Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
OVERVIEW
The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as “believe”, “estimate”, “expect”, “anticipate”, “will”, “may”, “intend” and other similar expressions, are intended to identify forward-looking statements. We caution that forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors that are, in many instances, beyond our control. Actual results, performance or achievements may differ materially from those contemplated, expressed or implied by the forward-looking statements.
Although we believe that the expectations reflected in our forward-looking statements are reasonable as of the date we make them, actual results could differ materially from those currently anticipated due to a number of factors, including risks relating to:
uncertainties about the Merger (as defined below), including but not limited to our ability to close the Merger, our ability to obtain adequate liquidity to fund our operations, meet our obligations, and continue as a going concern if the Merger is not completed, and that the Merger may not enhance shareholder value and may create a distraction or uncertainty that may adversely affect our operating results, business, or investor perceptions;
our ability to control and correctly estimate our operating expenses, our estimated warrant liabilities and our expenses associated with the Merger, including litigation expenses, which could result in us having significantly less net cash than currently anticipated, which may prevent us from consummating the Merger or result in our stockholders owning significantly less of the combined company than currently estimated;
conditions to payment under the contingent value rights (“CVRs”) may not be met and the CVRs may never deliver any value to our stockholders;
uncertainties about the paths of our programs and our ability to evaluate and identify a path forward for those programs, particularly given the constraints we have as a small company with limited financial, personnel and other operating resources;
the impact of the COVID-19 pandemic on the economy, our industry, and our financial condition and results of operations, as well as our ability to consummate the Merger;
our understandings and beliefs regarding the role of certain biological mechanisms and processes in cancer;
our product candidates being in early stages of development, including in preclinical development;
our ability to successfully and timely complete clinical trials for our drug candidates in clinical development;
uncertainties related to the timing, results and analyses related to our drug candidates in preclinical development;
our ability to obtain the necessary U.S. and international regulatory approvals for our drug candidates;
our reliance on third-party contract research organizations and other investigators and collaborators for certain research and development services;
our ability to maintain or engage third-party manufacturers to manufacture, supply, store and distribute supplies of our drug candidates for our clinical trials;
our ability to form strategic alliances and partnerships with pharmaceutical companies and other partners for development, sales and marketing of certain of our product candidates;
demand for and market acceptance of our drug candidates;
the scope and validity of our intellectual property protection for our drug candidates and our ability to develop our candidates without infringing the intellectual property rights of others;
our lack of profitability and the need for additional capital to operate our business; and
other risks and uncertainties, including those set forth herein and in the 2019 Form 10-K under the caption “Risk Factors” and those detailed from time to time in our filings with the Securities and Exchange Commission.
These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
We are a clinical stage biopharmaceutical company that has been focused on the development of innovative therapies to improve patient outcomes in cancers that are difficult to treat. Our pipeline has featured two clinical-stage product candidates and additional compounds in preclinical development.
| • | RX-3117 is a novel, investigational oral, small molecule nucleoside compound. Once intracellularly activated (phosphorylated) by the enzyme UCK2, it is incorporated into the DNA or RNA of cells and inhibits both DNA and RNA synthesis, which induces apoptotic cell death of tumor cells. RX-3117 has been the subject of a Phase 2a clinical trial in combination with Celgene’s ABRAXANE® (paclitaxel protein-bound particles for injectable suspension) as a first-line treatment in patients newly diagnosed with metastatic pancreatic cancer. The trial reached its target enrollment in February 2019. As of July 24, 2019, an overall response rate of 23% had been observed in 40 patients that had at least one scan on treatment. Preliminary and unaudited data indicates that the median progression free survival for patients in the study is approximately 5.4 months. Complete data from the trial is expected to be available in 2020. We do not plan to conduct or sponsor any additional trials with RX-3117.
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On March 10, 2020, we amended our collaboration and license agreement (as amended, the “License and Assignment Agreement”) with BioSense Global LLC (“BioSense”) to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”). Under the terms of the License and Assignment Agreement, upon payment in full of an upfront payment, we will grant BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the Territory and assign and transfer to BioSense all of our patents and patent applications related to RX-3117 in the Territory. The upfront payment consists of an aggregate of $1,650,000, of which $1,550,000 has been received to date. Under the License and Assignment Agreement, we are eligible to receive milestone payments in an aggregate of up to $84.5 million upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties in the mid-single digits to low tens on annual net sales in the Territory.
| • | RX-5902 is a potential first-in-class small molecule modulator of the Wnt/beta-catenin pathway which plays a key role in cancer cell proliferation and tumor growth. In August 2018, we entered into a Clinical Trial Collaboration and Supply Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme B.V. (“Merck”) to evaluate the combination of RX-5902 and Merck’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in a Phase 2 trial in patients with metastatic triple negative breast cancer (“TNBC”). On April 7, 2020, we notified Merck that we were terminating the Collaboration Agreement, effective immediately, in connection with our determination to discontinue development of RX-5902 for the treatment of TNBC. We do not plan to conduct or sponsor any additional trials with RX-5902.
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| • | RX-0301 is a potential best-in-class, potent inhibitor of the synthesis of the protein kinase Akt-1, which we believe plays a critical role in cancer cell proliferation, survival, angiogenesis, metastasis, and drug resistance. RX-0301 is currently in preclinical development by Zhejiang HaiChang Biotechnology Co., Ltd. (“HaiChang”) as a nano-liposomal formulation of RX-0201 (Archexin®) using HaiChang’s proprietary QTsome™ technology. On February 8, 2020, we entered into an exclusive license agreement with HaiChang (the “HaiChang License Agreement”) pursuant to which we granted HaiChang an exclusive (even as to us), royalty-bearing, sublicensable worldwide license to research, develop and commercialize RX-0201 and RX-0301. The HaiChang License Agreement supersedes a prior agreement with HaiChang to develop RX-0301 under which HaiChang was to conduct certain preclinical and clinical activities through completion of a Phase 2a proof-of-concept clinical trial in hepatocellular carcinoma.
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Merger Agreement
In September 2019, we commenced a process to explore and evaluate strategic alternatives to enhance stockholder value, and had engaged Oppenheimer & Co. Inc. as our financial advisor to assist us in this process. In June 2020, we entered into an Agreement and Plan of Merger and Reorganization (as amended, the “Merger Agreement”) with Razor Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”) and Ocuphire Pharma, Inc., a Delaware corporation (“Ocuphire”), pursuant to which our wholly owned subsidiary, Merger Sub, will merge with and into Ocuphire, with Ocuphire surviving as our wholly owned subsidiary in an all-stock transaction (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), we will also enter into a CVR Agreement, pursuant to which, for each share of our common stock held, our stockholders of record as of immediately prior to the Effective Time will receive one contingent value right (“CVR”). Refer to Note 2, Merger Agreement and Pre-Merger Financing, in the Notes to Condensed Financial Statements included in Part I “Financial Information”, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for further information. The discussion below excludes any impact that may result from the Merger. The Merger has been approved by the boards of directors of both companies and is expected to close, at the earliest, on or about November 5, 2020, subject to approval by our stockholders at the Special Meeting of Stockholders on November 2, 2020 as well as certain other closing conditions. The total fees and costs of the proposed Merger are expected to be material to our results of operations in 2020. Following the Merger, the combined company will be a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of several eye disorders.
Although we have entered into the Merger Agreement and intend to consummate the Merger, there is no assurance that we will be able to successfully consummate the Merger on a timely basis, or at all. If, for any reason, the Merger does not close, our board of directors may elect to, among other things, attempt to complete another strategic transaction like the Merger, attempt to sell or otherwise dispose of our various assets, resume our research and development activities and continue to operate our business or dissolve and liquidate our assets. If we decide to dissolve and liquidate our assets, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left, if any, to distribute to stockholders after paying our debts and other obligations and setting aside funds for reserves. If we were to continue our business, we would need to raise a substantial amount of cash to fund ongoing operations and future development activities for our existing product candidates and any new product candidates that we acquire.
Pre-Merger Financing
Securities Purchase Agreement
On June 29, 2020, Ocuphire, us and certain institutional healthcare investors, accredited investors and directors and officers of Ocuphire (the “Investors”) entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), which amended and restated in its entirety the prior securities purchase agreement among the same parties dated June 17, 2020 (the “Initial Securities Purchase Agreement”). The Securities Purchase Agreement that was entered into on June 29, 2020 was substantially similar to the Initial Securities Purchase Agreement, except (i) the number of Additional Shares (as defined below) to be deposited into escrow was increased from two times the number of Initial Shares (as defined below) of Ocuphire common stock to three times the number of Initial Shares of Ocuphire common stock, (ii) the Registration Rights Agreement, dated, June 17, 2020, by and among us and the Investors (the “Registration Rights Agreement”) was terminated in its entirety, and (iii) certain of our obligations were revised to reflect termination of the Registration Rights Agreement.
Pursuant to the Securities Purchase Agreement, the Investors agreed to invest a total of $21.15 million in cash (the “Purchase Price” and the financing arrangement described herein, the “Pre-Merger Financing”) to fund the combined company following the consummation of the Merger. In return, based on an agreed upon pre-money valuation of the combined company following the Merger (the “combined company”) of $120 million, Ocuphire will issue an amount of shares of Ocuphire common stock (the “Initial Shares”) to the Investors, which shares will be exchangeable in the Merger for approximately 15% of the Pre-Merger Financing Fully Diluted Shares (as defined below). In addition, (i) Ocuphire will deposit three times the number of Initial Shares of Ocuphire common stock (the “Additional Shares,” and together with the Initial Shares, the “Pre-Merger Financing Shares”) into escrow with an escrow agent for the benefit of the Investors, to be exchanged for shares of our common stock in the Merger, and to be delivered, in whole or in part, based on the formula set forth below, out of escrow to the Investors if 85% of the average of the five lowest volume-weighted average trading prices of a share of our common stock on The Nasdaq Stock Market (“Nasdaq”) during the first ten trading days (or earlier, at the election of any Investor) immediately following the closing date of the Pre-Merger Financing (which closing date will be the same date as the Closing) is lower than the effective price per share paid by the Investors for the Converted Initial Shares (as defined below), and (ii) on the tenth trading day following the closing date of the Pre-Merger Financing (the “warrant closing date”), we will issue to the Investors (x) Series A warrants to purchase shares of our common stock, as further described below (the “Series A Warrants”), and (y) Series B warrants to purchase shares of our common stock, as further described below (the “Series B Warrants,” together with the Series A Warrants, the “Investor Warrants” and, together with the Pre-Merger Financing Shares, the “Purchased Securities”).stock.
“Pre-Merger Financing Fully Diluted Shares” means the “fully-diluted” post-Merger outstanding shares of our common stock, which amount (i) includes all shares of our common stock that may be issued pursuant to in-the-money options, warrants or convertible securities, and (ii) with respect to new warrants issued after the date of the Initial Securities Purchase Agreement in exchange for existing warrants shall include (A) all shares of our common stock that are subject to each new warrant that is in-the-money as of the date of issuance of such new warrant and (B) 0.5 times the number of shares of our common stock that may be issued pursuant to such out-of-the-money new warrant that is out-of-the-money as determined based on the closing sale price of our common stock immediately following the issuance of such warrant, and (iii) excludes all other out-of-the-money options, warrants or convertible securities of ours.
As a result of the Merger, at the Effective Time, the Initial Shares will automatically be converted into the right to receive a number of shares (the “Converted Initial Shares”) of our common stock equal to the number of Initial Shares multiplied by the Exchange Ratio. Further, at the Effective Time, the Additional Shares placed into escrow with the escrow agent will automatically be converted into the right to receive a number of shares (the “Converted Additional Shares”) of our common stock equal to the number of Additional Shares multiplied by the Exchange Ratio. The number of Converted Additional Shares deliverable out of escrow to each Investor will be equal to the lesser of (I) the number of Converted Additional Shares issued in exchange for the Additional Shares deposited in the Investor’s escrow account and (II) the number determined on or prior to the warrant closing date by subtracting (i) the number of Converted Initial Shares issued to the Investor from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor by (b) 85% of the average of the five lowest volume-weighted average trading prices of a share of our common stock on Nasdaq during the first ten trading days (or earlier at the election of any Investor) immediately following the Closing, subject to the Floor Price (as defined below). Any Converted Additional Shares not deliverable to the Investors as of the warrant closing date based on the foregoing formula will be returned to us as treasury shares and cancelled. No Converted Additional Shares will be deliverable out of escrow if the foregoing formula results in a negative number. The lower of (x) the effective initial purchase price per Converted Initial Share and (y) the number obtained by the formula in clause (b) above, subject to the Floor Price, is called the “Final Purchase Price.” Notwithstanding the foregoing, no Converted Additional Shares will be delivered to Investors from escrow to the extent such delivery would result in such Investor, together with its affiliates and any other person whose beneficial ownership of our common stock would be aggregated with such Investor for purposes of Section 13(d) of the Exchange Act, beneficially owning in excess of 4.99% or 9.99% of our outstanding common stock (including the Converted Additional Shares so delivered). In the event that we fail to timely deliver any of the Converted Initial Shares or Converted Additional Shares then we shall be obligated to pay the affected Investor on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using any trading price of our common stock selected by the holder while the failure is continuing and if an affected Investor purchases shares of our common stock in connection with such failure (“Buy-In Shares”), then we must, at such Investor’s discretion, reimburse such Investor for the cost of such Buy-In Shares or deliver the owed shares and reimburse the Investor for the difference between the price such Investor paid for the Buy-In Shares and the market price of such shares, measured at any time of such Investor’s choosing while the delivery failure was continuing.
Pursuant to the Securities Purchase Agreement, at any time during the period commencing from the six month anniversary of the closing date of the Pre-Merger Financing and ending at such time that all of the shares of our common stock issued or issuable in the Pre-Merger Financing, if a registration statement is not available for the resale of such shares, may be sold without restriction or limitation pursuant to Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”) and without the requirement to be in compliance with Rule 144(c)(1), if we (i) shall fail for any reason to satisfy the requirements of Rule 144(c)(1) under the Securities Act, including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) under the Securities Act or (ii) has ever been an issuer described in Rule 144(i)(1)(i) under the Securities Act or becomes such an issuer in the future, and we shall fail to satisfy any condition set forth in Rule 144(i)(2) under the Securities Act (each, a “Public Information Failure”), then we shall pay to each holder of Purchased Securities an amount in cash equal to 2.0% of such holder’s pro rata portion of the Purchase Price on the day of such Public Information Failure and on every thirtieth day thereafter until the earlier of (i) the date such Public Information Failure is cured and (ii) the date on which such Public Information Failure no longer prevents a holder of Purchased Securities from selling such Purchased Securities pursuant to Rule 144 under the Securities Act without any restrictions or limitations.
The Securities Purchase Agreement contains customary representations and warranties of Ocuphire, us and the Investors. Each party’s obligation to consummate the transactions contemplated by the Securities Purchase Agreement is subject to the satisfaction or waiver of certain conditions, including the satisfaction or waiver of each of the conditions precedent to the Closing contained in the Merger Agreement, other than any conditions precedent relating to consummation of the Pre-Merger Financing.
The Securities Purchase Agreement restricts us from filing a registration statement or any amendment or supplement thereto, causing any registration statement to be declared effective by the Securities and Exchange Commission (“SEC”), or granting any registration rights, in each case subject to certain limited exceptions, until the date that is 90 days after the earlier of (i) such time as all of the shares of our common stock issued or issuable in the Pre-Merger Financing may be sold without restriction or limitation pursuant to Rule 144, and (ii) the date that is six months following the closing of the Pre-Merger Financing; provided that in the event of a Public Information Failure, such date shall be such later date on which the Public Information Failure is cured and no longer prevents the Investors from selling all shares of our common stock issued or issuable in the Pre-Merger Financing (the 90th date after such earlier date, the “Trigger Date”).
Pursuant to the Securities Purchase Agreement, until 240 calendar days following the closing of the Pre-Merger Financing, subject to certain exceptions, neither Ocuphire nor we may (i) offer, sell, grant any option to purchase, or otherwise dispose of any of its or its subsidiaries’ debt, equity or equity equivalent securities (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”), or (ii) be party to any solicitations, negotiations or discussions with regard to the foregoing.
Additionally, for one year following the closing of the Pre-Merger Financing, Ocuphire, us and each of our respective subsidiaries shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a transaction in which Ocuphire, us or any of their subsidiaries (i) issues or sells any stock or securities convertible into or exercisable or exchangeable for Ocuphire common stock or our common stock (“Convertible Securities”) either (a) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Ocuphire common stock or our common stock at any time after the initial issuance of such Convertible Securities, or (b) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Ocuphire or us or the market for Ocuphire common stock or our common stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an equity line of credit or an “at-the-market” offering) whereby Ocuphire, us or any of our respective subsidiaries may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights); provided, that we will be permitted to consummate “at the market” offerings at any time after the later of (x) the date that is nine (9) months after the closing date of the Pre-Merger Financing and (y) the Trigger Date.
The Securities Purchase Agreement may be amended only by an instrument in writing signed by Ocuphire, us and the Required Holders (as defined below). No provision of the Securities Purchase Agreement may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. “Required Holders” means (i) prior to the closing date of the Pre-Merger Financing, the Investors entitled to purchase at the closing a majority of the aggregate amount of Initial Common Shares issuable under the Securities Purchase Agreement and the aggregate amount of shares issuable under the Investor Warrants (without regard to any restriction or limitation on the exercise of the Investor Warrant contained therein) and shall include the Lead Investor (as defined in the Securities Purchase Agreement) and (ii) on or after the closing of the Pre-Merger Financing, holders of at least a majority of the aggregate amount of Purchased Securities issued and issuable under the Securities Purchase Agreement and under the Investor Warrants (without regard to any restriction or limitation on the exercise of the Investor Warrants or the delivery of the Converted Additional Shares contained therein) held by the Investors or their successors and assigns as of the applicable time of determination and shall include the Lead Investor so long as the Lead Investor or any of its affiliates holds any Purchased Securities.
Upon written notice by the non-breaching party, the Securities Purchase Agreement may be terminated and the sale and purchase of the Purchased Securities abandoned if the closing of the Pre-Merger Financing has not occurred on or before November 14, 2020, due to any party’s failure to satisfy the conditions to closing. The Securities Purchase Agreement will terminate automatically upon any termination of the Merger Agreement.
Series A Warrants
The Series A Warrants will bewere issued on the warrant closing date, will haveNovember 19, 2020 at an initial exercise price of $4.4795 per share, equal to 120% of per share Final Purchase Price, will bewere immediately exercisable upon issuance and will have a term of five years from the date of issuance. The Series A Warrants issued to each Investor will initially beare exercisable for an amount5,665,838 shares of our common stock equalin the aggregate (without giving effect to any limitation on exercise contained therein). Prior to the sum of (i) the number of Converted Initial Shares issued to the Investor, (ii) the number of Converted Additional Shares delivered or deliverable to the Investor asexecution of the warrant closing date and (iii)Waiver Agreements, the number of shares, if any, underlying the Series B Warrants held by the Investor as of the warrant closing date.
The Series A Warrants will provide that, untilwere accounted for and classified as liabilities on the second anniversaryaccompanying condensed consolidated balance sheets given certain price reset provisions not used for a fair valuation under a fixed for fixed settlement scenario as required for equity balance sheet classification. Upon the February 3, 2021 effective date of the date on whichWaiver Agreements, the all shares of our common stock issued and issuableSeries A Warrants were reclassified to the Investors (including any shares underlying the Investor Warrants) (the “Underlying Securities”) may be sold without restriction or limitation pursuant to Rule 144 (provided that we are current in our SEC filings, and if not, the second anniversary of such later date on which the Public Information Failure is cured and no longer prevents the Investors from selling all of the Underlying Securities), if we publicly announce, issue or sell, enter into a definitive, binding agreement pursuant to which we are required to issue or sell or are deemed, pursuant to the provisionsequity. A final fair valuation of the Series A Warrants was performed utilizing a Black Scholes model to have issued or sold, any sharesestimate the aggregate fair value of our common stock for a price per share lower than the exercise price then in effect, subject to certain limited exceptions, then the exercise price of the Series A Warrants shall be reduced to such lower price per share. Further, every ninth trading day up to and including the 45th trading day (each, a “Reset Date”), the Series A Warrants will be adjusted downward (but not increased) such that the exercise price thereof becomes 120% of the Reset Price (as defined below), and the number of shares underlying the Series A Warrants will be increased (but not decreased) to the quotient of (a) (i) the exercise price in effect prior to such Reset (as defined below) multiplied by (ii) the number of shares underlying the Series A Warrants prior to being re-classified as equity. Input assumptions used were as follows: risk-free interest rate 0.4%; expected volatility of 86.6%; expected life of 4.8 years; and expected dividend yield zero percent. The underlying stock price used was the Reset divided by (b)market price as quoted on Nasdaq as of February 3, 2021, the resulting exercise price. In addition,effective date of the exercise price and the number of shares of our common stock issuable upon exerciseWaiver Agreement. The fair value change of the Series A Warrants will also be subjectwas $33.8 million and was recorded to adjustmentthe fair value change in warrant liabilities and premium conversion derivatives line item on the eventaccompanying condensed consolidated statements of any stock splits, dividends or distributions or other similar transactions.
comprehensive loss for the three months ended March 31,
Pursuantthe reclassification to equity, the Series A Warrants we will agree not to enter into, allow or be party to certain fundamental transactions, generally including any merger with or into another entity, sale of all or substantially all of our assets, tender offer or exchange offer, or reclassification of our common stock (a “Fundamental Transaction”) until the 45th trading day immediately following the earlier to occur of (x) such time as all of the Underlying Securities may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), and (y) one year after the warrant closing date (the “Reservation Date”). Thereafter, upon any exercise of a Series A Warrant, the holder shall have the right to receive, for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series A Warrant), the number of shares of common stock of the successor or acquiring corporation or of us, if we are the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of our common stock for which the Series A Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series A Warrant). Additionally, at the request of a holder delivered before the 90th day after the consummation of a Fundamental Transaction, we or the surviving entity must purchase such holder’s warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable contemplated Fundamental Transaction, or, if such Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.
The Series A Warrants will also contain a “cashless exercise” feature that allows the holders to exercise the Series A Warrants without making a cash payment. The Series A Warrants will beno longer subject to a blocker provision which restricts the exercise of the Series A Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of our common stock would be aggregated with the holder’s for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of our outstanding common stock (including the shares of our common stock issuable upon such exercise).remeasurement.
If we fail to issue to a holder of Series A Warrants the number of shares of our common stock to which such holder is entitled upon such holder’s exercise of the Series A Warrants, then we shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using a trading price of our common stock selected by the holder while the failure is continuing and if the holder purchases shares of our common stock in connection with such failure (“Series A Buy-In Shares”), then we must, at the holder’s discretion, reimburse the holder for the cost of such Series A Buy-In Shares or deliver the owed shares and reimburse the holder for the difference between the price such holder paid for the Series A Buy-In Shares and the market price of such shares, measured at any time of the holder’s choosing while the delivery failure was continuing.
Further, the Series A Warrants will provide that, in the event that we do not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series A Warrant, then unless the holder elects to void such attempted exercise, the holder may require us to pay an amount equal to the product of (i) the number of shares that we are unable to deliver and (ii) the highest volume-weighted average price of a share of our common stock as quoted on Nasdaq during the period beginning on the date of such attempted exercise and ending on the date that we make the applicable payment.
Series B Warrants
The Series B Warrants will be issued to each Investor on the warrant closing date, and each Investor’s Series B Warrants will have an exercise price per share of $0.0001, will be immediatelywere exercisable upon issuance and will expire on the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the Investor’sinvestor’s Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. Each Investor’sThe Series B Warrants will be initiallyare fixed and were exercisable for 1,708,334 shares of Common Stock, as of the effective date of the Waiver Agreement, in the aggregate (without giving effect to any limitation on exercise contained therein). The Series B Warrants were accounted for and classified as equity on the accompanying condensed consolidated balance sheets.
| 4. | Commitments and Contingencies |
Apexian Sublicense Agreement
On January 21, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc., pursuant to which it obtained exclusive worldwide patent and other intellectual property rights. In exchange for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future sales (See Note 9 — Apexian Sublicense Agreement). As of March 31, 2021, there was sufficient uncertainty with regard to both the outcome of the relevant clinical trials and the ability of the Company to obtain sufficient funding to support any of the cash milestone payments under the sublicense agreement, that no liabilities were recorded related to the sublicense agreement. Notes to Condensed Consolidated Financial Statements
Facility LeasesIn May 2019, the Company entered into a short-term non-cancellable facility lease (the “Lease”) for its operations and headquarters for a seven-month term beginning in June 2019. In October 2019 and November 2020, the Lease was amended to ultimately extend the term to December 31, 2021. Additionally, Ocuphire is leasing office space in Rockville, Maryland previously occupied by Rexahn (the “Rexahn Lease”). The Lease and the Rexahn Lease qualified for the short-term lease exception under ASC 842. The monthly base rent is approximately $3,000 and $13,000 for the Lease and Rexahn Lease, respectively. The rent expense associated with the Lease and Rexahn Lease in the aggregate amounted to $48,000 and $9,000 during the three months ended March 31, 2021 and 2020, respectively.
Other
In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual allegations, patent infringement and other claims. In addition, the Company from time to time may be potentially committed to reimburse third parties for costs incurred associated with business development related transactions upon the achievement of certain milestones. The Company establishes accruals when applicable for matters and commitments which it believes losses are probable and can be reasonably estimated. To date, no loss contingency for such matters and potential commitments have been recorded. Although it is not possible to predict with certainty the outcome of these matters or potential commitments, the Company is of the opinion that the ultimate resolution of these matters and potential commitments will not have a material adverse effect on its results of operations or financial position.
| 5. | Supplemental Balance Sheet Information |
Prepaid and Other Assets
Prepaid and other assets consist of the following (in thousands):
| | | March 31, 2021 | | | December 31, 2020 | |
| Prepaids | | $ | 1,402 | | | $ | 1,243 | |
| Other | | | 26 | | | | 26 | |
| Total prepaids and other assets | | $ | 1,428 | | | $ | 1,269 | |
Property and Equipment, net
Property and equipment held for use by category are presented in the following table (in thousands):
| | | March 31, 2021 | | | December 31, 2020 | |
| Equipment | | $ | 20 | | | $ | 20 | |
| Furniture | | | 5 | | | | 5 | |
| Total property and equipment | | $ | 25 | | | | 25 | |
| Less accumulated depreciation | | | (12 | )
| | | (11 | ) |
| Property and equipment, net | | $ | 13 | | | $ | 14 | |
Depreciation expense was $1,000 and $5,000 for the three months ended March 31, 2021 and 2020, respectively.
Accrued Expenses
Accrued expenses consist of the following (in thousands):
| | | March 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| R&D services and supplies | | $ | 473 | | | $ | 1,440 | |
| Payroll | | | 146 | | | | 320 | |
| Professional services | | | 162 | | | | 186 | |
| Deferred issuance costs | | | 88 | | | | — | |
| Other | | | 26 | | | | 25 | |
| Total | | $ | 895 | | | $ | 1,971 | |
Notes to Condensed Consolidated Financial Statements
The Company entered into a series of unsecured convertible note financings (the “Convertible Notes”) with certain investors beginning on May 25, 2018. The total issuance of Convertible Notes amounted to $8.5 million (see Note 7 - Related Party Transactions). On November 4, 2020, all of Ocuphire’s outstanding Convertible Notes were converted into 977,128 shares of Ocuphire common stock as adjusted for the Exchange Ratio in connection with the completion of the Merger.
The Convertible Notes accrued interest at a rate of 8% per annum, calculated on a 365-day year basis. Interest expense on principal during the three months ended March 31, 2020 was $138,000.
The outstanding principal of, and accrued interest on, the Convertible Notes were payable on demand, in the absence of the Merger closing discussed above, at any time as of the first to occur of (i) September 30, 2020 or (ii) an amountevent of ourdefault (each defined by the Convertible Notes as a Payoff Event). If, prior to a Payoff Event, the Company (i) completed an initial public offering (“IPO”), (ii) completed a change in control (“CIC”), (iii) completed a sale and issuance of its capital stock resulting in gross proceeds to the Company of at least $5 million (“Qualified Financing”), or (iv) completed a reverse merger transaction (Reverse Merger), then the outstanding principal of, and accrued but unpaid interest on the Convertible Notes would have automatically converted upon the earliest of such events to occur as follows:
IPO: The Convertible Notes would have automatically converted into the number of fully paid and non-assessable shares of the Company’s common stock equal to One Hundred and Seventy-Five Percent (175%) times Note Value divided by the per share price such shares were issued to purchasers of the Company’s equity securities in the IPO rounded to the nearest whole share.
CIC: The Convertible Notes would have automatically converted prior to the effectiveness of such CIC into that number (if positive) obtainedof fully paid and non-assessable shares of the Company’s common stock equal to Two Hundred Percent (200%) of the Note Value divided by subtracting (i)the per share price of the Company’s common stock at which the Company’s common stock was valued in such CIC (after giving effect to such conversion). The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other stockholders of the Company in such CIC.
Qualified Financing: The Convertible Notes would have automatically converted into that number of fully paid and non-assessable shares of the Company that were issued by the Company in the Qualified Financing, determined by dividing an amount equal to One Hundred and Seventy-Five Percent (175%) times the Note Value by the per share price such shares of the Company were issued to purchasers of the Company’s equity securities in the Qualified Financing, rounded to the nearest whole share. The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other purchasers of shares in the Qualified Financing. A Qualified Financing was defined as a sale and issuance of capital stock of the Company (or its successor) in a single transaction or series of related transactions resulting in gross proceeds to the Company of not less than $5,000,000 (including new equity investment of at least $1,000,000 plus the sum of (a) the outstanding principal amount of the Convertible Notes being so converted under this provision).
Reverse Merger (excluding close of Merger with Rexahn): The Convertible Notes would have automatically converted into that number of fully paid and non-assessable shares of the Combined Company whose shares were publicly traded in the United States or other jurisdiction following the completion of the Reverse Merger (the “Reverse Merger Parent”), determined by dividing an amount equal to One Hundred and Seventy-Five Percent (175%) times the Note Value divided by the per share price at which such shares were issued by the Reverse Merger Parent in such Reverse Merger, rounded to the nearest whole share. The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other stockholders of the Company in the Reverse Merger.
The Company was not permitted to prepay the Convertible Notes prior to a Payoff Event. The Convertible Notes contained default provisions, and when triggered, the holders of the Convertible Notes could have immediately accelerated payment of the Convertible Notes and the outstanding principal and interest would have become payable immediately. During a period of default, interest would have been assessed at a 12% per annum rate.
Redemption Features
The Company determined that all of the conversion provisions, except for the conversion provision upon Merger close, were redemption features that qualified as embedded derivatives. The qualifying embedded derivatives were collectively separated from their debt host upon the issuance of the Convertible Notes. The bifurcation of the embedded derivatives from the debt host resulted in a discount to the Convertible Notes in the amount of $0.8 million during the three months ended March 31, 2020. The embedded derivatives were accounted for separately on a fair market value basis. There were no outstanding premium conversion derivatives as of March 31, 2021 or December 31, 2020 given the conversion of the Convertible Notes. The Company recorded the fair value changes of the premium conversion derivatives while outstanding to fair value change in derivative and warrant liabilities in the accompanying condensed consolidated statements of comprehensive loss which amounted to a benefit of $0.2 million during the three months ended March 31, 2020.
Notes to Condensed Consolidated Financial Statements
The note discounts were amortized to interest expense over the term of the Convertible Notes using the straight-line method which approximates the effective interest method and amounted to $0.4 million during the three months ended March 31, 2020.| 7. | Related Party Transactions |
Convertible Notes with Related Parties
The Company entered into Convertible Notes with certain investors beginning on May 25, 2018. Through March 31, 2020, Convertible Notes in the principal aggregate amount equal to $0.7 million were issued to four board members and to two officers, one of which was also a board member of the Company. See Note 6 – Convertible Notes.
Apexian Sublicense Agreement
On January 21, 2020, as amended on June 4, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc. (“Apexian”) and issued a total of 891,422 shares of common stock (as adjusted for the Exchange Ration) to Apexian and to certain affiliates of Apexian, following which Apexian became a holder of over 5% of the Company’s common stock. See Note 9 – Apexian Sublicense Agreement.
Pre-Merger Financing
Five directors of Private Ocuphire and one director of Rexahn participated in the Pre-Merger Financing, investing an aggregate of $300,000. Following the closing of the Merger, these directors received 17,729 Converted Initial Shares, issued to the Investor and (b) the number of53,189 Converted Additional Shares, delivered or deliverable to the Investor as80,366 Series A Warrants and 9,444 Series B Warrants. See Note 3 – Pre-Merger Financing.
Waiver Agreements
Six directors of the warrant closing date, from (ii) the quotient determined by dividing (a) the pro rata portionCompany signed Waiver Agreements, waiving certain reset provisions and financing restrictions. These directors did not receive any of the Purchase Price paid byadditional Series B Warrants that were issued in connection with the Investor by (b) 85%Waiver Agreements. See Note 3 – Pre-Merger Financing.
| 8. | Share-based Compensation |
Share-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three month periods indicated below (in thousands):
| | | March 31, | |
| | | 2021 | | | 2020 | |
| General and administrative | | $ | 193 | | | $ | 42 | |
| Research and development | | | 301 | | | | 19 | |
| Total share-based compensation | | $ | 494 | | | $ | 61 | |
Ocuphire Stock Options
2020 Equity Incentive Plan
The stockholders of the averageCompany approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards, which became effective on November 5, 2020. Under the 2020 Plan, (i) 1,000,000 new shares of the five lowest volume-weighted average trading prices of a share of our common stock on Nasdaq duringwere reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued, consisting of (A) shares that remain available for the first ten trading days (or earlier at the electionissuance of any Investor) immediately following the Closing,awards under prior equity plans and (B) shares of common stock subject to the Floor Price.
Additionally, every Reset Date following (i) the earlier date to occur of (x) such time as all of the Underlying Securities may be sold without restrictionoutstanding stock options or limitation pursuant to Rule 144 and (y) six months following the issuance date (such earlier date, the “Six Month Reset Date”) and (ii) if a Public Information Failure has occurred at any time following the Six Month Reset Date, the earlier to occur of (x)other awards covered by prior equity plans that have been cancelled or expire on or after the date that such Public Information Failure is cured and no longer prevents the holder from selling all2020 Plan became effective.
2018 Equity Incentive Plan
Prior to the 2020 Plan, the Company adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,241,387 shares of the Underlying SecuritiesCompany’s common stock were reserved for issuance to employees, directors and consultants upon the amendment of the 2018 Plan in December 2019. The reserve of common stock for the 2018 Plan has been adjusted to give effect to the Exchange Ratio.
Inducement Plan
On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 325,258 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 144 without restriction or limitation5635(c)(4) of the Nasdaq Listing Rules.
Notes to Condensed Consolidated Financial Statements
The 2020 Plan, 2018 Plan and
(y)Inducement Plan permit the
earlier to occurgrant of
(I)stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share‑based awards. Incentive and non‑statutory stock options may be granted under the 2020 and 2018 Plans. Only non-statutory options may be granted under the Inducement Plan.2020 Plan Evergreen Provision
Under the 2020 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date allthe 2020 Plan is approved by the stockholders of the Underlying SecuritiesCompany, commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1st of a given year to provide that there will be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) and (II) one year after the issuance date (each such date providedno January 1st increase in the foregoing clauses (i), (ii) and (iii), an “End Reset Measuring Date”) (such 45 trading day period,share reserve for such year or that the “Reset Period” and eachincrease in the share reserve for such 45th trading day after an End Reset Measuring Date, an “End Reset Date”), the number of shares issuable upon exercise of each Investor’s Series B Warrants shallyear will be increased (“Reset”) to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the Investor and (b) the number of Converted Additional Shares delivered or deliverable to the Investor as of the warrant closing date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor, by (b) the greater of (x) the arithmetic average of the five lowest dollar volume-weighted average prices of a share of Rexahn Common Stock on Nasdaq during the applicable Reset Period immediately preceding the applicable Reset Date to date and (y) a floor price per share (the “Floor Price”) calculated based on a pre-money valuation (of the combined company, assuming for this purpose the pre-money issuance of the Converted Initial Shares and Converted Additional Shares) of $10 million (such number resulting in this clause (b), the “Reset Price”).
Pursuant to the Series B Warrants, we will agree not to enter into, allow or be party to a Fundamental Transaction until the Reservation Date. Thereafter, upon any exercise of a Series B Warrant, the holder shall have the right to receive, for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series B Warrant), thelesser number of shares of common stock ofthan would otherwise occur pursuant to the successor or acquiring corporation or of us, if we arepreceding sentence. On January 1, 2021, 544,125 shares were added to the surviving corporation, and any Alternate Consideration receivable2020 Plan as a result of such Fundamental Transaction bythe evergreen provision.
During the three months ended March 31, 2021 and 2020, 41,800 and zero stock options were granted to newly-hired consultants (as adjusted for the Exchange Ratio), respectively, generally vesting over a holder ofsix (6) to forty-eight (48) month period. The Company recognized $446,000 and $61,000 in share-based compensation expense related to stock options during the number of shares of our common stock for which the Series B Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series B Warrant).three months ended March 31, 2021 and 2020, respectively.
The Series B Warrants will also contain a “cashless exercise” feature that allowsweighted average fair value per share of options granted during the holders to exercisethree months ended March 31, 2021 was $6.71. The Company measures the Series B Warrants without making a cash payment. The Series B Warrants will be subject to a blocker provision which restricts the exercise of the Series B Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of our common stock would be aggregated with the holder’s for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of our outstanding common stock (including the shares of our common stock issuable upon such exercise).
If we fail to issue to a holder of Series B Warrants the number of shares of our common stock to which such holder is entitled upon such holder’s exercise of the Series B Warrants, then we shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the marketfair value of the undelivered shares determined using a trading price of our common stock selected by the holder while the failure is continuingoptions with service‑based and if the holder purchases shares of our common stock in connection with such failure (“Series B Buy-In Shares”), then we must, at the holder’s discretion, reimburse the holder for the cost of such Series B Buy-In Shares or deliver the owed sharesperformance‑based vesting criteria to employees, directors, consultants and reimburse the holder for the difference between the price such holder paid for the Series B Buy-In Shares and the market price of such shares, measured at any time of the holder’s choosing while the delivery failure was continuing.
Further, the Series B Warrants will provide that, in the event that we do not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series B Warrant, then unless the holder elects to void such attempted exercise, the holder may require us to pay an amount equal to the product of (i) the number of shares that we are unable to deliver and (ii) the highest volume-weighted average price of a share of our common stock as quoted on Nasdaq during the period beginningdirectors on the date of grant using the Black‑Scholes option pricing model. The Company does not have history to support a calculation of volatility and expected term. As such, attempted exercisethe Company has used a weighted‑average volatility considering the volatilities of several guideline companies.
For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and endingstage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was based on the mid‑point between the vesting date that we makeand the applicable payment.end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk‑free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.
Financing Lock-Up AgreementsThe weighted‑average assumptions used in the Black‑Scholes option‑pricing model are as follows during the three months ended March 31, 2021 and 2020:
| | | 2021 | | | 2020 | |
| | | | | | | |
| Expected stock price volatility | | | 86.6 | % | | | — | % |
| Expected life of options (years) | | | 5.6 | | | | — | |
| Expected dividend yield | | | — | % | | | — | % |
| Risk free interest rate | | | 0.8 | % | | | — | % |
During the three months ended March 31, 2021 and 2020, 118,217 and 66,601 stock options vested (as adjusted for the Exchange Ratio), respectively. The weighted average fair value per share of options vesting during the three months ended March 31, 2021 and 2020 was $3.66 and $0.87, respectively. During the three months ended March 31, 2021 and 2020, zero and 7,923 options were forfeited, respectively. As of March 31, 2021, 1,274,408 shares were available for future issuance under the 2020 Plan and Inducement Plan. No shares were available for future issuance under the 2018 Plan.
Unrecognized share‑based compensation cost was $2.3 million as of March 31, 2021. The unrecognized share‑based expense is expected to be recognized over a weighted average period of 1.4 years.
Ocuphire Restricted Stock Awards
The Company did not grant any restricted stock awards (RSAs) during any of the periods presented. The RSAs granted in previous periods were subject to various vesting schedules. During the three months ended March 31, 2021 and 2020, 40,000 and zero RSAs vested, respectively, and no RSAs were forfeited during the periods presented. The share-based compensation expense attributed to the RSAs during the three months ended March 31, 2021 and 2020 was $22,000 and zero, respectively.
Ocuphire Stock Awards
The Company granted stock awards in the amount of 4,474 common shares to two board members for services performed during the first quarter of 2021. The stock-based compensation related to these awards amounted to $26,000 during the three months ended March 31, 2021.
Notes to Condensed Consolidated Financial Statements
Former Rexahn OptionsFollowing the closing of the Merger, 123 outstanding, unexercised and vested options to purchase Common Stock granted under the Rexahn Pharmaceuticals Stock Option Plan, as amended (the “Rexahn 2003 Plan”), remained outstanding as of March 31, 2021 and December 31, 2020. The exercise prices related to the outstanding options granted under the Rexahn 2003 Plan ranged from $182.40 to $600.00 per share with an average remaining contractual life of 0.9 years.
| 9. | Apexian Sublicense Agreement |
On January 21, 2020, the Company entered into a sublicense agreement (as amended on June 4, 2020, the “Apexian Sublicense Agreement”) with Apexian, pursuant to which it obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which the Company intends to develop as an oral pill therapeutic to treat diabetic retinopathy and diabetic macular edema initially, and potentially later to treat wet age-related macular degeneration. As a result of the Sublicense Agreement, Apexian is considered by Ocuphire to be a related party. In connection with the Pre-Merger Financing, weApexian Sublicense Agreement, the Company issued a total of 891,422 shares (as adjusted for the Exchange Ratio) of its common stock to Apexian and Ocuphire will enter into additional lock-up agreements (the “Financing Lock-Up Agreements”) with each officer, director or other person that will be subject to Section 16certain affiliates of Apexian. The share issuance transaction was recorded in the amount of $2.1 million as IPR&D expense for the three months ended March 31, 2020 based on the fair market value of the Exchange Act,common shares issued since no processes or activities that would constitute a “business” were acquired and none of the rights and underlying assets acquired had alternative future uses or reached a stage of technological feasibility. Additionally, in accordance with respectthe Apexian Sublicense Agreement, the Company paid the balance remaining of $0.4 million of Ref-1 Inhibitor program costs to us immediatelyApexian following the Closing (the “Financing Lock-Up Parties”), pursuantCompany’s listing on a major stock exchange.
The Company also agreed to whichmake one-time milestone payments under the Apexian Sublicense Agreement for each of the Financing Lock-Up Parties will agree that untilfirst ophthalmic indication and the date that is 90 calendar days afterfirst diabetes mellitus indication for the earlier of (i) such time as allDevelopment and Regulatory milestones, and once for each of the Underlying Securities may be sold without restriction or limitationSales milestones. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales milestone payments are payable once, upon the first achievement of such milestone. Lastly, the Company also agreed to make a royalty payment equal to a single-digit percentage of its net sales of products associated with the covered patents under the Apexian Sublicense Agreement. If it is not terminated pursuant to Rule 144 and (ii) six months afterits terms, the closingApexian Sublicense Agreement shall remain in effect until expiration of the Pre-Merger Financing (provided that, if there is a Public Information Failure, such date shall be such later date on which the Public Information Failure is cured and no longer prevents the Investors from selling alllast to expire of the Underlying Securities), subject to certain customary exceptions, such Financing Lock-Up Party will not and will cause its affiliates not to (A) sell, offer to sell, contractcovered patents.
None of the milestone or agree to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise disposeroyalty payments were triggered as of or agree to disposeMarch 31, 2021.
Basic loss per share of directly or indirectly, anycommon stock is computed by dividing net loss by the weighted average number of shares of our common stock outstanding during the period. Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to any shares of Rexahn Common Stock orif dilutive. The Company’s warrants, convertible notes, restricted stock awards and stock options while outstanding are considered common stock equivalents owned directly byfor this purpose. Diluted earnings is computed utilizing the Financing Lock-Up Parties (including holding as a custodian) or with respect to whichtreasury method for the undersigned has beneficial ownership within the ruleswarrants, restricted stock awards and regulations of the SEC (collectively, the “Subject Shares”), or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Subject Shares, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of shares of our common stock or other securities, in cash or otherwise, (C) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto,options. Diluted earnings with respect to the registration of any shares of our common stock orconvertible notes utilizing the if-converted method was not applicable during the periods presented as no conditions required for conversion had occurred. No incremental common stock equivalents or (D) publicly disclosewere included in calculating diluted loss per share because such inclusion would be anti-dilutive given the intentionnet loss reported for the periods presented. The historical share and per share data for periods prior to dothe November 5, 2020 closing of the Merger have been adjusted to give effect to the Exchange Ratio.
The following potential common shares were not considered in the computation of diluted net loss per share as their effect would have been anti-dilutive for the three month periods ended presented below:
| | | March 31, | |
| | | 2021 | | | 2020 | |
Series A Warrants and Series B Warrants | | | 7,374,172 | | | | — | |
Stock options | | | 1,818,612 | | | | 1,029,781 | |
Restricted stock awards | | | 4,474 | | | | — | |
Former Rexahn warrants | | | 66,538 | | | | — | |
Former Rexahn options | | | 123 | | | | — | |
The effective tax rate for the three months ended March 31, 2021 and 2020 was zero percent. As of March 31, 2021, a full valuation allowance has been established to reduce the Company’s net deferred income tax assets. As such, no tax benefit related to the Company’s pre-tax loss was recognized for any of the foregoing.periods presented.
Leak-Out AgreementsNotes to Condensed Consolidated Financial Statements
The Company’s corporate returns are subject to examination for the 2018 and 2019 tax years for federal income tax purposes and subject to examination for the 2018 and 2019 tax years in one state jurisdiction. The Company does not have any reserves for income taxes that represent the Company’s potential liability for uncertain tax positions.Warrant Exercise
In connection withApril 2021, investors exercised Series B Warrants for a total of 1,629,634 shares, for total proceeds of $163.
Issuance of Settlement Shares
On May 6, 2021, the
Pre-Merger Financing, each Investor will enter into a leak-out agreement with us limiting its daily sales to no more than its pro rata portion, based on such Investor’s investment amount,Company issued 350,000 shares of
30%common stock of the
daily traded volume as reported by Bloomberg, L.P.Company to three accredited investors pursuant to a settlement agreement, dated May 6, 2021, in exchange for a release of potential claims. Ocuphire Pharma, Inc.
Form 10-Q
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The outbreakfollowing discussion of the COVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the biopharmaceutical industry. The extent of the COVID-19 pandemic’s impact on our business, financial condition and results of operations as well asshould be read in conjunction with the financial statements and notes included in Part I “Financial Information”, Item I “Financial Statements” of this Quarterly Report on Form 10-Q (the “Report”) and the audited financial statements and related footnotes included in our ability to consummateAnnual Report on Form 10-K for the Merger, is highly uncertain and will depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain the impact of the pandemic, and our access to additional capital.year ended December 31, 2020.
Results of OperationsForward-Looking Statements
Comparison of the Three and Nine Months Ended September 30, 2020 and September 30, 2019
Total Revenues
We had no revenues for the three months ended September 30, 2020 and 2019. We recorded revenues of $1,150,000 during the nine months ended September 30, 2020, consisting of $250,000 earned from the HaiChang License Agreement and $900,000 from the BioSense License and Assignment Agreement. We had no revenues for the nine months ended September 30, 2019.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees, and other corporate expenses, including business development, investor relations, and general legal activities.
General and administrative expenses increased approximately $207,000, or 18.0% to approximately $1,356,000 for the three months ended September 30, 2020 compared to approximately $1,149,000 for the three months ended September 30, 2019. General and administrative expenses increased approximately $544,000, or 13.0% to approximately $4,729,000 for the nine months ended September 30, 2020 compared to approximately $4,185,000, for the nine months ended September 30, 2019. The increases were primarily attributable to increased legal and professional fees related to the Merger Agreement, offset by decreases in personnel and operating costs resulting from the streamlining of operations.
Research and Development Expenses
Research and development costs are expensed as incurred. These costs consist primarily of salaries and related personnel costs, and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. Our research and development expenses are currently related to our oncology drug candidates.
Research and development expenses decreased approximately $981,000, or 86.8%, to approximately $150,000 for the three months ended September 30, 2020, from approximately $1,131,000 for the three months ended September 30, 2019. Research and development expenses decreased approximately $4,184,000, or 83.3%, to approximately $838,000 for the nine months ended September 30, 2020, from approximately $5,022,000 for the nine months ended September 30, 2019. The decreases are a result of the completion of our RX-3117 and RX-5902 clinical trials, and decreased drug manufacturing costs.
The table below summarizes the approximate amounts incurred in each of our research and development projects for the three and nine months ended September 30, 2020 and 2019:
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
| Clinical Candidates: | | | | | | | | | | | | |
| RX-3117 | | $ | 36,400 | | | $ | 609,800 | | | $ | 449,300 | | | $ | 2,746,200 | |
| RX-5902 | | | 3,100 | | | | 245,100 | | | | 14,800 | | | | 775,300 | |
| RX-0201 | | | - | | | | - | | | | 1,800 | | | | 171,100 | |
| | | | | | | | | | | | | | | | | |
| Preclinical, Personnel and Overhead | | | 110,094 | | | | 276,518 | | | | 372,091 | | | | 1,329,449 | |
| | | | | | | | | | | | | | | | | |
| Total Research and Development Expenses | | $ | 149,594 | | | $ | 1,131,418 | | | $ | 837,991 | | | $ | 5,022,049 | |
We expect total research and development expenses to decrease in the remainder of 2020 as compared to the three and nine months ended September 30, 2020 as we complete our Phase 2a clinical trial of RX-3117 with Abraxane and progress toward consummation of the Merger.
Interest Income
Interest income decreased approximately $77,000 and $214,000, or 97.7% and 83.5%, respectively, for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The decreases were primarily attributable to lower interest rates and balances of cash, cash equivalents and marketable securities for the three and nine months ended September 30, 2020 compared to the same periods in 2019.
Unrealized Gain (Loss) on Fair Value of Warrants
Our liability-classified warrants are recorded at fair value, and the warrants are valued using a lattice model. Changes in the fair value of warrants are recorded as an unrealized gain or loss in our statement of operations. During the three months ended September 30, 2020 and 2019, we recorded unrealized gains on the fair value of our warrants of approximately $101,000 and $243,000, respectively. During the nine months ended September 30, 2020 and 2019, we recorded unrealized (losses) gains on the fair value of our warrants of approximately $(126,000) and $2,184,000, respectively. Estimating fair values of warrants requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the warrants due to related changes to external market factors. The large unrealized gain for the three and nine months ended September 30, 2019 primarily resulted from a significant decrease in the stock price of the underlying common stock at the end of this period compared to the beginnings of this period.
Net Loss
As a result of the above, net loss for the three and nine months ended September 30, 2020 was approximately $1,404,000 and $4,501,000 or $0.33 and $1.10 per share, respectively, compared to approximately $1,959,000, and $6,767,000, or $0.49 and $1.72 per share, respectively, for the three and nine months ended September 30, 2019.
Liquidity and CapitalResources
Current and Future Financing Needs
We have incurred negative cash flow from operations since we started our business. We expect to continue to incur negative cash flow and operating losses. We have spent, and if the Merger is not consummated, expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, clinical trials and research and development efforts We believe that our cash and cash equivalents of approximately $8.1 million as of September 30, 2020 will be sufficient to cover our cash flow requirements for our current activities for at least the next 12 months following the issuance of the financialCertain statements contained in this Quarterly Report assuming the Merger does not close. If for any reason the Merger does not close, we would need to raise additional capital to continue to fund the further development of product candidates and our operations thereafter. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities, such as future clinical studies and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders.
Cash Flows
Cash used in operating activities was approximately $4,140,000 for the nine months ended September 30, 2020. The operating cash flows during the nine months ended September 30, 2020 reflect a net loss of approximately $4,501,000, a net increase of cash components of working capital and non-cash charges totaling $361,000. Cash used in operating activities was approximately $8,565,000 for the nine months ended September 30, 2019. The operating cash flows during the nine months ended September 30, 2019 reflect a net loss of approximately $6,767,000, an unrealized gain on the fair value of warrants of approximately $2,184,000, and a net increase of cash components of working capital and non-cash charges totaling approximately $386,000.
Cash provided by investing activities was $3,000,000 from the redemption of marketable securities for the nine months ended September 30, 2020. Cash provided by investing activities was approximately $99,000 for the nine months ended September 30, 2019 which consisted of approximately $9,000,000 from the redemption of marketable securities, and approximately $6,000 from the sale of equipment, offset by approximately $8,888,000 and approximately $19,000 from the purchases of marketable securities and equipment, respectively.
There was no cash provided by financing activities for the nine months ended September 30, 2020. Cash provided by financing activities was approximately $7,654,000 for the nine months ended September 30, 2019, which consisted of net proceeds from our underwritten offering in January 2019.
Contractual Obligations
We have a variety of contractual obligations, as more fully described in the 2019 Form 10-K. These obligations include, but are not limited to, contractual obligations in connection with license agreements (including related milestone payments), lease payments, employee compensationstatements of historical fact and incentive program expenses, and contracts with various vendors for services. Asare forward-looking statements within the meaning of September 30, 2020, the total estimated cost to complete our contracts with vendors for research and development services was approximately $160,000 under the termsSection 27A of the applicable agreements. AllSecurities Act of these agreements may be terminated by either party upon appropriate notice1933, as stipulated in the respective agreements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required.
Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements.
These forward-looking statements reflect our management’s beliefs and views with respect to future events, are based on estimates and assumptions as of the enddate of this Report and are subject to risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in these forward-looking statements. We discuss many of these risks in greater detail under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and subsequent reports filed with or furnished to the Securities and Exchange Commission (the “SEC”). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Any forward-looking statement made by us in this Report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable laws or regulations.
Overview
Ocuphire is a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of several eye disorders. Ocuphire’s pipeline currently includes two small molecule product candidates targeting front and back of the eye indications.
Its lead product candidate, Nyxol® Eye Drops (“Nyxol”), is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. As a result, Nyxol can potentially be used for the treatment of multiple indications such as dim light or night vision disturbances (“NVD”), reversal of pharmacologically-induced mydriasis (which refers to the use of pharmacological agents to dilate the pupil for office-based eye exams) and presbyopia (a gradual, age-related loss of the eyes’ ability to focus on nearby objects). Ocuphire management believes this multiple indication potential represents a significant market opportunity. Nyxol has been studied across three Phase 1, four Phase 2, and one Phase 3 trials totaling over 400 patients and has demonstrated promising clinical data for use in multiple ophthalmic indications. Ocuphire initiated a Phase 3 trial for reversal of pharmacologically-induced mydriasis (“RM”) in the fourth quarter of 2020 and reported positive top-line results within 4 months on March 15, 2021. Ocuphire also initiated a Phase 3 trial for the treatment of NVD in the fourth quarter of 2020 and initiated a Phase 2 trial in combination with low dose pilocarpine for presbyopia in the first quarter of 2021. Ocuphire expects further read outs from these other studies underway throughout the remainder of 2021. Building on the positive results of the MIRA-2 Phase 3 trial for Nyxol, a second Phase 3 registration trial (MIRA-3) is planned to initiate in the second half of 2021, with results expected in early 2022, along with a small pediatric study. Assuming successful and timely completion of these RM trials, Ocuphire anticipates submitting a New Drug Application (“NDA”) for Nyxol to the U.S. Food and Drug Administration (“FDA”) in early 2023 under the 505(b)(2) pathway. Ocuphire’s second product candidate, APX3330, is a twice-a-day oral tablet designed to target multiple pathways relevant to retinal and choroidal (the vascular layer of the eye) vascular diseases such as diabetic retinopathy (“DR”) and diabetic macular edema (“DME”) which, if left untreated, can result in permanent visual acuity loss and eventual blindness. DR is a disease resulting from diabetes in which chronically elevated blood sugar levels cause progressive damage to blood vessels in the retina. DME is a severe form of DR which involves leakage of protein and fluid into the macula, the central portion of the retina, causing swelling and damage. Prior to Ocuphire’s in-licensing of the product candidate, APX3330 had been studied by third parties in six Phase 1 and five Phase 2 trials totaling over 440 patients for inflammatory and oncology indications, and had demonstrated promising evidence of tolerability, pharmacokinetics, durability, and target engagement. Ocuphire initiated enrollment for the Phase 2 trial for APX3330 in April 2021 for the treatment of patients with DR, including moderately severe non-proliferative DR (“NPDR”) and mild proliferative DR (“PDR”), as well as patients with DME without loss of central vision. Top-line data for this study are expected to be reported by early 2022. Ocuphire has also in-licensed APX2009 and APX2014, which are additional second-generation product candidates and analogs of APX3330.
Ocuphire Pharma, Inc.
Form 10-Q
As part of its strategy, Ocuphire will continue to explore opportunities to acquire additional ophthalmic assets and to seek strategic partners for late-stage development, regulatory preparation and commercialization of drugs in key global markets. To date, Ocuphire’s primary activities have been conducting research and development activities, planning clinical trials, performing business and financial planning, recruiting personnel and raising capital. Ocuphire does not have any products approved for sale and has not generated any revenue. Ocuphire does not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve Nyxol or APX3330 and Ocuphire successfully commercializes its product candidates. Until such time, if ever, as Ocuphire can generate substantial product revenue, Ocuphire expects to finance its cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. Through March 31, 2021, Ocuphire has funded its operations primarily through its equity financing that totaled $21.15 million in gross proceeds in connection with the Merger with Rexahn, net cash at Rexahn, and through the issuance of convertible notes in private placements that totaled $8.5 million in gross proceeds. Ocuphire’s net losses were $39.0 million and $3.1 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, Ocuphire had an accumulated deficit of $71.7 million. Ocuphire anticipates that its expenses will increase substantially as it:
continues clinical trials for Nyxol, APX3330 and for any other product candidate in its future pipeline;
continues preclinical studies for Nyxol, APX3330 and for any other product candidate in its future pipeline;
develops additional product candidates that it identifies, in-licenses or acquires;
seeks regulatory approvals for any product candidates that successfully complete clinical trials;
contracts to manufacture its product candidates;
establishes on its own or with partners, a sales, marketing and distribution infrastructure to commercialize any products for which Ocuphire may obtain regulatory approval;
maintains, expands and protects its intellectual property portfolio;
hires additional staff, including clinical, scientific, operational and financial personnel, to execute its business plan;
adds operational, financial and management information systems and personnel, including personnel to support its product development and potential future commercialization efforts; and
continues to operate as a public company.
Ocuphire’s net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of its preclinical studies, clinical trials and its expenditures on other research and development activities.
Recent Developments
Merger with Rexahn
On November 5, 2020, Rexahn Pharmaceuticals, Inc., or Rexahn, now known as Ocuphire Pharma, Inc., completed its reverse merger or, the Merger, with what was then known as “Ocuphire Pharma, Inc.,” or Private Ocuphire, in accordance with the terms of the Agreement and Plan of Merger and Reorganization dated as of June 17, 2020, as amended on June 29, 2020 (“Merger Agreement”). Rexahn’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on November 5, 2020 under the ticker symbol “REXN,” commenced trading on The Nasdaq Capital Market, under the ticker symbol “OCUP,” on November 6, 2020. Immediately following the Merger, Private Ocuphire became a wholly-owned subsidiary of Rexahn. Upon consummation of the Merger, Rexahn adopted the business plan of Private Ocuphire.
Although Rexahn was the legal acquirer and issued shares of its common stock to affect the Merger with Ocuphire, Ocuphire was considered the accounting acquirer. In accordance with the accounting guidance under Accounting Standards Update (“ASU”) 2017-01, the Merger was accounted for as an asset acquisition. Accordingly, the assets and liabilities of Rexahn were recorded as of the Closing at the purchase price of the accounting acquirer, Ocuphire. Ocuphire allocated the total purchase price among the individual assets acquired on a fair value basis or carrying value as appropriate. A final determination of these estimated fair values were based on the actual net tangible assets of Rexahn existed as of the date of the completion of the transaction. As of the Closing, the net assets of Rexahn were recorded at their acquisition-date relative fair values in the consolidated financial statements of Ocuphire and the reported operating results prior to the Merger are those of Private Ocuphire.
Pursuant to the Merger Agreement, the number of shares of common stock issued to Private Ocuphire’s stockholders for each share of Ocuphire’s common stock outstanding immediately prior to the Merger was calculated using an exchange ratio (“Exchange Ratio”) of approximately 1.0565 shares of Common Stock for each share of Private Ocuphire common stock.
Ocuphire Pharma, Inc.
Form 10-Q
Pre-Merger FinancingPrivate Ocuphire and Rexahn entered into a securities purchase agreement with the Investors in a private placement transaction for an aggregate purchase price of $21.15 million inclusive of the commitment by five Private Ocuphire directors and one Rexahn director to purchase $300,000 (the “Pre-Merger Financing”). The securities purchase agreement was amended and restated on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, among other things, Private Ocuphire agreed and issued to the Investors shares of Private Ocuphire common stock immediately prior to the merger and Rexahn agreed to issue to the Investors warrants to purchase shares of Rexahn common stock on the earlier of (i) the tenth trading day following the consummation of the merger and (ii) the first trading day following receipt by Rexahn of an early delivery notice from an Investor at any time beginning on the fifth trading day following the consummation of the merger. An aggregate of 4,999,988 shares of common stock were issued in connection with the Pre-Merger Financing as of December 31, 2020.
Ocuphire does not expect that its existing cash will be sufficient to fund its operating expenses and capital expenditure requirements for the next 12 months from the date of this Form 10-Q filing. As such, Ocuphire will need to secure additional financing to finance its operations, which cannot be assured. See “—Liquidity and Capital Resources.”
Waiver Agreements
Effective February 3, 2021, each investor that invested in the Pre-Merger Financing (each, a “Holder”) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the Holders and the Company agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate certain financing restrictions, extend the term of certain leak-out agreements, and, in the case of certain Holders, grant certain registration rights for the shares underlying the warrants.
The Waiver Agreements provide for the permanent waiver of the full ratchet anti-dilution provisions, contained in the Series A Warrants (as certain of the anti-dilution provisions had previously caused liability accounting treatment for the Series A Warrants). Upon the effective date of the Waiver Agreement, the Series A Warrants were reclassified to equity.
Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed to 1,708,334 in the aggregate with respect to all Holders. See “—Historical Capital Resources.” section below for additional information with regard to the Pre-Merger Financing.
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, Ocuphire has experienced a few disruptions in its manufacturing, supply chain, research and development operations, regulatory process, and financial position. These disruptions include the acceleration of shipment of active pharmaceutical ingredient supply from overseas, increased costs of supply ingredients, the convening of an FDA EOP2 meeting via teleconference, patient recruitment and retention, and difficulties in obtaining more favorable financing terms. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact Ocuphire’s business and preclinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing in the U.S. and other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and other countries to contain and treat the disease. Although Ocuphire cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on Ocuphire’s results of future operations, financial position, and liquidity over the next 12 or more months.
At-The-Market Program
On February 4, 2021, Ocuphire filed a Form S-3 shelf registration under the Securities Act which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer and sell, from time to time in its sole discretion, securities having an aggregate offering price of up to $125 million. In connection with the 2021 Shelf, on March 11, 2021, Ocuphire entered into a Capital on DemandTM Sales Agreement (the “Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”) under which the Company may offer and sell, from time to time at its sole discretion, to or through JonesTrading, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $40 million (the “2021 ATM”). For the three months ended March 31, 2021, no shares were sold under the 2021 ATM.
Financial Operations Overview
Revenue
To date, Ocuphire has not generated any revenue. Ocuphire does not expect to generate revenue unless or until it obtains regulatory approval of and commercializes Nyxol or APX3330. If Ocuphire fails to complete the development of Nyxol, APX3330, or any other product candidate it may pursue in the future, in a timely manner, or fails to obtain regulatory approval, Ocuphire’s ability to generate future revenue would be compromised.
Operating Expenses
Ocuphire’s operating expenses are classified into three categories: general and administrative, research and development and acquired in-process research and development.
Ocuphire Pharma, Inc.
Form 10-Q
General and Administrative
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation costs, for personnel in functions not directly associated with research and administrative activities. Other significant costs include insurance coverage for directors and officers and other property and liability exposures, legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, and other services provided by business consultants. Ocuphire anticipates that its general and administrative expenses will significantly increase in the future to support its continued research and development activities and costs associated with operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services as well as other public-company related costs.
Research and Development
To date, Ocuphire’s research and development expenses have related primarily to the clinical stage development of Nyxol. Research and development expenses consist of costs incurred in performing research and development activities, including compensation and benefits for research and development employees and costs for consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of overhead expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. Ocuphire accrues for costs incurred as the services are being provided by monitoring the status of the study or project, and the invoices received from its external service providers. Ocuphire adjusts its accrual as actual costs become known. Research and development activities are central to Ocuphire’s business model.
Ocuphire expects that Nyxol and APX3330 will have higher development costs during their later stages of clinical development, as compared to costs incurred during their earlier stages of development, primarily due to the increased size and duration of the later-stage clinical trials. Ocuphire expects its research and development expenses to significantly increase over the next several years. However, it is difficult for Ocuphire to determine with certainty the duration, costs and timing to complete its current or future preclinical programs and clinical trials of Nyxol, APX3330, and other product candidates. The duration, costs and timing of clinical trials and development of Nyxol, APX3330 and other product candidates will depend on a variety of factors that include, but are not limited to, the following:
the number of patients that participate in the trials;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring or other studies requested by regulatory agencies;
the duration of patient follow-up;
the phase of development of the product candidate;
arrangements with contract research organizations and other service providers; and
the efficacy and safety profile of the product candidates.
Acquired In-Process Research and Development Expenses
Ocuphire includes costs to acquire or in-license product candidates as acquired in-process research and development expenses. These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a “business” as defined under accounting standards generally accepted in the United States of America (“U.S. GAAP”) or provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are recognized. The costs associated with the Merger and the Apexian Sublicense Agreement were recorded as acquired in-process research and development expenses (“IPR&D”).
Interest Expense
Interest expense consists of interest costs related to the Ocuphire convertible notes and was attributed to interest on principal and to amortization of debt discount while these instruments were outstanding. The Ocuphire convertible notes had an annual interest rate of 8%.
Ocuphire Pharma, Inc.
Form 10-Q
Fair Value Change in Derivative and Warrant LiabilitiesThe fair value change in derivative and warrant liabilities includes the change in the fair value of the warrant liabilities and the premium conversion derivatives during the period the premium conversion derivatives and warrant liabilities are outstanding.
Other Income
Other income includes interest income related to cash and cash equivalent investments and other income from reimbursements in connection with grants and other sources.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Currently, there is no provision for income taxes, as Ocuphire has incurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets as of March 31, 2021 and December 31, 2020.
Results of Operations
The following table summarizes Ocuphire’s operating results for the periods indicated (in thousands):
| | | For the Three Months Ended March 31, | |
| | | 2021 | | | 2020 | | | Change | |
| | | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| General and administrative | | $ | 1,704 | | | $ | 391 | | | $ | 1,313 | |
| Research and development | | | 3,482 | | | | 218 | | | | 3,264 | |
| Acquired in‑process research and development | | | — | | | | 2,126 | | | | (2,126 | ) |
| Total operating expenses | | | 5,186 | | | | 2,735 | | | | 2,451 | |
| Loss from operations | | | (5,186 | ) | | | (2,735 | ) | | | (2,451 | ) |
| Interest expense | | | — | | | | (554 | ) | | | 554 | |
| Fair value change in warrant liabilities and premium conversion derivatives | | | (33,829 | ) | | | 198 | | | | (34,027 | ) |
| Other income | | | 1 | | | | 3 | | | | (2 | ) |
| Loss before income taxes | | | (39,014 | ) | | | (3,088 | ) | | | (35,926 | ) |
| Provision for income taxes | | | — | | | | — | | | | — | |
| Net loss | | $ | (39,014 | ) | | $ | (3,088 | ) | | $ | (35,926 | ) |
Comparison of Three Months Ended March 31, 2021 and 2020
General and Administrative
General and administrative expenses for the three months ended March 31, 2021 were $1.7 million compared to $0.4 million for the three months ended March 31, 2020. The $1.3 million increase was primarily attributable to an increase in in administrative employee headcount, stock-based compensation, professional services, insurance and legal costs associated with the operating as a public company subsequent to the reverse merger in the current period. General and administrative expenses included $0.2 million and $42,000 in stock-based compensation expense during the three months ended March 31, 2021 and 2020, respectively.
Research and Development
Research and development expenses for the three months ended March 31, 2021 were $3.5 million compared to $0.2 million for the three months ended March 31, 2020. The $3.3 million increase was primarily attributable to four new clinical trials and manufacturing activities for Nyxol and APX3330 as well as regulatory, preclinical and other development activities. Research and development expenses also included $0.3 million and $19,000 in stock-based compensation expense during the three months ended March 31, 2021 and 2020, respectively.
Acquired In-Process Research and Development Expenses
On January 21, 2020, Ocuphire entered into a sublicense agreement with Apexian for continued research and development and potential commercialization of its lead product, APX3330 (the “Apexian Sublicense Agreement”). Ocuphire issued 891,422 shares (as adjusted for the Exchange Ratio) of its common stock to Apexian related to the Apexian Sublicense Agreement. The fair value of the common stock issued to Apexian was $2.1 million and was recorded as IPR&D expense during the three months ended March 31, 2020. Accounting standards require that the fair value of IPR&D with no alternative future use be charged to expense on the acquisition date. There were no IPR&D costs in the comparable current year period.
Interest Expense
Non-cash interest expense for the three months ended March 31, 2020 of $0.6 million was comprised of interest on principal and amortization of debt discounts related to Ocuphire convertible notes. There was no interest expense during the comparable current year period.
Ocuphire Pharma, Inc.
Form 10-Q
Fair Value Change in Warrant Liabilities and Premium Conversion DerivativesThe fair value change in warrant liabilities and premium conversion derivatives was an expense of $33.8 million for the three months ended March 31, 2021 compared to a benefit of $0.2 million for the three months ended March 31, 2020. The $34.0 million change was due primarily to the issuance of the Series A Warrants in connection with the Pre-Merger Financing in November 2020 and to the fluctuations in Ocuphire’s common stock fair value and the number of potential shares of common stock issuable upon conversion of the underlying Ocuphire warrant liabilities and convertible notes that were outstanding during the relevant periods. Upon the February 3, 2021 effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity and are no longer subject to remeasurement.
Other Income
During the three months ended March 31, 2021 and 2020, Ocuphire had interest income related to cash deposits on hand in the amount of $1,000 and $3,000, respectively.
Liquidity and Capital Resources
Capital Resources
As of March 31, 2021, Ocuphire’s principal sources of liquidity consisted of cash and cash equivalents of $10.6 million. Ocuphire’s cash and cash equivalents are invested primarily in cash deposits at a large, long-standing financial institution.
Ocuphire has not generated any revenue and anticipates that it will continue to incur losses for the foreseeable future. Future capital requirements depend on many factors, including whether the Company:
continues clinical trials and preclinical studies for Nyxol, APX3330 and for any other product candidate in its future pipeline;
develops additional product candidates that it identifies, in-licenses or acquires;
seeks regulatory approvals for any product candidates that successfully complete clinical trials;
contracts to manufacture its product candidates;
establishes on its own or with partners, a sales, marketing and distribution infrastructure to commercialize any products for which it may obtain regulatory approval;
maintains, expands and protects its intellectual property portfolio;
hires additional staff, including clinical, scientific, operational and financial personnel, to execute its business plan;
adds operational, financial and management information systems and personnel, including personnel to support its product development and potential future commercialization efforts; and
continues to operate as a public company.
Historical Capital Resources
Ocuphire’s primary source of cash to fund Ocuphire’s operations has been net proceeds from the Pre-Merger Financing in the amount of $19.4 million and the issuance of convertible notes subsequent to the Ocuphire’s incorporation in April 2018 in the amount of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire convertible notes.
Pre-Merger Financing
Securities Purchase Agreement
On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by directors of Private Ocuphire and one director of Rexahn, upon closing of the Merger (the “Pre-Merger Financing”). Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold to the investors shares of Private Ocuphire common stock (the “Initial Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 1,249,996 shares (the “Converted Initial Shares”) of common stock, (ii) Ocuphire deposited into escrow, for the benefit of the Investors, additional shares of Private Ocuphire common stock (the “Additional Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 3,749,992 shares of common stock (the “Converted Additional Shares”), which Converted Additional Shares were delivered (or became deliverable) to the investors on November 19, 2020, and (iii) the Company agreed to issue to each investor on the tenth trading day following the consummation of the Merger (x) Series A Warrants representing the right to acquire shares of common stock equal to the sum of (A) the Converted Initial Shares purchased by the investor, (B) the Converted Additional Shares delivered or deliverable to the investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement and (C) the initial number of shares of common stock, if any, underlying the Series B Warrants issued to the Investor and (y) additional warrants to purchase shares of common stock.
Ocuphire Pharma, Inc.
Form 10-Q
Waiver AgreementsEffective February 3, 2021, each investor that invested in the Pre-Merger Financing (each, a “Holder”) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the Holders and the Company agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate certain financing restrictions, extend the term of certain leak-out agreements, and, in the case of certain Holders, grant certain registration rights for the shares underlying the warrants.
The Waiver Agreements provide for the permanent waiver of the full ratchet anti-dilution provisions, contained in the Series A Warrants (as certain of the anti-dilution provisions had previously caused liability accounting treatment for the Series A Warrants). Upon the effective date of the Waiver Agreement, the Series A Warrants were reclassified to equity.
Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed to 1,708,334 in the aggregate with respect to all Holders.
Series A Warrants
The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein).
At issuance, the Series A Warrants contained certain provisions that could have resulted in a downward adjustment of the initial exercise price and an upward adjustment in the number of shares underlying the warrants if Ocuphire were to have issued or sold, or made an agreement to issue or sell, any shares of common stock for a price lower than the exercise price then in effect. Pursuant to the terms of the Waiver Agreements, these provisions are no longer in effect.
Series B Warrants
The Series B Warrants have an exercise price of $0.0001, were exercisable upon issuance and will expire on the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the investor’s Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. The Series B Warrants were initially exercisable for 665,836 shares of Common Stock in the aggregate (without giving effect to any limitation on exercise contained therein) and ultimately became exercisable for 1,708,334 shares of Common Stock upon execution of the Waiver Agreements.
At issuance, the Series B Warrants contained certain provisions that could have resulted in the issuance of additional Series B Warrants depending on the dollar volume-weighted average prices of a share of Common Stock during a 45-trading day Reset Period. Pursuant to the terms of the Waiver Agreements, those provisions are no longer in effect.
Ocuphire Convertible Notes
From May 2018 through March 2020, Ocuphire issued convertible notes (the “Ocuphire convertible notes”) for aggregate gross proceeds of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire convertible notes. The final closing of the Ocuphire convertible notes occurred on March 10, 2020. The Ocuphire convertible note had an interest an interest rate of 8% per annum. On November 4, 2020, all of Ocuphire’s outstanding notes were converted into 977,128 shares of Ocuphire common stock as adjusted for the Exchange Ratio in connection with the completion of the Merger.
The original Convertible Note Purchase Agreement (the “Note Purchase Agreement”) was dated May 25, 2018. Under the original terms of the Note Purchase Agreement, the Ocuphire convertible notes were payable on demand on July 31, 2019 unless converted earlier pursuant to their terms. Such conversion would automatically occur if Ocuphire (i) completed an initial public offering (“IPO”), (ii) completed a change in control (“CIC”), (iii) completed a sale and issuance of its capital stock resulting in gross proceeds to Ocuphire of at least $5.0 million (“Qualified Financing”), or (iv) completed a reverse merger transaction (“Reverse Merger”), each a “Conversion Event”. Upon a Conversion Event, the Ocuphire convertible notes would have automatically converted into the following:
Qualified Financing or IPO: An amount of shares of Ocuphire common stock equal to 135% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the Qualified Financing or IPO.
CIC: An amount of shares of Ocuphire common stock equal to 200% of the Note Value divided by the per share price of Ocuphire common stock based on the valuation of such CIC.
Reverse Merger: Either (i) shares of Ocuphire common stock issued in the Reverse Merger or (ii) equity securities of the Reverse Merger counterparty, in an amount equal to 135% of the Note Value divided by the per share price at which such shares were issued to either stockholders of Ocuphire or stockholders of the Reverse Merger counterparty.
Ocuphire Pharma, Inc.
Form 10-Q
The Note Purchase Agreement was amended and restated on January 22, 2019 (the “Amended and Restated Mezz Note Purchase Agreement”). Under the Amended and Restated Mezz Note Purchase Agreement, the demand date of the Ocuphire convertible notes was extended to December 31, 2019 and the conversion provisions under the Ocuphire convertible notes were restated such that, upon a Conversion Event, the Ocuphire convertible notes would have automatically converted into the following:
IPO: An amount of shares of Ocuphire common stock equal to the greater of: (i) 150% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the IPO, and (ii) 100% of the Note Value divided by the per share price of $10.37.
CIC: An amount of shares of Ocuphire common stock equal to the greater of: (i) 200% of the Note Value divided by the per share price of Ocuphire common stock based on the valuation of such CIC, and (ii) 100% of the Note Value divided by the per share price of $10.37.
Qualified Financing: An amount of shares of Ocuphire common stock equal to 150% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the Qualified Financing.
Reverse Merger: Either shares of Ocuphire common stock issued in the Reverse Merger or equity securities of the Reverse Merger counterparty, in an amount equal to the greater of: (i) 150% of the Note Value divided by the per share price at which such shares were issued to either stockholders of Ocuphire or stockholders of the Reverse Merger counterparty, and (ii) 100% Note Value divided by the per share price of $10.37.
The Amended and Restated Mezz Note Purchase Agreement was further amended on November 20, 2019 (the “First Amendment”). The terms under the First Amendment reflect the current terms in effect for the Ocuphire convertible notes as of the date of this proxy statement/prospectus/information statement, except as further amended by the Note Conversion Agreement (defined below). The First Amendment extended the demand date of the Ocuphire convertible notes from December 31, 2019 to September 30, 2020, and changed the basis of interest from a 360-day year, 30-day month basis to a 365-day year basis. In addition, the First Amendment increased the automatic conversion factor applied to the Note Value to 175% in the event of an IPO, Qualified Financing or Reverse Merger and removed the fixed conversion option provision of $10.37 per share in the event of an IPO, CIC or Reverse Merger.
On June 8, 2020, holders of the Ocuphire convertible notes entered into the Note Conversion Agreement with Ocuphire (the “Note Conversion Agreement”). The Note Conversion Agreement provided that prior to the consummation of the merger, following the Rexahn special meeting, all of the Ocuphire convertible notes would automatically convert into an amount of shares of Ocuphire common stock equal to 175% of the Note Value divided by the Fully Diluted Shares. “Fully Diluted Shares” for this purpose means as of the Conversion Date the sum of the following: (1) all of the issued outstanding shares of Ocuphire common stock; and (2) the aggregate number of shares of Ocuphire common stock reserved for issuance under all outstanding options or other awards under equity incentive plans of Ocuphire in effect as of the date of conversion.
The Note Conversion Agreement further provided that upon the issuance of shares of Ocuphire common stock in the conversion, each convertible note would be cancelled and extinguished without the need for surrender of such notes and all obligations of Ocuphire, including any obligations for payment of principal and interest on the convertible notes, would be unconditionally and irrevocably discharged.
Cash Flows
The following table summarizes Ocuphire’s cash flows for the periods indicated (in thousands):
| | For the Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
| | | | |
| Net cash used in operating activities | | $ | (5,812 | ) | | $ | (732 | ) |
| Net cash provided by (used in) investing activities | | | — | | | | — | |
| Net cash provided by financing activities | | | 10 | | | | 448 | |
| Net decrease in cash and cash equivalents | | $ | (5,802 | ) | | $ | (284 | ) |
Cash Flow from Operating Activities
For the three months ended March 31, 2021, cash used in operating activities of $5.8 million was attributable to a net loss of $39.0 million, partially offset by $34.3 million in non-cash operating expenses and a net change of $(1.1) million in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted of the fair value change in the warrant liabilities of $33.8 million, stock-based compensation of $0.5 million and depreciation expense of $1,000. The change in operating assets and liabilities was primarily attributable to a decrease in Ocuphire’s accrued liabilities, on net basis, and increase in prepaid expenses associated with the fluctuations of Ocuphire’s operating expenses and in connection with operating as a public company post-Merger.
Ocuphire Pharma, Inc.
Form 10-Q
For the three months ended March 31, 2020, cash used in operating activities of $0.7 million was attributable to a net loss of $3.1 million, partially offset by $2.5 million in non-cash expenses and a net change of $(0.2) million in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted of the fair value of common shares issued related to IPR&D in the amount of $2.1 million, interest and discount amortization related to the Ocuphire convertible notes of $0.6 million, fair value change in the premium conversion derivatives of $(0.2) million, $61,000 related to stock-based compensation and depreciation expense of $5,000. The change in operating assets and liabilities was primarily attributable to an overall decrease in Ocuphire’s accrued expenses associated with the fluctuations of Ocuphire’s operating expenses.
Cash Flow from Investing Activities
There were no sources or uses from investing activities during the periods presented.
Cash Flow from Financing Activities
Net cash provided by financing activities during the three months ended March 31, 2021 was $10,000 in connection with the exercise of stock options.
Net cash provided by financing activities during the three months ended March 31, 2020 was $0.4 million, consisting of proceeds from the issuance of the Ocuphire convertible notes.
Liquidity and Capital Resource Requirements
Ocuphire has no current source of revenue to sustain its present activities. Ocuphire does not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve Nyxol or APX3330 and Ocuphire successfully commercializes its product candidates. Until such time, if ever, as Ocuphire can generate substantial product revenue, it expects to finance its cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. Ocuphire does not have any committed external source of funds. To the extent that Ocuphire raises additional capital through the sale of equity or convertible debt securities, the ownership interest of Ocuphire’s stockholders will be diluted, and the terms of these securities may include liquidation, warrants, or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting Ocuphire’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Ocuphire raises additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, Ocuphire may have to relinquish valuable rights to its technologies, future revenue streams or grant licenses on terms that may not be favorable to Ocuphire. If Ocuphire is unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, Ocuphire may be required to delay, limit, reduce or terminate its product development, future commercialization efforts, or grant rights to develop and market its product candidates that Ocuphire would otherwise prefer to develop and market itself.
Future Capital Requirements
Ocuphire’s independent registered public accounting firm included an explanatory paragraph in its report on Ocuphire’s financial statements as of and for the years ended December 31, 2020 and 2019, noting the existence of substantial doubt about Ocuphire’s ability to continue as a going concern. This uncertainty arose from management’s review of Ocuphire’s results of operations and financial condition and its conclusion that, based on Ocuphire’s operating plans, Ocuphire did not have sufficient existing working capital to sustain operations through December 31, 2021. To continue to fund operations, Ocuphire will need to raise capital. Ocuphire may obtain additional financing in the future through the issuance of common stock, through other equity or debt financings or through collaborations or partnerships with other companies. Ocuphire may not be able to raise additional capital on terms acceptable to it, or at all, and any failure to raise capital as and when needed could compromise Ocuphire’s ability to execute on its business plan.
The development of Nyxol and APX3330 is subject to numerous uncertainties, and Ocuphire has based its operating plans on assumptions that may prove to be substantially different than what Ocuphire currently anticipates, which could result in cash resources being used sooner than Ocuphire currently expects. Additionally, the process of advancing early-stage product candidates and testing product candidates in clinical trials is costly, and the timing of progress in these clinical trials is uncertain. Ocuphire’s ability to successfully transition to profitability will be dependent upon achieving a level of product sales adequate to support its cost structure. Ocuphire may not ever achieve profitability or generate positive cash flow from operating activities.
Contractual Obligations and Commitments
Facility Lease
Ocuphire leases a facility under a non-cancellable operating lease that commenced on June 8, 2019 and expires on December 31, 2021, as amended, for a base rent in the amount of $3,000 per month. Additionally, Ocuphire is leasing 5,466 square feet of office space in Rockville, Maryland previously occupied by Rexahn for a base rent of approximately $13,000 per month. The Rockville, Maryland lease expires in June 2021.
Ocuphire Pharma, Inc.
Form 10-Q
Apexian Sublicense AgreementOn January 21, 2020, Ocuphire entered into the Apexian Sublicense Agreement, pursuant to which it obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which Ocuphire intends to develop as an oral tablet therapeutic to treat DR and diabetic macular edema, and potentially wet age-related macular degeneration.
In connection with the Apexian Sublicense Agreement, Ocuphire issued 891,422 shares (as adjusted for the Exchange Ratio) of Private Ocuphire common stock to Apexian and certain of Apexian’s affiliates. The share issuance transaction was recorded in the amount of $2.1 million as IPR&D expense during the three months ended March 31, 2020 based on the fair market value of the common shares issued since no processes or activities that would constitute a “business” were acquired and none of the rights and underlying assets acquired had alternative future uses or reached a stage of technological feasibility. Ocuphire also paid the balance remaining of $0.4 million of Ref-1 Inhibitor program costs to Apexian following the Company’s listing on a major stock exchange.
Ocuphire agreed to make one-time milestone payments under the Apexian Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales milestone payments are payable once, upon the first achievement of such milestone.
Lastly, Ocuphire also agreed to make royalty payments equal to a single-digit percentage of its net sales of products covered by the patents under the Apexian Sublicense Agreement. None of the milestone or royalty payments were triggered as of the date of this report. Basedproxy statement/prospectus/information statement.
Other Commitments
In the course of normal operations, Ocuphire entered into cancellable purchase commitments with its suppliers for various key research, clinical and manufacturing services. The purchase commitments covered by these arrangements are subject to change based on Ocuphire’s research and development efforts.
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonably based upon information available to us at the time that evaluation,we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our principal executive officerfinancial results will be affected. The accounting policies that reflect our more significant estimates and principaljudgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial officer concluded thatresults are described in Note 1 — “Company Description and Summary of Significant Accounting Policies ” to our condensed consolidated financial statements included in “Part 1, Item 1 – Financial Statements” in this Report.
There were no additional material changes to our critical accounting policies or estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
Refer to Note 1— “Company Description and Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in “Part 1, Item 1 – Financial Statements” in this Report for a discussion of recently issued accounting pronouncements.
Off-Balance Sheet Arrangements
None.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as of the end of the period covered by this report were effective such that theare designed to ensure that information we are required to be disclosed by usdisclose in reports filed under theour Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”)SEC’s rules and forms, and (ii)that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. A
Ocuphire Pharma, Inc.
Form 10-Q
We designed and evaluated our disclosure controls system cannotand procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance however,of achieving the desired control objectives. Also, the design of a control system must reflect the fact that there are resource constraints and that the objectivesbenefits of controls must be considered relative to their costs. Because of the controls system are met, andinherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15(d)- 15(e) promulgated under the Exchange Act as of March 31, 2021. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.
Changes in Internal Control overOver Financial Reporting
There has beenwere no changechanges in our internal control over financial reporting (as such term is defined in RulesRule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020March 31, 2021, that hashave materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
PART
II. Other InformationII – OTHER INFORMATION
The information set forth under the heading “e) Legal Proceedings” in Note 12, Commitments and Contingencies and under Note 14, Subsequent Events, in the Notes to Condensed Financial Statements in this report is incorporated herein by reference.
From time to time, we are engagedmay be involved in litigation or othervarious claims and legal proceedings as partrelating to claims arising out of our ordinary course of business. Except for the proceedings described in Notes 12 and 14, weoperations. We are not currently a party to any material legal proceedings.
Investing in our stock involves a high degree of risk. You should carefully consider the following discussion of risk factors in its entirety. In addition to the other information set forth in this report, you should carefully consider the factors set forthproceedings that, in the Risk Factors sectionopinion of our 2019 Form 10-K, as well as other information contained in the 2019 Form 10-K and in other reports we file with the SEC.
Our business is subject to risks arising from the ongoing COVID-19 pandemic.
The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the globe and has led to disruption in the global economy and the biopharmaceutical industry. COVID-19 poses the risk that we or our employees, licensees, and other partners may be prevented from or restricted in conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities. We currently have four employees andmanagement, are dependent on the efforts of our President and Chief Executive Officer, Douglas J. Swirsky, and other key professionals. The loss of Mr. Swirsky or any of our other key professionals as a result of illness or otherwise in connection with the COVID-19 pandemic could materially and adversely affect our business and our prospects. In addition, as the COVID-19 pandemic continues to disrupt the economy, our future access to capital on favorable terms and our ability to consummate the Merger may be adversely impacted.
The extent to which the COVID-19 pandemic impacts our business, financial condition and results of operations as well as on our ability to consummate the Merger is highly uncertain and will depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, the other actions that may be taken to contain its impact, and our access to additional capital.
If the Merger is not completed, we may not be able to otherwise obtain adequate liquidity to fund our operations, meet our obligations, and continue as a going concern. Our board of directors may decide to pursue a dissolution and liquidation. In such an event, there can be no assurances as to the amount or timing of available cash left, if any, to distribute to our stockholders after paying our debts and other obligations and setting aside funds for reserves.
While we have entered into the Merger Agreement, the Closing may be delayed or may not occur at all and there can be no assurance that the Merger will deliver the anticipated benefits we expect or enhance stockholder value. If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, we may be required to pay Ocuphire a termination fee of $750,000. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, we will have incurred significant fees and expenses, which must be paid whether or not the Merger is completed.
We believe our cash on hand will be sufficient to cover our cash flow requirements for our current activities for at least the next 12 months from the date of this Quarterly Report on Form 10-Q, assuming the Merger does not close, and if for any reason the Merger does not close, we would need to raise additional capital to continue to fund the further development of our product candidates and our operations thereafter. We have based our cash sufficiency estimates on our current business plan and our assumptions may prove to be wrong. We could utilize our available capital resources sooner than we currently expect, and we could need additional funding sooner than currently anticipated. Additionally, the process of advancing early stage product candidates and testing product candidates in clinical trials is costly, and the timing of progress in these clinical trials is uncertain. Even if we raise sufficient funds and decide to continue the development of our product candidates, our ability to successfully transition to profitability will be dependent upon achieving a level of product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Failure to secure any necessary financing in a timely manner and on favorable terms or the failure of the Merger to be consummated in a timely manner would require us to delay or abandon clinical development plans. If, for any reason, the Merger does not close, our board of directors may elect to, among other things, attempt to complete another strategic transaction like the Merger, attempt to sell or otherwise dispose of our various assets, resume our research and development activities and continue to operate our business. Any of these alternatives would be costly and time-consuming and would require that we obtain additional funding. We expect that it would be difficult to secure financing in a timely manner, on favorable terms or at all. We can make no assurances that we would be able to obtain additional financing or find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement or that any such alternatives are possible or would be successful, if pursued. To the extent that we seek and are able to raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect their rights as a common stockholder. Debt financing or preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through strategic transactions or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Even if we are able to pursue such alternatives, the failure to complete the Merger may result in negative publicity and/or a negative impression of us in the investment community, could significantly harm the market price of our common stock and may affect our relationship with employees and other partners in the business community.
If our board of directors were to decide to dissolve and liquidate our assets, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left, if any, to distribute to stockholders after paying our debts and other obligations and setting aside funds for reserves. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, our stockholders would likely lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of our company.
We do not believe that our current expenses are indicative of the costs we may incur in the future in connection with the development and commercialization of any product candidate if we consummate the Merger or raise additional capital to continue our operations. Our future funding requirements will depend on many factors, including:
our ability to consummate the Merger;
the level of development and commercialization efforts of BioSense and HaiChang and the receipt of milestone and other payments, if any, from such parties under their respective agreements with us;
the scope, rate of progress and cost of our preclinical and clinical trials for any product candidate in our future pipeline and results of future clinical trials;
the cost and timing of regulatory filings and approvals for any product candidates that successfully complete clinical trials;
the timing and nature of any additional strategic transactions that we undertake, including potential partnerships, if the Merger is not consummated;
the effect of competing technological and market developments;
the cost incurred in responding to actions by activist stockholders; and
the cost of filing, prosecuting, defending and enforcing our intellectual property rights.
Our shelf registration statement on Form S-3 expired in July 2020. Even if we file a new shelf registration statement with the SEC, the amounts available under the shelf registration statement will be significantly limited as long as our public float remains below $75 million, which, given our currently depressed stock price, limits our ability to obtain meaningful funding through a shelf registration statement at this time, although we could still raise funds through a registration statement on Form S‑1 or through private placements.
Our stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless. In addition, the tax treatment of CVRs is uncertain.
The right of our stockholders to receive any future payment on or derive any value from the CVRs will be contingent solely upon the achievement of the events specified in the CVR Agreement within the time periods specified in the CVR Agreement and the consideration received being greater than the amounts permitted to be retained or deducted by us under the CVR Agreement. We may not be able to grant, sell or transfer our rights to our pre-Closing intellectual property during the 10-year period after the Closing, and we may not receive any future payments pursuant to the BioSense License and Assignment Agreement or HaiChang License Agreement after the Closing. If these events are not achieved for any reason within the time periods specified in the CVR Agreement or the consideration received is not greater than the amounts permitted to be retained or deducted by us, no payments will be made under the CVRs, and the CVRs will expire valueless. Following the Effective Time of the Merger, neither us nor Ocuphire will have any obligation to support the development of any of our pre-Closing product candidates or to undertake any effort or expend any resource to divest or otherwise monetize our pre-Closing intellectual property or to otherwise maximize the likelihood or amount of any CVR payment. Following the Closing, we may, at any time and in our sole and absolute discretion, discontinue any and all further efforts to develop, divest or otherwise monetize any or all of our pre-Closing intellectual property.
Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.
Our securityholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger and the Pre-Merger Financing.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, our stockholders will have experienced substantial dilution of their ownership interests, including as a result of the investment of certain institutional healthcare investors, accredited investors and certain directors and officers of Ocuphire of a total of $21.15 million in cash to fund the combined company following the Merger (the “Pre-Merger Financing”), without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger and the Pre-Merger Financing.
Failure to complete the Merger may result in us paying a termination fee to the other party and could significantly harm the market price of our common stock and negatively affect our future business and operations.
If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, we may be required to pay Ocuphire a termination fee of $750,000. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, we will have incurred significant fees and expenses, which must be paid whether or not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of our common stock and raise serious doubts as to our ability to continue as an entity.
In addition, if the Merger Agreement is terminated and our board of directors determines to seek another business combination, there can be no assurance that either we will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement.
The Merger may be completed even though certain events occur prior to the Closing that materially and adversely affect us or Ocuphire.
The Merger Agreement provides that either we or Ocuphire can refuse to complete the Merger if there is a material adverse change affecting the other party between June 17, 2020, the date of the Original Merger Agreement, and the Closing. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on us or Ocuphire, including:
general business, economic or political conditions affecting the industries in which we or Ocuphire, as applicable, operate;
any natural disaster or any actsour business. Regardless of war, armed hostilities or terrorism;
changes in financial, banking or securities markets;
any change in our stock price or trading volume excluding any underlying effect that may have caused such change, unless such effect is otherwise exempt from causing a material adverse effect under the Merger Agreement;
any change in, or any compliance with or action taken for the purpose of complying with, applicable laws or U.S. GAAP, or interpretations thereof;
continued losses from operations or decreases in our cash balances; and
the taking of any action, or failure to take action, by us or Ocuphire required to comply with the terms of the Merger Agreement.
If adverse changes occur and we still complete the Merger, the market price of the combined company’s common stock may suffer. This in turn may reduce the value of the Merger to our stockholders.
The market price of our common stock following the Merger may decline as a result of the Merger.
The market price of our common stock may decline as a result of the Merger for a number of reasons, including if:
investors react negatively to the prospects of the combined company’s product candidates, business and financial condition following the Merger;
the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts.
During the pendency of the Merger, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants in the Merger Agreement impede our ability to make acquisitions, subject to certain exceptions relating to fiduciary duties, or to complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors during such period. In addition, while the Merger Agreement is in effect, we are generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a Merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to our stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit us from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when our board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be inconsistent with our board’s fiduciary duties. Any such transactions could be favorable to such party’s stockholders. In addition, if we terminate the Merger Agreement under certain circumstances, including terminating because of our decision to enter into definitive agreement with respect to a superior offer, we would be required to pay a termination fee of $750,000 to Ocuphire. This termination fee described above may discourage third parties from submitting alternative takeover proposals to our stockholders.
We are substantially dependent on our remaining employees to facilitate the consummation of the Merger.
As of September 30, 2020, we had only four full-time employees. Our ability to successfully complete the Merger depends in large part on our ability to retain certain remaining personnel. Despite our efforts to retain these employees, one or more may terminate their employment with us on short notice. The loss of the services of certain employees could potentially harm our ability to consummate the Merger, to run our day-to-day business operations, as well as to fulfill our reporting obligations as a public company.
The pendency of the Merger couldoutcome, litigation can have an adverse effectimpact on the trading priceus because of our common stockdefense and our business, financial conditionsettlement costs, diversion of management resources and prospects.other factors.
The pendency of the Merger could disrupt our business in many ways, including:
There have been no material changes in our risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the attention of our remaining managementyear ended December 31, 2020. You should carefully consider the risks and employees may be directed toward the completion of the Merger and related matters and may be diverted from our day-to-day business operations; and
third parties may seek to terminate or renegotiate their relationships with us as a result of the Merger, whether pursuant to the terms of their existing agreements with us or otherwise.uncertainties described therein.
Should they occur, any of these matters could adversely affect the trading price of our common stock or harm our business, financial condition and prospects.
If we fail to comply with the continued listing standards of the Nasdaq Capital Market, our common stock could be delisted. If it is delisted, our common stock and the liquidity of our common stock would be impacted.
The continued listing of our common stock on Nasdaq is contingent on our continued compliance with a number of listing standards. There is no assurance that we will remain in compliance with these standards. Delisting from Nasdaq would adversely affect our ability to consummate the Merger, raise additional financing through the public or private sale of equity securities, significantly affect the ability of investors to trade our securities and negatively affect the value and liquidity of our common stock. Delisting also could limit our strategic alternatives and attractiveness to potential counterparties and have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities. Moreover, we committed in connection with the sale of securities to use commercially reasonable efforts to maintain the listing of our common stock during such time that certain warrants are outstanding.
Lawsuits have been filed, and other lawsuits may be filed, against us and members of our board of directors challenging the Merger, and an adverse ruling in any such lawsuit may delay or prevent the completion of the Merger or result in an award of damages against us.| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On July 31, 2020,May 6, 2021, the Company issued 350,000 shares of common stock of the Company to three accredited investors pursuant to a putative stockholder class action was filedsettlement agreement, dated May 6, 2021, in exchange for a general release of claims from such investors. The above issuances were completed in reliance on exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The issuances qualified for exemption from registration because (i) the Company did not engage in any general solicitation or advertising to market the securities; (ii) the accredited investors were provided the opportunity to ask questions and receive answers from the Company regarding the Company; (iii) the securities were issued to persons with knowledge and experience in financial and business matters capable of evaluating the merits and risks of an investment in the Chancery Court styled Stahlman v. Rexahn Pharmaceuticals, Inc., et al., Case No. 2020-0639. Additionally, on August 3, 2020, a putative stockholder class action was filed inCompany; and (iv) the United States District Court for the District of Delaware styled Thompson v. Rexahn Pharmaceuticals, Inc., et al., Case No. 1:20-cv-01036-UNA (D. Del)recipients received “restricted securities”. On August 7, 2020 and August 17, 2020, putative stockholder class actions were filed in the United States District Court for the Southern District of New York styled, respectively, Manes v. Rexahn Pharmaceuticals, Inc., et al., Case No. 1:20-cv-06227 (S.D.N.Y.). and Talsma v. Rexahn Pharmaceuticals, Inc., et al., Case No. 1-20-cv-06541 (S.D.N.Y.). On August 18, 2020, a putative stockholder class action was filed in the United States District Court for the Eastern District of New York styled Juilfs v. Rexahn Pharmaceuticals, Inc., et al., Case No 1:20-cv-03780 (F.D.N.Y.). The Stockholder Actions assert claims against us and the Individual Defendants.
| Item 3. | Defaults Upon Senior Securities |
The Stahlman and Manes complaints allege that the Individual Defendants breached their fiduciary duties owed
None.
Not applicable to our stockholders. The Thompson, Manes, Juilfs and Talsma complaints allege that we and the Individual Defendants violated Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder, by failing to disclose in the Initial Registration Statement certain information regarding, among other things, financial projections for us and Ocuphire, the valuation analyses performed by our financial advisor, Oppenheimer & Co., Inc., in support of its fairness opinion and the process leading to the execution of the Merger Agreement. The Thompson, Manes, Juilfs and Talsma complaints also allege that the Individual Defendants violated Section 20(a) of the Exchange Act, as control persons who had the ability to prevent the Proxy Statement from being false and misleading. The Stockholder Actions seek, among other things, an injunction preventing consummation of the Merger, an award of damages, and an award of costs and expenses, including attorneys’ fees.Company.
None.
On September 8, 2020, plaintiff Thompson made a filing in the United States District Court for the District of Delaware voluntarily dismissing the Thompson complaint. On September 22, 2020, the plaintiff filed a notice of voluntary dismissal of the Juilfs action in the United States District Court for the Eastern District of New York. On October 8, 2020, the plaintiff filed a notice of voluntary dismissal of the Manes action in the United States District Court for the Southern District of New York. On October 1, 2020, the Chancery Court granted an unopposed motion to dismiss the Stahlman action, but retained jurisdiction for the limited purpose of deciding any fee application should that become necessary.Ocuphire Pharma, Inc.
Form 10-Q
On August 6, 2020, another party sent a letter to our counsel demanding that we and the Individual Defendants amend the Initial Registration Statement to provide additional disclosures that the party alleges were improperly omitted from the Initial Registration Statement in violation of Sections 14(a) and 20(a) of the Exchange Act, including certain information regarding financial data and the background and process leading to the execution of the Merger Agreement (the “Demand Letter”).
We and the Individual Defendants intend to vigorously defend against the remaining Stockholder Action and the Demand Letter. Additional lawsuits arising out of or relating to the Merger Agreement or the Merger may be filed in the future. The results of complex legal proceedings are difficult to predict and could delay or prevent the completion of the Merger. The existence of litigation relating to the Merger could impact the likelihood of obtaining stockholder approval of the Merger. Moreover, the pending litigation is, and any future additional litigation could be, time consuming and expensive and could divert management’s attention away from its regular business.
| EXHIBIT | |
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| |
|
| NUMBER |
| DESCRIPTION OF DOCUMENT |
| | |
| Description
| Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Appendix G to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed on April 29, 2005). |
| | |
| Agreement and Plan of Merger, dated as of June 17, 2020, by and among the Company, Merger Sub and Ocuphire, filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2020 is incorporated herein by reference.
|
| |
| | FirstCertificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Agreement and Plan of Merger and Reorganization, dated as of June 29, 2020, by and among the Company, Merger Sub and Ocuphire, filed as Exhibit 2.13.1 to the Company’sRegistrant’s Current Report on Form 8-K, filed on July 1, 2020 is incorporated herein by referenceMay 5, 2017).
|
| | | |
| | Warrant Exchange Agreement, dated July 31, 2020,Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by and between the Company and Armistice Capital Master Fund Ltd, filed asreference to Exhibit 10.13.1 to the Company’sRegistrant’s Current Report on Form 8-K, filed on August 3, 2020 is incorporated herein by reference.
30, 2018). |
| | | |
| | Warrant Exchange Agreement, dated September 1, 2020,Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by and between the Company and Anson Investments Master Fund LP, filed asreference to Exhibit 10.13.1 to the Company’sRegistrant’s Current Report on Form 8-K, filed on September 2, 2020 is incorporated by reference.
April 12, 2019). |
| | | |
| | Warrant Exchange Agreement, dated September 10, 2020,Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by and between the Company and Empery Asset Master, Ltd., filed asreference to Exhibit 10.13.1 to the Company’sRegistrant’s Current Report on Form 8-K, filed on September 11, 2020 is incorporated by reference.
November 6, 2020). |
| | | |
| | Warrant Exchange Agreement, dated September 10, 2020,Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by and between the Company and Empery Tax Efficient, LP, filed asreference to Exhibit 10.23.2 to the Company’sRegistrant’s Current Report on Form 8-K, filed on September 11, 2020 is incorporated by reference.
November 6, 2020). |
| | | |
| | Warrant ExchangeForm of Waiver Agreement, dated September 10, 2020,as of February 3, 2021, by and between the Company and Empery Tax Efficient II, LP, filed asthe Holder(s) (incorporated by reference to Exhibit 10.34.1 to the Company’sRegistrant’s Current Report on Form 8-K, filed on September 11, 2020 is incorporated by reference.
February 4, 2021). |
| | | |
| Certification of Chief Executive Officer pursuant | Capital on Demand™ Sales Agreement, dated March 11, 2021 between the Company and JonesTrading Institutional Services LLC (incorporated by reference to Rules 13a-14(a) / 15d-14(a)Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, filed on March 11, 2021). |
| | |
| | Certification of ChiefPrincipal Executive Officer pursuant to 18 U.S.C. 1350, as adoptedSection 302 of the Sarbanes-Oxley Act of 2002. |
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|
| | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
|
| | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002. |
| | |
|
| The following materials from Rexahn Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q, formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Balance Sheet; (ii) Condensed Statement | Certification of Operations; (iii) Condensed StatementPrincipal Financial Officer pursuant to Section 906 of Comprehensive Loss; (iv) Condensed Statementthe Sarbanes-Oxley Act of Stockholders’ Equity; (v) Condensed Statement of Cash Flows; and (vi) Notes to the Financial Statements.2002. |
| | |
| 101.INS | | XBRL Instance Document. |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
|
.
Ocuphire Pharma, Inc.
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportReport to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 7, 2021
Ocuphire Pharma, Inc.
By: | /s/ Mina Sooch | | REXAHN PHARMACEUTICALS, INC.
|
| | Mina Sooch | (Registrant) |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| | | |
By: | By: | /s/ Douglas J. Swirsky |
Date: October 29, 2020Amy Rabourn | | Douglas J. Swirsky |
| | Amy Rabourn | |
| | Chief Executive Officer andVice President Finance
| |
| (principal executive, financial and accounting officer)Principal Financial Officer) | |