See accompanying notes to the condensed
consolidated financial statements.
See accompanying notes to the condensed
consolidated financial statements.
See accompanying notes to the condensed
consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the three and six months ended June
30, 2015 and 2016
(Unaudited)
Note 1 — Business, Liquidity and Summary of Significant
Accounting Policies
Business
We are a biotechnology
company that has focused on the discovery, development and commercialization of nucleic acid-based therapies to treat orphan diseases.
Our pipeline includes CEQ508, a product in clinical development for the treatment of Familial Adenomatous Polyposis (“FAP”),
for which we have received Orphan Drug Designation (“ODD”) and Fast Track Designation (“FTD”) from the
U.S. Food and Drug Administration (“FDA”), and preclinical programs for the treatment of type 1 myotonic dystrophy
(“DM1”) and Duchenne muscular dystrophy (“DMD”).
Since 2010, we have
strategically acquired/in-licensed and further developed nucleic acid chemistry and delivery-related technologies in order to establish
a novel and differentiated drug discovery platform. This platform allows us to distinguish ourselves from others in the nucleic
acid therapeutics area in that we are the only company capable of creating a wide variety of therapeutics targeting coding and
non-coding RNA via multiple mechanisms of action such as RNA interference (“RNAi”), messenger RNA translational inhibition,
exon skipping, microRNA (“miRNA”) replacement, miRNA inhibition, and steric blocking in order to modulate gene expression
either up or down depending on the specific mechanism of action. Our goal has been to dramatically improve the lives of the patients
and families affected by orphan diseases through either our own efforts or those of our collaborators and licensees.
Strategic Direction and Agreement to Acquire Assets
As a result of our
financial condition, on February 17, 2016, we announced that our Board of Directors had authorized a process to explore a range
of strategic alternatives to enhance stockholder value, and that we have retained an advisor to assist us in exploring such alternatives.
In connection with
that process of exploring strategic alternatives, on April 29, 2016, we signed a term sheet with Turing Pharmaceuticals AG (“Turing”),
a privately-held biopharmaceutical company focused on developing and commercializing innovative treatments for serious diseases,
pursuant to which we would acquire Turing’s intranasal ketamine program for consideration consisting of approximately 53
million shares of our common stock (the “Turing Transaction”). The assets to be acquired from Turing would include
all patents and intellectual property rights, clinical development plans, regulatory documents and existing product inventories.
As per the term sheet, we would pay to Turing up to $95 million in success-based and sales-based milestones plus a mid-single digit
royalty on net sales, if any.
Completion of the
proposed Turing Transaction is contingent upon certain conditions, including the completion of customary due diligence considerations,
the negotiation, execution and delivery of a definitive purchase agreement, and the satisfaction or waiver of the conditions set
forth in the definitive purchase agreement, including, without limitation, the completion by us of a financing transaction yielding
proceeds sufficient to initiate and support the Phase 3 efforts for the intranasal ketamine program to be acquired.
There can be no assurance
that a definitive purchase agreement will be executed or that a closing of the Turing Transaction will occur. The accompanying
consolidated financial statements do not include any adjustments related to the Turing Transaction.
Also in connection
with the process of exploring strategic alternatives, on March 10, 2016, we signed a term sheet with Microlin Bio, Inc. (“Microlin”)
pursuant to which we would sell to Microlin substantially all of the assets of our historical business operations. On May 3, 2016,
we announced that we had determined to terminate negotiations with Microlin with respect to the proposed transaction.
We will need additional
capital in order to execute our strategy of concluding the Turing Transaction, and potentially either acquiring other assets or
technology, or selling our existing assets or technology, or if the foregoing do not occur, our previous strategy of initiating
the registration trial for and commercializing CEQ508, filing Investigational New Drug (“IND”) applications for both
DM1 and DMD and bringing these two programs to human proof-of-concept trials.
Recent Licensing
and IP Developments
In February 2016,
we entered into an evaluation and option agreement covering certain of our platforms for the delivery of an undisclosed genome
editing technology. The agreement contains an option provision for the exclusive license of our SMARTICLES platform in a specific
gene editing field.
In March 2016, we
entered into a license agreement covering certain of our platforms for the delivery of an undisclosed genome editing technology.
Under the terms of the agreement, we received an upfront license fee of $0.25 million, and could receive up to $40 million in success-based
milestones.
In July 2016, we
entered into a license agreement with an undisclosed licensee that grants such licensee rights to use our technology and intellectual
property to develop and commercialize products combining certain molecules with our liposomal delivery technology known as NOV582.
Under the terms of this agreement, the licensee agreed to pay to us an upfront license fee in the amount of $0.35 million (to be
paid in installments through the end of 2017), along with milestone payments on a per-licensed-product basis and royalty payments
in the low single digit percentages.
We believe that,
as a result of the issuance of US patent no. 9,023,793 on May 5, 2015, we became entitled to receive a milestone payment in the
amount of $2 million under an Asset Purchase Agreement dated August 25, 2010 between us and Cypress Biosciences (“Cypress”),
which was subsequently assigned by Cypress to Kyalin Biosciences, Inc., and further assigned to Retrophin, Inc. (“Retrophin”).
We have advised Retrophin of our claim to payment of this milestone. However, Retrophin has denied our claim. Although we intend
to vigorously pursue our right to receive the milestone payment, there can be no assurance that we will be successful in our endeavors
to receive the payments to which we believe we are entitled.
Note Purchase
Agreement
On June 20, 2016,
we entered into a Note Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Purchasers”),
pursuant to which we issued to the Purchasers unsecured promissory notes in the aggregate principal amount of $0.3 million (the
“Notes”). Interest shall accrue on the unpaid principal balance of the Notes at the rate of 12% per annum beginning
on September 20, 2016. The Notes will become due and payable on June 20, 2017, provided, that, upon the closing of a financing
transaction that occurs while the Notes are outstanding, each Purchaser shall have the right to either: (i) accelerate the maturity
date of the Note held by such Purchaser or (ii) convert the entire outstanding principal balance under the Note held by such Purchaser
and accrued interest thereon into our securities that are issued and sold at the closing of such financing transaction.
Further, if we at
any time while the Notes are outstanding receive any cash payments in the aggregate amount of not less than $0.25 million, as a
result of the licensing, partnering or disposition of any of the technology held by us or any related product or asset, we shall
pay to the holders of the Notes, on a pro rata basis, an amount equal to 25% of each payment actually received by us, which payments
shall be applied against the outstanding principal balance of the Notes and the accrued and unpaid interest thereon, until such
time as the Notes are repaid in full.
In the Purchase Agreement,
we agreed: (x) to extend the termination date of all of the warrants to purchase shares of our common stock (such warrants, the
“Prior Warrants”) that were delivered to the purchasers pursuant to that certain Note and Warrant Purchase Agreement,
dated as of February 10, 2012 between us and the purchasers identified on the signature pages thereto, as it has been amended to
date, to February 10, 2020 and (y) to extend the anti-dilution protection afforded of the Prior Warrants so that such protection
would apply to any financing transaction effected by us on or prior to June 19, 2017 (with any such adjustment only applying to
80% of the Prior Warrants). As the Prior Warrants were already recorded at fair value as a result of price adjustable terms, the
impacts of the modification of the terms is included in the change in fair value of price adjustable warrants in the statement
of operations.
Liquidity
The accompanying condensed
consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates
realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2016, we had an accumulated
deficit of approximately $334.0 million, $108.3 million of which has been accumulated since we focused on RNA therapeutics in June
2008. To the extent that sufficient funding is available, we will continue to incur operating losses as we execute our plan to
raise additional funds, complete the Turing Transaction, and investigate either acquiring other technology or selling our existing
assets or technology. In addition, we have had and will continue to have negative cash flows from operations. We have funded our
losses primarily through the sale of common and preferred stock and warrants, the sale of the Notes, revenue provided from our
license agreements and, to a lesser extent, equipment financing facilities and secured loans. In 2015 and 2016, we funded operations
with a combination of the issuance of the Notes, preferred stock and license-related revenues. At June 30, 2016, we had negative
working capital of $2.7 million and $0.3 million in cash. Our limited operating activities consume the majority of our cash resources.
We believe that our
current cash resources, including the proceeds from the Notes received in June 2016 as noted above, will enable us to fund our
intended operations through October 2016. Our ability to execute our operating plan beyond October 2016 depends on our ability
to obtain additional funding, the subsequent closing of the Turing Transaction, and any subsequent plans to acquire other technology
or sell our existing assets or technology. The volatility in our stock price, as well as market conditions in general, could make
it difficult for us to raise capital on favorable terms, or at all. If we fail to obtain additional capital when required, we may
have to modify, delay or abandon some or all of our planned activities, or terminate our operations. There can be no assurance
that we will be successful in any such endeavors. The accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
If the Turing Transaction
is not consummated and we are unable to either find a viable purchaser for our assets or to obtain sufficient capital to continue
our current operations or any other business that we may acquire, we may be forced to file bankruptcy as we will have minimal capital
and operating assets to continue the business.
Basis of Preparation
and Summary of Significant Accounting Policies
Basis of Preparation
— The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required
by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying
unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the
notes thereto, as of and for the year ended December 31, 2015, included in our 2015 Annual Report on Form 10-K filed with the SEC.
The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the
opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each
period presented. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of
the results for the year ending December 31, 2016 or for any future period.
Use of Estimates
— The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Estimates having
relatively higher significance include revenue recognition, stock-based compensation, valuation of warrants, valuation and estimated
lives of identifiable intangible assets, impairment of long-lived assets, valuation of features embedded within note agreements
and amendments, and income taxes. Actual results could differ from those estimates.
Reclassifications
— Certain amounts have been reclassified in prior period condensed consolidated financial statements to conform to the
current year presentation.
Fair Value of Financial
Instruments
—We consider the fair value of cash, accounts receivable, accounts payable and accrued liabilities to not
be materially different from their carrying value. These financial instruments have short-term maturities.
We follow authoritative
guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial
assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures.
The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such
as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief
description of those three levels:
Level 1: Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other
than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for
similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that
are not active.
Level 3: Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect
those that a market participant would use.
Our cash is subject
to fair value measurement and value is determined by Level 1 inputs. We measure the liability for committed stock issuances with
a fixed share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded
in notes using the Black-Scholes option pricing model (“Black-Scholes”) under various probability weighted scenarios,
using Level 3 inputs. The following tables summarize our liabilities measured at fair value on a recurring basis as of December
31, 2015 and June 30, 2016:
|
|
|
|
|
Level 1
|
|
|
|
|
|
Level 3
|
|
|
|
Balance at
|
|
|
Quoted prices in
|
|
|
Level 2
|
|
|
Significant
|
|
|
|
December 31,
|
|
|
active markets for
|
|
|
Significant other
|
|
|
unobservable
|
|
(In thousands)
|
|
2015
|
|
|
identical assets
|
|
|
observable inputs
|
|
|
inputs
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value liability for price adjustable warrants
|
|
$
|
2,491
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,491
|
|
Fair value liability for shares to be issued
|
|
|
60
|
|
|
|
60
|
|
|
|
-
|
|
|
|
-
|
|
Total liabilities at fair value
|
|
$
|
2,551
|
|
|
$
|
60
|
|
|
$
|
-
|
|
|
$
|
2,491
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
Level 3
|
|
|
|
|
|
|
Quoted prices in
|
|
|
Level 2
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
active markets for
|
|
|
Significant other
|
|
|
unobservable
|
|
(In thousands)
|
|
June 30, 2016
|
|
|
identical assets
|
|
|
observable inputs
|
|
|
inputs
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value liability for price adjustable warrants
|
|
$
|
619
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
619
|
|
Total liabilities at fair value
|
|
$
|
619
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
619
|
|
The following presents
activity of the fair value liability of price adjustable warrants determined by Level 3 inputs for the six-month period ended June
30, 2016, including the impact of the modifications to the Prior Warrants made in conjunction with the Purchase Agreement:
|
|
|
|
|
Weighted average as of each measurement date
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liability for price
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
adjustable warrants
|
|
|
Exercise
|
|
|
Stock
|
|
|
|
|
|
life
|
|
|
Risk free
|
|
|
|
(in thousands)
|
|
|
Price
|
|
|
Price
|
|
|
Volatility
|
|
|
(in years)
|
|
|
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
2,491
|
|
|
$
|
0.42
|
|
|
$
|
0.27
|
|
|
|
99
|
%
|
|
|
1.79
|
|
|
|
0.46
|
%
|
Fair value of derivative warrant liability reclassified to additional paid-in capital
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value included in Statement of Operations
|
|
|
(1,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
619
|
|
|
$
|
0.43
|
|
|
$
|
0.19
|
|
|
|
178
|
%
|
|
|
1.94
|
|
|
|
0.03
|
%
|
Net Income (Loss)
per Common Share
— Basic net income (loss) per common share is computed by dividing the net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect
of common stock equivalents (stock options, unvested restricted stock, warrants) when, under either the treasury or if-converted
method, such inclusion in the computation would be dilutive. The following number of shares have been excluded from diluted net
income (loss) since such inclusion would be anti-dilutive:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
Stock options outstanding
|
|
|
1,316,106
|
|
|
|
1,548,106
|
|
|
|
1,316,106
|
|
|
|
1,548,106
|
|
Warrants
|
|
|
1,323,291
|
|
|
|
3,416,104
|
|
|
|
1,323,291
|
|
|
|
9,416,104
|
|
Convertible preferred stock
|
|
|
8,000,000
|
|
|
|
7,550,000
|
|
|
|
8,000,000
|
|
|
|
7,550,000
|
|
Total
|
|
|
10,639,397
|
|
|
|
12,514,210
|
|
|
|
10,639,397
|
|
|
|
18,514,210
|
|
The following is a reconciliation of basic
and diluted net income (loss) per share:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(In thousands except per share amounts)
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
Net income (loss) – numerator basic
|
|
$
|
904
|
|
|
$
|
(643
|
)
|
|
$
|
1,318
|
|
|
$
|
424
|
|
Change in fair value liability for price adjustable warrants
|
|
|
(1,914
|
)
|
|
|
197
|
|
|
|
(3,643
|
)
|
|
|
(1,655
|
)
|
Net loss excluding change in fair value liability for price adjustable warrants
|
|
$
|
(1,010
|
)
|
|
$
|
(446
|
)
|
|
$
|
(2,325
|
)
|
|
$
|
(1,231
|
)
|
Weighted average common shares outstanding – denominator basic
|
|
|
26,036
|
|
|
|
29,624
|
|
|
|
26,036
|
|
|
|
29,013
|
|
Effect of price adjustable warrants
|
|
|
4,257
|
|
|
|
(23,771
|
)
|
|
|
4,257
|
|
|
|
(9,373
|
)
|
Weighted average dilutive common shares outstanding
|
|
|
30,293
|
|
|
|
5,853
|
|
|
|
30,293
|
|
|
|
19,640
|
|
Net income (loss) per common share – basic
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
Net income (loss) per common share – diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
Impairment of long-lived
assets
— We review all of our long-lived assets for impairment indicators throughout the year and perform detailed
testing whenever impairment indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible
assets, specifically IPR&D, at least annually at December 31. When necessary, we record charges for impairments. Specifically:
|
·
|
For finite-lived intangible assets, such
as developed technology rights, and for other long-lived assets, such as property and equipment, we compare the undiscounted amount
of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found
to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment
review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
|
|
·
|
For indefinite-lived intangible assets,
such as IPR&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and
record an impairment loss for the excess of book value over fair value, if any.
|
Note 2 — Stockholders’ Equity
Preferred Stock
— Our board of directors has the authority, without action by the stockholders, to designate and issue up to 100,000 shares
of preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of
which may be greater than the rights of our common stock. We have designated 1,000 shares as Series B Preferred Stock (“Series
B Preferred”) and 90,000 shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). No shares
of Series B Preferred or Series A Preferred are outstanding. In March 2014, we designated 1,200 shares as Series C Convertible
Preferred Stock (“Series C Preferred”). In August 2015, we designated 220 shares as Series D Convertible Preferred
Stock (“Series D Preferred”).
In August 2015, we
entered into a Securities Purchase Agreement with certain investors pursuant to which we sold 220 shares of Series D Preferred,
and warrants to purchase up to 3.44 million shares of our common stock at an initial exercise price of $0.40 per share before August
2021, for an aggregate purchase price of $1.1 million. We incurred $0.01 million of stock issuance costs in conjunction with the
Series D Preferred, which were netted against the proceeds. The warrants issued in connection with Series D Preferred contain an
anti-dilution (“down round”) provision whereby the exercise price per share to purchase common stock covered by these
warrants is subject to reduction in the event of certain dilutive stock issuances at any time within two years of the issuance
date, but not to be reduced below $0.28 per share. Each share of Series D Preferred has a stated value of $5,000 per share and
is convertible into shares of common stock at a conversion price of $0.40 per share. The Series D Preferred is initially convertible
into an aggregate of 2,750,000 shares of our common stock, subject to certain limitations and adjustments, has a 5% stated dividend
rate, is not redeemable and has voting rights on an as-converted basis.
To account for the
issuance of the Series D Preferred and warrants, we first assessed the terms of the warrants and determined that, due to the “down
round” provision, they should be recorded as derivative liabilities. We determined the fair value of the warrants on the
issuance date and recorded a liability and a discount of $0.6 million on the Series D Preferred resulting from the allocation of
proceeds to the warrants. We then determined the effective conversion price of the Series D Preferred which resulted in a beneficial
conversion feature of $0.7 million. The beneficial conversion feature was recorded as both a debit and a credit to additional paid-in
capital and as a deemed dividend on the Series D Preferred in determining net income applicable to common stock holders in the
consolidated statements of operations.
Each share of Series
C Preferred has a stated value of $5,000 per share and is convertible into shares of common stock at a conversion price of $0.75
per share. In June 2015, an investor converted 90 shares of Series C Preferred into 0.6 million shares of common stock. In November
2015, an investor converted an additional 90 shares of Series C Preferred into 0.6 million shares of common stock. Also in November
2015, an investor converted 50 shares of Series D Preferred into 0.6 million shares of common stock.
In February 2016,
an investor converted 110 shares of Series D Preferred into 1.4 million shares of common stock.
Common Stock
—
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders
of our common stock. Subject to the rights of the holders of any class of our capital stock having any preference or priority over
our common stock, the holders of our common stock are entitled to receive dividends that are declared by our board of directors
out of legally available funds. In the event of our liquidation, dissolution or winding-up, the holders of common stock are entitled
to share ratably in our net assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any,
then outstanding. Our common stock has no preemptive rights, conversion rights, redemption rights or sinking fund provisions, and
there are no dividends in arrears or default. All shares of our common stock have equal distribution, liquidation and voting rights,
and have no preferences or exchange rights. Our common stock currently trades on the OTCQB tier of the OTC Markets.
In February 2016,
we issued 0.21 million shares with a value of $0.06 million to Novosom as the equity component owed under our December 2015 milestone
payment from MiNA Therapeutics. In April 2016, we issued 0.47 million shares with a value of $0.075
million to Novosom as the equity component owed under a March 2016 license agreement covering certain of our platforms for the
delivery of an undisclosed genome editing technology.
Warrants
—
As noted above, in the Purchase Agreement, we agreed: (x) to extend the termination date of all of the Prior Warrants to February
10, 2020 and (y) to extend the anti-dilution protection afforded of the Prior Warrants so that such protection would apply to any
financing transaction effected by us on or prior to June 19, 2017 (with any such adjustment only applying to 80% of the Prior Warrants).
In conjunction with this modification, the fair value of the derivative warrant liability associated with the 20% of the Prior
Warrants that no longer have the anti-dilution protection equal to $0.09 million was reclassified to additional paid-in capital.
As of June 30, 2016,
there were 24,466,783 warrants outstanding, with a weighted average exercise price of $0.47 per share, and annual expirations as
follows:
Expiring in 2016
|
|
-
|
|
Expiring in 2017
|
|
|
2,630,545
|
|
Expiring in 2018
|
|
|
113,831
|
|
Expiring thereafter
|
|
|
21,722,407
|
|
Note 3 — Stock Incentive Plans
Stock-based Compensation
.
Certain option and share awards provide for accelerated vesting if there is a change in control as defined in the applicable plan
and certain employment agreements. The following table summarizes stock-based compensation expense:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
(In thousands)
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
Research and development
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
31
|
|
|
$
|
13
|
|
General and administrative
|
|
|
112
|
|
|
|
69
|
|
|
|
265
|
|
|
|
154
|
|
Total
|
|
$
|
117
|
|
|
$
|
71
|
|
|
$
|
296
|
|
|
$
|
167
|
|
Stock Options
— Stock option activity was as follows:
|
|
Options Outstanding
|
|
|
|
2016
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding, January 1
|
|
|
1,316,106
|
|
|
$
|
4.66
|
|
Options Issued
|
|
|
232,000
|
|
|
$
|
0.26
|
|
Outstanding, June 30
|
|
|
1,548,106
|
|
|
$
|
4.00
|
|
Exercisable, June 30
|
|
|
1,110,856
|
|
|
$
|
5.24
|
|
The following table summarizes additional information on our
stock options outstanding at June 30, 2016:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise
Prices
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
$0.26 - 0.82
|
|
|
484,000
|
|
|
|
3.99
|
|
|
$
|
0.46
|
|
|
|
368,000
|
|
|
$
|
0.53
|
|
$1.07 - $2.20
|
|
|
1,021,500
|
|
|
|
6.99
|
|
|
|
1.07
|
|
|
|
700,250
|
|
|
|
1.07
|
|
$47.60 - $87.60
|
|
|
21,000
|
|
|
|
1.95
|
|
|
|
67.60
|
|
|
|
21,000
|
|
|
|
67.60
|
|
$127.60 - $207.60
|
|
|
21,500
|
|
|
|
1.95
|
|
|
|
158.30
|
|
|
|
21,500
|
|
|
|
158.30
|
|
$526.40
|
|
|
106
|
|
|
|
0.61
|
|
|
|
526.40
|
|
|
|
106
|
|
|
|
526.40
|
|
Totals
|
|
|
1,548,106
|
|
|
|
5.91
|
|
|
$
|
4.00
|
|
|
|
1,110,856
|
|
|
$
|
5.24
|
|
|
|
|
Weighted-Average Exercisable Remaining Contractual Life (Years)
|
|
|
|
5.39
|
|
In January 2016, we
issued options to purchase up to an aggregate of 0.152 million shares of our common stock to non-employee members of our board
of directors at an exercise price of $0.26 per share as the annual grant to such directors for their service on our board of directors
during 2016, and we issued options to purchase up to an aggregate of 0.08 million shares of our common stock to the members of
our scientific advisory board at an exercise price of $0.26 per share as the annual grant to such persons for their service on
our scientific advisory board during 2016.
At June 30, 2016,
we had $0.34 million of total unrecognized compensation expense related to unvested stock options. We expect to recognize this
cost over a weighted average period of 0.7 years, except as noted below.
At June 30, 2016,
the intrinsic value of options outstanding or exercisable was zero as there were no options outstanding with an exercise price
less than $0.16, the per share closing market price of our common stock at that date.
Our Chief Executive
Officer resigned from our company effective June 10, 2016, ceasing all work for our company at such time. On July 22, 2016, we
entered into an agreement with our former CEO, pursuant to which we agreed (x) to pay $0.07 million of back wages at such time
as funds become reasonably available, all of which wages have been accrued as of June 30, 2016, and (y) that all remaining unvested
options to purchase shares of our common stock would vest immediately, with the exercise period of such options (as well as such
options held by our former CEO that had already vested as of June 10, 2016) extended through the earlier of the option’s
exercise period or December 31, 2017. We will recognize any compensation expense associated with these unvested 321,250 options,
including the modifications thereof, in the quarter ended September 30, 2016, upon the modification.
Note 4 — Intellectual Property
and Collaborative Agreements
In July 2010, we entered
into an agreement pursuant to which we acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system.
In February 2016, we issued Novosom 0.21 million shares of common stock valued at $0.06 million for amounts due and included in
Fair Value of Stock to be Issued to Settle Liabilities at December 31, 2015.
In March 2016, we
entered into a license agreement covering certain of our platforms for the delivery of an undisclosed genome editing technology.
Under the terms of the agreement, we received an upfront license fee of $0.25 million and could receive up to $40 million in success-based
milestones. In April 2016 we issued Novosom 0.47 million shares of common stock valued at $0.075 million for amounts due under
this agreement.
In
July 2016, we entered into a license agreement with an undisclosed licensee that grants such licensee rights to use our technology
and intellectual property to develop and commercialize products combining certain molecules with our liposomal delivery technology
known as NOV582. Under the terms of this agreement, the licensee agreed to pay to us an upfront license fee in the amount of $0.35
million (to be paid in installments
through the
end of 2017), along with milestone payments on a per-licensed-product basis and royalty payments in the low single digit percentages
.
Note 5 — Commitments and Contingencies
Contingencies
—
We are subject to various legal proceedings and claims that arise in the ordinary course of business. Our management currently
believes that resolution of such legal matters will not have a material adverse impact on our consolidated financial position,
results of operations or cash flows.
Note 6 — Subsequent Events
All material subsequent
events have been included within footnotes 1, 3 and 4 of the Condensed Consolidated Financial Statements.