|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
32,665
|
|
|
$
|
12,447
|
|
|
$
|
6,632
|
|
|
$
|
7,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash included in current/long term assets
|
|
|
586
|
|
|
|
561
|
|
|
|
636
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash in the statement of cash flows
|
|
$
|
33,251
|
|
|
$
|
13,008
|
|
|
$
|
7,268
|
|
|
$
|
7,998
|
|
Concentration
of credit risk
The
Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents.
Balances are maintained at U.S. financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to regulatory limits. The Company has not experienced any credit losses associated with its balances in such accounts.
Leasehold
improvements and equipment
Equipment
and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation on equipment is computed
using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Capitalized
costs associated with leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life
of the asset or the remaining term of the lease.
Goodwill
and other intangible assets
Goodwill
is recorded when consideration paid for an acquired entity exceeds the fair value of the net assets acquired. Goodwill is not
amortized but rather is assessed for impairment at least annually on a reporting unit basis, or more frequently when events and
circumstances indicate the goodwill may be impaired. U.S. GAAP provides that we have the option to perform a qualitative assessment
to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we
determine this is the case, we perform further analysis to identify and measure the amount of goodwill impairment loss to be recognized,
if any.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
A
reporting unit is an operating segment, or one level below an operating segment. Historically, we conducted our business in a
single operating segment and reporting unit. During the nine months ended September 30, 2019, the Company assessed goodwill impairment
by performing a qualitative test for its reporting unit. As part of the qualitative review, the Company considered its cash position
and its ability to obtain additional financing in the near term to meet its operational and strategic goals and substantiate the
value of its business. Based on the results of the Company’s assessment, it was determined that it is more-likely-than-not
that the fair value of the reporting unit is greater than its carrying amount. There were no impairments of goodwill during the
nine months ended September 30, 2019 and 2018.
Indefinite
lived intangible assets are composed of in-process research and development (“IPR&D”) and represent projects acquired
in a business combination that have not reached technological feasibility or that lack regulatory approval at the time of acquisition.
These IPR&D assets are reviewed for impairment annually, or sooner if events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable, and upon establishment of technological feasibility or regulatory approval.
An impairment loss, if any, is calculated by comparing the fair value of the asset to its carrying value. If the asset’s
carrying value exceeds its fair value, an impairment loss is recorded for the difference and its carrying value is reduced accordingly.
Similar to the impairment test for goodwill, the Company may perform a qualitative approach for testing indefinite-lived intangible
assets for impairment. The Company used the qualitative approach and concluded that it was more-likely-than-not that its indefinite-lived
assets were not impaired during the nine months ended September 30, 2019 and 2018.
Leases
In
February 2016, the Financial Accounting Standards Board (the “FASB”) established ASC Topic 842, “Leases”,
by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to now recognize operating leases
on the balance sheet and disclose key information about leasing arrangements. ASC Topic 842 was subsequently amended by ASU No.
2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic
842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model
that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than
12 months. Leases will be classified as either finance or operating, with classification affecting the pattern and classification
of expense recognition in the income statement. Lessor accounting under the new standard is substantially unchanged. Additional
qualitative and quantitative disclosures are also required.
The
Company adopted the new standard on January 1, 2019 using the modified retrospective transition method, which applies the provisions
of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical
expedients and accounting policies elections related to this standard:
●
|
Short-term
lease accounting policy election allowing lessees to not recognize ROU assets and liabilities for leases with a term of 12
months or less;
|
●
|
The
option to not separate lease and non-lease components in the Company’s lease contracts; and
|
●
|
The
package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing
contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii)
not reassessing the capitalization of initial direct costs for any existing leases.
|
Adoption of this standard resulted in the
recognition of operating lease right-of-use assets and corresponding lease liabilities of approximately $4.2 million and
approximately $4.5 million, respectively, on the consolidated balance sheet as of January 1, 2019. In addition, the Company
reclassified $0.2 million from leasehold improvements & equipment to finance lease right-of-use assets in connection with
the adoption of ASC Topic 842. The Company’s accounting for finance leases remained substantially unchanged. Disclosures
related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 6, Leases.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Preferred
stock dividends
Prior
to its automatic conversion on July 29, 2019, shares of Series A Preferred Stock earned dividends at a rate of 8.0% once
per year on the first, second and third anniversary of July 29, 2016, which was paid to the holders of such Series A Preferred
Stock in the form of shares of the Company’s common stock when converted. In addition, and subject to provisions detailed
more fully in Footnote 9, shares of Series B Preferred Stock earn dividends at rates of 10%, 15% and 20% once per year on the
first, second and third anniversary, respectively, of June 19, 2018. Dividends are payable to holders of the Series B Preferred
Stock in the form of shares of the Company’s common stock. Preferred stock dividends do not require declaration by the Board
of Directors and are accrued annually as of the date the dividend is earned in an amount equal to the applicable rate of the stated
value.
Business
combination
The
Company accounts for business combinations using the acquisition method of accounting which requires the recognition of tangible
and identifiable intangible assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
The Company allocates any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible
assets acquired and liabilities assumed to goodwill. Transaction costs are expensed as incurred and reported in general and administrative
expenses. Results of operations and cash flows of acquired companies are included in the Company’s operating results from
the date of acquisition.
Beneficial
conversion feature of convertible preferred stock
The
Company accounts for the beneficial conversion feature on its convertible preferred stock in accordance with Accounting Standards
Codification (“ASC”) 470-20, Debt with Conversion and Other Options. The Beneficial Conversion Feature (“BCF”)
of convertible preferred stock is normally characterized as the convertible portion or feature that provides a rate of conversion
that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of convertible preferred
stock when issued. BCFs that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.
To
determine the effective conversion price, the Company first allocates the proceeds received to the convertible preferred stock
and then uses those allocated proceeds to determine the effective conversion price. If the convertible instrument is issued in
a basket transaction (i.e., issued along with other freestanding financial instruments), the proceeds should first be allocated
to the various instruments in the basket. Any amounts paid to the investor when the transaction is consummated (e.g., origination
fees, due diligence costs) represent a reduction in the proceeds received by the issuer. The intrinsic value of the conversion
option is measured using the effective conversion price for the convertible preferred stock on the proceeds allocated to that
instrument. The effective conversion price represents proceeds allocable to the convertible preferred stock divided by the number
of shares into which it is convertible. The effective conversion price is then compared to the per share fair value of the underlying
shares on the commitment date.
The
BCF is recognized by allocating the intrinsic value of the conversion option to additional paid-in capital, resulting in a discount
on the convertible preferred stock. This discount is accreted from the date on which the BCF is first recognized through the earliest
conversion date for instruments that do not have a stated redemption date. The intrinsic value of the BCF is recognized as a deemed
dividend on convertible preferred stock over the period specified in the guidance.
Sale
of net operating losses (NOLs)
The
Company recognized approximately $1.0 million and $0 for the nine months ended September 30, 2019 and 2018, respectively, in connection
with the sale of state net operating losses and state research and development credits to a third party under the New Jersey Technology
Business Tax Certificate Program. The Company did not recognize any income from the sale of NOLs during the three months ended
September 30, 2019 and 2018.
Income
taxes
Income
taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and
liabilities at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Tax
benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained
upon examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the
consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to
be realized upon settlement. An unrecognized tax benefit, or a portion thereof, is presented in the consolidated financial statements
as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
if such settlement is required or expected in the event the uncertain tax position is disallowed. The Company classifies interest
and penalties related to uncertain income tax positions in income tax expense in the consolidated statement of operations. The
Company did not recognize any income tax related interest or penalties during the nine months ended September 30, 2019 and 2018,
nor has the company recognized any liabilities for uncertain tax positions in its consolidated financial statements.
The
Company is subject to examination by the Internal Revenue Service of its federal income tax returns and by state tax authorities
for state jurisdictions. Since the Company incurred net operating losses in every tax year since inception, all income tax returns
are subject to examination and adjustments for at least three years following the year in which the tax attributes generated in
those years are utilized.
Fair
value measurements
The
Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on
inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs
reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent
sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis
for fair value measurements for each level within the hierarchy is described below:
●
|
Level
1 - Quoted prices for identical assets or liabilities in active markets.
|
●
|
Level
2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities
in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers
are observable.
|
●
|
Level
3 - Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.
|
The
Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to
the extent possible as well as considers counterparty credit risk in its assessment of fair value.
The
carrying amounts of cash and cash equivalents, current portion of restricted cash, accounts receivable, prepaid expenses, accounts
payable, note payable, current portion of lease liability and accrued expenses approximate fair value due to the short-term nature
of these instruments.
Basic
and diluted net loss per common share
Basic
and diluted net loss per share is computed by dividing net loss available to common shareholders by the weighted average number
of shares outstanding during the period. Diluted earnings per common share is the same as basic earnings per common share because,
as the Company incurred a net loss during each period presented, the potentially dilutive securities from the assumed exercise
of all outstanding stock options and warrants and conversion of preferred stock, would have an anti-dilutive effect.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
The
following table provides the number of shares of common stock issuable upon the exercise of stock options, warrants and conversion
of preferred stock, which have been excluded from the diluted loss per share calculation as the inclusion would be anti-dilutive
for the three and nine months ended September 30, 2019 and 2018:
|
|
As of September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
16,859
|
|
|
|
11,455
|
|
Convertible preferred stock and accrued dividends upon conversion
|
|
|
9,240
|
|
|
|
28,685
|
|
Warrants
|
|
|
5,799
|
|
|
|
5,802
|
|
Total
|
|
|
31,898
|
|
|
|
45,942
|
|
Revenue
recognition
The
Company’s revenues consist of a research grant to provide research and development services to the Cystic Fibrosis Foundation
(“CFF”). The grant contract has a single performance obligation that is recognized over time as the services are performed.
There are no contract assets or liabilities associated with this grant. As this contract is currently the Company’s only
contract with a customer, disaggregation of revenue is not required.
Research
and development, legal fees and other direct costs
Research
and development costs are charged to expenses as they are incurred. Legal fees and other direct costs incurred in obtaining and
protecting patents are also expensed as incurred and are included in general and administrative expenses in the consolidated statements
of operations.
Recent
accounting standards
In
January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment”. The amendment simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment
test. Instead an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We are
required to apply the amendments for the annual or any interim goodwill impairment tests in fiscal years beginning on January
1, 2020. We have evaluated this standard and believe it will not have a material impact on our consolidated financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation to include
share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees
and employees will be substantially aligned. The Company adopted the guidance on January 1, 2019. The adoption did not have a
material impact on our consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which
will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact this standard will have on its
consolidated financial statements.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
On
January 1, 2019, the Company adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification,
which amended certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition,
the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements.
Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must
be provided in a note or separate statement. The Company has updated its consolidated financial statements to include a reconciliation
of the beginning balance to the ending balance of stockholders’ equity for each period for which a statement of comprehensive
income is filed.
Note
4 – Leasehold Improvements and Equipment
Leasehold
improvements and equipment consist of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Lab equipment
|
|
$
|
1,437
|
|
|
$
|
1,054
|
|
Equipment under capital lease
|
|
|
-
|
|
|
|
272
|
|
Leasehold improvements
|
|
|
878
|
|
|
|
1,156
|
|
Total
|
|
|
2,315
|
|
|
|
2,482
|
|
Less: accumulated depreciation and amortization
|
|
|
509
|
|
|
|
439
|
|
Leasehold improvements and equipment, net
|
|
$
|
1,806
|
|
|
$
|
2,043
|
|
Depreciation
and amortization expense was approximately $149 thousand and $156 thousand for the nine months ended September 30, 2019 and 2018,
respectively.
Note 5 – Accrued Expenses
Accrued
Expenses consist of the following as of September 30, 2019 and December 31, 2018:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Payroll
and incentives
|
|
$
|
222
|
|
|
$
|
632
|
|
General
and administrative expenses
|
|
|
440
|
|
|
|
190
|
|
Research
and development expenses
|
|
|
801
|
|
|
|
233
|
|
Other
|
|
|
-
|
|
|
|
32
|
|
Total
|
|
$
|
1,463
|
|
|
$
|
1,087
|
|
Note
6 – Leases
The
Company has various lease agreements with terms up to 10 years, including leases of office space, a laboratory and manufacturing
facility, and various equipment. Some leases include purchase, termination or extension options for one or more years. These options
are included in the lease term when it is reasonably certain that the option will be exercised.
The
assets and liabilities from operating and finance leases are recognized at the lease commencement date based on the present value
of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when
readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The
Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a
discount rate based on its incremental borrowing rate, which is determined using the average of borrowing rates explicitly stated
in the Company’s finance leases.
The
Company incurred lease expense for its operating leases of approximately $203 thousand and $610 thousand for the three and nine
months ended September 30, 2019, respectively, and $186 thousand and $559 thousand for the three and nine months ended
September 30, 2018, respectively.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
The
Company incurred interest expense on its finance leases of approximately $3 thousand and $9 thousand for the three and nine months
ended September 30, 2019, respectively, and $3 thousand and $9 thousand for the three and nine months ended September
30, 2018, respectively. The Company incurred amortization expense on its finance lease right-of-use assets of approximately $25
thousand and $98 thousand for the three and nine months ended September 30, 2019, respectively, and $28 thousand and $71
thousand for the three and nine months ended September 30, 2018, respectively.
The
following table presents information about the amount and timing of liabilities arising from the Company’s operating and
finance leases as of September 30, 2019:
Maturity of Lease Liabilities
|
|
Operating Lease Liabilities
|
|
|
Finance Lease Liabilities
|
|
2019
|
|
$
|
185
|
|
|
$
|
22
|
|
2020
|
|
|
753
|
|
|
|
60
|
|
2021
|
|
|
684
|
|
|
|
34
|
|
2022
|
|
|
645
|
|
|
|
19
|
|
2023
|
|
|
677
|
|
|
|
2
|
|
Thereafter
|
|
$
|
2,914
|
|
|
$
|
-
|
|
Total undiscounted operating lease payments
|
|
$
|
5,858
|
|
|
|
137
|
|
Less: Imputed interest
|
|
|
1,642
|
|
|
$
|
8
|
|
Present value of operating lease liabilities
|
|
$
|
4,216
|
|
|
$
|
129
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
7.7
|
|
|
|
2.3
|
|
Weighted average discount rate
|
|
|
8.4
|
%
|
|
|
7.8
|
%
|
Note
7 – Commitments
Research
and development agreements
The
Company has financial obligations resulting from Cooperative Research and Development Agreements (“CRADAs”) entered
into with the with the National Institute of Allergy and Infectious Diseases (“NIH”) as follows:
●
|
On
February 19, 2016, the Company agreed to provide funds in the amount of $200,000 per year under a CRADA to support NIH investigators
in the conduct of clinical research to investigate the safety, efficacy, and pharmacokinetics of encochleated drug products
in patients with fungal, bacterial, or viral infections. The initial term of the CRADA was three years. On April 16, 2019,
the Company renewed the CRADA for an additional three years with an annual funding commitment of $200,000.
|
|
|
●
|
On
April 2, 2019, the Company agreed to provide funds in the amount of $157,405 per year under a CRADA to support NIH investigators
in the conduct of clinical research to investigate the safety, efficacy, and pharmacokinetics of encochleated drug products
in patients with fungal, bacterial, or viral infections. The term of the CRADA is three years.
|
In
addition, in the course of normal business operations, the Company enters into agreements with contract service providers to assist
in the performance of research & development and manufacturing activities. Expenditures to these third parties represent significant
costs in clinical development and may require upfront payments and long-term commitments of cash. Subject to required notice periods
and obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Royalty
payment rights
On
September 12, 2016 the Company conducted a final closing of a private placement offering to accredited investors of shares of
the Company’s Series A Preferred Stock. As part of this offer, the investors received royalty payment rights if and when
the Company generates sales of its MAT2203 or MAT2501 product candidates. Pursuant to the terms of the Series A Certificate of
Designation, the Company may be required to pay royalties of up to $35 million per year. If and when the Company obtains FDA or
EMA approval of MAT2203 and/or MAT2501, which the Company does not expect to occur before 2020, if ever, and/or if the Company
generates sales of such products, or the Company receives any proceeds from the licensing or other disposition of MAT2203 or MAT2501,
the Company is required to pay to the holders of the Series A Preferred Stock, subject to certain vesting requirements, in the
aggregate, a royalty (the “Royalty Payment Rights”) equal to (i) 4.5% of Net Sales (as defined in the Series A Certificate
of Designation), subject in all cases to a cap of $25 million per calendar year, and (ii) 7.5% of Licensing Proceeds (as defined
in the Series A Certificate of Designation), subject in all cases to a cap of $10 million per calendar year. The Royalty Payment
Rights will expire when the patents covering the applicable product expire, which is currently expected to be in 2033.
License
agreement
Through
the acquisition of Aquarius, the Company acquired a license from Rutgers University, The State University of New Jersey (successor
in interest to the University of Medicine and Dentistry of New Jersey) for the LNC platform delivery technology. The Amended and
Restated Exclusive License Agreement provides for, among other things, the payment of (1) royalties on a tiered basis between
low single digits and the mid-single digits of net sales of products using such licensed technology, (2) a one-time sales milestone
fee of $100,000 when and if sales of products using the licensed technology reach the specified sales threshold and (3) an annual
license fee of initially $10,000, increasing to $50,000 over the term of the license agreement.
Note
8 – Related Parties
Aegis
Capital Corp. and Mr. Adam Stern
Mr.
Adam Stern, a director of the Company, has been Head of Private Equity Banking at Aegis Capital Corp. (“Aegis”) and
CEO of SternAegis Ventures since 2012. Aegis acted as a selected dealer for our public offering of Series B Preferred Stock in
June 2018, which raised gross proceeds of $8 million. In connection with the offering the Company agreed to issue placement agent
warrants to purchase that number of shares of common stock equal to 1.5% of the aggregate number of shares of common stock underlying
the shares of Series B Preferred Stock sold in the offering (not including any shares payable pursuant to the contemplated dividend
thereunder). A total of 240,000 warrants were issued, of which Adam Stern and Aegis were collectively issued 81,080.
No
related party transactions were entered into during the three and nine months ended September 30, 2019. Except as disclosed above
regarding Aegis and Mr. Adam Stern, no other related party transactions were entered into during the three and nine months ended
September 30, 2018.
Note
9 – Stockholders’ Equity
Common
Stock
On
March 19, 2019, the Company closed an underwritten public offering of its common stock. This offering was made pursuant to an
underwriting agreement between the Company and BTIG, LLC. The offering resulted in the sale of 27,272,727 shares to the public
at a price of $1.10 per share. The Company generated gross proceeds of $30.0 million. Net proceeds after deducting underwriting
discounts and commissions and other estimated offering expenses are approximately $27.8 million. In addition, the Company granted
the underwriters a 30-day option (the “option”) to purchase up to an additional 4,090,909 shares of common stock subject
to the same terms and conditions. On March 28, 2019, an additional 2,199,259 shares were sold pursuant to the option at a price
of $1.10 per share, resulting in net proceeds to the Company of approximately $2.3 million.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Preferred
Stock
In
accordance with the Certificate of Incorporation, the Company is authorized to issue 10,000,000 preferred shares at a par value
of $0.001. In connection with a private placement of Series A Preferred Stock, on July 26, 2016, the Company filed the Series
A Certificate of Designation with the Secretary of the State of Delaware to designate the preferences, rights and limitations
of the Series A Preferred Stock. Pursuant to the Series A Certificate of Designation, the Company designated 1,600,000 shares
of the Company’s previously undesignated preferred shares as Series A Preferred Stock. In connection with a public offering
of Series B Preferred Stock, on June 19, 2018, the Company filed the Series B Certificate of Designation with the Secretary of
the State of Delaware to designate the preferences, rights and limitations of the Series B Preferred Stock. Pursuant to the Series
B Certificate of Designation, the Company designated 8,000 shares of the Company’s previously undesignated preferred shares
as Series B Preferred Stock.
Series
A Preferred Stock
On
July 29, 2019, the Company effected a mandatory conversion of all then outstanding shares of Series A Preferred Stock in accordance
with terms of the underlying Certificate of Designation. The conversion resulted in the issuance of 14,678,580 shares of the Company’s
common stock. In addition, the Company issued 3,522,860 shares of common stock as payment-in-kind for dividends that were accrued
to shareholders of Series A Preferred Stock.
Conversion:
Prior
to the automatic conversion of the Series A Preferred Stock on July 29, 2019, each share of Series A Preferred Stock was convertible
at the option of the holder into such number of shares of the Company’s common stock equal to the number of shares of Series
A Preferred Stock to be converted, multiplied by the stated value of $5.00 per share (the “Stated Value”), divided
by the Conversion Price in effect at the time of the conversion (the initial conversion price is $0.50, subject to adjustment
in the event of stock splits, stock dividends, and a “fundamental transaction” as defined below). Based on the conversion
price and number of shares outstanding, the Series A Preferred Stock were converted into 14,678,580 shares of common stock. A
“fundamental transaction” means: (i) a merger or consolidation of the Company with or into another entity, (ii) any
sale of all or substantially all of our assets in one transaction or a series of related transactions, or (iii) any reclassification
of our Common Stock or any compulsory share exchange by which Common Stock is effectively converted into or exchanged for other
securities, cash or property. Each share of Series A Preferred Stock will automatically convert into common stock upon the earlier
of (i) notice by the Company to the holders that the Company has elected to convert all outstanding Series A Preferred Stock;
provided however that in the event the Company elects to force automatic conversion pursuant to this clause (i), the conversion
date for purposes of calculating the accrued dividend (as defined below) is deemed to be July 29, 2019, (ii) July 29, 2019, (iii)
the approval of the Company’s MAT2203 product candidate by the FDA or the EMA (the “Regulatory Approval”) or
(iv) the Regulatory Approval of the Company’s MAT2501 product candidate.
Beneficial
Conversion Feature – Series A Preferred Stock (deemed dividend):
Prior
to the automatic conversion of the Series A Preferred Stock on July 29, 2019, each share of Series A Preferred Stock was convertible
into shares of common stock, at any time at the option of the holder at a conversion price of $0.50 per share.
Based
on the guidance in ASC 470-20-20, the Company determined that a beneficial conversion feature existed, as the effective conversion
price for the Series A Preferred Stock at issuance was less than the fair value of the common stock which the preferred shares
are convertible into. A beneficial conversion feature based on the intrinsic value of the date of issuances for the Series A Preferred
Stock was approximately $4.4 million.
Liquidity
Value and Dividends:
Pursuant
to the Certificate of Designation, the Series A Preferred Stock accrued dividends at a rate of 8.0% once per year on the first
three anniversaries of July 29, 2016, which were paid to the holders of such Series A Preferred Stock in shares of common stock
upon conversion. Dividends of approximately $1.8 million, representing 3,522,860 shares of common stock, were accrued as paid-in-kind
through July 29, 2019, with $0.6 million accrued in each of 2019, 2018 and 2017.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Royalty:
The
Series A Preferred Stock includes the right, as a group, to receive: (i) a royalty of 4.5% of the net sales of the Company’s
MAT2203 and MAT2501 product candidates, in each case from and after the date, respectively, such product candidate has received
FDA or EMA approval, and (ii) a royalty of 7.5% of the proceeds, if any, received by the Company in connection with the licensing
or other disposition by the Company of MAT2203 and/or MAT2501 (“Royalty Payment Rights”). The royalty is payable so
long as the Company has valid patents covering MAT2203 and MAT2501, as applicable. The Royalty Payment Rights are unsecured obligations
of the Company. The royalty payment will be allocated to the holders based on their pro rata ownership of vested Series A Preferred
Stock. The royalty rights that are part of the Series A Preferred Stock vested in equal thirds, on July 29, 2017, July 29, 2018,
and July 29, 2019 (each a “Vesting Date”) Following the July 29, 2019 conversion of Series A Preferred Stock, the
Royalty Payment Rights may be transferred subject to available exemption from registration under applicable securities laws. These
rights were not separable free-standing instruments requiring bifurcation at the date of transaction. The Company may recognize
a deemed dividend for the estimated fair value of the vested portion of Royalty Payment Rights in future periods. As of September
30, 2019, no accrual has been recorded for royalty payments as it is not probable at this time that any amount will be paid.
Series
B Preferred Stock
On
June 19, 2018, the Company entered into a placement agency agreement with ThinkEquity, a Division of Fordham Financial Management,
Inc., as placement agent, relating to the offering, issuance and sale of up to 8,000 shares of the Company’s Series B Convertible
Preferred Stock, par value $0.0001 per share with a stated value of $1,000 per share which are convertible into an aggregate of
up to 16,000,000 shares of the Company’s common stock at an initial conversion price of $0.50 per share. The offering also
included up to an additional 7,200,000 shares of common stock issuable upon payment of dividends under the Series B Preferred
Stock. The offering closed on June 21, 2018 raising a gross amount of $8 million with net proceeds of $7.1 million after deducting
issuance costs. The placement agent received 7% commission on the gross proceeds, 1% of the gross proceeds to cover non-accountable
expenses and 240,000 warrants fair valued at approximately $89,000 treated as a reduction to gross proceeds, that are exercisable
over a 5-year period at an exercise price of $0.75 per share.
As
of September 30, 2019, there were 4,620 shares of Series B Preferred Stock outstanding.
Conversion:
Optional
Conversion. Subject to the Beneficial Ownership Limitation (defined below), each share of Series B Preferred Stock will be
convertible into shares of the Company’s common stock at any time at the option of the holder at an initial conversion price
of $0.50 per share subject to adjustment for reverse splits, stock combinations and similar changes as provided in the Certificate
of Designation. Based on the current conversion price and number of shares outstanding, the Series B Preferred Stock is convertible
into 9,240,000 shares of common stock. Dividends will not accrue and will not be paid following optional conversion. During the
nine months ended September 30, 2019 and 2018, 199 and 997 shares, respectively, of Series B preferred stock were converted into
shares of common stock.
Automatic
Conversion. Subject to the Beneficial Ownership Limitation described below, each share of Series B Preferred Stock shall automatically
convert into 2,000 shares of the Company’s common stock at an initial conversion price of $0.50 per share upon the earlier
of (i) the first FDA approval of one of our product candidates, (ii) the 36-month anniversary of the of the filing of the Certificate
of Designation for the Series B Preferred Stock with the Secretary of State of Delaware (the “COD Effective Date”
which is June 19, 2018) or (iii) the consent to conversion by holders of at least 50.1% of the outstanding shares of Series B
Preferred Stock. In the event the Series B Preferred Stock automatically converts into common stock prior to the 36 month anniversary
of the COD Effective Date, the holder on the date of such conversion shall also be entitled to receive those dividends which would
have been payable after the conversion date, as if the shares of Series B Preferred Stock had remained unconverted and outstanding
through the 36 month anniversary of the COD Effective Date. Such dividend amount shall be payable as set forth above in shares
of common stock upon such automatic conversion.
Beneficial
Conversion Feature. The Optional and Automatic conversion features do not contain a BCF as the effective conversion price
for the Series B Preferred Stock at issuance was equal to the fair value of the common stock into which the preferred shares are
convertible into.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Beneficial
Ownership Limitation. The Company may not affect any optional or automatic conversion of the Series B Preferred Stock, or
issue shares of common stock as dividends and a holder does not have the right to convert any portion of the Series B Preferred
Stock to the extent that, after giving effect to such conversion such holder would beneficially own in excess of the Beneficial
Ownership Limitation, or such holder, together with such holder’s affiliates, and any persons acting as a group together
with such holder or affiliates, would beneficially own in excess of the Beneficial Ownership Limitation. The “Beneficial
Ownership Limitation” is 4.99% of the number of shares of the Company’s common stock outstanding immediately after
giving effect to the issuance of shares of common stock issuable upon conversion of Series B Preferred Stock held by the applicable
holder. A holder may, prior to issuance of the Series B Preferred Stock or, with 61 days prior notice to us, elect to increase
or decrease the Beneficial Ownership Limitation; provided, however, that in no event may the Beneficial Ownership Limitation exceed
9.99%.
Liquidity
Value and Dividends:
Dividends.
Subject to the Beneficial Ownership Limitation described above, holders of the Series B Preferred Stock are entitled to receive
dividends payable in the Company’s common stock as follows: (i) a number of shares of common stock equal to 10% of the shares
of common stock underlying the Series B Preferred Stock then held by such holder on the 12 month anniversary of the COD Effective
Date, (ii) a number of shares of common stock equal to 15% of the shares of common stock underlying the Series B Preferred Stock
then held by such holder on the 24-month anniversary of the COD Effective Date and (iii) a number of shares of common stock equal
to 20% of the shares of common stock underlying the Series B Preferred Stock then held by such holder on the 36-month anniversary
of the COD Effective Date. In the event a purchaser in this offering no longer holds Series B Preferred Stock as of the 12-month
anniversary, the 24-month anniversary or the 36-month anniversary, such purchaser will not be entitled to receive any dividends
on such anniversary date. Based on an accounting of the holders of record of Series B Preferred Stock on June 19, 2019, the Company
paid the 12-month anniversary dividend payment of 10%, totaling 946,000 shares of common stock.
In
the event a fundamental transaction is consummated prior to the automatic conversion of the Series B Preferred Stock, the dividends
will be accelerated and paid to the extent not previously paid. In addition, holders of Series B Preferred Stock will be entitled
to receive dividends equal, on an as-if-converted to shares of common stock basis, and in the same form as dividends actually
paid on shares of the common stock when, as, and if such dividends are paid on shares of the common stock. Notwithstanding the
foregoing, to the extent that a holder’s right to participate in any dividend in shares of common stock to which such holder
is entitled would result in such holder exceeding the Beneficial Ownership Limitation, then such holder shall not be entitled
to participate in any such dividend to such extent and the portion of such shares that would cause such holder to exceed the Beneficial
Ownership Limitation shall be held in abeyance for the benefit of such holder until such time, if ever, as such holder’s
beneficial ownership thereof would not result in such holder exceeding the Beneficial Ownership Limitation.
Pursuant
to its Certificate of Designation, the liquidation value of a share of Series B Preferred Stock is equal to the stated value of
$1,000 per share (as adjusted for stock splits, stock dividends, combinations or other recapitalizations of the Series A Preferred
Stock) plus any earned but unpaid dividends.
Warrants
The
Company has issued two types of warrants: (i) investor warrants and (ii) placement agent warrants. All warrants are exercisable
immediately upon issuance and have a five-year term. The warrants may be exercised at any time in whole or in part upon payment
of the applicable exercise price until expiration. No fractional shares will be issued upon the exercise of the warrants. The
exercise price and the number of shares purchasable upon the exercise of the investor warrants are subject to adjustment upon
the occurrence of certain events, which include stock dividends, stock splits, combinations and reclassifications of the Company’s
capital stock or other similar changes to the equity structure of the Company.
For
20 million investor warrants issued in 2015, the Company may call the warrants at any time the common stock trades above $3.00
for twenty (20) consecutive days following the effectiveness of the registration statement covering the resale of the shares of
common stock underlying the warrants, provided that the warrants can only be called if such registration statement is current
and remains effective at the time of the call and provided further that the Company can only call the investor warrants for redemption,
if it also calls all other warrants for redemption on the terms described above.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
The
placement agent warrants do not have a redemption feature. They may be exercised on a cashless basis at the Company’s option.
The
investor warrants and placement agent warrants are classified as equity instruments.
As
of September 30, 2019, the Company had outstanding warrants to purchase an aggregate of 5,799,429 shares of common stock at exercise
prices ranging from $0.50 to $0.75 per share. A summary of warrants outstanding as of September 30, 2019 is presented below, all
of which are fully vested:
|
|
Shares
|
|
Outstanding at December 31, 2017
|
|
|
5,958
|
**
|
Issued
|
|
|
240
|
|
Exercised
|
|
|
-
|
|
Tendered
|
|
|
-
|
|
Expired
|
|
|
(399
|
)
|
Outstanding at December 31, 2018
|
|
|
5,799
|
*
|
Issued
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Tendered
|
|
|
-
|
|
Expired
|
|
|
-
|
|
Outstanding at September 30, 2019
|
|
|
5,799
|
*
|
*
Weighted average exercise price for outstanding warrants is $0.61.
**
Weighted average exercise price for outstanding warrants is $0.70.
Note
10 – Stock-based Compensation
The
Company’s Amended and Restated 2013 Equity Compensation Plan (the “Plan”) provides for the granting of incentive
stock options, nonqualified stock options, restricted stock units, performance units, and stock purchase rights. Options under
the Plan may be granted at prices not less than 100% of the fair value of the shares on the date of grant as determined by the
Compensation Committee of the Board of Directors. The Compensation Committee determines the period over which the options become
exercisable subject to certain restrictions as defined in the Plan, with the current outstanding options generally vesting over
three or four years. The term of the options is no longer than ten years. As of September 30, 2019, the Company had 22,421,644
shares of common stock authorized for issuance under the Plan.
With
the approval of the Board of Directors and a majority of shareholders, effective May 8, 2014, the Plan was amended and restated.
The amendment provides for an automatic increase in the number of shares of common stock available for issuance under the Plan
each January (with Board approval), commencing January 1, 2015 in an amount up to four percent (4%) of the total number of shares
of common stock outstanding on the preceding December 31st.
The
Company recognized stock-based compensation expense (options and restricted share grants) in its condensed consolidated statements
of operations as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and Development
|
|
$
|
185
|
|
|
$
|
101
|
|
|
$
|
834
|
|
|
$
|
787
|
|
General and Administrative
|
|
|
486
|
|
|
|
404
|
|
|
|
1,463
|
|
|
|
2,016
|
|
Total
|
|
$
|
671
|
|
|
$
|
505
|
|
|
$
|
2,297
|
|
|
$
|
2,803
|
|
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
The
following table contains information about the Company’s stock plan at September 30, 2019:
|
|
Awards Reserved for Issuance
|
|
|
Awards Issued
|
|
|
Awards
Available for Grant
|
|
2013 Equity Compensation Plan
|
|
|
22,422
|
*
|
|
|
19,132
|
**
|
|
|
3,289
|
|
*
|
Increased
by 4,532 thousand on January 1, 2019, representing 4% of the total number of shares of common stock outstanding on December
31, 2018.
|
**
|
Includes
both stock grants and option grants
|
The
following table summarizes the Company’ stock option activity and related information for the period from December 31, 2018
to September 30, 2019 (options in thousands):
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Contractual Term in Years
|
|
Outstanding at December 31, 2018
|
|
|
13,457
|
|
|
$
|
1.13
|
|
|
|
6.2
|
|
Granted
|
|
|
3,595
|
|
|
$
|
1.03
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(137
|
)
|
|
$
|
1.22
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(56
|
)
|
|
$
|
2.32
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
16,859
|
|
|
$
|
1.11
|
|
|
|
6.3
|
|
As
of September 30, 2019, the number of vested shares underlying outstanding options was 11,313,021 at a weighted average exercise
price of $1.16. The aggregate intrinsic value of in-the-money options outstanding as of September 30, 2019 was $0.6 million. As
of September 30, 2019, there was approximately $3.9 million of total unrecognized share-based compensation. Such costs are expected
to be recognized over a weighted average period of approximately 2.8 years.
All
outstanding options expire ten years from date of grant. Options granted to employees prior to 2018 vest in equal monthly installments
over three years. Beginning in 2018, options granted to employees vest over four years, with 25% of the shares vesting on the
first annual anniversary of grant and the remaining shares vesting in 36 equal monthly installments over the following 3 years.
A portion of options granted to consultants vests over four years, with the remaining vesting being based upon the achievement
of certain performance milestones, which are tied to either financing or drug development initiatives.
During
the nine months ended September 30, 2019 and 2018, the Company granted restricted stock awards for 415,178 and 713,266 shares
of common stock, respectively. These awards are typically granted to members of the Board of Directors as payment in lieu of cash
fees or as payment to a vendor pursuant to a consulting agreement. The Company values restricted stock awards at the fair market
value on the date of grant. The Company recorded the value of these restricted awards as general and administrative expense of
approximately $238 thousand and $485 thousand in the condensed consolidated statement of operations for the nine months
ended September 30, 2019 and 2018, respectively. As of September 30, 2019, there was $122 thousand of total unrecognized
compensation costs related to 200,000 non-vested restricted stock grants which are expected to be recognized over a weighted-average
period of 0.5 years.
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
The
Company recognizes compensation expense for stock option awards and restricted stock awards on a straight-line basis over the
applicable service period of the award. The service period is generally the vesting period, with the exception of awards granted
subject to a vendor’s consulting agreement, whereby the award vesting period and the service period defined pursuant to
the terms of the consulting agreement may be different. Beginning January 1, 2019, stock options issued to consultants are recorded
at fair value on the date of grant and the award is recognized as an expense on a straight-line basis over the requisite service
period. The following weighted-average assumptions were used to calculate share-based compensation for the comparative periods
presented:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Volatility
|
|
|
108.03-108.06
|
%
|
|
|
105.85-109.95
|
%
|
|
|
108.03-111.34
|
%
|
|
|
105.85-109.95
|
%
|
Risk-free
interest rate
|
|
|
1.59-1.89
|
%
|
|
|
2.84-3.00
|
%
|
|
|
1.59-2.65
|
%
|
|
|
2.29-3.00
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected
life
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
The
Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and
post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method”
described in Staff Accounting Bulletin (SAB) 107 to estimate the expected term of its stock-based awards.
The
expected stock price volatility assumption is based the Company’s historical stock price volatility.
Note
11 - Subsequent Events
None
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read together with our financial
statements and the related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2018 and in
other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.” Dollars
in tabular format are presented in thousands, except per share data, or otherwise indicated.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives,
goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks,
uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements
to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify
these forward-looking statements through our use of words such as “may,” “can,” “anticipate,”
“assume,” “should,” “indicate,” “would,” “believe,” “contemplate,”
“expect,” “seek,” “estimate,” “continue,” “plan,” “point to,”
“project,” “predict,” “could,” “intend,” “target,” “potential”
and other similar words and expressions of the future.
There
are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking
statement made by us. These factors include, but are not limited to:
●
|
our
ability to raise additional capital to fund our operations and to develop our product candidates, including MAT9001 and MAT2203;
|
|
|
●
|
our
anticipated timing for preclinical development, regulatory submissions, commencement and completion of clinical trials and
product approvals;
|
|
|
●
|
our
history of operating losses in each year since inception and the expectation that we will continue to incur operating losses
for the foreseeable future;
|
|
|
●
|
our
dependence on product candidates, which are still in an early development stage;
|
|
|
●
|
our
reliance on the proprietary LNC drug delivery technology platform, which is licensed to us by Rutgers University;
|
|
|
●
|
our
ability to manufacture batches of our product candidates in accordance with the standards of Good Manufacturing Practices,
which are required for pre-clinical and clinical trials and, subsequently, if regulatory approval is obtained for any of our
products, our ability to manufacture commercial quantities;
|
|
|
●
|
our
ability to complete required clinical trials for our product candidates and obtain approval from the FDA or other regulatory
agents in different jurisdictions;
|
|
|
●
|
our
expectations of the attributes of our product and development candidates, including pharmaceutical properties, efficacy, safety
and dosing regimens;
|
|
|
●
|
our
dependence on third parties, including manufactures and contract research organizations (“CROs”) (including, without
limitation, the NIH) to conduct our clinical trials;
|
●
|
our
ability to maintain or protect the validity of our patents and other intellectual property;
|
|
|
●
|
our
ability to retain and recruit key personnel;
|
|
|
●
|
our
ability to internally develop new inventions and intellectual property;
|
|
|
●
|
interpretations
of current laws and the passages of future laws;
|
|
|
●
|
our
lack of a sales and marketing organization and our ability to commercialize products, if we obtain regulatory approval, whether
alone or through potential future collaborators;
|
|
|
●
|
our
ability to successfully commercialize, and our expectations regarding future therapeutic and commercial potential with respect
to, our product candidates;
|
|
|
●
|
the
accuracy of our estimates regarding expenses, ongoing losses, future revenue, capital requirements and our needs for or ability
to obtain additional financing;
|
|
|
●
|
developments
and projections relating to our competitors or our industry;
|
|
|
●
|
our
ability to adequately support growth; and
|
|
|
●
|
the
factors listed under the headings “Risk Factors” in our Annual Report on Form 10-K for the year ended December
31, 2018, elsewhere in this report and other reports that we file with the Securities and Exchange Commission.
|
All
forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place
undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated
by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any
of the forward- looking statements, whether as a result of new information, future events or otherwise. We have expressed our
expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you
that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We are a clinical-stage biopharmaceutical company
focused on creating value through the development of our lead product candidate, MAT9001, a highly purified, prescription-only
omega-3 free fatty acid formulation specifically designed for the treatment of cardiovascular and metabolic conditions and (ii)
the application of our lipid nano-crystal (LNC) platform delivery technology to solve complex challenges relating to the delivery
of small molecules, gene therapies, vaccines, proteins and peptides, including MAT2203, our lead product candidate based on the
LNC technology. Based upon MAT9001’s unique mixture of highly purified omega-3 free fatty acids and our observations of MAT9001’s
enhanced bioavailability and potency as compared to Amarin Corporation’s Vascepa® (icosapent ethyl) in our initial head-to-head
pharmacokinetic (PK) and pharmacodynamic (PD), or PK/PD, clinical study, we believe that the results of our forthcoming targeted
clinical development activities and related clinical investigations may yield an improved therapeutic profile compared to currently-existing
therapies.
We are focused on creating value through the strategic development of MAT9001 for the treatment of cardiovascular
and metabolic conditions and the application of our LNC platform delivery technology to solve complex challenges relating to the
delivery of small molecules, gene therapies, proteins/peptides, and vaccines. Key elements of our strategy include:
●
|
Strategically
advancing MAT9001 into clinical development toward an initial indication for the treatment of severe hypertriglyceridemia
(≥500 mg/dL) (SHTG) with the goal of creating additional data further demonstrating the differentiation of MAT9001 from
other prescription omega-3 drugs being used to treat a mixed dyslipidemic patient population in a rapidly emerging and expanding
omega-3 market.
|
●
|
Expanding
application of our lipid nano-crystal (LNC) delivery platform into the gene therapy space through collaborations with sophisticated
and well-resourced biotech and pharmaceutical companies in innovative areas of medicine.
|
|
|
●
|
Driving
MAT2203 to efficacy data in the treatment of cryptococcal meningitis, an area of significant unmet medical need, with the
non-dilutive financial support of the NIH
|
We
have incurred losses for each period from our inception. For the nine months ended September 30, 2019 and 2018, our net loss was
approximately $11.8 million and $10.5 million, respectively. We expect to incur significant expenses and operating losses over
the next several years. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund
our operations through public or private equity offerings, debt financings, government or other third-party funding, collaborations
and licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure
to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition
and our ability to pursue our business strategy and continue as a going concern. We will need to generate significant revenues
to achieve profitability, and we may never do so.
Financial
Operations Overview
Revenue
During
the nine months ended September 30, 2019 and 2018, we generated contract research revenue of approximately $90 thousand and $120
thousand, respectively, resulting from a grant with the Cystic Fibroses Foundation. Our ability to generate product revenue, which
we do not expect to occur until 2023 at the earliest, if ever, will depend heavily on the successful development and eventual
commercialization of our early-stage product candidates. The Company adopted ASC 606, Revenue from Contracts with Customers
(“ASC 606”) as of January 1, 2018 which did not result in any changes to the opening balances in our consolidated
financial statements or amounts reported in the comparative period consolidated financial statements.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for the development of product candidates and advancement of our LNC delivery
technology platform, which include:
●
|
the
cost of conducting pre-clinical work;
|
|
|
●
|
the
cost of acquiring, developing and manufacturing pre-clinical and human clinical trial materials;
|
|
|
●
|
costs
for consultants and contractors associated with Chemistry and Manufacturing Controls (CMC), pre-clinical and clinical activities
and regulatory operations;
|
|
|
●
|
expenses
incurred under agreements with contract research organizations, or CROs, including the NIH, that conduct our pre-clinical
or clinical trials; and
|
|
|
●
|
employee-related
expenses, including salaries and stock-based compensation expense for those employees involved in the research and development
process.
|
The
table below summarizes our direct research and development expenses for our product candidates and development platform for the
three and nine months ended September 30, 2019 and 2018. Our direct research and development expenses consist principally of external
costs, such as fees paid to contractors, consultants, analytical laboratories and CROs and/or the NIH, in connection with our
development work. We typically use our employee and infrastructure resources for manufacturing clinical trial materials, conducting
product analysis, study protocol development and overseeing outside vendors. Included in “Internal Staffing, Overhead and
Other” below is the cost of laboratory space, supplies, research and development (R&D) employee costs (including stock-based
compensation), travel and medical education.
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
(Dollars in thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Direct research and development expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing process development
|
|
$
|
353
|
|
|
$
|
58
|
|
|
$
|
462
|
|
|
$
|
398
|
|
Preclinical trials
|
|
|
487
|
|
|
|
249
|
|
|
|
1,063
|
|
|
|
856
|
|
Clinical development
|
|
|
413
|
|
|
|
6
|
|
|
|
1,746
|
|
|
|
441
|
|
Regulatory
|
|
|
37
|
|
|
|
19
|
|
|
|
170
|
|
|
|
111
|
|
Internal staffing, overhead and other
|
|
|
1,381
|
|
|
|
1,048
|
|
|
|
4,374
|
|
|
|
3,289
|
|
Total research and development
|
|
$
|
2,671
|
|
|
$
|
1,380
|
|
|
$
|
7,815
|
|
|
$
|
5,095
|
|
Research
and development activities are central to our business model. We expect our research and development expenses to increase because
product candidates in later stages of clinical development generally have higher development costs than those in earlier stages
of clinical development, primarily due to the increased size and duration of later-stage human trials. In addition, we will look
to strategically expand the use of our drug platform technology through additional development work. During 2019, we are focused
on advancing our lead product candidate, MAT9001 into clinical development toward an initial indication for the treatment of severe
hypertriglyceridemia, expanding application of our LNC delivery platform through collaborations with third parties, and driving
MAT2203 to efficacy data in the treatment of cryptococcal meningitis.
General
and Administrative Expenses
General
and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions.
Other general and administrative expenses include facility costs, insurance, investor relations expenses, professional fees for
legal, patent review, consulting and accounting/audit services.
We
anticipate that our general and administrative expenses will increase during 2019 due to the increased expenses related to our
status as a publicly traded company, including expenses in support of compliance with the requirements of Section 404 of the Sarbanes
Oxley Act as well as investor relations, protection of our intellectual property and insurance costs.
Sale
of New Jersey Net Operating Loss
Income
obtained from selling unused net operating losses (“NOLs”) and unused research tax credits under the New Jersey
Technology Business Tax Certificate Program was approximately $0 and $1.0 million for the three and nine months ended September
30, 2019, respectively. We did not recognize any income from the sale of NOLs during the three and nine months ended September
30, 2018.
Other
Income, net
Other income, net is largely comprised of
interest income/(expense), dividends and franchise taxes.
Application
of Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses
and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate
our estimates and judgments. We base our estimates on historical experience, known trends and events, and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Our
significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere
in our 2018 Annual Report on Form 10-K. We believe the following accounting procedures to be most critical to the judgments and
estimates used in the preparation of our financial statements.
Accrued
Research and Development Expenses
As
part of the process of preparing our financial statements, we are required to estimate our accrued expenses, particularly for
product development costs. This process involves reviewing open contracts and purchase orders, communicating with our personnel
to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost
incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service
providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our
accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known
to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments as necessary.
Examples of estimated accrued research and development expenses include:
●
|
fees
paid to contractors in connection with the development of manufacturing processes for products in development;
|
|
|
●
|
fees
paid to CROs in connection with preclinical and clinical development activities;
|
|
|
●
|
fees
paid to contractors in connection with preparation of regulatory submissions; and
|
|
|
●
|
fees
paid to vendors related to product manufacturing, development and distribution of clinical study supplies.
|
We
base our expenses related to pre-clinical and human studies on our estimates of the services received and efforts expended pursuant
to contracts with multiple development contractors that conduct and manage development work and 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. There
may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of
the clinical expense. Payments under some of these contracts may depend on factors such as the successful enrollment of subjects
and the completion of specific study milestones. In accruing service fees, we will estimate the time period over which services
will be performed, the completion of certain tasks, enrollment of subjects, study center activation 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 will adjust the accrual or prepayment accordingly. Although we do not expect our estimates to be materially different from
amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and
timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
Based on limited historical experience, actual results have not been materially different from our estimates.
Identifiable
Intangible Assets
Identifiable
intangible assets, composed of in-process research and development (“IPR&D”), are measured at fair values and
are not amortized until commercialization of the underlying product candidate. Once commercialization occurs, these intangible
assets will be amortized over their estimated useful lives. The fair values assigned to our intangible assets are based upon reasonable
estimates and assumptions given available facts and circumstances. Unanticipated events or circumstances may occur that may require
us to review the assets for impairment. Events or circumstances that may require an impairment assessment include negative clinical
trial results, material delays in our development program or sustained decline in our market capitalization.
Indefinite-lived
intangible assets are not subject to periodic amortization. Rather, indefinite-lived intangibles are reviewed for impairment on
an annual basis or more frequently if events or circumstances indicate impairment may have occurred.
Research
and Development Expenses
Research
and development expenses are charged to operations as they are incurred.
Leases
On
January 1, 2019, we adopted Accounting Standards Update No. 2016-02 and its related amendments, which changed our accounting for
leases. As a result of this change, we recognized right-of-use assets and lease liabilities on the consolidated balance sheet
for all leases with a term longer than 12 months and classified them as either operating or finance leases. The right-of-use assets
and lease liabilities have been measured by the present value of remaining lease payments over the lease term using our incremental
borrowing rates or implicit rates, when readily determinable. See Note 1 and Note 6 of Notes to Unaudited Condensed Consolidated
Financial Statements contained elsewhere in this report for additional details related to our adoption of the new lease accounting
standard.
Stock-Based
Compensation
Option
Grants
We
account for all share-based compensation payments issued to employees, directors, and non-employees using an option pricing model
for estimating fair value. Accordingly, share-based compensation expense is measured based on the estimated fair value of the
awards on the date of grant. We recognize compensation expense for the portion of the award that is ultimately expected to vest
on a straight-line basis over the period during which the recipient renders the required services. The Company accounts for forfeitures
of all share-based awards as they occur.
Significant
Factors, Assumptions and Methodologies Used in Determining Fair Value
We
apply the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation. We recognize share-based
compensation expense ratably over the requisite service period, which in most cases is the vesting period of the award. Calculating
the fair value of share-based awards requires that we make subjective assumptions.
We
use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we
make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate
for a period that approximates the expected term of our stock options and our expected dividend yield. As a publicly held company,
we utilized our historical data to estimate expected stock price volatility.
We
use the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based
Payment, to calculate the expected term of stock option grants to employees as we do not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees.
We
recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award.
The service period is generally the vesting period, with the exception of options granted subject to a vendor consulting agreement,
whereby the option vesting period and the service period defined pursuant to the terms of the consulting agreement may be different.
Prior to January 1, 2019, stock options issued to consultants were revalued quarterly until fully vested, with any change in fair
value expensed. Upon adoption of ASU No. 2018-07 on January 1, 2019, stock options issued to consultants are recorded at fair
value on the date of grant and the award is recognized as an expense on a straight-line basis over the requisite service period.
For awards subject to performance conditions, the Company recognizes stock-based compensation expense on a straight-line basis
over the requisite service period when it is probable that the performance condition will be achieved. The following range of
assumptions were used to value options granted for the three and nine months ended September 30, 2019 and 2018 and to re-measure
stock options issued to consultants:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Volatility
|
|
|
108.03-108.06
|
%
|
|
|
105.85-109.95
|
%
|
|
|
108.03-111.34
|
%
|
|
|
105.85-109.95
|
%
|
Risk-free
interest rate
|
|
|
1.59-1.89
|
%
|
|
|
2.84-3.00
|
%
|
|
|
1.59-2.65
|
%
|
|
|
2.29-3.00
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected
life
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
The
expected stock price volatility assumption was determined by examining the Company’s historical volatility. We will continue
to analyze our expected term assumptions as more historical data for our common stock becomes available. The risk-free interest
rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of our stock options.
The expected dividend assumption is based on our history and expectation of dividend payouts.
We
have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future.
Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our share-based compensation.
Stock-based
compensation expense associated with stock options and restricted stock granted to employees and non-employees was approximately
$2.3 million and $2.8 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30,
2019, we had approximately $3.9 million of total unrecognized share-based compensation expense, which we expect to recognize over
a weighted-average remaining vesting period of approximately 2.8 years. In future periods, our share-based compensation expense
is expected to increase as a result of recognizing our existing unrecognized share-based compensation for awards that will vest
and as we issue additional share-based awards to attract and retain our employees.
Basic
and Diluted Net Loss per Share of Common Stock
We
compute basic net loss per share of common stock by dividing net loss applicable to common stockholders by the weighted-average
number of shares of common stock outstanding during the period, excluding the dilutive effects stock options. We compute diluted
net loss per share of common stock by dividing the net loss applicable to common stockholders by the sum of the weighted-average
number of shares of common stock outstanding during the period plus the potential dilutive effects of stock options, warrants
and convertible preferred stock outstanding during the period calculated in accordance with the treasury stock method, but such
items are excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during periods of net
loss, there was no difference between our basic and diluted net loss per share of common stock for the three and nine months ended
September 30, 2019 and 2018.
Emerging
Growth Company Status
Under
Section 107(b) of the Jumpstart Our Business Startups Act of 2012, emerging growth companies can delay adopting new or revised
accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
Current
Operating Trends
Our
current research and development efforts are focused on developing MAT9001. Our research and development expenses consist of manufacturing
work and the cost of drug ingredients used in such work, fees paid to consultants for work related to clinical trial design and
regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results
of such studies, and for other medical research addressing the potential efficacy and safety of our drugs. We believe that significant
investment in product development is a competitive necessity, and we plan to continue these investments in order to be in a position
to realize the potential of our product candidates and proprietary technologies.
We
expect all our research and development expenses in the near-term will be incurred in support of our current and future preclinical
and clinical development programs rather than technology development. These expenditures are subject to numerous uncertainties
relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and efficacy.
At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for
each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants, contracts
or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products
in order to focus our resources on more promising products. Completion of clinical trials may take several years, and the length
of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.
The
commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy during
clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays.
In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support
the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory
policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate
the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product
candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in,
or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify
regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur.
Results
of Operations
The
following tables summarizes our revenues and operating expenses for the comparative periods presented (dollars in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,671
|
|
|
$
|
1,380
|
|
General and administrative
|
|
|
1,890
|
|
|
|
1,574
|
|
Operating Expenses
|
|
$
|
4,561
|
|
|
$
|
2,954
|
|
|
|
|
|
|
|
|
|
|
Sale of net operating losses (NOLs)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
90
|
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
7,815
|
|
|
$
|
5,095
|
|
General and administrative
|
|
|
5,460
|
|
|
|
5,505
|
|
Operating Expenses
|
|
$
|
13,275
|
|
|
$
|
10,600
|
|
|
|
|
|
|
|
|
|
|
Sale of net operating losses (NOLs)
|
|
$
|
1,007
|
|
|
$
|
-
|
|
Revenues.
Revenue was $0 and $0.1 million for the three and nine months ended September 30, 2019, respectively, compared
to $0 and $0.1 million for the three and nine months ended September 30, 2018, respectively. Amounts earned consist of
contract research revenue resulting from a grant with the Cystic Fibroses Foundation.
Research
and Development expenses. Research and Development (R&D) expense for the three and nine months ended September 30,
2019 increased approximately $1.3 million and $2.7 million compared to the prior year periods. For the three-month period, R&D
expenses increased primarily due to higher costs associated with manufacturing process development, clinical development and staffing
& overhead. For the nine-month period, R&D expenses increased primarily due to higher costs associated with preclinical
trials, clinical development and staffing & overhead.
General
and Administrative expenses. General and administrative expense for the three and nine months ended September 30, 2019
increased approximately $0.3 million and $0 million compared to the prior year periods. For the three-month period, the increase
in general and administrative expense was primarily due to higher compensation expense.
Sale
of net operating losses (NOLs). The Company recognized approximately $1.0 million and $0 for the nine months ended September
30, 2019 and 2018, respectively, in connection with the sale of state net operating losses and state research and development
credits to a third party under the New Jersey Technology Business Tax Certificate Program. The Company did not recognize any income
from the sale of NOLs during the three months ended September 30, 2019 and 2018.
Liquidity
and capital resources
Sources
of Liquidity
We
have funded our operations since inception through private placements of our preferred stock and our common stock and common stock
warrants. As of September 30, 2019, we have raised a total of approximately $100.1 million in gross proceeds and $90.9 million,
net, from sales of our equity securities.
As
of September 30, 2019, we had cash and cash equivalents totaling $32.7 million.
2019
Common Stock Offering
On
March 19, 2019, the Company closed an underwritten public offering of its common stock. The offering resulted in the sale of 27,272,727
shares to the public at a price of $1.10 per share. The Company generated net proceeds of approximately $27.8 million.
The Company granted the underwriters a 30-day option (the “option”) to purchase up to an additional 4,090,909 shares
of common stock subject to the same terms and conditions. On March 28, 2019, an additional 2,199,259 shares were sold pursuant
to the option at a price of $1.10 per share, resulting in net proceeds to the Company of approximately $2.3 million.
2018
Series B Preferred Stock Offering
On
June 19, 2018, the Company entered into a placement agency agreement with ThinkEquity, a Division of Fordham Financial Management,
Inc., as placement agent , relating to the offering, issuance and sale of up to 8,000 shares of the Company’s Series B Convertible
Preferred Stock, par value $0.0001 per share with a stated value of $1,000 per share which are convertible into an aggregate of
up to 16,000,000 shares of the Company’s common stock at an initial conversion price of $0.50 per share of common stock
and an additional up to 7,200,000 shares of common stock issuable upon payment of dividends under the Series B Preferred Stock
. The offering closed on June 21, 2018 raising a gross amount of approximately $8 million with a net raise of approximately
$7.1 million after deducting issuance costs.
Cash
Flows
The
following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the period set
forth below (dollars in thousands):
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash used in operating activities
|
|
$
|
(9,193
|
)
|
|
$
|
(7,702
|
)
|
Cash used in investing activities
|
|
|
(406
|
)
|
|
|
(536
|
)
|
Cash provided by financing activities
|
|
|
29,842
|
|
|
|
7,508
|
|
Net increase/(decrease) in cash and cash equivalents and restricted
cash
|
|
$
|
20,243
|
|
|
$
|
(730
|
)
|
Operating
Activities
We
have incurred significant costs in the area of research and development, including clinical, manufacturing, analytical, regulatory
and other development costs. In addition, general and administrative expenses are incurred to operate as a public company, for
personnel costs in the finance and executive functions, as well as costs associated with legal, accounting and investor relation
services. Net cash used in operating activities was approximately $9.2 million and $7.7 million for the nine-month periods ended
September 30, 2019 and 2018, respectively. We expect that there will be an increase in cash used in operations during the
remainder of 2019 due to higher research and development expenses as we continue to move our product candidates and delivery platform
forward in their development cycles.
Investing
Activities
Approximately
$0.4 million and $0.5 million of cash was used in investing activities for the nine-month periods ended September 30, 2019 and
2018, respectively. The investments were primarily related to our laboratory facility.
Financing
Activities
Net
cash provided by financing activities was approximately $29.8 million for the nine months ended September 30, 2019. The cash provided
by financing activities was primarily due to the March public offering of common stock. This compares to approximately $7.5 million
provided by financing activities in the prior year period, primarily from the sale of Series B Preferred Stock and other equity
offerings.
Funding
Requirements and Other Liquidity Matters
We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that
our expenses will increase substantially if and as we:
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conduct
further preclinical and clinical studies of MAT9001, our lead product candidate;
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support
the conduct of further clinical studies of MAT2203, even if such studies are partially financed with non-dilutive funding
from the NIH;
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seek
to discover and develop additional product candidates;
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seek
regulatory approvals for any product candidates that successfully complete clinical trials;
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require
the manufacture of larger quantities of product candidates for clinical development and potentially commercialization;
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maintain,
expand and protect our intellectual property portfolio;
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hire
additional clinical, quality control and scientific personnel; and
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add
operational, financial and management information systems and personnel, including personnel to support our product development
and planned future commercialization efforts and personnel and infrastructure necessary to help us comply with our obligations
as a public company.
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We
expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditures
requirements through 2020.
Until
such time, if ever, that we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs
through a combination of private and public equity offerings, debt financings, government or other third party funding, collaborations
and licensing arrangements. We do not have any committed external source of funds other than limited grant funding from the NIH.
To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities,
the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing,
if available, would result in increased fixed payment obligations and 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, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial
amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day
activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If
we raise additional funds through collaborations, strategic alliances or marketing, distribution, 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 grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity
or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual
Obligations and Commitments
There
have been material changes from the disclosures relating to our contractual obligations reported in our Annual Report on Form
10-K for the year ended December 31, 2018 as a result of our adoption of Accounting Standards Update No. 2016-02 and its related
amendments, which changed our accounting for leases. See Note 1 and Note 6 of Notes to Unaudited Condensed Consolidated Financial
Statements contained elsewhere in this report for additional details related to our adoption of the new lease accounting standard.
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, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured
finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required
to be reflected on our balance sheets.