Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to

 

Commission File Number 001-35619

 

STEMLINE THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

45-0522567

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

750 Lexington Avenue

Eleventh Floor

New York, New York 10022

(Address including zip code of principal executive offices)

 

(646) 502-2311

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on which registered:

Common Stock

 

STML

 

Nasdaq Capital Market

 

There were 50,129,326 shares of the registrant’s common stock, $0.0001 par value, outstanding as of November 12, 2019.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

o

 

 

Accelerated filer

x

Non-accelerated filer

o

 

 

Smaller reporting company

x

 

 

 

 

Emerging growth company

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

PART 1: FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

 

 

 

PART 2: OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item1.A

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3.

Defaults upon Senior Securities

69

Item 4.

Mine Safety Disclosures

69

Item 5.

Other Information

69

Item 6.

Exhibits

69

 


Table of Contents

 

This Quarterly Report on Form 10-Q contains trademarks and trade names of Stemline Therapeutics, Inc., including our name and logo. All other trademarks, service marks, or trade names referenced in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q (“Form 10-Q”) includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Form 10-Q and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our history of net operating losses and uncertainty regarding our ability to obtain capital and achieve profitability, our ability to develop and commercialize our product candidates, our ability to advance our development programs, enroll our trials, and achieve clinical endpoints, our ability to use or expand our technology to build a pipeline of product candidates, our ability to obtain and maintain regulatory approval of our products and product candidates and comply with ongoing regulatory requirements, our ability to successfully operate in a competitive industry and gain market acceptance by physician, provider, patient, and payor communities, our reliance on third parties, unstable economic or market conditions, and our ability to obtain and adequately protect intellectual property rights for our product candidates.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, they may not be predictive of results or developments in future periods.

 

Some of the factors that we believe could cause actual results or outcomes to differ from those anticipated or predicted include:

 

·                                          the success of our launch and commercialization of ELZONRIS® in the U.S.;

 

·                                          the success and timing of our clinical trials for ELZONRIS in unapproved indications and our other product candidates, including risks relating to regulatory authority approval, institutional review board approval, scientific review committee approval, site initiation, patient accrual, trial results including safety and efficacy, and the relevance of trial results to potentially viable regulatory pathways and commercialization efforts;

 

·                                          the possibility that results of clinical trials are not predictive of safety and efficacy results of our products or product candidates in broader or additional patient populations;

 

·                                          our ability to adhere to ongoing compliance requirements of all health authorities to which we are subject, in the U.S. and abroad;

 

·                                          our ability to obtain and maintain adequate reimbursement for our products;

 

·                                          product quality, efficacy or safety concerns resulting in product recalls or regulatory action;

 

·                                          the risk that estimates regarding the number of patients with the diseases that our products and product candidates are designed to treat are inaccurate, do not predict, or are not reflective of actual numbers;

 

·                                          our products not gaining acceptance among patients, providers and/or third party payors, including governmental agencies, for certain approved indications, due to cost or otherwise;

 

·                                          our ability to maintain or increase sales of ELZONRIS;

 

·                                          the adequacy, and outcomes, of our pharmacovigilance and drug safety reporting processes, and reports, in the U.S., Europe and other regions;

 

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·                                          the loss of key management, scientific, or other personnel;

 

·                                          the success and timing of any regulatory filings for ELZONRIS, or any of our other product candidates, including for approval in the U.S., Europe, and other regions for any indication(s);

 

·                                          the success of our commercial infrastructure buildout, launch, and commercialization in the U.S. and potentially in other regions of the world should ELZONRIS be approved for marketing by ex-U.S. regulatory authorities for any indication or by U.S. regulatory authorities for any as yet unapproved indication or should any of our other product candidates be approved for marketing in the U.S. or abroad;

 

·                                          changes in regulations in the U.S., Europe and other regions;

 

·                                          new products, new product candidates or new uses for existing products or technologies introduced or announced, by our competitors, and the timing of these introductions or announcements;

 

·                                          our available cash and investments;

 

·                                          the accuracy of our estimates regarding expenses, future income or revenue, capital requirements and needs for additional financing;

 

·                                          our ability to obtain additional funding;

 

·                                          our ability to obtain and maintain intellectual property protection for our products and product candidates;

 

·                                          delays, interruptions, or failures in the manufacture, supply and distribution of our products and/or our product candidates;

 

·                                          our ability to maintain the license agreements for our products and product candidates;

 

·                                          the ability of our third-party manufacturers to manufacture and supply our products, and the performance of, and our reliance on, our third-party manufacturers and suppliers;

 

·                                          the performance of our third-party vendors, including clinical research organizations, clinical trial sponsors, and clinical trial investigators;

 

·                                          the success of our preclinical, non-clinical, and pre-investigational new drug, or pre-IND, efforts; and

 

·                                          our ability to gain access to products we may plan to use in combination studies; and

 

·                                          our ability to form corporate partnerships, should that be an avenue we choose to pursue.

 

Any forward-looking statements that we make in this Form 10-Q speak only as of the date of such statements, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Form 10-Q. You should also read carefully the factors described in the “Risk Factors” section of this Form 10-Q to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these risks and uncertainties, our actual results may differ materially from those reflected in the forward-looking statements in this Form 10-Q.

 

This Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

 

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

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PART 1:  FINANCIAL INFORMATION

 

Item 1.         Financial Statements.

 

STEMLINE THERAPEUTICS, INC.

Balance Sheets

(Unaudited)

 

 

 

September 30, 2019

 

December 31, 2018

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

27,378,573

 

$

9,443,667

 

Short-term investments

 

147,152,571

 

50,662,189

 

Accounts receivable

 

16,566,838

 

 

Inventories

 

2,856,876

 

 

Prepaid expenses and other current assets

 

2,547,101

 

2,952,996

 

Total current assets

 

196,501,959

 

63,058,852

 

Property and equipment, net

 

213,036

 

222,413

 

Operating lease right-of-use assets

 

1,240,455

 

 

Other assets

 

212,305

 

212,305

 

Total assets

 

$

198,167,755

 

$

63,493,570

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

21,376,369

 

$

21,153,062

 

Operating lease liabilities - current portion

 

1,061,721

 

 

Other current liabilities

 

10,000

 

65,862

 

Total current liabilities

 

22,448,090

 

21,218,924

 

Operating lease liabilities

 

277,758

 

 

Other liabilities

 

6,949

 

72,591

 

Total liabilities

 

22,732,797

 

21,291,515

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

Common stock $0.0001 par value, 83,750,000 shares authorized at September 30, 2019 and 53,750,000 shares authorized at December 31, 2018. 50,010,233 shares issued and outstanding at September 30, 2019 and 31,943,186 shares issued and outstanding at December 31, 2018

 

5,001

 

3,194

 

Additional paid-in capital

 

523,656,945

 

331,343,484

 

Accumulated other comprehensive loss

 

(1,724

)

(56,559

)

Accumulated deficit

 

(348,225,264

)

(289,088,064

)

Total stockholders’ equity

 

175,434,958

 

42,202,055

 

Total liabilities and stockholders’ equity

 

$

198,167,755

 

$

63,493,570

 

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.

Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

Product revenue, net

 

$

13,332,580

 

$

 

$

31,387,878

 

$

 

Income:

 

 

 

 

 

 

 

 

 

Grant income

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

1,071,673

 

 

1,740,560

 

 

Research and development

 

12,332,208

 

11,758,025

 

40,177,424

 

35,650,147

 

Selling, general and administrative

 

15,413,688

 

9,647,336

 

50,370,163

 

24,208,551

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

28,817,569

 

21,405,361

 

92,288,147

 

59,858,698

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(15,484,989

)

(21,405,361

)

(60,900,269

)

(59,358,698

)

Other income (expense)

 

714

 

 

(3,610

)

(3,897

)

Interest income

 

604,510

 

361,365

 

1,753,232

 

973,144

 

 

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

(14,879,765

)

(21,043,996

)

(59,150,647

)

(58,389,451

)

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

(8,747

)

 

13,447

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,888,512

)

$

(21,043,996

)

$

(59,137,200

)

$

(58,389,451

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.34

)

$

(0.73

)

$

(1.46

)

$

(2.07

)

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

43,733,163

 

29,018,507

 

40,486,766

 

28,253,750

 

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.

Statements of Comprehensive Loss

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,888,512

)

$

(21,043,996

)

$

(59,137,200

)

$

(58,389,451

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax

 

(53,498

)

26,427

 

51,225

 

45,515

 

Reclassification adjustment for (gain) loss on investments included in net loss

 

(714

)

 

3,610

 

3,897

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) gain

 

(54,212

)

26,427

 

54,835

 

49,412

 

Comprehensive loss

 

$

(14,942,724

)

$

(21,017,569

)

$

(59,082,365

)

$

(58,340,039

)

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.

Statement of Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Capital

 

Capital

 

Income (Loss)

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

43,875,679

 

$

4,388

 

$

434,071,363

 

$

52,488

 

$

(333,336,752

)

$

100,791,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock grants

 

125,469

 

13

 

(13

)

 

 

 

Forfeiture of restricted stock grants

 

(27,038

)

(3

)

3

 

 

 

 

Stock-based compensation expense

 

 

 

5,833,524

 

 

 

5,833,524

 

Employee Stock Purchase Plan compensation expense

 

 

 

107,545

 

 

 

107,545

 

Issuance of common stock in connection with the ESPP

 

16,859

 

2

 

170,611

 

 

 

170,613

 

Issuance of common stock in connection with the exercise of stock options

 

269,264

 

27

 

1,248,531

 

 

 

1,248,558

 

Issuance of common stock in connection with secondary public offering

 

5,750,000

 

574

 

82,225,381

 

 

 

82,225,955

 

Net loss

 

 

 

 

 

(14,888,512

)

(14,888,512

)

Other comprehensive loss, net of tax

 

 

 

 

(54,212

)

 

(54,212

)

Balance, September 30, 2019

 

50,010,233

 

$

5,001

 

$

523,656,945

 

$

(1,724

)

$

(348,225,264

)

$

175,434,958

 

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.

Statement of Stockholders’ Equity (cont.)

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Capital

 

Capital

 

Income (Loss)

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

31,943,186

 

$

3,194

 

$

331,343,484

 

$

(56,559

)

$

(289,088,064

)

$

42,202,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock award — outside services

 

43,822

 

4

 

500,005

 

 

 

500,009

 

Restricted stock grants

 

1,748,940

 

175

 

(175

)

 

 

 

Forfeiture of restricted stock grants

 

(72,134

)

(7

)

7

 

 

 

 

Stock-based compensation expense

 

 

 

21,351,346

 

 

 

21,351,346

 

Employee Stock Purchase Plan compensation expense

 

 

 

177,899

 

 

 

177,899

 

Issuance of common stock in connection with the ESPP

 

30,212

 

3

 

299,380

 

 

 

299,383

 

Issuance of common stock in connection with the exercise of stock options

 

343,985

 

34

 

1,542,014

 

 

 

1,542,048

 

Issuance of common stock in connection with secondary public offering, net

 

15,972,222

 

1,598

 

168,442,985

 

 

 

168,444,583

 

Net loss

 

 

 

 

 

(59,137,200

)

(59,137,200

)

Other comprehensive income, net of tax

 

 

 

 

54,835

 

 

54,835

 

Balance, September 30, 2019

 

50,010,233

 

$

5,001

 

$

523,656,945

 

$

(1,724

)

$

(348,225,264

)

$

175,434,958

 

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.
Statement of Stockholders’ Equity (cont.)
(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Capital

 

Capital

 

Income (Loss)

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

30,917,705

 

$

3,092

 

$

322,886,302

 

$

(122,973

)

$

(241,409,154

)

$

81,357,267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock grants

 

756,594

 

76

 

(76

)

 

 

 

Forfeiture of restricted stock grants

 

(14,933

)

(2

)

2

 

 

 

 

Stock-based compensation expense

 

 

 

3,070,424

 

 

 

3,070,424

 

Employee Stock Purchase Plan compensation expense

 

 

 

16,925

 

 

 

16,925

 

Issuance of common stock in connection with the ESPP

 

3,436

 

 

25,700

 

 

 

25,700

 

Issuance of common stock in connection with the exercise of stock options

 

8,750

 

1

 

50,471

 

 

 

50,472

 

Issuance of common stock in connection with secondary public offering

 

 

 

34,947

 

 

 

34,947

 

Net loss

 

 

 

 

 

(21,043,996

)

(21,043,996

)

Other comprehensive income, net of tax

 

 

 

 

26,427

 

 

26,427

 

Balance, September 30, 2018

 

31,671,552

 

$

3,167

 

$

326,084,695

 

$

(96,546

)

$

(262,453,150

)

$

63,538,166

 

 

— See accompanying unaudited notes —

 

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STEMLINE THERAPEUTICS, INC.

Statement of Stockholders’ Equity (cont.)

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Capital

 

Capital

 

Income (Loss)

 

Deficit

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

25,313,595

 

$

2,531

 

$

251,489,546

 

$

(145,958

)

$

(204,275,690

)

$

47,070,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock grants

 

1,496,126

 

150

 

(150

)

 

 

 

Forfeiture of restricted stock grants

 

(55,495

)

(6

)

6

 

 

 

 

Stock-based compensation expense

 

 

 

8,682,492

 

 

 

8,682,492

 

Adoption of accounting standard update related to stock compensation accounting (ASU 2018-07)

 

 

 

(211,991

)

 

211,991

 

 

Employee Stock Purchase Plan compensation expense

 

 

 

42,275

 

 

 

42,275

 

Issuance of common stock in connection with the ESPP

 

19,107

 

2

 

142,918

 

 

 

142,920

 

Issuance of common stock in connection with the exercise of stock options

 

169,810

 

17

 

1,583,780

 

 

 

1,583,797

 

Issuance of common stock in connection with the exercise of warrants

 

30,830

 

3

 

352,525

 

 

 

352,528

 

Issuance of common stock in connection with follow-on public offering, net

 

4,697,579

 

470

 

64,003,294

 

 

 

64,003,764

 

Net loss

 

 

 

 

 

(58,389,451

)

(58,389,451

)

Other comprehensive income, net of tax

 

 

 

 

49,412

 

 

49,412

 

Balance, September 30, 2018

 

31,671,552

 

$

3,167

 

$

326,084,695

 

$

(96,546

)

$

(262,453,150

)

$

63,538,166

 

 

— See accompanying unaudited notes —

 

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Table of Contents

 

STEMLINE THERAPEUTICS, INC.

Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(59,137,200

)

$

(58,389,451

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

83,872

 

38,639

 

Stock-based compensation expense

 

20,953,971

 

8,682,492

 

Stock award — in-licensing

 

500,009

 

 

Employee Stock Purchase Plan compensation expense

 

177,899

 

42,275

 

Amortization of premium paid on marketable securities

 

(656,798

)

(55,505

)

Non-cash lease expense

 

727,925

 

 

Net gain loss on sale of marketable securities

 

3,610

 

3,897

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(16,566,838

)

 

Inventories

 

(2,459,501

)

 

Prepaid expenses and other current assets

 

405,895

 

(1,527,168

)

Accounts payable and accrued expenses

 

223,307

 

(2,539,997

)

Operating lease liabilities

 

(746,960

)

 

Other current liabilities

 

367

 

28,433

 

Other liabilities

 

(3,814

)

(24,203

)

Net cash used in operating activities

 

(56,494,256

)

(53,740,588

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchase of fixed assets

 

(74,495

)

(94,258

)

Purchase of marketable securities

 

(179,609,313

)

(57,750,123

)

Sale and maturities of marketable securities

 

83,826,954

 

52,387,670

 

Net cash used in investing activities

 

(95,856,854

)

(5,456,711

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Principal payments on finance lease liabilities

 

 

(3,067

)

Proceeds from issuance of common stock from follow-on public offerings, net

 

168,444,585

 

64,003,764

 

Proceeds from issuance of common stock from ESPP

 

299,383

 

142,920

 

Proceeds from exercise of stock options

 

1,542,048

 

1,583,797

 

Proceeds from exercise of warrants

 

 

352,528

 

Net cash provided by financing activities

 

170,286,016

 

66,079,942

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

17,934,906

 

6,882,643

 

Cash and cash equivalents at beginning of period

 

9,443,667

 

4,795,098

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

27,378,573

 

$

11,677,741

 

 

— See accompanying unaudited notes —

 

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Table of Contents

 

1.                                      Organization

 

Stemline Therapeutics, Inc. (the “Company”) is a commercial-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing novel oncology therapeutics. The Company’s activities to date have primarily consisted of advancing ELZONRIS® (tagraxofusp-erzs) through the clinical and regulatory process, launching and commercializing ELZONRIS, including building out a sales, marketing, and reimbursement infrastructure, developing and implementing its global regulatory and commercial strategies, developing its clinical and preclinical stage programs, including evaluating ELZONRIS in additional indications and other product candidates in various indications, expanding and strengthening its intellectual property portfolio, identifying and acquiring additional product and technology rights, investor relations efforts, and raising capital. The Company was incorporated in Delaware on August 8, 2003 and has its principal office in New York, New York.

 

The Company has incurred losses from operations since inception of $359.9 million. Since its inception, most of its resources have been dedicated to drug discovery and acquisition, intellectual property, manufacturing, preclinical and clinical development of product candidates, regulatory strategy and implementation, and commercialization of ELZONRIS, an FDA-approved product. In particular, the Company has expended and will continue to expend substantial resources for the foreseeable future commercializing its approved product in the U.S. and potentially abroad, should it be approved outside the U.S., developing its approved product for potential additional indications, developing its additional clinical stage product candidates, developing its preclinical stage product candidates, and continuing its asset acquisition efforts. These expenditures include costs associated with general and administrative, facilities, research and development, acquiring new technologies, manufacturing product and product candidates, conducting clinical trials and preclinical experiments, seeking regulatory input, including approvals, as well as commercializing any products approved for sale, including its approved product, ELZONRIS, in blastic plasmacytoid dendritic cell neoplasm (“BPDCN”). The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales from its approved product and/or from the potential approval of its currently approved product in additional indications, and/or in additional territories, or its other product candidates. The Company expects its research and development expenses to increase in connection with its ongoing and planned clinical trials and related manufacturing efforts, as well as for expenses related to the U.S. commercial launch of ELZONRIS and pursuit of potential regulatory approval and commercialization in ex-U.S. territories. The Company also anticipates that its selling, general and administrative expenses will be higher in future periods due to commercialization and ongoing optimization and build out of its commercial infrastructure and regulatory compliance systems to support the continued commercialization of ELZONRIS in the U.S. and potentially ex-U.S. territories.

 

As a result, the Company may continue to incur operating losses for the foreseeable future. If adequate funds are not available to the Company on a timely basis, or at all, the Company may be required to delay or terminate commercialization, clinical trials or other development activities for its product and product candidates, for one or more indications or territories, or delay or terminate its establishment of sales and marketing capabilities, or other activities, that may be necessary to commercialize its products and product candidates.

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with the United States generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (including normal recurring adjustments) considered necessary for fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. Operating results for the current interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019, or any future periods. This Form 10-Q should be read in conjunction with the audited financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Company believes that its existing cash, cash equivalents, and investments will be sufficient to cover its cash flow requirements for at least the next twelve months from the issuance date of these financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

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2.                                      Summary of Significant Accounting Policies

 

The Company’s significant accounting policies are described in Note 2 of the Notes to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. During the nine months ended September 30, 2019, the changes to the significant accounting policies mainly relate to the commercialization of ELZONRIS, which includes product revenue, net, cost of goods sold, accounts receivable, and inventory.

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements, and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five-step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company determined that the delivery of its product to its customer constitutes a single performance obligation as there are no other promises to deliver goods or services. Shipping and handling are considered to be fulfillment activities and are not considered separate performance obligations. The Company has assessed the existence of a significant financing component in the agreement with its customer. The payment terms with its customer do not exceed one year and therefore no amount of consideration has been allocated as a financing component. Taxes collected related to product sales are remitted to governmental authorities and are excluded from revenue.

 

Product Revenue, Net

 

The Company began commerical sales of ELZONRIS in January 2019. The Company sells ELZONRIS to its customer through its title distribution channel. The customer subsequently resells ELZONRIS to a limited number of specialty distributors who, in turn, distribute ELZONRIS to specialty hospitals.

 

The Company recognizes revenue on sales of ELZONRIS when its customer obtains control of the product, which occurs at a point in time, typically upon delivery. Product revenues are recorded at the product’s wholesale acquisition costs, net of applicable reserves for variable consideration that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the Company’s sale of its products. Components of variable consideration include government contracts, product returns, commercial co-payment assistance program transactions, and distribution service fees. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as a current liability based on the expected value method and a range of outcomes and are probability weighted in accordance with ASC 606. Overall, these reserves reflect our best estimates of the amount of consideration against product revenue that has been recognized.

 

The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under contracts will not occur in a future period. The Company’s analyses contemplate the application of the constraint in accordance with ASC 606. For the three and nine months ended September 30, 2019, the Company determined a material reversal of revenue would not likely occur in a future period for the estimates detailed below and, therefore, the transaction price was not reduced further. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

 

Government Contracts

 

The Company has entered into contracts (i) to participate in the Medicaid Drug Rebate Program and the Medicare Part D program, and (ii) to sell to the U.S. Department of Veterans Affairs, 340b entities and other government agencies (“Government Payors”) so that ELZONRIS will be eligible for purchase by, in partial or full reimbursement from, such Government Payors. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability,

 

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which is included in accounts payable and accrued expenses. For Medicare Part D, the Company estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional discount under the Medicare Part D program.

 

The Company estimates the rebates that it will provide to Government Payors for those programs that require rebates. These rebate estimates are based upon (i) the government-mandated discounts applicable to government-funded programs, (ii) information obtained from its customers and (iii) information obtained from other third parties regarding the payor mix for ELZONRIS. The liability for these rebates consists of estimates of claims for the current year and estimated future claims that will be made for product shipments that have been recognized as revenue but remain in the distribution channel inventories at the end of each reporting period.

 

Product Returns

 

Consistent with industry practice, the Company offers a limited right of return for product that has been purchased. To estimate sales with a right of return, the Company will assess, on a quarterly basis, the number of vials that are held in inventory throughout the distribution channel. Amounts for estimated product returns are established in the same period that the related gross revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accounts payable and accrued expenses.

 

Commercial Co-payment Assistance Program

 

The Company offers a co-payment assistance program where permitted by law and which is intended to provide financial assistance to qualified commercially insured patients who are required to pay prescription drug copayments based on the terms of their prescription drug insurance plans. The calculation of the accrual for co-payment assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accounts payable and accrued expenses.

 

Distribution Fees

 

Distribution fees include fees paid to the Company’s distributors for the distribution of ELZONRIS based on contractual rates. In addition, the Company compensates for data and other administrative activities. Therefore, estimates for these costs are recorded as a reduction of revenue, based on contractual terms.

 

Accounts Receivable

 

Accounts receivable primarily relates to amounts due from the Company’s customer. The Company analyzes accounts that are past due for collectability and provides an allowance for receivables when collection becomes doubtful. No reserve has been recorded relating to an allowance for doubtful accounts at September 30, 2019.

 

Cost of goods sold

 

Cost of goods sold includes direct costs to manufacture commercial drug substance and drug product for ELZONRIS, as well as indirect costs including costs for packaging, shipping, insurance and quality assurance, idle capacity charges, write-offs for inventory that fails to meet specifications or is otherwise no longer suitable for commercial sale, and royalties due to the licensor of ELZONRIS related to the U.S. product sales recognized during the period.

 

Inventory

 

The Company capitalizes inventory costs associated with the manufacturing of ELZONRIS after regulatory approval or when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Otherwise, such costs are expensed as research and development. The majority of manufacturing costs for ELZONRIS units recognized as revenue during the three and nine months ended September 30, 2019 were expensed to research and development prior to FDA approval on December 21, 2018.

 

The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges,

 

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should they occur, are recorded within cost of goods sold. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required which would be recorded as a cost of goods sold in the statement of operations and comprehensive loss.

 

Adoption of New Accounting Standard

 

In May 2014, the Financial Accounting Standards Board (“FASB”), issued a comprehensive new revenue recognition Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts With Customers (Topic 606). ASU 2014-09 provides guidance to clarify the principles for recognizing revenue. This guidance includes the required steps to achieve the core principle that an entity should recognize income to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted for fiscal years and interim periods beginning after December 15, 2016. The Company adopted this guidance on January 1, 2018, using the full retrospective method. Any future contracts with customers will be accounted for under the new guidance effective January 1, 2018.

 

As noted below in Note 14 to the Company’s Financial Statements, the Company has received grant income from the Leukemia and Lymphoma Society (“LLS”) to fund the Company’s development program related to the Company’s preclinical and clinical product development activities. The Company has determined that LLS is not a customer as defined by Topic 606. The Company recognizes grant income when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant income will be received based on the Company’s best estimates of work performed and qualifying costs incurred.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under prior GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The guidance permits a practical expedient with regards to initial adoption, allowing adopters the option to apply the new leases standard prospectively at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this expedient, comparative periods presented in the financial statements in which the new lease standard is adopted will continue to be presented in accordance with prior GAAP.

 

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases. Specifically addressed in this update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components. The amendments in this ASU are effective in the same time-frame as ASU 2016-02, as discussed above. The Company incorporated this ASU into its assessment and adoption of ASU 2016-02.

 

The Company adopted ASU 2016-02 on January 1, 2019 using the prospective application method practical expedient. The adoption of this standard had an impact on our balance sheet, recognizing a right-of-use asset and lease liability of approximately $2 million. Refer to Note 8 for disclosure requirements related to the adoption of this standard.

 

On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718):  Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Entities should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the period of time equity awards vest and the pattern of cost recognition over that period. ASU No. 2018-07 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted and the Company adopted ASU No. 2018-07 on April 1, 2018. The net impact relating to the early adoption was a $0.2 million decrease to accumulated deficit for the impact prior to April 1, 2018. In addition, the Company has elected to account for forfeitures of nonemployee awards as they occur.

 

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Table of Contents

 

Recently Issued Accounting Standards Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that represent the contractual right to receive cash. ASU 2016-13 and ASU 2018-19 are effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-13 on the Company’s financial statements.

 

Other accounting standards updates adopted and/or issued, but not effective until after September 30, 2019, are not expected to have a material effect on the Company’s unaudited financial position, annual results of operations and/or cash flows.

 

3.                                      Liquidity and Capital Resources

 

As of September 30, 2019, the Company has approximately $174.5 million in cash, cash equivalents, and investment securities. The Company primarily invests in highly liquid cash equivalents, investments in U.S. Treasury and Agency securities and related money market funds and FDIC-insured bank certificates of deposit, with the balance in commercial bank operating accounts.

 

4.                                      Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consist of the following at September 30, 2019 and December 31, 2018:

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Prepaid third party vendor costs

 

$

1,520,975

 

$

1,851,553

 

Deposits

 

492,794

 

189,000

 

Prepaid insurance

 

408,091

 

69,021

 

Other receivables

 

125,241

 

843,422

 

Total

 

$

2,547,101

 

$

2,952,996

 

 

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Table of Contents

 

5.                                      Property and Equipment, Net

 

Property and equipment, net, consist of the following at September 30, 2019 and December 31, 2018:

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Office furniture and fixtures

 

$

519,675

 

$

519,675

 

Manufacturing equipment

 

181,753

 

107,258

 

Leasehold improvements

 

82,694

 

82,694

 

Capital lease equipment

 

29,529

 

29,529

 

Computer equipment

 

18,612

 

18,612

 

Property and equipment

 

832,263

 

757,768

 

Less accumulated depreciation and amortization

 

(619,227

)

(535,355

)

Property and equipment, net

 

$

213,036

 

$

222,413

 

 

Depreciation expense was $83,872 and $38,639 for the nine-month periods ended September 30, 2019 and 2018, respectively, and $25,693 and $14,575 for the three month periods ended September 30, 2019 and 2018, respectively.

 

6.                                      Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

 

Level 3 — Inputs that are unobservable for the asset or liability.

 

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liability measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:

 

 

 

September 30, 2019

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

Balance

 

 

 

Identical

 

Observable

 

Unobservable

 

at

 

 

 

Assets

 

Inputs

 

Inputs

 

September 30,

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

2019

 

Assets:

 

 

 

 

 

 

 

 

 

Fixed-income treasury portfolio

 

$

147,152,571

 

$

 

$

 

$

147,152,571

 

Certificate of Deposits

 

 

 

 

 

Cash and cash equivalents

 

27,378,573

 

 

 

27,378,573

 

Total assets at fair value

 

$

174,531,144

 

$

 

$

 

$

174,531,144

 

 

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Table of Contents

 

 

 

December 31, 2018

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

Balance

 

 

 

Identical

 

Observable

 

Unobservable

 

at

 

 

 

Assets

 

Inputs

 

Inputs

 

December 31,

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

2018

 

Assets:

 

 

 

 

 

 

 

 

 

Fixed-income treasury portfolio

 

$

30,637,998

 

$

 

$

 

$

30,637,998

 

Certificate of Deposits

 

 

20,024,191

 

 

20,024,191

 

Cash and cash equivalents

 

9,443,667

 

 

 

9,443,667

 

Total assets at fair value

 

$

40,081,665

 

$

20,024,191

 

$

 

$

60,105,856

 

 

The following is a summary of cash and cash equivalents and available-for-sale investments held by the Company at September 30, 2019 and December 31, 2018:

 

 

 

September 30, 2019

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains*

 

Losses*

 

Value

 

Cash:

 

 

 

 

 

 

 

 

 

Cash from operating accounts

 

$

11,259,354

 

$

 

$

 

$

11,259,354

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

16,119,056

 

280

 

(117

)

16,119,219

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

27,378,410

 

$

280

 

$

(117

)

$

27,378,573

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Fixed-income treasury portfolio:

 

 

 

 

 

 

 

 

 

Fannie Mae

 

2,999,384

 

1,862

 

 

3,001,246

 

Federal farm credit bank

 

2,409,071

 

4,235

 

 

2,413,306

 

Federal Home Loan Bank

 

1,002,180

 

 

 

(848

)

1,001,332

 

Freddie Mac

 

1,257,730

 

11

 

 

1,257,741

 

U.S. Treasury Securities

 

139,446,220

 

68,008

 

(35,282

)

139,478,946

 

 

 

 

 

 

 

 

 

 

 

Total short-term investments

 

147,114,585

 

74,116

 

(36,130

)

147,152,571

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

174,492,995

 

$

74,396

 

$

(36,247

)

$

174,531,144

 

 

 

 

December 31, 2018

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains*

 

Losses*

 

Value

 

Cash:

 

 

 

 

 

 

 

 

 

Cash from operating accounts

 

$

2,482,621

 

$

 

$

 

$

2,482,621

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

6,961,046

 

 

 

6,961,046

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

9,443,667

 

$

 

$

 

$

9,443,667

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Fixed-income treasury portfolio:

 

 

 

 

 

 

 

 

 

 

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Table of Contents

 

 

 

 

December 31, 2018

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains*

 

Losses*

 

Value

 

Fannie Mae

 

2,013,336

 

 

(1,146

)

2,012,190

 

Federal home loan bank

 

6,020,492

 

 

(10,646

)

6,009,846

 

Freddie Mac

 

2,512,252

 

 

(8,530

)

2,503,722

 

U.S. Treasury Securities

 

20,123,026

 

767

 

(11,553

)

20,112,240

 

 

 

 

 

 

 

 

 

 

 

Certificate of Deposits

 

20,024,346

 

 

(155

)

20,024,191

 

 

 

 

 

 

 

 

 

 

 

Total short-term investments

 

50,693,452

 

767

 

(32,030

)

50,662,189

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

60,137,119

 

$

767

 

$

(32,030

)

$

60,105,856

 

 


*The gross unrealized gains and losses captured in this footnote is before tax.

 

At September 30, 2019 and December 31, 2018, the remaining contractual maturities of available-for-sale investments classified as current on the balance sheet were less than 12 months.

 

There were no available-for-sale securities in a continuous unrealized loss position for greater than twelve months at September 30, 2019 and December 31, 2018. The Company has the ability to hold such securities with an unrealized loss until its forecasted recovery. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with any other-than-temporary impairment as of September 30, 2019.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist principally of cash and cash equivalents, investments, other current assets, accounts payable and accrued expenses. Cash and cash equivalents, and investments are carried at fair value (see above). Financial instruments including other current assets, accounts payable and accrued expenses are carried at cost, which approximate fair value given their short-term nature.

 

7.                                      Inventories

 

Inventory consists of the following:

 

 

 

September 30,

 

 

 

2019

 

Raw materials

 

$

39,820

 

Work-in-process

 

1,655,073

 

Finished goods

 

1,161,983

 

Total Inventories

 

$

2,856,876

 

 

Inventory is related to our approved product, ELZONRIS. There were no write downs for excess and obsolete inventory during the three and nine months ended September 30, 2019.

 

8.                                      Leases

 

The Company has leases for office facilities as well as for certain equipment. The operating lease portfolio is related to two office spaces and the financing lease relates to office equipment that was acquired in the prior year. Subsequent to the quarter ended September 30, 2019, the Company met the criteria to commence accounting for an operating lease arrangement for office space in Switzerland, which was dated November 1, 2019. The lease expires in March 2023 and includes approximately $0.4 million of legally binding minimum lease payments. The Company is in the process of completing its accounting for this operating lease arrangement, including determining the incremental borrowing rate to discount the remaining lease payments associated with the lease liability and the right-of-use asset. Operating leases are included in operating lease right-of-use assets, operating lease liability - current and operating lease liabilities on the Company’s balance sheet. The Company has elected the package of practical expedients which applies to leases

 

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that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases.

 

Operating lease right-of-use asset and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, the Company used the incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense is recognized as a single lease cost on a straight-line basis over the lease term.

 

During the three and nine month periods ended September 30, 2019, the Company recognized lease expense of $267,386 and $802,245, respectively, primarily related to our operating leases. During the three and nine month periods ended September 30, 2018, lease expense was $332,383 and $709,997, respectively. Lease expense is included in selling, general and administrative expense in the statements of operations.

 

 

 

September 30,

 

Balance sheet information related to leases was as follows:

 

2019

 

Operating Leases

 

 

 

Operating lease right-of-use assets

 

$

1,240,455

 

Operating lease liabilities - current portion

 

1,061,721

 

Operating lease liabilities

 

277,758

 

Total operating lease liabilities

 

$

1,339,479

 

Weighted Average Remaining Lease Term — Operating Leases

 

1.25 years

 

Weighted Average Discount Rate — Operating Leases

 

7.32

%

 

Maturities of operating lease liabilities as of September 30, 2019 were as follows:

 

 

 

Operating
Leases

 

2019

 

$

279,450

 

2020

 

1,117,800

 

Total future minimum lease payments

 

1,397,250

 

Less imputed interest

 

(57,771

)

Present value of operating lease liabilities

 

$

1,339,479

 

 

As of December 31, 2018, future minimum lease payments under long-term noncancelable operating leases as classified under ASC 840 were as follows:

 

 

 

Operating
Leases

 

2019

 

$

1,011,420

 

2020

 

847,620

 

2021

 

4,425

 

Total future minimum lease payments

 

$

1,863,465

 

 

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Table of Contents

 

Supplemental cash flow information related to leases was as follows:

 

 

 

September 30,

 

Cash paid for amounts included in the measurement of operating lease liabilities:

 

2019

 

 

 

 

 

Operating cash flows from operating leases

 

$

838,350

 

 

9.                                      Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following at September 30, 2019 and December 31, 2018:

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Accrued research and development costs

 

$

9,027,716

 

$

8,790,920

 

Accrued compensation

 

4,252,328

 

5,515,002

 

Accrued legal

 

919,488

 

687,042

 

Accrued commercial costs

 

3,336,166

 

4,614,507

 

Accrued general and administrative costs

 

993,381

 

1,545,591

 

Accrued sales deduction and allowance

 

2,452,201

 

 

Accrued royalty

 

395,089

 

 

Total accounts payable and accrued expenses

 

$

21,376,369

 

$

21,153,062

 

 

10.                               Common Stock

 

On August 8, 2019, the Company completed a follow-on public offering, selling 5,000,000 shares at an offering price of $15.25 per share. Additionally, the underwriters exercised in full their over-allotment option to purchase an additional 750,000 shares at an offering price of $15.25 per share. Aggregate gross proceeds from the follow-on public offering, including the exercise of the over-allotment option, were $87.7 million, and net proceeds received after underwriting fees and offering expenses were approximately $82.2 million.

 

The Company was authorized to issue 83,750,000 shares of common stock at September 30, 2019 and 53,750,000 shares of common stock at December 31, 2018.

 

Dividends on common stock will be paid when, and if, declared by the board of directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. The Company will, at all times, reserve and keep available, out of its authorized but unissued shares of common stock, sufficient shares to affect the conversion of shares from the exercise of stock options.

 

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Table of Contents

 

11.                               Accumulated Other Comprehensive (Loss) Income

 

The changes in accumulated balances for each component of other comprehensive loss are as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

52,488

 

$

(122,973

)

$

(56,559

)

$

(145,958

)

Other comprehensive income before reclassification

 

(53,498

)

26,427

 

51,225

 

45,515

 

Amounts reclassified from accumulated other comprehensive loss*

 

(714

)

 

3,610

 

3,897

 

Total other comprehensive (loss) income

 

(54,212

)

26,427

 

54,835

 

49,412

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

(1,724

)

$

(96,546

)

$

(1,724

)

$

(96,546

)

 


*Amounts reclassified affect other income in the Statements of Operations.

 

12.                               Product Revenue Reserves and Allowances

 

As of September 30, 2019, the Company’s sole source of product revenue has been from sales of ELZONRIS in the United States. The following table summarizes activity in each of the product revenue allowance and reserve categories for the three and nine months ended September 30, 2019:

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Government
Rebates

 

Product
Returns

 

Commercial
Co-payment
Assistance
Programs

 

Distribution
Fees

 

Total

 

Beginning balance at June 30, 2019

 

$

481,396

 

$

130,590

 

$

53,125

 

$

419,476

 

$

1,084,587

 

Provision related to sales in the current quarter

 

1,369,156

 

1,292,235

 

23,942

 

367,851

 

3,053,184

 

Adjustments related to prior period sales

 

 

 

 

 

 

Credits and payments made

 

(1,373,435

)

 

 

(312,135

)

(1,685,570

)

Ending balance at September 30, 2019

 

$

477,117

 

$

1,422,825

 

$

77,067

 

$

475,192

 

$

2,452,201

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Government
Rebates

 

Product
Returns

 

Commercial
Co-payment
Assistance
Programs

 

Distribution
Fees

 

Total

 

Beginning balance at December 31, 2018

 

$

 

$

 

$

 

$

 

$

 

Provision related to sales in the current year

 

2,266,945

 

1,422,825

 

77,067

 

848,338

 

4,615,175

 

Adjustments related to prior period sales

 

 

 

 

 

 

Credits and payments made

 

(1,789,828

)

 

 

(373,146

)

(2,162,974

)

Ending balance at September 30, 2019

 

$

477,117

 

$

1,422,825

 

$

77,067

 

$

475,192

 

$

2,452,201

 

 

Government rebates, product returns, commercial co-payment assistance programs, and distribution fees are recorded as a component of accounts payable and accrued expenses on the balance sheet.

 

13.                               Net Loss Per Common Share

 

The Company accounts for and discloses net loss per share using the treasury stock method. Net loss per common share, or basic loss per share, is computed by dividing net loss by the weighted-average number of common shares outstanding. Since the Company is in a net loss for all periods presented, diluted net loss per share is not presented since the common stock equivalents would have an anti-dilutive effect on the per share calculation.

 

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Table of Contents

 

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Basic and diluted net loss per common share calculation:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,888,512

)

$

(21,043,996

)

$

(59,137,200

)

$

(58,389,451

)

Basic and diluted weighted-average common shares

 

43,733,163

 

29,018,507

 

40,486,766

 

28,253,750

 

Basic and diluted net loss per share

 

$

(0.34

)

$

(0.73

)

$

(1.46

)

$

(2.07

)

 

The difference between basic and diluted weighted-average common shares generally results from the assumption that dilutive stock options outstanding were exercised and dilutive restricted stock has vested. For the nine-month periods ended September 30, 2019 and 2018, the Company reported a loss from operations and therefore, all potentially dilutive stock options and restricted stock as of such date were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. The total shares of stock options and restricted stock that could potentially dilute earnings per share in the future, but which were not included in the calculation of diluted net loss per share because their affect would have been anti-dilutive were as follows:

 

 

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

Restricted stock

 

3,316,384

 

2,631,934

 

Options outstanding

 

3,161,327

 

3,191,018

 

Total

 

6,477,711

 

5,822,952

 

 

14.                               Grant Income

 

In October 2013, the Company entered into a contract with the LLS whereby LLS agreed to provide funding to the Company not to exceed $3.5 million. LLS is a national voluntary health organization that, among other activities, encourages and sponsors research relating to blood cancers to develop therapies to cure or mitigate these diseases. In consideration of funding by LLS and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company may be required to pay LLS a cash multiple on the LLS funding, less any amount the Company contributes to LLS to support the Company’s preclinical and clinical development activities to bring ELZONRIS to commercialization. The Company is required to make a one-time payment upon regulatory approval and commercialization of ELZONRIS. Additionally, the Company is required to make payments based on achievement of specific sale-based commercial milestones. The total amount payable by the Company to LLS will not exceed three (3) times the amount of net funding received from LLS of $2.9 million. The Company may terminate the license for any or no reason upon 60 days advance written notice to LLS. If either party breaches a material obligation under the agreement and such obligation is not cured within a specified period of time following written notice from the other party, the non-breaching party may terminate the agreement upon an additional written notice. As at September 30, 2019, a $1.5 million liability is recorded in accounts payable and accrued expenses on the Company’s balance sheet, payable to LLS under this agreement.

 

15.                               Income Taxes

 

The Company recorded a $13,447 income tax benefit related to intraperiod tax allocations for the nine-month period ended September 30, 2019 and no income tax provisions or benefits were recorded for the nine-month period ended September 30, 2018, due to the fact that the Company cannot benefit from its net operating losses or other deferred tax assets. The Company does not currently have the ability to carry back losses to previous years to recover taxes paid and future utilization of these losses is uncertain.

 

The Company files income tax returns in the United States and in the State of New York. The Company currently has no ongoing audits.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards.

 

Valuation allowances reduce deferred tax assets to the amounts that are more likely than not to be realized. As of September 30, 2019, the Company has recorded additional deferred tax assets which are fully offset by a valuation allowance. Realization of the deferred tax assets is dependent on generating sufficient taxable income in the future. At present, the likelihood of the Company being able to fully utilize its deferred income tax benefits against future income is uncertain.

 

16.                               Stock-Based Compensation

 

The Company’s 2016 Stock Equity Incentive Plan (the “2016 Plan”) was adopted by the board of directors and approved by the stockholders in May 2016. The 2016 Plan authorizes the Company to grant up to 1,812,932 shares of common stock to eligible employees, directors, and non-employee consultants and advisors to the Company. Under the provisions of the 2016 Plan, no option will have a term in excess of 10 years. The Company’s stockholders approved an increase of 1,200,000 shares, an increase of 2,900,000 shares, and an increase of 2,500,000 shares authorized under the 2016 Plan during 2017, 2018, and 2019, respectively.

 

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Table of Contents

 

As of September 30, 2019, there were 2,488,038 shares of common stock available for future grants under the 2016 Plan.

 

The following table summarizes stock-based compensation related to the above plans by expense category for the three and nine-month periods ended September 30, 2019 and 2018, respectively:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Research and development

 

$

2,475,081

 

$

1,334,967

 

$

8,802,566

 

$

3,521,610

 

Selling, general and administrative

 

3,358,443

 

1,735,457

 

12,548,780

 

5,160,882

 

Total

 

$

5,833,524

 

$

3,070,424

 

$

21,351,346

 

$

8,682,492

 

 

The following table summarizes the stock-based compensation capitalized to inventory:

 

 

 

Three Months