royalty percentage to the Company in the high single digits on aggregate net sales for MIN-202 products sold by the licensor outside the European Union. In accordance with the development agreement, the Company will pay 40% of MIN-202 development costs related to the joint development of any MIN-202 products. However, the Company’s share of aggregate development costs shall not exceed (i) $5.0 million for the period beginning from the effective date of the license and ending following the completion of certain Phase Ib clinical trials and animal toxicology studies, and (ii) $24.0 million for the period beginning from the effective date of the license and ending following the completion of certain Phase II clinical trials. The licensor has a right to opt out at the end of certain development milestones, with the first milestone being the completion of a single day Phase I clinical trial in patients with Major Depressive Disorder (“MDD”). Upon opt out, the licensor will not have to fund further development of MIN-202 and the Minerva Territory will be expanded to also include all of North America. The Company would then owe the licensor a reduced royalty in the mid-single digits for all sales in the Minerva Territory. The Company has the right to terminate the license following certain development milestones, the first being completion of a certain Phase Ib clinical trial in patients with insomnia and certain toxicology studies in animals. If the Company terminates the license within
15
45 days of this milestone, the Company must pay a termination fee equal to $3.0 million. If the Company terminates the license at any time following the last development milestone involving a certain Phase IIb clinical trial, the Company will be entitled to a royalty in the mid-single digits from sales of MIN-202 by the licensor. The licensor may also terminate the agreement for the Company’s material breach or certain insolvency events, including if the Company is unable to fund its portion of the development costs.
The Company included the $22.0 million license fee payment as a component of research and development expense since the licensed rights were not deemed to have an alternative future use. The Company accounts for the co-development and license agreement as a joint risk-sharing collaboration in accordance with ASC 808, Collaboration Arrangements. Payments between the Company and the licensor with respect to each party’s share of MIN-202 development costs that have been incurred pursuant to the joint development plan are recorded within research and development expense or general and administrative expense, as applicable, in the accompanying consolidated statements of operations due to the joint risk-sharing nature of the activities. The Company has included $1.1 million and $1.2 million in accrued collaborative expenses as of June 30, 2015 and December 31, 2014, respectively. The Company paid $2.7 million during the six months ended June 30, 2015 under this agreement.
The Company entered into a common stock purchase agreement with an affiliate of the above mentioned licensor, dated as of February 12, 2014, pursuant to which, among other things, the affiliate agreed to purchase from the Company up to $26.0 million of common stock in a private placement concurrent with the closing of the IPO at a price equal to the IPO price. This investment was consummated simultaneously with the closing of an IPO in July 2014 with the purchase by the affiliate of 3,284,353 shares of common stock resulting in net proceeds to the Company of $19.7 million.
NOTE 9 — STOCKHOLDERS’ EQUITY
Private Placement of Common Stock and Warrants
On March 18, 2015, pursuant to a securities purchase agreement with certain accredited investors dated March 13, 2015, the Company sold in a private placement 6,281,661 shares of the Company’s common stock at a price per share of $4.81 and warrants to purchase up to an aggregate of 6,281,661 shares of common stock at a purchase price of $0.125 per warrant share, with an initial exercise price of $5.772 per share, resulting in gross proceeds of approximately $31.0 million. The warrants will expire on March 18, 2017, two years after the date on which they were initially issued. The Company incurred $2.5 million for placement agent fees and transaction costs which have been included as a component of additional paid-in capital, resulting in net proceeds of $28.5 million.
In connection with the private placement, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”), dated March 13, 2015 with certain accredited investors. Pursuant to the terms of the Registration Rights Agreement, the Company was obligated to prepare and file with the SEC a registration statement to register for resale the 6,281,661 shares of its common stock issued in the private placement and the 6,281,661 shares of its common stock issuable upon exercise of the warrants on or prior to May 2, 2015. The Company filed a resale registration statement on Form S-1 the SEC on April 30, 2015. The Company filed a post-effective amendment to the Form S-1 to convert the filing to a Form S-3 on July 2, 2015. If registration statements are not maintained effective, the Company could be subject to penalties of up to 10.0% of proceeds received in the private placement.
Term Loan Warrants
In connection with the Loan Agreement, the Company issued the Lenders warrants to purchase shares of its common stock upon its draw of each tranche of the Term Loans. The aggregate number of shares of common stock issuable upon exercise of the warrants is equal to 2.25% of the amount drawn of such tranche, divided by the average closing price per share of the Company’s common stock reported on the NASDAQ Global Market for the 10 consecutive trading days prior to the applicable draw. Upon the draw of the Term A Loans, the Company issued the Lenders warrants to purchase 40,790 shares of common stock at a per share exercise price of $5.516. The warrants are immediately exercisable upon issuance, and other than in connection with certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of the warrants was estimated at $0.2 million using a Black-Scholes model and assuming: (i) expected volatility of 100.8%, (ii) risk free interest rate of 1.83%, (iii) an expected life of 10 years and (iv) no dividend payments. The fair value of the warrants was included as a discount to the Term A Loans and also as a component of additional paid-in capital at June 30, 2015.
NOTE 10 — STOCK OPTION PLAN
The Company adopted the 2013 Equity Incentive Plan (the “Plan”) in December 2013, which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On January 1, 2015, in accordance with the terms of the Plan, the total shares authorized for issuance under the plan increased by 737,579 to 4,281,333. This increase represents 4% of the total shares outstanding calculated as of the end of the most recent fiscal year. The exercise price per share shall not be less than the fair value of the
16
Company’s underlying common stock on the grant date and no option may have a term in excess of ten years. Stock option activity under the Plan is as follows:
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
Stock Options |
|
|
Exercise Price |
|
||
Outstanding January 1, 2015 |
|
|
2,076,558 |
|
|
$ |
6.64 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
848,778 |
|
|
$ |
5.18 |
|
Forfeited |
|
|
(20,000 |
) |
|
$ |
6.26 |
|
Outstanding June 30, 2015 |
|
|
2,905,336 |
|
|
$ |
6.22 |
|
Exercisable June 30, 2015 |
|
|
1,412,527 |
|
|
$ |
6.79 |
|
Available for future grant |
|
|
1,375,997 |
|
|
|
|
|
The Company granted 848,778 and 1,495,048 stock options during the six months ended June 30, 2015 and 2014 that had a weighted average exercise price of $5.18 and $6.00, respectively. The Company uses the Black Scholes model to estimate the fair value of stock options granted. For stock options granted during the six months ended June 30, 2015 and 2014, the Company utilized the following assumptions:
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
||
Expected term (years) |
|
5.5-6.25 |
|
|
6.25 |
|
||
Risk free interest rate |
|
1.27 - 1.80% |
|
|
|
1.94% |
|
|
Volatility |
|
74-110% |
|
|
|
113% |
|
|
Dividend yield |
|
|
0% |
|
|
|
0% |
|
Weighted average grant date fair value per share of common stock |
|
$ |
4.21 |
|
|
$ |
5.11 |
|
The Company recognized stock-based compensation expense for the six months ended June 30, 2015 and 2014 of $0.9 million and $14.8 million, respectively. The weighted average grant-date fair value of stock options outstanding on June 30, 2015 was $5.19 per share. Total unrecognized compensation costs related to non-vested awards at June 30, 2015 was approximately $6.6 million and is expected to be recognized within future operating results over a period of 3.19 years. At June 30, 2015, the weighted average contractual term of the options outstanding is approximately 9.2 years. The intrinsic value of outstanding stock options at June 30, 2015 was $0.5 million.
The expected term of the employee-related options was estimated using the “simplified” method as defined by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.
NOTE 11 — COMMITMENTS
In September 2014, the Company entered into a lease agreement for 4,043 square feet of office space in Waltham, MA. The term of the lease is approximately 2 years, and the Company is required to make monthly rental payments commencing December 2014. Estimated annual rent payable under this operating lease is approximately $0.1 million per year in each of the two years.
NOTE 12 — RELATED PARTY TRANSACTIONS
An investor previously provided accounting and other services to the Company during 2014. For the three and six months ended June 30, 2014, the expense recognized in operating results in connection with these services was $15,000 and $35,000, respectively.
The Company retained the services of certain consultants who were also stockholders of the Company during 2014. For the three and six months ended June 30, 2014, the expense recognized by the Company in connection with these consulting services was $0.2 million and $0.3 million, respectively.
17
NOTE 13 — SUBSEQUENT EVENTS
Stock Option Grants
On July 1, 2015, in accordance with the terms of the Plan, the Company granted 200,000 options to purchase common stock to two new employees with a vesting term of four years. On July 1, 2015, the Company also granted 25,000 options to one new member of the Board of Directors with a vesting term of three years pursuant to the Company’s Non-Employee Director Compensation Plan. All grants have an exercise price equal to the closing price of the stock on the date of grant of $5.60 per common share.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on March 26, 2015.
Historical Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system, or CNS, diseases. Leveraging our deep domain expertise, we have acquired or in-licensed four development-stage proprietary compounds that we believe have innovative mechanisms of action with potentially positive therapeutic profiles. Our lead product candidate is MIN-101, a compound for the potential treatment of patients with schizophrenia. In addition, our portfolio includes MIN-202, a compound we are co-developing with Janssen Pharmaceuticals (“Janssen”), for the treatment of patients suffering from primary and comorbid insomnia; MIN-117, a compound we are developing for the treatment of patients suffering from major depressive disorder, or MDD; and MIN-301, a compound we are developing for the treatment of patients suffering from Parkinson’s disease. We believe our innovative product candidates have significant potential to transform the lives of a large number of affected patients and their families who are currently not well-served by available therapies in each of their respective indications.
We exclusively licensed MIN-101 from Mitsubishi Tanabe Pharma Corporation (“MTPC”), in 2007 with the rights to develop, sell and import MIN-101 globally, excluding most of Asia. In November 2013, we merged with Sonkei Pharmaceuticals Inc. (“Sonkei”), a clinical-stage biopharmaceutical company and, in February 2014, we acquired Mind-NRG, a pre-clinical-stage biopharmaceutical company. We refer to these transactions as the Sonkei Merger and Mind-NRG Acquisition, respectively. Sonkei licensed MIN-117 from MTPC in 2008 with the rights to develop, sell and import MIN-117 globally, excluding most of Asia. With the acquisition of Mind-NRG, we obtained exclusive rights to develop and commercialize MIN-301. We have also entered into a co-development and license agreement with Janssen Pharmaceutica NV (“Janssen”), for the exclusive rights to develop and commercialize MIN-202 in the European Union, subject to royalty payments to Janssen, and royalty rights for any sales outside the European Union.
We have not received regulatory approvals to sell any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates. We have incurred significant operating losses since inception. We expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval, infrastructure development and commercialization of our product candidates.
On March 18, 2015, pursuant to a securities purchase agreement with certain accredited investors dated March 13, 2015, we sold in a private placement 6,281,661 shares of our common stock at a price per share of $4.81 and warrants to purchase up to an aggregate of 6,281,661 shares of common stock at a purchase price of $0.125 per warrant share, with an initial exercise price of $5.772 per share. We received net proceeds of approximately $28.5 million, after deducting placement agent fees and issuance costs. The warrants will expire on March 18, 2017, two years after the date on which they were initially issued. All of the shares of common stock and warrant shares issued and sold were registered under the Securities Act of 1933, as amended, or the Securities Act, pursuant to a registration statement on Form S-1, which we filed with the Securities and Exchange Commission, on April 30, 2015 (File No. 333-203737).
On January 16, 2015, we entered into a Loan and Security Agreement with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB, providing for term loans in an aggregate principal amount of up to $15 million, in two tranches. We drew down the initial term loans, or the Term A Loans, in the aggregate principal amount of $10 million on January 16, 2015. The Term A Loans bear interest at a fixed rate of 7.05% per annum. On or prior to March 31, 2016, we may borrow additional term loans, or the Term B loans, in the aggregate principal amount up to $5 million, subject to the satisfaction of certain borrowing conditions, including achievement of the primary endpoints on our Phase IIa trials for our MIN-117 and MIN-202 programs. The Term B Loans will bear interest at a fixed rate per annum of the greater of (i) 7.05% or (ii) the sum of (a) the prime rate reported in The Wall Street Journal three (3) business days prior to the funding date of the Term B Loans, plus (b) 3.80%.
On July 7, 2014, we closed our initial public offering, in which we issued and sold 5,454,545 shares of common stock at a public offering price of $6.00 per share, for aggregate gross proceeds to us of $32.7 million. All of the shares issued and sold in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-195169), which was declared effective by the SEC on June 30, 2014. Net proceeds to us from the offering were approximately $28.2 million, after deducting the underwriting discount and transaction expenses of approximately $3.1 million. Following our initial public offering, on July 29, 2014, we closed the sale of an over-allotment of 160,993 shares of our common stock at a price of $6.00 per share, resulting in net proceeds to us of approximately $0.9 million, after deducting the underwriting discount of approximately $0.1 million.
19
Clinical Update
Enrollment is ongoing in our Phase IIb clinical trial of MIN-101 in Europe. Approximately 40 clinical sites have been initiated in six countries, and patient enrollment is expected to continue through the end of 2015. The primary study objective is an evaluation of the efficacy of MIN-101 compared to placebo in improving the negative symptoms of schizophrenia. Topline results for the core 12-week evaluation period are expected in the second quarter of 2016. The trial is being conducted in stable subjects with schizophrenia suffering from predominantly negative symptoms. We are evaluating two doses of MIN-101 (32mg and 64mg) versus placebo, in a double-blind design in 234 subjects. The primary efficacy endpoint is the change from baseline of negative symptoms after three months of drug administration, as measured from the baseline by the Positive and Negative Symptom Scale, or PANSS. We plan to also investigate the effects on positive symptoms and overall symptoms of schizophrenia measured by PANSS and the Clinical Global Impression rating scales, as well as the effects of MIN-101 on sleep, cognition, anxiety and mood, and clinical and biological safety and drug plasma levels. Patients who experience improved symptomatology during the first three months will be offered the opportunity to enter into an extension phase of six months, which we expect will provide additional long term safety and efficacy data.
MIN-117
In April 2015, we amended the diligence milestone obligation under the license agreement for MIN-117 to extend the deadline to begin enrollment in a Phase IIa or Phase IIb study with MIN-117 in patients suffering major mood disorders from April 30, 2015 to June 30, 2015. We extended the deadline in order to amend the protocol previously approved by the Latvian regulatory authorities for the double blinded placebo controlled Phase IIa study to request an additional patient study arm to evaluate a 2.5mg dose of MIN-117. As consideration for the two-month extension, we paid MTPC $80,000 in May 2015. We met the enrollment milestone obligation in June 2015.
The amended study is expected to include a total 80 patients, of whom 20 will receive a 0.5mg dose of MIN-117, 20 will receive a 2.5mg dose of MIN-117, 20 will receive a 20mg dose of paroxetine and 20 will receive a placebo. The primary endpoint of the trial will be the efficacy of MIN-117 versus placebo in reducing depressive symptoms. We have dosed the first patient in the Phase IIa study and expect topline results to be available in the first half of 2016.
MIN-202
In January 2015, we announced results from a double-blind, placebo-controlled, randomized, 4-way crossover single dose study with MIN-202 in 20 male and female subjects with MDD and insomnia completed by Janssen in Europe. The primary endpoint in this study was the effect of MIN-202 (dosed PM) on latency to persistent sleep, LPS. Certain additional endpoints were evaluated by polysomnography or PSG. Preliminary results demonstrated a statistically significant effect on LPS of all three doses tested (10, 20, and 40mg). Treatment with MIN-202 also resulted in prolonged total sleep duration by approximately 45 minutes. This study was performed using a suspension formulation. MIN-202 was found to be safe and well-tolerated in this study.
In January 2015, we also announced results from a double-blind, placebo-controlled, randomized, multiple ascending dose study in sequential cohorts of male and female healthy subjects completed by Janssen in Europe. MIN-202 was administered in the morning at dose levels ranging from 5mg to 60mg for 10 days. A dose level as low as 5mg of MIN-202 elicits sedation while dose levels ≥ 20mg induce (daytime) somnolence. The MIN-202 plasma exposure is dose proportional from 5mg to 20mg. At higher doses, the exposure is less than dose proportional. This study was performed using a suspension formulation and MIN-202 was found to be safe and well-tolerated. Pharmacodynamic assessments were incorporated into the clinical study to evaluate the effect of MIN-202 on alertness via PK/PD modeling.
Janssen also recently completed a bioavailability, food effects, safety and tolerability of a solid dosage formulation of MIN-202 in the United States in healthy male subjects. To support planned Phase Ib and Phase II activities, a solid dose formulation has been evaluated. The results of the study showed that similar absorption profiles were observed for both formulations thereby qualifying the solid dose to support further clinical studies. Janssen has dosed the first patient in a European Phase Ib study in adjunctive treatment of major depressive disorder and has opened an Investigational New Drug Application (“IND”) for this indication in the U.S. In addition, we expect that Janssen will initiate a Phase IIa study with MIN-202 in insomnia disorder within the next few months. Data readouts for both trials are expected in the first half of 2016.
20
MIN-301
In January 2015, we announced results from a non-human primate study showing that treatment with an analog of MIN-301 resulted in improvements in a range of symptoms associated with a Parkinson’s disease model in primates. The results confirmed the beneficial effects of MIN-301 in non-primate preclinical models. The next planned steps in this program involving our compound based on an investigational extra-cellular domain of neuregulin-1 beta1 to treat Parkinson’s disease are the filing of an IND in the U.S. or an Investigational Medicinal Product Dossier (IMPD) in Europe in 2016, and pending acceptance by regulatory authorities, the initiation of Phase I clinical testing thereafter.
Financial Overview
Presentation
On February 11, 2014, we acquired Mind-NRG in order to acquire Mind-NRG’s lead product candidate, MIN-301. The results of Mind-NRG are included in our accompanying financial statements beginning February 11, 2014. The fair value of the 1,481,583 shares of common stock issued to the stockholders of Mind-NRG was approximately $16.5 million, substantially all of which was allocated to in-process research and development and goodwill.
Revenue. None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.
Research and Development Expense. Research and development expense consists of costs incurred in connection with the development of our product candidates, including: fees paid to consultants and clinical research organizations, or CROs, including in connection with our non-clinical 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; licensing fees; costs related to acquiring clinical trial materials; costs related to compliance with regulatory requirements; and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. We expense research and development costs as they are incurred.
In the future, we expect research and development expense to consist of the items described above as well as expense incurred in performing research and development activities, including compensation and benefits for full-time research and development employees and facilities expenses. These costs may also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff. We expect research and development expense to be our largest category of operating expense and to increase as we continue our planned pre-clinical and clinical trials for our product candidates.
Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment as to each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates.
General and Administrative Expense. General and administrative expenses consist principally of costs for functions in executive, finance, legal, auditing and taxes. Our general and administrative expenses include salaries, bonuses, facility and information system costs and professional fees for auditing, accounting, consulting and legal services. General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff. We expect general and administrative expenses to be higher in 2015 versus the prior year in order to support our operations as a public reporting company, including increased payroll, consulting, legal and compliance, accounting, insurance and investor relations costs.
Foreign Exchange (Losses) Gains. Foreign exchange (losses) gains are comprised primarily of losses and gains of foreign currency transactions related to clinical trial expenses denominated in Euros. Since our current clinical trials are conducted in Europe, we incur certain expenses in Euros and record these expenses in U.S. dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency loss or gain.
Interest Expense (Income), Net. Interest expense consists of amortization of discounts and premiums on our marketable securities and interest incurred under our current and former debt obligations, including our outstanding Term A loans with SVB and Oxford, our former 8.0% convertible promissory notes and our former 8% working capital loans. Interest income consists of interest earned on our cash, cash equivalents and marketable securities.
During the period ended June 30, 2015, interest expense was related primarily to our Term A loans with SVB and Oxford. Interest expense during the period ended June 30, 2014 is primarily related to our former 8.0% convertible promissory notes and working
21
capital loans, which were repaid in conjunction with our IPO in July 2014. The convertible promissory notes contained a beneficial conversion feature, for which we recorded a debt discount of approximately $2.0 million. The discount was amortized to interest expense using the effective interest method through the notes’ maturity date of June 30, 2014.
Results of Operations
Comparison of Three Months Ended June 30, 2015 versus June 30, 2014
Research and Development Expenses
Total research and development expenses were $4.5 million for the three months ended June 30, 2015 compared to $14.6 million for the same period in 2014, a decrease in total expense of $10.1 million. Research and development expense in the three months ended June 30, 2015 and 2014 included non-cash stock-based compensation expenses of $0.2 million and $13.0 million, respectively. The decrease in stock-based compensation expense was primarily due to the vesting of 926,604 shares of common stock and 441,973 options to purchase common stock that were issued and fully vested during the second quarter of 2014. Excluding stock-based compensation, total research and development expense related to drug development programs for the three months ended June 30, 2015 and 2014 was $4.3 million and $1.6 million, respectively, an increase of $2.7 million. This increase in research and development expense primarily reflect increased expenses related to our Phase IIb clinical trial of MIN-101, our Phase IIa clinical trial of MIN-117 and the recent MIN-202 Phase I clinical trials.
General and Administrative Expenses
Total general and administrative expenses were $1.8 million for the three months ended June 30, 2015 compared to $3.1 million for the same period in 2014, a decrease of approximately $1.3 million. General and administrative expense in the three months ended June 30, 2015 and 2014 included non-cash stock-based compensation expenses of $0.4 million and $1.5 million, respectively. The decrease in stock-based compensation expense was primarily due to 97,143 options to purchase common stock that were issued and fully vested during the second quarter of 2014. Excluding stock-based compensation, general and administrative expense for the three months ended June 30, 2015 and 2014 was $1.4 million and $1.6 million, respectively.
Foreign Exchange (Losses) Gains
Foreign exchange loss was $29 thousand for the three months ended June 30, 2015 compared to a gain of $11 thousand for the same period in 2014, a decrease of $40 thousand. The loss was primarily due to certain expenses of Mind-NRG and clinical activities denominated in Euros, with more negative currency movements in 2015.
Interest Expense/(Income), Net
Interest expense/(income) was $0.2 million for the three months ended June 30, 2015 compared to $1.7 million for the same period in 2014, a decrease of $1.5 million. The decrease was primarily due to higher interest expense incurred in 2014 under our convertible promissory notes and the beneficial conversion feature. These convertible promissory notes and accrued interest were converted into 352,000 common shares in July 2014.
Comparison of Six Months Ended June 30, 2015 versus June 30, 2014
Research and Development Expenses
Total research and development expenses were $8.4 million for the six months ended June 30, 2015 compared to $15.1 million for the same period in 2014, a decrease in total expense of $6.7 million. Research and development expense in the six months ended June 30, 2015 and 2014 included non-cash stock-based compensation expenses of $0.2 million and $13.0 million, respectively. The decrease in stock-based compensation expense was primarily due to the vesting of 926,604 shares of common stock and 441,973 options to purchase common stock that were issued and fully vested during the second quarter of 2014. Excluding stock-based compensation, total research and development expense related to drug development programs for the six months ended June 30, 2015 and 2014 was $8.2 million and $2.1 million, respectively, an increase of $6.1 million. This increase in research and development expense primarily reflect increased expenses related to our Phase IIb clinical trial of MIN-101, our Phase IIa clinical trial of MIN-117 and the recent MIN-202 Phase I clinical trials.
General and Administrative Expenses
Total general and administrative expenses were $3.8 million for the six months ended June 30, 2015 compared to $5.1 million for the same period in 2014, a decrease of approximately $1.3 million. General and administrative expense in the six months ended June 30,
22
2015 and 2014 included non-cash stock-based compensation expenses of $0.6 million and $1.9 million, respectively. The decrease in stock-based compensation expense of $1.3 million was primarily due to 97,143 options to purchase common stock that were issued and fully vested during the second quarter of 2014 and the cancellation in November 2014 of 519,671 options to purchase common stock that had been outstanding during the prior year period. Excluding stock-based compensation, general and administrative expense for the six months ended June 30, 2015 and 2014 was $3.2 in both periods.
Foreign Exchange (Losses) Gains
Foreign exchange losses were $13 thousand for the six months ended June 30, 2015 compared to a gain of $4 thousand for the same period in 2014, a decrease of $17 thousand. The decrease was primarily due to certain expenses of Mind-NRG and clinical activities denominated in Euros, with more negative currency movements in 2015.
Interest (Income)/Expense, Net
Interest expense was $0.5 million for the six months ended June 30, 2015 compared to $2.0 million for the same period in 2014, a decrease of $1.5 million. The decrease was primarily due to higher interest expense incurred in 2014 under our convertible promissory notes and the beneficial conversion feature. These convertible promissory notes and accrued interest were converted into 352,000 common shares in July 2014.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses and cumulative negative cash flows from operations since our inception in April 2007 and, as of June 30, 2015, we had an accumulated deficit of approximately $87.4 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company. At June 30, 2015, we had approximately $44.8 million in cash, cash equivalents (current and non-current) and marketable securities. We believe that our cash, cash equivalents and marketable securities will be sufficient to fund our operations into the fourth quarter of 2016.
Sources of Funds
Private Placement
On March 18, 2015, pursuant to a securities purchase agreement with certain accredited investors dated March 13, 2015, we sold in a private placement 6,281,661 shares of our common stock at a price per share of $4.81 and warrants to purchase up to an aggregate of 6,281,661 shares of our common stock at a purchase price of $0.125 per warrant share, with an initial exercise price of $5.772 per share for gross proceeds of approximately $31.0 million and net proceeds of approximately $28.5 million. The warrants will expire on March 18, 2017, two years after the date on which they were initially issued.
Term Loans
On January 16, 2015, we entered into a Loan and Security Agreement with Oxford and SVB, providing for term loans to us in an aggregate principal amount of up to $15 million, in two tranches. We drew down the initial term loans in the aggregate principal amount of $10 million, which we refer to as the Term A Loans, on January 16, 2015. The Term A Loans bears interest at a fixed rate of 7.05% per annum. On or prior to March 31, 2016, we may borrow additional term loans, which we refer to as the Term B Loans, in the aggregate principal amount up to $5 million, subject to the satisfaction of certain borrowing conditions, including our achievement of primary endpoints on our Phase IIa trials for our MIN-117 and MIN-202 programs. The Term B Loans will bear interest at a fixed rate per annum of the greater of (i) 7.05% or (ii) the sum of (a) the prime rate reported in The Wall Street Journal three (3) business days prior to the funding date of the Term B Loans, plus (b) 3.80%.
Uses of Funds
To date, we have not generated any revenue. We do not know when, or if, we will generate any revenue from sales of our products or royalty payments from our collaboration with Janssen. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our 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. We also expect to incur additional costs associated with operating as a public company. In addition, 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.
23
We anticipate that we will need substantial additional funding in connection with our continuing operations and to fund Phase III clinical trials of our lead 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, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and 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. Additional 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, commercialization, 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. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued. Based on our current operating plan, existing cash, the proceeds from our term loan and the March 2015 private placement, we expect to be able to fund our operations into the fourth quarter of 2016.
Under our collaboration agreement with Janssen for MIN-202, we have paid a total of $2.7 million during the six months ended June 30, 2015. We have included an additional $1.1 million in accrued collaborative expenses as of June 30, 2015 and have reached our maximum contribution to program costs for the remainder of 2015, in accordance with the terms of the agreement.
Under our $10.0 million Term A Loan, we expect to make principal repayments of approximately $3.1 million in 2016, $4.0 million in 2017 and $2.9 million in 2018, in accordance with the terms of the agreement.
Cash Flows
The table below summarizes our significant sources and uses of cash for the six months ended June 30, 2015 and 2014:
|
|
Six months Ended |
|
|||||
|
|
June 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
(dollars in millions) |
|
|||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(11.9 |
) |
|
$ |
(3.8 |
) |
Investing activities |
|
|
(23.2 |
) |
|
|
1.2 |
|
Financing activities |
|
|
38.3 |
|
|
|
1.3 |
|
Net increase in cash |
|
$ |
3.2 |
|
|
$ |
(1.3 |
) |
Net Cash Used in Operating Activities
Net cash used in operating activities of approximately $11.9 million during the six months ended June 30, 2015 was primarily due to our net loss of $12.7 million and a $0.8 million decrease in accounts payable and accrued expenses, partially offset by stock-based compensation expense of $0.9 million, amortization of investments and debt discount of $0.2 million, and a $0.4 million decrease in prepaid expenses.
Net cash used in operating activities of $3.8 million during the six months ended June 30, 2014 was primarily due to our net loss of $22.3 million, partially offset by non-cash interest expense of $1.9 million, non-cash stock-based compensation expense of $14.8 million and a $1.8 million increase in accounts payable, accrued expenses and other liabilities.
Net Cash Provided by Investing Activities
Net cash used in investing activities of approximately $23.2 million during the six months ended June 30, 2015 was primarily due to the purchase of marketable securities of $23.2 million.
Net cash provided by investing activities in the six months ended June 30, 2014 consisted of $1.2 million of cash acquired in February 2014 in conjunction with the Mind‑NRG Acquisition.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities of $38.3 million during the six months ended June 30, 2015 was primarily due to proceeds from the January 2015 Term Loans of $10.0 million and net proceeds from our March 2015 private placement.
Net cash provided by financing activities of $1.3 million during the six months ended June 30, 2014 was due to the proceeds from several working capital loan agreements of $1.4 million, partially offset by IPO costs paid during the period of $0.1 million.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Critical Accounting Policies and Estimates
In our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to stock-based compensation; net operating losses and tax credit carryforwards; and impairment of long-lived assets. We reviewed our policies and determined that those policies remain our most critical accounting policies for the six months ended June 30, 2015.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, and are adopted by us as of the specified effective date. Our significant accounting policies are described in Note 2 to our financial statements appearing elsewhere in this Form 10-Q. We believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and rates. Our market risk exposure is primarily related to fluctuations in interest rates.
Interest rate exposure
As of June 30, 2015, we had $23.1 million of marketable debt securities, which consisted primarily of corporate bonds, with fixed interest rates. These securities have a weighted-average remaining maturity of 10 months. Due to the overall short-term remaining maturities of our marketable debt securities, our interest rate exposure is not significant. Our Term A loans have fixed interest rates and therefore are not subject to interest rate sensitivity.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, 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 SEC’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 our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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, 2015. Based on the evaluation of our disclosure controls and procedures as of June 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
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Changes in Internal Control over Financial Reporting
There were no other changes in internal control over financial reporting during the Company’s latest fiscal quarter that would have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this Quarterly Report on Form 10-Q, we do not believe we are party to any claim or litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements that we make or that are made on our behalf, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our capital resources, the progress and timing of our clinical programs, the safety and efficacy of our product candidates, risks associated with regulatory filings, risks associated with determinations made by regulatory agencies, the potential clinical benefits and market potential of our product candidates, commercial market estimates, future development efforts, patent protection, effects of healthcare reform, reliance on third parties, and other risks set forth below. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, which may be material, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC.
Risks Related to Our Financial Position and Capital Requirements
*We have incurred significant losses since our inception. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.
We are a clinical development-stage biopharmaceutical company. In November 2013, we merged with Sonkei Pharmaceuticals, Inc., or Sonkei, and, in February 2014, we acquired Mind-NRG, which were also clinical development-stage biopharmaceutical companies. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly the biopharmaceutical area. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations.
We are not profitable and have incurred losses in each period since our inception in 2007. For the six months ended June 30, 2015 and 2014, we reported net losses of $12.7 million and $22.3 million, respectively. As of June 30, 2015, we had an accumulated deficit of $87.4 million.
We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never generate revenue or become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
*We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidates or develop new product candidates.
Our operations and the historic operations of Sonkei and Mind-NRG have consumed substantial amounts of cash since inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates into clinical trials.
As of June 30, 2015, we had cash, cash equivalents and marketable securities (current and non-current) of $44.8 million. We believe that our existing cash and cash equivalents, together with amounts drawn or available under our credit facility with Oxford Finance LLC and Silicon Valley Bank and the net proceeds from our private placement of common stock and warrants to purchase common
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stock, which was completed in March 2015, will fund our projected operating requirements into the fourth quarter of 2016. In particular, we expect these funds will allow us to complete our Phase IIb trial for MIN-101, our Phase IIa trial for MIN-117, our portion of the funding for the Phase IIa trial in primary insomnia for MIN-202 with Janssen, our portion of the funding for the Phase Ib trial in comorbid insomnia for MIN-202 with Janssen and additional pre-clinical development for MIN-301. However, circumstances may cause us to consume capital more rapidly than we currently anticipate. In any event, we will require significant additional capital to fund future clinical trials of our product candidates, and to obtain regulatory approval for, and to commercialize, our product candidates.
Our future funding requirements, both short and long-term, will depend on many factors, including:
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the initiation, progress, timing, costs and results of pre-clinical and clinical studies for our product candidates and future product candidates we may develop; |
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the outcome, timing and cost of seeking and obtaining regulatory approvals from the European Medicines Association, or EMA, United States Food and Drug Administration, or FDA, and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more studies than those that we currently expect; |
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the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; |
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the effect of competing technological and market developments; |
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market acceptance of any approved product candidates; |
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the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; and |
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the cost of establishing sales, marketing and distribution capabilities for our product candidates for which we may receive regulatory approval and that we determine to commercialize ourselves or in collaboration with our partners. |
When we need to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per-share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. Further, the evolving and volatile global economic climate and global financial market conditions could limit our ability to raise funding and otherwise adversely impact our business or those of our collaborators and providers. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Any of these events could significantly harm our business, financial condition and prospects.
Changes in estimates regarding fair value of intangible assets may result in an adverse impact on our results of operations.
We test goodwill and in-process research and development for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment of in-process research and development requires us to make several estimates about fair value, most of which are based on projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss in our results of operations. An impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset may not be recoverable. For example, if we or our counterparties fail to perform our respective obligations under an agreement, or if we lack sufficient funding to develop our product candidates, an impairment may result. In addition, any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known.
We plan to use potential future operating losses and our federal and state net operating loss, or NOL, carryforwards to offset taxable income from revenue generated from operations or corporate collaborations. However, our ability to use existing NOL carryforwards may be limited as a result of issuance of equity securities.
As of December 31, 2014, we had approximately $26.4 million of Federal NOL carryforwards. These Federal NOL carryforwards will begin to expire at various dates beginning in 2027, if not utilized. We plan to use our operating losses to offset any potential future taxable income generated from operations or collaborations. To the extent we generate taxable income, we plan to use our existing NOL carryforwards and future losses to offset income that would otherwise be taxable. However, under the Tax Reform Act of 1986, the amount of benefits from our NOL carryforwards may be impaired or limited if we incur a cumulative ownership change of more than 50%, as interpreted by the U.S. Internal Revenue Service, over a three year period. We have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and Sonkei, upon the acquisition of Mind-NRG or our initial public offering or the concurrent private placements. However, as a result of these transactions, it is likely that an ownership change has occurred. Therefore, it is likely that some or all of our existing NOL carryforwards would be limited by
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the provisions of Section 382 of the United States Internal Revenue Code of 1986, as amended. Further, state NOL carryforwards may be similarly limited. We had approximately $21.4 million of state net operating carryforwards at December 31, 2014. It is also possible that future changes in ownership, including as a result of subsequent sales of securities by us or our stockholders, could similarly limit our ability to utilize NOL carryforwards. It is possible that all of our existing NOL carryforwards have been or will be disallowed. Any such disallowances may result in greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of operations, financial condition and cash flow.
Risks Related to Our Business and Industry
We cannot give any assurance that any of our product candidates will receive regulatory approval in a timely manner or at all, which is necessary before they can be commercialized.
The regulatory approval process is expensive and the time required to obtain approval from the EMA, FDA or other regulatory authorities in other jurisdictions to sell any product is uncertain and may take years.
We currently hold no Investigational New Drug, or IND, approvals in the United States (other than the IND held by Janssen, our co-development partner for MIN-202), and as a result do not intend to initiate human clinical trials of our product candidates in the United States (other than the clinical trial being initiated in the United States by Janssen, our co-development partner for MIN-202) until 2015 or later. Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Moreover, the filing of a marketing application, including a New Drug Application, or NDA, requires a payment of a significant user fee upon submission. The filing of marketing applications for our product candidates may be delayed due to our lack of financial resources to pay such user fee.
Initially, we plan to conduct clinical trials in Europe. Applications to commence clinical trials in the European Union are made to member state regulatory authorities. Good Clinical Practice (in the European Union under ICH 1997), or GCP, as incorporated into the EU Clinical Trials Directive 2001/20 and national implementing regulations, set forth the majority of the requirements and procedures for the conduct of trials but national divergences exist especially in relation to insurance and compensation, which will require that we develop a thorough understanding of the specific procedures and requirements for the individual member states in which we chose to conduct the clinical trials. Clinical trials in the European Union also require an ethics committee or institutional review board opinion, and there is often inconsistency as to ethics committee decisions. An ethics committee may ask questions and/or require re-writing or amending a trial protocol, any of which may require that we incur additional expense in order to commence a clinical trial. Even after re-submission to the relevant ethics committee, the application may still ultimately be rejected. After clinical trial authorization, we may be inspected for compliance with GCP by inspectors from the national regulatory authorities. If the inspections provide warnings or require changes, this will cause further delays and cost and we may be restricted from completing the trials.
If, following submission, our NDA or marketing authorization application is not accepted for substantive review or approval, the EMA, FDA or other comparable foreign regulatory authorities may require that we conduct additional clinical or pre-clinical trials, provide additional data, manufacture additional validation batches or develop additional analytical tests methods before they will reconsider our application. If the EMA, FDA or other comparable foreign regulatory authorities requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the EMA, FDA or other comparable foreign regulatory authorities may not consider sufficient any additional required trials, data or information that we perform or provide, or we may decide, or be required, to abandon the program.
Moreover, policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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The EMA, FDA or other regulatory authorities may disagree with the design or implementation of our clinical trials. We have not yet consulted with the EMA or the FDA on the design and conduct of the clinical trials that have already been conducted or that we intend to conduct. Thus, the EMA, FDA and other comparable foreign authorities may not agree with the design or implementation of these trials. We intend to seek guidance from the EMA in relation to the European Union clinical trial program and the FDA on the design and conduct of clinical trials of our compounds when we initiate a clinical program in the United States in the future. |
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We may be unable to demonstrate to the satisfaction of the EMA, FDA or other regulatory authorities that a product candidate is safe and effective for its proposed indication. |
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The results of clinical trials may not meet the level of statistical significance required by the EMA, FDA or other regulatory authorities for approval. |
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We may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh any safety risks. |
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The EMA, FDA or other regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials. |
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The data collected from clinical trials of our product candidates may not be sufficient to support an NDA or other submission or to obtain regulatory approval in the United States or elsewhere. |
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The EMA, FDA or other regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies. |
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The approval policies or regulations of the EMA, FDA or other regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
Even if we obtain approval for a particular product, regulatory authorities may approve that product for fewer or more limited indications, including more limited patient populations, than we request, may require that contraindications, warnings, or precautions be included in the product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, including risk evaluation and mitigation strategies, or REMS, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product. Any of the foregoing could materially harm the commercial prospects for our product candidates.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Interpretation of results from early, usually smaller, studies that suggest positive trends in some subjects, require caution. Results from later stages of clinical trials enrolling more subjects may fail to show the desired safety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the same product candidate. This may occur for a variety of reasons, including differences in trial design, trial endpoints (or lack of trial endpoints in exploratory studies), subject population, number of subjects, subject selection criteria, trial duration, drug dosage and formulation or due to the lack of statistical power in the earlier studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials.
The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results of clinical trials conducted at sites in the United States may not be accepted by international regulatory authorities.
We plan to conduct our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data would be subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical safeguards such as institutional review board, or IRB, or ethics committee approval and informed consent. The study population must also adequately represent the applicable United States population, and the data must be applicable to the American population and medical practice in ways that the FDA deems clinically meaningful. In addition, while clinical trials conducted outside of the United States are subject to the applicable local laws, FDA acceptance of the data from such trials will be dependent upon its determination that the trials were conducted consistent with all applicable United States laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States as adequate support of a marketing application, and it is not unusual for the FDA to require some Phase III clinical trial data to be generated in the United States. If the FDA does not accept the data from our international clinical trials, it would likely result in the need for additional trials in the United States, which would be costly and time-consuming and could delay or permanently halt the development of one or more of our product candidates.
If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, our costs may increase and our business may be harmed.
We do not know whether our clinical trials will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects.
The commencement and completion of clinical development can be delayed or halted for a number of reasons, including:
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difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial; |
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delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
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deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory requirements; |
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failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines; |
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insufficient or inadequate supply or quantity of product material for use in trials due to delays in the importation and manufacture of clinical supply, including delays in the testing, validation, and delivery of the clinical supply of the investigational drug to the clinical trial sites; |
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delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used; |
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delays in having subjects complete participation in a trial or return for post-treatment follow-up; |
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difficulties obtaining IRB or ethics committee approval to conduct a trial at a prospective site, or complying with conditions imposed by IRBs or ethics committees; |
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challenges recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other programs for the treatment of similar conditions; |
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severe or unexpected drug-related adverse events experienced by subjects in a clinical trial; |
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difficulty retaining subjects who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, which are common among schizophrenia and MDD subjects who we require for our clinical trials of two of our product candidates, MIN-101 and MIN-117; |
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delays in adding new investigators and clinical sites; |
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withdrawal of clinical trial sites from clinical trials; |
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lack of adequate funding; and |
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clinical holds or termination imposed by the European Union national regulatory authorities, the FDA or IRBs or ethics committees. |
Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, clinical trials may be suspended or terminated by us, an IRB or ethics committee overseeing the clinical trial at a trial site (with respect to that site), the European Union national regulatory authorities or the FDA due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws; |
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observations during inspection of the clinical trial operations or trial sites by the EMA, FDA or other comparable foreign regulatory authorities that ultimately result in the imposition of a clinical hold; |
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unforeseen safety issues; or |
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lack of adequate funding to continue the clinical trial. |
Failure to conduct a clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws may also result in the inability to use the data from such trial to support product approval. Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to the EMA, FDA, IRBs or ethics committees for reexamination, which may impact the costs, timing and successful completion of a clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory approval of the associated product candidate. If we experience delays in completion of, or if we terminate any of our clinical trials, our ability to obtain regulatory approval for our product candidates may be materially harmed, and our commercial prospects and ability to generate product revenues will be diminished.
We have no experience in advancing product candidates beyond Phase II, which makes it difficult to assess our ability to develop and commercialize our product candidates.
We have no experience in progressing clinical trials past Phase II, obtaining regulatory marketing approvals or commercializing product candidates. We merged with Sonkei and acquired Mind-NRG and have limited operating history since the respective merger and acquisition. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in pursuing our business objectives. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
If we are unable to enroll subjects in clinical trials, we will be unable to complete these trials on a timely basis or at all.
The timely completion of clinical trials largely depends on subject enrollment. Many factors affect subject enrollment, including:
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the size and nature of the subject population; |
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the number and location of clinical sites we enroll; |
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competition with other companies for clinical sites or subjects; |
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the eligibility and exclusion criteria for the trial; |
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the design of the clinical trial; |
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inability to obtain and maintain subject consents; |
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risk that enrolled subjects will drop out before completion; and |
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clinicians’ and subjects’ perceptions as to the potential advantages or disadvantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. |
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials in Europe and, we expect, eventually in the United States and, while we have agreements governing their committed activities, we have limited influence over their actual performance. We may also experience difficulties enrolling subjects for our clinical trials relating to MIN-101 and MIN-117 due to the mental health of the subjects that we will need to enroll. For instance, according to Datamonitor, roughly one-third of purported schizophrenia patients may not receive an accurate diagnosis, with negative symptoms more difficult to recognize. The patient discontinuation rate for current schizophrenia drugs is also high. For instance, 66 out of 99 subjects ceased to participate in the Phase IIa clinical trial of MIN-101. As a result, the process of finding, diagnosing and retaining subjects throughout a clinical trial targeting the negative symptoms of schizophrenia or MDD may prove difficult and costly.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization, and also increase costs.
Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate safety and efficacy of the product candidate studied for the target indication. For instance, our clinical studies of MIN-101 and MIN-117 did not show statistically significant differences favorable to the investigational products between the treatment and comparator groups on all the studies’ primary, secondary and/or exploratory endpoints. While these studies were not powered for statistical significance, regulatory authorities may find that the studies do not support, in combination with other studies, approval of our product candidates for the target indication. In addition, our product candidates may be associated with undesirable side effects or have characteristics that are unexpected, which may result in abandoning their development or regulatory authorities restricting or denying marketing approval. For instance, prior clinical studies indicated that MIN-101 and MIN-117 may cause adverse events, including, but not limited to, dizziness, vital sign changes, central nervous system events, cardiac events, including prolongation of the QT/QTc interval, and gastrointestinal events. Most product candidates that commence clinical trials are never approved by the applicable regulatory authorities.
In the case of our product candidates, MIN-101 and MIN-117, we are seeking to develop treatments for schizophrenia and MDD, which adds a layer of complexity to our clinical trials and may delay regulatory approval. We do not fully understand the cause and pathophysiology of schizophrenia and MDD, and our results will rely on subjective subject feedback, which is inherently difficult to evaluate, can be influenced by factors outside of our control and can vary widely from day to day for a particular subject, and from subject to subject and site to site within a clinical study. The placebo effect may also have a more significant impact on our clinical trials.
If our product candidates are not shown to be both safe and effective in clinical trials, we will not be able to obtain regulatory approval or commercialize our product candidates.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates. For instance, at the present time we are prioritizing the clinical trials and development of the most advanced of our product candidates, MIN-101. As a result, we may forego or delay pursuit of opportunities with other product candidates, including MIN-117, MIN-202 and MIN-301, or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain marketing approval to commercialize a product candidate or the approval may be for a more narrow indication than we expect.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete
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their review processes in a timely manner, or we may not be able to obtain marketing approval from the relevant regulatory agencies. Additional delays may result if the EMA, FDA, an FDA Advisory Committee, or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.
Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties, including ongoing regulatory obligations and continued regulatory review. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to administrative sanctions or penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
Even if we obtain regulatory approval for a product candidate, product candidates may be approved for fewer or more limited indications, including more limited subject populations, than we request, and regulatory authorities may require that contraindications, warnings, or precautions be included in the product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, such as REMS, may require post-marketing surveillance, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. For instance, in 2007, the FDA requested that makers of all antidepressant medications update existing black box warnings about increased risk of suicidal thought and behavior in young adults, ages 18 to 24, during initial treatment. If approved for marketing, our drugs may be required to carry warnings similar to this and other class-wide warnings.
Any approved products would further be subject to ongoing requirements imposed by the EMA, FDA, and other comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, marketing, recordkeeping and reporting of safety and other post-market information. If there are any modifications to the drug, including changes in indications, labeling, manufacturing processes or facilities, or if new safety issues arise, a new or supplemental NDA, post-implementation notification or other reporting may be required or requested, which may require additional data or additional pre-clinical studies and clinical trials.
The EMA, FDA and other comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the EMA, FDA or other comparable foreign regulatory authorities become aware of new adverse safety information after approval of any of our product candidates, a number of potentially significant negative consequences could result, including:
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we may suspend marketing of, or withdraw or recall, such product; |
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regulatory authorities may withdraw approvals of such product; |
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regulatory authorities may require additional warnings or otherwise restrict the product’s indicated use, label, or marketing; |
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the EMA, FDA or other comparable foreign regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product; |
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the FDA may require the establishment or modification of a REMS or the EMA or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, require us to issue a medication guide outlining the risks of such side effects for distribution to subjects or restrict distribution of our products and impose burdensome implementation requirements on us; |
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regulatory authorities may require that we conduct post-marketing studies or surveillance; |
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we could be sued and held liable for harm caused to subjects or patients; and |
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our reputation may suffer. |
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In addition, manufacturers of drug products and their facilities, including contracted facilities, are subject to continual review and periodic inspections by national regulatory authorities in the European Union, the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices, or cGMP, regulations and standards. The European Union cGMP guidelines are as set forth in Commission Directive 2003/94/EC of October 8, 2003. If we or a regulatory agency or authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, the product’s stability (changes in levels of impurities or dissolution profile) or problems with the facility where the product is manufactured, we may be subject to reporting obligations, additional testing and additional sampling, and a regulatory agency or authority may impose restrictions on that product, the manufacturing facility, our suppliers, or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates, the manufacturing facilities for our product candidates, our CROs, or other persons or entities working on our behalf fail to comply with applicable regulatory requirements either before or after marketing approval, a regulatory agency may, depending on the stage of product development and approval:
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issue adverse inspectional findings; |
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issue Warning Letters, Cyber Letters or Untitled Letters; |
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners; |
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amend and update labels or package inserts; |
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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; |
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seek an injunction or impose civil, criminal and/or administrative penalties, damages or monetary fines or imprisonment; |
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suspend or withdraw regulatory approval; |
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suspend or terminate any ongoing clinical studies; |
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bar us from submitting or assisting in the submission of new regulatory applications; |
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refuse to approve pending applications or supplements to applications filed by us; |
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refuse to allow us to enter into government contracts; |
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suspend or impose restrictions on operations, including restrictions on marketing or manufacturing of the product, or the imposition of costly new manufacturing requirements or use of alternative suppliers; or |
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seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall. |
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue.
Our product candidates and the activities associated with their development and commercialization in the United States, including, but not limited to, their advertising and promotion, will further be heavily scrutinized by the FDA, the United States Department of Justice, the United States Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. Violations of applicable law, including advertising, marketing and promotion of our products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil, criminal and/or administrative sanctions by regulatory agencies. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States. In this regard, advertising and promotion of medicines in the European Union is governed by Directive 2001/83 EC, as amended, and any such activities which we may undertake in the European Union will have to be in strict compliance with the same. Any advertising of a prescription medicinal product to the public and any promotion of a medicinal product that does not have marketing authorization or is not promoted in accordance with that marketing authorization is prohibited. Advertisements and promotions of medicinal products are monitored nationally in the European Union, and each country will have its own additional advertising laws and industry governing bodies, whose obligations may go further than those set out in Directive 2001/83. For instance, in the United Kingdom the code of practice of the Association of the British Pharmaceutical Industry (the lead United Kingdom trade association) is considerably stricter than applicable legislative requirements. Any violations and sanctions will similarly be decided and administered by the relevant country’s national authority.
In the United States, engaging in the impermissible promotion of products for off-label uses can also subject the entity engaging in such conduct to false claims litigation under federal and state statutes, which can lead to civil, criminal and/or administrative penalties, damages, monetary fines, disgorgement, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, curtailment or restructuring of its operations and agreements that materially restrict the manner in which it promotes or distributes drug products. Accordingly, we are subject to the federal civil False Claims Act, which prohibits persons and entities from knowingly filing, or causing to be filed, a false claim, or the knowing use of false statements, to obtain payment from the federal government. Certain suits filed under the civil False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in certain amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal civil False Claims Act. We are also subject to the federal criminal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious, or fraudulent. Additionally, we may be subject to civil monetary penalties that may be imposed against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal
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health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to substantial civil and criminal settlements regarding certain sales practices, including promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claims action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and/or be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our products, we may become subject to such litigation, which may have a material adverse effect on our business, financial condition and results of operations.
While no definition of “off-label use” exists at the European Union level, promotion of a medicinal product for a purpose that has not been approved is strictly prohibited. Such promotion also gives rise to criminal prosecution in the European Union, and national healthcare supervisory authorities may impose administrative fines. Engaging in such promotions in the European Union could also lead to product liability claims, in accordance with EU product liability regime under Directive 85/374.
The EMA’s, FDA’s, and other applicable government agencies’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval and marketing authorization, and the sale and promotion of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and be subject to civil, criminal and administrative enforcement, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
The regulatory pathway for our product candidate, MIN-301, has not yet been determined. Depending on the pathway, we may be subject to different regulatory requirements.
MIN-301 is a peptide, and, as a peptide, may be subject to the Public Health Service Act, or PHSA, and the Food, Drug, and Cosmetic Act, or FDCA. We have yet to meet with the FDA regarding the approval pathway for this product candidate. Based on the definition of a biologic in the PHSA, we believe that MIN-301 meets the definition of a biologic and, thus, we will need to submit a Biologics License Application, or BLA, for product approval. Moreover, based on an FDA intercenter agreement, we believe that MIN-301 will be regulated by the FDA’s Center for Drug Evaluation and Research. However, we intend to discuss jurisdiction with the FDA to determine the appropriate regulatory pathway and corresponding requirements. Depending on the pathway, we may be subject to different regulatory requirements, including different regulatory and testing requirements, shorter or longer periods of market exclusivity, and different approval processes for generic drug and biosimilar competitors.
If the market opportunities for any product that we or our collaborators develop are smaller than we believe, our revenue may be adversely affected and our business may suffer.
Our product candidates are intended for the treatment of schizophrenia, MDD, insomnia and Parkinson’s disease. Our projections of both the number of people who have these disorders or disease, as well as the subsets of people who have the potential to benefit from treatment with our product candidates and who will pursue such treatment, are based on our beliefs and estimates that may prove to be inaccurate. For instance, with respect to schizophrenia and MDD, our estimates are based on the number of patients that suffer from schizophrenia and MDD, but these disorders are difficult to accurately diagnose and high rates of patients may not seek or continue treatment. Our estimates and beliefs are also based on the potential market of other drugs in development for schizophrenia and MDD, which may prove to be inaccurate and our advantages over such drugs may not be, or may not be perceived to be, as significant as we believe they are. If our estimates prove to be inaccurate, even if our products are approved, we may not be able to successfully commercialize them. In addition, the cause and pathophysiology of schizophrenia and MDD are not fully understood, and additional scientific understanding and future drug or non-drug therapies may make our product candidates obsolete.
Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through pre-clinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or future clinical trials to be conducted with the altered materials. Such changes may also require additional testing, EMA or FDA notification or EMA or FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and/or jeopardize our ability to commence product sales and generate revenue.
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Our failure to obtain regulatory approval in additional international jurisdictions would prevent us from marketing our product candidates outside the European Union and the United States.
We plan to seek regulatory approval to commercialize our product candidates in the European Union and, other than MIN-202, in the United States. We also expect to seek regulatory approval in additional foreign countries. To market and sell our products in other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain EMA or FDA approval. The regulatory approval process outside the European Union and United States generally includes risks substantially similar to those associated with obtaining EMA or FDA approval. In addition, in many countries outside the United States, we must secure product price and reimbursement approvals before regulatory authorities will approve the product for sale in that country or within a short time after receiving such marketing approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets or do not receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, if at all, especially because some foreign jurisdictions require prior approval of a treatment by the domestic regulatory agency. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may significantly diminish the commercial prospects of that product candidate and our business prospects could decline.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than us.
The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. We face competition with respect to our current product candidates and will face competition with respect to any future product candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Many of our competitors have significantly greater financial, technical and human resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our competitors may obtain regulatory approval of their products more rapidly than us or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more convenient, more widely used, less costly and/or have a better safety profile than our products, and competitors may also be more successful than us in manufacturing and marketing their products.
Our competitors will also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
There are numerous currently approved therapies for treating the same diseases or indications for which our product candidates may be useful and many of these currently approved therapies act through mechanisms similar to our product candidates. Many of these approved drugs are well-established therapies or products and are widely accepted by physicians, patients and third-party payors. Some of these drugs are branded and subject to patent protection and regulatory exclusivity, while others are available on a generic basis. Insurers and other third-party payors may encourage the use of generic products or specific branded products. Moreover, it is difficult to predict the effect that introduction of biosimilars into the market will have on sales of the reference biologic product, which will depend on the FDA’s standards for interchangeability, the structure of government and commercial managed care formularies, and state laws on substitution of biosimilars. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generics and biosimilars. This may make it difficult for us to differentiate our products from currently approved therapies, which may adversely impact our business strategy. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability, and safety in order to overcome price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer. Moreover, many companies are developing new therapeutics, and we cannot predict what the standard of care will be as our product candidates progress through clinical development.
Even if any of our drug candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
If any of our drug candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. If our drug candidates do not
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achieve an adequate level of acceptance, we may not generate significant revenue from drug sales and we may not become profitable. Our commercial success also depends on coverage and adequate reimbursement of our products by third-party payors, including government payors, which may be difficult or time-consuming to obtain, may be limited in scope or may not be obtained in all jurisdictions in which we may seek to market our products. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:
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the efficacy and perceived and potential advantages compared to alternative treatments, including any similar generics and biosimilars; |
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the timing of market introduction relative to alternative treatment; |
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our ability to offer our drugs for sale at competitive prices relative to alternative treatments; |
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the clinical indications for which the product candidate is approved; |
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the convenience and ease of administration compared to alternative treatments; |
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
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the strength of our marketing and distribution support; |
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the availability of third-party coverage and adequate reimbursement for our products or the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors; |
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unfavorable publicity relating to the products; |
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the prevalence and severity of any side effects; and |
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any restrictions on the use of our drugs together with other medications. |
Our focus on CNS disorders, in particular, exposes us to an increased risk that serious side effects and disease events, including suicide, will occur during patient use of our products, even if such side effects and disease events are unrelated to the use of our products. Most approved CNS medicines carry boxed warnings for clinically significant adverse events, and our products may categorically need to carry such warnings as well.
We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.
We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product candidates, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so on commercially reasonable terms or at all.
If our product candidates receive regulatory approval, we intend to establish our sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming and may require substantial investments prior to any product candidate being granted regulatory approval. In selling, marketing and distributing our products ourselves, we face a number of additional risks, including:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel; |
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the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the clinical benefits of our products to achieve market acceptance; |
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; |
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the costs associated with training sales personnel on legal compliance matters and monitoring their actions; |
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liability for sales personnel failing to comply with the applicable legal requirements; and |
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unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products.
We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. Depending on the nature of the third party relationship, we may have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.
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If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Even if we commercialize any of our product candidates, these products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our business.
The laws that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. In many countries, the pricing review period begins after marketing or product licensing approval is granted. Some countries require approval of the sale price of a drug before it can be marketed or soon thereafter. Additionally, in some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates even if our product candidates obtain marketing approval.
In the European Union, the pricing and reimbursement of prescription drugs is controlled by each member state. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures in the current economic climate in Europe. There is very limited harmonization on member state pricing and reimbursement practices in the European Union.
Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In particular, Germany, Portugal and Spain have all introduced a number of short-term measures to lower healthcare spending, including mandatory discounts, clawbacks and price referencing rules, which could have a material adverse effect on our business.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available.
Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged for medical products. In addition, in the United States, federal programs impose penalties on drug manufacturers in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the EMA, FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs,
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including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Prices paid for a drug also vary depending on the class of trade. Prices charged to government customers and certain customers that receive federal funds are subject to price controls, and private institutions may obtain discounts through group purchasing organizations or use formularies to leverage discounts. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our product candidates and affect the prices we may obtain.
In the United States and many foreign jurisdictions, the legislative landscape continues to evolve. There have been a number of enacted or proposed legislative and regulatory changes affecting the healthcare system and pharmaceutical industry that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for certain pharmaceutical products. The legislation expanded Medicare coverage for outpatient prescription drugs dispensed to the elderly by establishing Medicare Part D and also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs under Medicare Part B. In addition, this legislation provided authority for limiting the number of outpatient prescription drugs that Medicare will cover in any therapeutic class under the Medicare Part D program. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and reimbursement rate that we receive for any of our approved products. While the MMA applies only to pharmacy benefits for Medicare beneficiaries, private payors often follow Medicare and Medicaid coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the PPACA, a law intended to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. Among other things, the PPACA expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for single-source, multiple source innovator and non-innovator drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices. This could increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The PPACA further created a separate AMP for certain categories of drugs generally provided in non-retail outpatient settings. The legislation also extended Medicaid drug rebates, previously due only on fee-for-service utilization, to Medicaid managed care utilization, and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the amount of rebates due on those drugs. The PPACA also expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The PPACA also imposed a significant annual fee on companies that manufacture or import branded prescription drug products. Furthermore, the PPACA changed the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% point-of-sale-discount off the negotiated price of applicable brand drugs to certain eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D. The PPACA further created a new approval pathway for biosimilars intended to encourage competition and lower prices, and it amended Medicare Part B reimbursement rules for physician-administered biologic products by making the purchase of lower cost biosimilars more attractive to providers reimbursed by Medicare Part B. As the FDA approves biosimilars, it is possible that similar rules will be adopted by commercial managed care organizations. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners. Notably, a significant number of provisions are not yet, or have only recently become, effective.
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In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013.
Moreover, the recently enacted Drug Quality and Security Act imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new legislation, manufacturers will be required to provide certain information regarding the drug products they produce to individuals and entities to which product ownership is transferred, label drug products with a product identifier, and keep certain records regarding the drug products. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers will also be required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and FDA and trading partner notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death. In the European Union, the Falsified Medicines Directive imposes similar requirements, which are expected to add materially to product costs.
We expect that the PPACA, as well as other federal and state healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
The full impact of these new laws, as well as laws and other reform measures that may be proposed and adopted in the future, remains uncertain, but may continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs, which could have a material adverse effect on our business operations.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenue, if any.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a health technology assessment that compares the cost-effectiveness of our drug candidate to other available therapies. There can be no assurance that our products will be considered cost-effective, that an adequate level of reimbursement will be available or that a foreign country’s reimbursement policies will not adversely affect our ability to sell our products profitably.
If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
Our international operations are subject to foreign currency and exchange rate risks.
Because we plan to conduct our clinical trials in Europe, we are exposed to currency fluctuations and exchange rate risks. The costs of our CROs may be incurred in Euros and we may pay them in Euros, however, we expect to keep the substantial portion of our cash and cash equivalents, including the remaining net proceeds from the initial public offering and the concurrent private placement transactions, in United States Dollars. Therefore, fluctuations in foreign currencies, especially the Euro, could significantly impact our costs of conducting clinical trials. In addition, we may have to seek additional funding earlier than expected, which may not be available on acceptable terms or at all. Changes in the applicable currency exchange rates might negatively affect the profitability and business prospects of the third parties conducting our future clinical trials. This might cause such third parties to demand higher fees or discontinue their operations. These situations could in turn increase our costs or delays our clinical development, which could have a material adverse effect on our business, financial condition and results of operations.
A variety of risks associated with international operations could materially adversely affect our business.
We expect to engage in significant cross-border activities, and we will be subject to risks related to international operations, including:
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different regulatory requirements for maintaining approval of drugs in foreign countries; |
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reduced protection for contractual and intellectual property rights in certain countries; |
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unexpected changes in tariffs, trade barriers and regulatory requirements; |
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economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; |
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workforce uncertainty in countries where labor unrest is more common than in North America; |
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tighter restrictions on privacy and the collection and use of patient data; and |
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
If any of these issues were to occur, our business could be materially harmed.
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Dr. Remy Luthringer, whose services are critical to the successful implementation of our product candidate development and regulatory strategies. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Pursuant to their employment arrangements, each of our executive officers may voluntarily terminate their employment at any time by providing as little as thirty days advance notice. Our employment arrangements, other than those with our executive officers, provide for at-will employment, which means that any of our employees (other than our executive officers) could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.
*We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of June 30, 2015, we had eight full-time employees. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:
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managing our clinical trials effectively; |
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identifying, recruiting, maintaining, motivating and integrating additional employees; |
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managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, collaborators, contractors and other third parties; |
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improving our managerial, development, operational and finance systems; and |
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developing our compliance infrastructure and processes to ensure compliance with complex regulations and industry standards regarding us and our product candidates. |
As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, collaborators, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and
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sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
We are party to a loan and security agreement that contains operating and financial covenants that may restrict our business and financing activities.
On January 16, 2015, we entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank, providing for term loans to us in an aggregate principal amount of up to $15 million, in two tranches. Borrowings under this loan and security agreement are secured by substantially all of our assets, excluding certain intellectual property rights. The loan and security agreement restricts our ability, among other things, to:
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sell, transfer or otherwise dispose of any of our business or property, subject to limited exceptions; |
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make material changes to our business or management; |
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enter into transactions resulting in significant changes to the voting control of our stock; |
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make certain changes to our organizational structure; |
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consolidate or merge with other entities or acquire other entities; |
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incur additional indebtedness or create encumbrances on our assets; |
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pay dividends, other than dividends paid solely in shares of our common stock, or make distributions on and, in certain cases, repurchase our stock; |
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enter into transactions with our affiliates; |
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repay subordinated indebtedness; or |
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make certain investments. |
In addition, we are required under our loan agreement to comply with various affirmative operating covenants. The operating covenants and restrictions and obligations in our loan and security agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under the loan and security agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable and eliminate our eligibility to receive additional loans under the agreement.
If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either as when such obligations become due, when they mature, or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our business operations and financial condition.
Future acquisitions, mergers or joint ventures could disrupt our business and otherwise harm our business.
We actively evaluate various strategic transactions on an ongoing basis and may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures or investments in complementary businesses. We merged with Sonkei in November 2013 and acquired Mind-NRG in February 2014, but otherwise do not have any substantial experience integrating or managing acquired businesses or assets. Strategic transactions expose us to many risks, including:
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disruption in our relationships with collaborators or suppliers as a result of such a transaction; |
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unanticipated liabilities related to acquired companies; |
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difficulties integrating acquired personnel, technologies and operations into our existing business; |
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retention of key employees; |
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diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges; |
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increases in our expenses and reductions in our cash available for operations and other uses; and |
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possible write-offs or impairment charges relating to acquired businesses. |
Foreign acquisitions, such as the acquisition of Mind-NRG, a Swiss company, involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
Also, the anticipated benefit of any strategic alliance, joint venture or acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt (including on terms that are unfavorable to us that we are unable to repay or that may place burdensome restrictions on our operations), contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.
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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties brought by subjects enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling our products. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates or products that we may develop; |
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termination of clinical trial sites or entire trial programs; |
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injury to our reputation and significant negative media attention; |
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withdrawal of clinical trial participants; |
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initiation of investigations by regulators; |
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costs to defend the related litigation; |
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a diversion of management’s time and our resources; |
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substantial monetary awards to trial participants or patients; |
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product recalls, withdrawals or labeling revisions, marketing or promotional restrictions; |
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loss of revenues from product sales; and |
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the inability to commercialize our product candidates. |
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We do not currently carry any product liability insurance. Although we anticipate obtaining and maintaining such insurance in line with our needs for our upcoming trials, such insurance may be more costly than we anticipate and any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by such insurance or that is in excess of the limits of such insurance coverage. We also expect our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.
We have previously identified material weaknesses and significant deficiencies in our internal control over financial reporting.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the preparation of our financial statements for the year ended December 31, 2013, we concluded that there were material weaknesses and significant deficiencies in our internal control over financial reporting during 2013. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that we identified related to (1) lack of segregation of duties, (2) lack of personnel competent to perform complex accounting, including stock-based compensation, the convertible promissory notes beneficial conversion features and income tax disclosures, (3) lack of financial statement disclosure controls, and (4) not performing a risk assessment. During 2014 we addressed these control deficiencies and they have been remediated as of December 31, 2014, except for a significant deficiency related to income tax disclosure.
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While we have established certain procedures and control over our financial reporting processes, we cannot assure you that these efforts will prevent restatements of our financial statements in the future. If we identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected and we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and business prospects.
We are required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act and the Committee on Sponsoring Organizations, or COSO, Report on Internal Control – Integrated Framework. These require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses or significant deficiencies in our internal control over financial reporting identified by our management or our independent registered public accounting firm.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We designed our disclosure controls and procedures to reasonably assure us that the information we disclose in reports we file in accordance with the Exchange Act is accurate, complete, reviewed by management and reported within the required time period. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Prior to November 2013, we operated without full time employees, relying on the services of consultants, including representatives of our affiliate, Care Capital LLC, to provid