UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-36751
OCUGEN, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________________________________________________ | | | | | |
| Delaware | 04-3522315 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5263 Great Valley Parkway Suite 160
Malvern, Pennsylvania 19355
(Address of principal executive offices, including zip code)
(484) 328-4701
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
| | | | | | | | | | | | | | |
| Title of each class | | Trading
symbol(s) | | Name of each exchange
on which registered |
| Common Stock, par value $0.01 per share | | OCGN | | The Nasdaq Stock Market LLC (The Nasdaq Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
| | | | | | | | | | | |
| Large accelerated filer | o☐ | Accelerated filer | o☐ |
| Non-accelerated Filer | x☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x☒
As of August 7, 2020,April 30, 2021, there were 135,006,644198,228,533 outstanding shares of the registrant’s common stock, $0.01 par value per share.
OCUGEN, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020MARCH 31, 2021
Unless the context otherwise requires, references to the “Company,” “we,” “our”“our,” or “us” in this report refer to Ocugen, Inc. and its subsidiaries, and references to “OpCo” refer to Ocugen OpCo, Inc., the Company’s wholly owned subsidiary.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may containcontains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),that involve substantial risks and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about Ocugen and its subsidiaries. These forward-lookinguncertainties. All statements, are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are notother than statements of historical fact,facts contained in this Quarterly Report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, and can be identified by the useobjectives of management are forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends” or “anticipates” or the negative thereof or comparable terminology. Forward-lookingstatements. These statements include discussions of strategy, financial projections, guidanceinvolve known and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions, and statements about the future performance, operations, products and services of Ocugen and its subsidiaries. We caution our stockholdersunknown risks, uncertainties, and other readers not to place undue reliance on such statements.
You should read this report and the documents filed by the Company with the SEC completely and with the understandingimportant factors that may cause our actual future results, mayperformance, or achievements to be materially different from what we currently expect. Our business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actualany future results, and experience may materially differ from those contained in anyperformance, or achievements expressed or implied by the forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," “will,” “would,” or the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties, and other factors, that could cause actual resultsmany of which cannot be predicted with accuracy and experience to differ from those projectedsome of which might not even be anticipated.
The forward-looking statements in this Quarterly Report on Form 10-Q and contained in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 19, 2021 (the "2020 Annual Report") include, but are not limited to:among other things, statements about:
•our estimates regarding expenses, future revenue, capital requirements, and timing and availability of and the risk that Ocugen continues to incur significant losses from operations and continues to incur net losses;need for additional financing;
•our ability to obtain sufficient additional capital to continue to advance our product candidates and our preclinical programs;
•our activities with respect to COVAXIN, our vaccine candidate for the risk that Ocugen may encounter unforeseen expenses, difficulties, complications, delaysprevention of COVID-19, in collaboration with Bharat Biotech International Limited (“Bharat Biotech”), including our plans and other knownexpectations regarding clinical development, manufacturing, pricing, regulatory review and unknown factors;compliance, reliance on third parties, and commercialization, if authorized or approved;
•the extent to which health epidemics and other outbreaks of communicable diseases, including the recent outbreak of a novel strain of the coronavirus which causes a serious respiratory condition known as COVID-19 pandemic, could disrupt Ocugen'sour business and operations;
•the risk that we may be unable to pay our senior promissory notes or other indebtedness when due;
•the uncertainties associated with the clinical development and regulatory authorization or approval of product candidates, including potential delays in the commencement, enrollment, and completion of clinical trials;
•risks related to the inability of the Company to obtain sufficient additional capital to continue to advance these product candidates and its preclinical programs;
•uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom;
•risks related to the failureour ability to realize any value from product candidates and preclinical programs being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market and the risk that products will not achieve broad market acceptance;
•uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom;
•our ability to maintain our collaboration with Bharat Biotech and to establish additional collaborations and/or partnerships;
•our ability to comply with regulatory schemes applicable to our business and other regulatory developments in the United States and foreign countries;
•the performance of third-parties upon which we depend, including third-party contract research organizations, and third-party suppliers, manufacturers, group purchasing organizations, distributors, and logistics providers;
•the pricing and reimbursement of our product candidates, if authorized or approved;
•our ability to obtain and maintain patent protection, or obtain licenses to intellectual property and defend our intellectual property rights against third-parties;
•our ability to maintain our relationships, profitability, and contracts with our key commercial partners;
•our ability to recruit or retain key scientific, technical, commercial, and management personnel or to retain our executive officers;
•our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceutical products, including Good Manufacturing Practice compliance and other relevant regulatory authorities; and
•the other risk factorsmatters discussed under the heading “Risk Factors” contained in the Annual Report on Form 10-K filed with the SEC on March 27, 2020 (the "2019 Annual Report"), in thethis Quarterly Report on Form 10-Q, filed with the SEC on May 8, 2020 Annual Report, and in any other documents Ocugen fileswe file with the SEC.
We may not actually achieve the information appearingplans, intentions, or expectations disclosed in this report is accurate as of its date only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in anyour forward-looking statements, made by us or on our behalf,and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in the 2020 Annual Report, particularly under “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, or investments we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements. Further, any forward-looking statement speaks only
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Solely for convenience, tradenames and trademarks referred to in this Quarterly Report on which it is made. New factors emerge from timeForm 10-Q appear without the ® or TM symbols, but those references are not intended to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those containedindicate, in any forward-looking statements.way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these tradenames or trademarks, as applicable. All writtentradenames, trademarks, and service marks included or oral forward-looking statements attributable to us or any person acting on our behalf made after the date of this report are expressly qualified in their entiretyincorporated by the risk factors and cautionary statements containedreference in this report. Unless legally required, we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances afterQuarterly Report on Form 10-Q are the dateproperty of this report or to reflect the occurrence of unanticipated events.their respective owners.
OCUGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
| | | June 30,
2020 | | December 31,
2019 | | March 31, 2021 | | December 31, 2020 |
| Assets | Assets | | | | Assets | | | |
| Current assets | Current assets | | Current assets | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 14,968,161 | | | $ | 7,444,052 | | Cash and cash equivalents | $ | 44,792 | | | $ | 24,039 | |
| Advance for COVAXIN supply | | Advance for COVAXIN supply | 4,988 | | | 0 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 924,500 | | | 1,322,167 | | Prepaid expenses and other current assets | 1,576 | | | 1,839 | |
| Asset held for sale | 7,000,000 | | | 7,000,000 | | |
| | Total current assets | Total current assets | 22,892,661 | | | 15,766,219 | | Total current assets | 51,356 | | | 25,878 | |
| Property and equipment, net | Property and equipment, net | 232,354 | | | 222,464 | | Property and equipment, net | 762 | | | 633 | |
| Restricted cash | Restricted cash | 151,157 | | | 151,016 | | Restricted cash | 151 | | | 151 | |
| Other assets | Other assets | 482,711 | | | 667,747 | | Other assets | 1,578 | | | 714 | |
| Total assets | Total assets | $ | 23,758,883 | | | $ | 16,807,446 | | Total assets | $ | 53,847 | | | $ | 27,376 | |
| Liabilities and stockholders’ equity | Liabilities and stockholders’ equity | | | | Liabilities and stockholders’ equity | | | |
| Current liabilities | Current liabilities | | Current liabilities | |
| Accounts payable | Accounts payable | $ | 507,864 | | | $ | 1,895,613 | | Accounts payable | $ | 1,040 | | | $ | 395 | |
| Accrued expenses | 2,084,915 | | | 2,270,045 | | |
| Accrued expenses and other current liabilities | | Accrued expenses and other current liabilities | 2,703 | | | 2,941 | |
| Short-term debt, net | Short-term debt, net | 4,068,176 | | | — | | Short-term debt, net | 374 | | | 234 | |
| Operating lease obligation | Operating lease obligation | 175,538 | | | 172,310 | | Operating lease obligation | 164 | | | 44 | |
| Other current liabilities | 204,860 | | | 205,991 | | |
| Total current liabilities | Total current liabilities | 7,041,353 | | | 4,543,959 | | Total current liabilities | 4,281 | | | 3,614 | |
| Non-current liabilities | Non-current liabilities | | Non-current liabilities | |
| Operating lease obligation, less current portion | Operating lease obligation, less current portion | 75,577 | | | 163,198 | | Operating lease obligation, less current portion | 1,375 | | | 389 | |
| Long term debt, net | Long term debt, net | 2,018,926 | | | 1,072,123 | | Long term debt, net | 1,702 | | | 1,823 | |
| Other non-current liabilities | — | | | 9,755 | | |
| | Total non-current liabilities | Total non-current liabilities | 2,094,503 | | | 1,245,076 | | Total non-current liabilities | 3,077 | | | 2,212 | |
| Total liabilities | Total liabilities | 9,135,856 | | | 5,789,035 | | Total liabilities | 7,358 | | | 5,826 | |
| Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | | | Commitments and contingencies (Note 11) | 0 | | 0 |
| Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
| Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized; 7 issued and outstanding at June 30, 2020 and December 31, 2019 | — | | | — | | |
| Common stock; $0.01 par value; 200,000,000 authorized; 135,128,144 and 52,746,728 shares issued at June 30, 2020 and December 31, 2019, respectively; 135,006,644 and 52,625,228 shares outstanding at June 30, 2020 and December 31, 2019, respectively | 1,351,281 | | | 527,467 | | |
| Treasury Stock, at cost, 121,500 shares at June 30, 2020 and December 31, 2019 | (47,864) | | | (47,864) | | |
| Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized at March 31, 2021 and December 31, 2020 | | Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized at March 31, 2021 and December 31, 2020 | |
| Series A; 7 issued and outstanding at March 31, 2021 and December 31, 2020 | | Series A; 7 issued and outstanding at March 31, 2021 and December 31, 2020 | 0 | | | 0 | |
| Series B; 54,745 and 0 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | | Series B; 54,745 and 0 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 1 | | | 0 | |
| Common stock; $0.01 par value; 200,000,000 authorized; 188,277,852 and 184,133,384 shares issued at March 31, 2021 and December 31, 2020, respectively; 188,156,352 and 184,011,884 shares outstanding at March 31, 2021 and December 31, 2020, respectively | | Common stock; $0.01 par value; 200,000,000 authorized; 188,277,852 and 184,133,384 shares issued at March 31, 2021 and December 31, 2020, respectively; 188,156,352 and 184,011,884 shares outstanding at March 31, 2021 and December 31, 2020, respectively | 1,883 | | | 1,841 | |
| Treasury stock, at cost, 121,500 shares at March 31, 2021 and December 31, 2020 | | Treasury stock, at cost, 121,500 shares at March 31, 2021 and December 31, 2020 | (48) | | | (48) | |
| Additional paid-in capital | Additional paid-in capital | 72,357,228 | | | 62,018,632 | | Additional paid-in capital | 125,032 | | | 93,059 | |
| Accumulated deficit | Accumulated deficit | (59,037,618) | | | (51,479,824) | | Accumulated deficit | (80,379) | | | (73,302) | |
| Total stockholders’ equity | Total stockholders’ equity | 14,623,027 | | | 11,018,411 | | Total stockholders’ equity | 46,489 | | | 21,550 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 23,758,883 | | | $ | 16,807,446 | | Total liabilities and stockholders’ equity | $ | 53,847 | | | $ | 27,376 | |
See accompanying notes to condensed consolidated financial statements.
OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | | | | | | |
| Collaboration revenue | $ | 42,620 | | | $ | — | | | $ | 42,620 | | | $ | — | |
| Total revenues | 42,620 | | | — | | | 42,620 | | | — | |
| Operating expenses | | | | | | | |
| Research and development | 1,629,869 | | | 1,240,047 | | | 3,282,187 | | | 5,033,069 | |
| | | | | | | |
| General and administrative | 1,779,016 | | | 1,088,477 | | | 4,055,800 | | | 2,136,497 | |
| Total operating expenses | 3,408,885 | | | 2,328,524 | | | 7,337,987 | | | 7,169,566 | |
| Loss from operations | (3,366,265) | | | (2,328,524) | | | (7,295,367) | | | (7,169,566) | |
| Other income (expense) | | | | | | | |
| Change in fair value of derivative liabilities | — | | | (608,149) | | | — | | | (1,384,422) | |
| Loss on debt conversion | — | | | (341,136) | | | — | | | (341,136) | |
| Interest income | 433 | | | 377 | | | 552 | | | 971 | |
| Interest expense | (248,143) | | | (261,562) | | | (262,892) | | | (957,031) | |
| Other income (expense) | — | | | 184 | | | (87) | | | (232) | |
| Total other income (expense) | (247,710) | | | (1,210,286) | | | (262,427) | | | (2,681,850) | |
| Net loss | $ | (3,613,975) | | | $ | (3,538,810) | | | $ | (7,557,794) | | | $ | (9,851,416) | |
| Deemed dividend related to Warrant Exchange | (12,546,340) | | | — | | | (12,546,340) | | | — | |
| Net loss to common stockholders | $ | (16,160,315) | | | $ | (3,538,810) | | | $ | (20,104,134) | | | $ | (9,851,416) | |
| | | | | | | |
| Shares used in calculating net loss per common share — basic and diluted | 83,537,463 | | | 6,067,401 | | | 68,082,346 | | | 5,461,576 | |
| Net loss per share of common stock — basic and diluted | $ | (0.19) | | | $ | (0.58) | | | $ | (0.30) | | | $ | (1.80) | |
| | | | | | | |
| Net loss | $ | (3,613,975) | | | $ | (3,538,810) | | | $ | (7,557,794) | | | $ | (9,851,416) | |
| Other comprehensive income (loss) | | | | | | | |
| Foreign currency translation adjustment | — | | | (169) | | | — | | | (451) | |
| Comprehensive loss | $ | (3,613,975) | | | $ | (3,538,979) | | | $ | (7,557,794) | | | $ | (9,851,867) | |
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Operating expenses | | | | | | | |
| Research and development | $ | 2,872 | | | $ | 1,652 | | | | | |
| | | | | | | |
| General and administrative | 4,185 | | | 2,277 | | | | | |
| Total operating expenses | 7,057 | | | 3,929 | | | | | |
| Loss from operations | (7,057) | | | (3,929) | | | | | |
| Other income (expense) | | | | | | | |
| | | | | | | |
| Interest expense | (20) | | | (15) | | | | | |
| | | | | | | |
| Total other income (expense) | (20) | | | (15) | | | | | |
| Net loss and comprehensive loss | $ | (7,077) | | | $ | (3,944) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Shares used in calculating net loss per common share — basic and diluted | 186,298,122 | | | 52,627,228 | | | | | |
| Net loss per share of common stock — basic and diluted | $ | (0.04) | | | $ | (0.07) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes to condensed consolidated financial statements.
OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | | | | Treasury Stock | | Additional
Paid-in Capital | | Accumulated
Other
Comprehensive Income | | Accumulated
Deficit | | Total |
| | | | | Shares | | Amount | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | 52,746,728 | | | $ | 527,467 | | | $ | (47,864) | | | $ | 62,018,632 | | | $ | — | | | $ | (51,479,824) | | | $ | 11,018,411 | |
| Stock-based compensation expense | | | | | — | | | — | | | — | | | 222,513 | | | — | | | — | | | 222,513 | |
| Net loss | | | | | — | | | — | | | — | | | — | | | — | | | (3,943,819) | | | (3,943,819) | |
| Balance at March 31, 2020 | | | | | 52,746,728 | | | $ | 527,467 | | | $ | (47,864) | | | $ | 62,241,145 | | | $ | — | | | $ | (55,423,643) | | | $ | 7,297,105 | |
| Stock-based compensation expense | | | | | — | | | — | | | — | | | 149,209 | | | — | | | — | | | 149,209 | |
| Warrant Exchange | | | | | 21,920,820 | | | 219,208 | | | — | | | (5,197,084) | | | — | | | — | | | (4,977,876) | |
| Issuance of common stock for subscription agreements and warrant exercises | | | | | 1,328,405 | | | 13,284 | | | — | | | 318,472 | | | — | | | — | | | 331,756 | |
| At-the-market common stock issuance, net of $0.7 million of commissions and equity issuance costs | | | | | 59,132,191 | | | 591,322 | | | — | | | 14,845,486 | | | — | | | — | | | 15,436,808 | |
| Net loss | | | | | — | | | — | | | — | | | — | | | — | | | (3,613,975) | | | (3,613,975) | |
| Balance at June 30, 2020 | | | | | 135,128,144 | | | $ | 1,351,281 | | | $ | (47,864) | | | $ | 72,357,228 | | | $ | — | | | $ | (59,037,618) | | | $ | 14,623,027 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Convertible Preferred Stock | | Series B Convertible Preferred Stock | | Common Stock | | Treasury Stock | | Additional
Paid-in Capital | | | | Accumulated
Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at December 31, 2020 | 7 | | | $ | 0 | | | 0 | | | $ | 0 | | | 184,133,384 | | | $ | 1,841 | | | $ | (48) | | | $ | 93,059 | | | | | $ | (73,302) | | | $ | 21,550 | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 833 | | | | | — | | | 833 | |
| Issuance of common stock for option exercises | — | | | — | | | — | | | — | | | 157,468 | | | 2 | | | — | | | 174 | | | | | — | | | 176 | |
| At-the-market common stock issuance, net | — | | | — | | | — | | | — | | | 987,000 | | | 10 | | | — | | | 4,839 | | | | | — | | | 4,849 | |
| Registered direct offering common stock issuance, net | — | | | — | | | — | | | — | | | 3,000,000 | | | 30 | | | — | | | 21,174 | | | | | — | | | 21,204 | |
| Series B Convertible Preferred Stock issuance, net | — | | | — | | | 54,745 | | | 1 | | | — | | | — | | | — | | | 4,953 | | | | | — | | | 4,954 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | (7,077) | | | (7,077) | |
| Balance at March 31, 2021 | 7 | | | $ | 0 | | | 54,745 | | | $ | 1 | | | 188,277,852 | | | $ | 1,883 | | | $ | (48) | | | $ | 125,032 | | | | | $ | (80,379) | | | $ | 46,489 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Treasury Stock | | Additional
Paid-in Capital | | Accumulated
Other
Comprehensive Income | | Accumulated
Deficit | | Total |
| Shares | | Amount | | | | | | | | | | |
| Balance at December 31, 2018 | 4,960,552 | | | $ | 49,606 | | | $ | — | | | $ | 18,477,598 | | | $ | 451 | | | $ | (31,237,194) | | | $ | (12,709,539) | |
| Stock-based compensation expense | — | | | — | | | — | | | 415,202 | | | — | | | — | | | 415,202 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (282) | | | — | | | (282) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (6,312,606) | | | (6,312,606) | |
| Balance at March 31, 2019 | 4,960,552 | | | $ | 49,606 | | | $ | — | | | $ | 18,892,800 | | | $ | 169 | | | $ | (37,549,800) | | | $ | (18,607,225) | |
| Stock-based compensation expense | — | | | — | | | — | | | 111,807 | | | — | | | — | | | 111,807 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (169) | | | — | | | (169) | |
| Conversion of debt | 1,125,673 | | | 11,257 | | | — | | | 13,968,532 | | | — | | | — | | | 13,979,789 | |
| Equity transactions | 157,743 | | | 1,577 | | | — | | | 1,947,308 | | | — | | | — | | | 1,948,885 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (3,538,810) | | | (3,538,810) | |
| Balance at June 30, 2019 | 6,243,968 | | | $ | 62,440 | | | $ | — | | | $ | 34,920,447 | | | $ | — | | | $ | (41,088,610) | | | $ | (6,105,723) | |
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| Series A Convertible Preferred Stock | | Series B Convertible Preferred Stock | | Common Stock | | Treasury Stock | | Additional
Paid-in Capital | | | | Accumulated
Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at December 31, 2019 | 7 | | | $ | 0 | | | 0 | | | $ | 0 | | | 52,746,728 | | | $ | 528 | | | $ | (48) | | | $ | 62,019 | | | | | $ | (51,480) | | | $ | 11,019 | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 222 | | | | | — | | | 222 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | (3,944) | | | (3,944) | |
| Balance at March 31, 2020 | 7 | | | $ | 0 | | | 0 | | | $ | 0 | | | 52,746,728 | | | $ | 528 | | | $ | (48) | | | $ | 62,241 | | | | | $ | (55,424) | | | $ | 7,297 | |
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See accompanying notes to condensed consolidated financial statements.
OCUGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| | | Six months ended June 30, | | | Three months ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash flows from operating activities | Cash flows from operating activities | | | | Cash flows from operating activities | | | |
| Net loss | Net loss | $ | (7,557,794) | | | $ | (9,851,416) | | Net loss | $ | (7,077) | | | $ | (3,944) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | |
| Depreciation expense | Depreciation expense | 37,760 | | | 19,259 | | Depreciation expense | 44 | | | 18 | |
| Non-cash interest expense | Non-cash interest expense | 262,892 | | | 937,772 | | Non-cash interest expense | 20 | | | 15 | |
| Non-cash lease expense | Non-cash lease expense | 95,392 | | | 154,969 | | Non-cash lease expense | 68 | | | 48 | |
| | Change in fair value of derivative liability | — | | | 1,384,422 | | |
| Stock-based compensation expense | Stock-based compensation expense | 371,722 | | | 527,009 | | Stock-based compensation expense | 833 | | | 222 | |
| Loss on debt conversion | — | | | 341,136 | | |
| Other non-cash | (165,609) | | | — | | |
| | Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | 498,836 | | | (32,986) | | Prepaid expenses and other assets | 493 | | | 228 | |
| Other assets | — | | | (25,000) | | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | (1,219,887) | | | 653,767 | | Accounts payable and accrued expenses | 405 | | | (1,225) | |
| Lease obligations | Lease obligations | (95,918) | | | (139,857) | | Lease obligations | (69) | | | (48) | |
| Net cash used in operating activities | Net cash used in operating activities | (7,772,606) | | | (6,030,925) | | Net cash used in operating activities | (5,283) | | | (4,686) | |
| Cash flows from investing activities | Cash flows from investing activities | | Cash flows from investing activities | |
| Purchase of property and equipment | Purchase of property and equipment | (34,458) | | | (2,067) | | Purchase of property and equipment | (261) | | | (53) | |
| Payment of reverse asset acquisition costs | — | | | (130,000) | | |
| Net cash used in investing activities | Net cash used in investing activities | (34,458) | | | (132,067) | | Net cash used in investing activities | (261) | | | (53) | |
| Cash flows from financing activities | Cash flows from financing activities | | Cash flows from financing activities | |
| Financing lease principal payments | Financing lease principal payments | (11,928) | | | (1,021) | | Financing lease principal payments | (6) | | | (6) | |
| Proceeds from issuance of common stock | Proceeds from issuance of common stock | 16,160,239 | | | 1,000,000 | | Proceeds from issuance of common stock | 28,125 | | | 0 | |
| Payment of equity issuance costs | Payment of equity issuance costs | (592,952) | | | — | | Payment of equity issuance costs | (1,822) | | | 0 | |
| Proceeds from issuance of debt | Proceeds from issuance of debt | 921,415 | | | 4,300,000 | | Proceeds from issuance of debt | 0 | | | 500 | |
| Payments of debt issuance costs | Payments of debt issuance costs | (5,740) | | | (85,233) | | Payments of debt issuance costs | 0 | | | (6) | |
| Repayments of debt | (1,139,720) | | | — | | |
| Net cash provided by financing activities | Net cash provided by financing activities | 15,331,314 | | | 5,213,746 | | Net cash provided by financing activities | 26,297 | | | 488 | |
| Effect of changes in exchange rate on cash | — | | | (99) | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 7,524,250 | | | (949,345) | | |
| Cash, cash equivalents and restricted cash at beginning of period | 7,595,068 | | | 1,778,613 | | |
| Cash, cash equivalents and restricted cash at end of period | $ | 15,119,318 | | | $ | 829,268 | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | Net increase (decrease) in cash, cash equivalents, and restricted cash | 20,753 | | | (4,251) | |
| Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 24,190 | | | 7,595 | |
| Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 44,943 | | | $ | 3,344 | |
| Supplemental disclosure of non-cash transactions: | Supplemental disclosure of non-cash transactions: | | | | Supplemental disclosure of non-cash transactions: | | | |
| Issuance of Warrant Exchange Promissory Notes | $ | 5,625,000 | | | $ | — | | |
| Obligation settled with common stock | $ | 331,218 | | | $ | — | | |
| Conversion of convertible notes | $ | — | | | $ | 13,979,788 | | |
| Deferred transaction costs | $ | — | | | $ | 1,937,100 | | |
| Series B Convertible Preferred Stock issuance | | Series B Convertible Preferred Stock issuance | $ | 4,988 | | | $ | 0 | |
| Equity issuance costs | | Equity issuance costs | $ | 108 | | | $ | 0 | |
| Purchase of property and equipment | | Purchase of property and equipment | $ | 44 | | | $ | 0 | |
| Right-of-use asset related to operating leases | Right-of-use asset related to operating leases | $ | — | | | $ | 470,356 | | Right-of-use asset related to operating leases | $ | 926 | | | $ | 0 | |
| Deferred equity issuance costs | $ | 130,074 | | | $ | 152,157 | | |
See accompanying notes to condensed consolidated financial statements.
OCUGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business
Ocugen, Inc. (formerly known as Histogenics Corporation), together with its wholly owned subsidiaries (“Ocugen” or the “Company”), is a biopharmaceutical company focused on discovering, developing and commercializing transformativegene therapies to cure blindness diseases.diseases and developing a vaccine to save lives from COVID-19. The Company is located in Malvern, Pennsylvania, and manages its business as 1 operating segment.
OcugenCOVID-19 Vaccine
In February 2021, the Company entered into a Co-Development, Supply and Commercialization Agreement (the "Covaxin Agreement") with Bharat Biotech International Limited ("Bharat Biotech"), pursuant to which the Company obtained an exclusive right and license under certain of Bharat Biotech's intellectual property rights, with the right to grant sublicenses to develop, manufacture, and commercialize COVAXIN for the prevention of COVID-19 in humans in the United States, its territories and possessions (the “Ocugen Covaxin Territory”). COVAXIN is a whole-virion inactivated COVID-19 vaccine candidate and is formulated with the inactivated SARS-CoV-2 virus, an antigen, and an adjuvant. COVAXIN requires a 2-dose vaccination regimen given 28 days apart and is stored in standard vaccine storage conditions (2-8°C).
COVAXIN has been granted approval for emergency use in India and millions have been dosed to date. The Phase 1 and Phase 2 clinical trials conducted in India reported strong Immunoglobulin G ("IgG") responses against the spike protein, receptor-binding domain ("RBD"), and the nucleocapsid protein of the SARS-CoV-2 virus, along with strong cellular responses. Strong cellular responses are necessary for memory and long-term durability of vaccines. Both the Phase 1 and Phase 2 clinical trials were published in the Lancet. Bharat Biotech is currently conducting a Phase 3 clinical trial in India. Enrollment in the Phase 3 clinical trial is complete. In April 2021, COVAXIN demonstrated positive results in the second interim analysis of the Phase 3 clinical trial showing a vaccine efficacy in mild, moderate, and severe COVID-19 disease of 78%, efficacy against severe COVID-19 disease alone of 100%, and efficacy against asymptomatic COVID-19 infection of 70%. The 78% efficacy result represents a point estimate of vaccine efficacy with a 95% confidence interval of 61% to 88% against mild, moderate, and severe COVID-19 disease. In an in vitro study conducted by the Indian Council of Medical Research ("ICMR")-National Institute of Virology, COVAXIN demonstrated potential effectiveness against the Brazilian variant of SARS-CoV-2, B.1.1.28.2, which contains the E484K mutation found in New York. An additional in vitro study conducted by the ICMR-National Institute of Virology suggested that COVAXIN was effective against the U.K. variant, B.1.1.7, as well as the Indian double mutant variant, B.1.617. These studies suggest that COVAXIN vaccination may be effective against infection from multiple SARS-CoV-2 variants.
The Company is currently evaluating the clinical and regulatory path for COVAXIN in the United States including obtaining Emergency Use Authorization ("EUA") from the U.S. Food and Drug Administration (the "FDA") and, eventually, biologic license application (“BLA”) approval in the United States, as well as the Company's commercialization strategy, if authorized or approved. The Company has initiated discussions with the FDA regarding the development of COVAXIN and EUA. Consistent with the FDA guidance document on EUA for vaccines to prevent COVID-19, the company has submitted key information and data to date (including preclinical studies, chemistry, manufacturing, and controls ("CMC"), and clinical studies) as a “Master File” for FDA review and input prior to a planned EUA submission. The Company is currently waiting for additional data from Bharat Biotech from the ongoing Phase 3 clinical trial for an EUA submission. See Note 3 for additional information about the terms, rights, and obligations under the Covaxin Agreement.
Modifier Gene Therapy Platform
The Company is developing a breakthrough modifier gene therapy platform to generate therapies designed to fulfill unmet medical needs in the area of retinal diseases, including inherited retinal diseases ("IRDs") and dry age-related macular degeneration ("AMD"). Ocugen'sThe Company's modifier gene therapy platform is based on nuclear hormone receptors ("NHRs"(“NHRs”), which have the potential to restore homeostasis, the basic biological processes in the retina. Unlike single-gene replacement therapies, which only target one1 genetic mutation, Ocugenthe Company believes that its gene therapy platform, through its use of NHRs, represents a novel approach in that it may address multiple retinal diseases with one1 product.
Ocugen'sThe Company believes that OCU400, its first product candidate being developed with its modifier gene therapy candidate, OCU400, is being developedplatform, has the potential to treatbe broadly effective in restoring retinal integrity and function across a range of genetically diverse IRDs, including retinitis pigmentosa ("RP"), a group of rare genetic disorders that involves a breakdown and loss of cells in the retina and can lead to visual impairment and blindness. Ocugenleber congenital amaurosis ("LCA"). OCU400 has received 4 Orphan Drug
Designations ("ODDs") from the Food and Drug Administration ("FDA")FDA for the treatment of certain disease genotypes: nuclear receptor subfamily 2 group E member 3 ("NR2E3"), centrosomal protein 290 ("CEP290"), rhodopsin ("RHO"), and phosphodiesterase 6B ("PDE6BPDE6ß") mutation-associated RP.inherited retinal degenerations. The third ODD, for the RHO mutation, was received in late July 2020. The fourth ODD, for the PDE6B mutation, was received in early August 2020. OcugenCompany is planning to initiate 2 Phase 1/2a clinical trials for OCU400 in the United States in the second half of 2021. Ocugen'sOCU400 additionally received Orphan Medicinal Product Designation ("OMPD") from the European Commission ("EC"), based on the recommendation of the European Medicines Agency ("EMA"), for RP and LCA in February 2021, which the Company believes further supports the potential broad spectrum application of OCU400 to treat many IRDs. The Company is currently evaluating options to commence OCU400 clinical trials in Europe in 2022. The Company's second gene therapy candidate, OCU410, is being developed to utilize the nuclear receptor genes RAR-related orphan receptor A ("RORA") for the treatment of dry AMD. This candidate is currently in preclinical development. The Company is planning to initiate a Phase 1/2a clinical trial for OCU410 in 2022.
OcugenNovel Biologic Therapy for Retinal Diseases
The Company is also conducting preclinical development for a novelits biologic product candidate, OCU200. OCU200 is a novel fusion protein designed to treat diabetic macular edema ("DME"), diabetic retinopathy ("DR"), and wet AMD. OcugenThe Company had a pre-Investigational New Drug ("IND") meeting with the FDA in November 2020 and received guidance on IND-enabling preclinical studies to support the Phase 1/2a study. The Company expects to initiate IND-enabling preclinical studies for OCU200 in 2021 and plans to initiate a Phase 1/2a clinical trial for OCU200 in the first half of 2022 and plans to expand the therapeutic applications of OCU200 beyond DME, DR and wet AMD to potentially include macular edema following retinal vein occlusion and myopic choroidal neovascularization.
Ocugen was developing OCU300, a small molecule therapeutic for the treatment of symptoms associated with ocular graft versus-host disease. On June 1, 2020, Ocugen announced that it had discontinued the Phase 3 trial of OCU300 based on results of a pre-planned interim sample size analysis conducted by an independent Data Monitoring Committee, which indicated the trial was unlikely to meet its co-primary endpoints upon completion. The trial was not stopped based on safety concerns. Ocugen is no longer pursuing the development of this product candidate.
Merger with Histogenics
On September 27, 2019, the Company completed its reverse merger with Ocugen OpCo, Inc. (“OpCo”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of April 5, 2019, by and among Histogenics Corporation ("Histogenics"), OpCo and Restore Merger Sub, Inc., a wholly owned subsidiary of Histogenics (“Merger Sub”), as amended (the “Merger Agreement”), pursuant to which Merger Sub merged with and into OpCo, with OpCo surviving as a wholly owned subsidiary of Histogenics (the “Merger”). Immediately after completion of the Merger, Histogenics changed its name to Ocugen, Inc. and the business conducted by Ocugen, Inc. became the business conducted by OpCo. OpCo is deemed to be the accounting acquirer. Accordingly, the historical financial statements of OpCo became the Company’s historical financial statements, including the comparative prior periods. See Note 3 for additional information.
Reverse Stock Split
In connection with, and immediately prior to the completion of the Merger, Histogenics effected a reverse stock split of the common stock, at a ratio of 1-for-60 (the ‘‘Reverse Stock Split’’). Under the terms of the Merger Agreement, the Company issued common stock to OpCo’s stockholders at an exchange rate of 0.4794 shares of common stock, after taking into account the Reverse Stock Split, for each share of OpCo’s common stock outstanding immediately prior to the Merger.
The capital structure, including the number of shares of common stock issued appearing in the condensed consolidated balance sheets for the periods presented, reflects that of Ocugen. All references in the condensed consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the exchange rate.
Going Concern
The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock, warrants to purchase common stock, the issuance of convertible notes, debt, and grant proceeds. The Company incurred net losses of approximately $7.6 million and $9.9 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company had an accumulated deficit of $59.0 million and cash, cash equivalents and restricted cash totaling $15.1 million.
The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in its industry. The Company intends to continue its research and development efforts for its product candidates, which will require significant funding. If the Company is unable to obtain additional financing in the future or research and development efforts require higher than anticipated capital, there may be a negative impact on the financial viability of the Company. The Company plans to increase working capital by raising additional capital through public and private placements of equity and/or debt, payments from potential strategic research and development arrangements, sale of assets, and licensing and/or collaboration arrangements with pharmaceutical companies or other institutions. Such financing may not be available at all, or on terms that are favorable to the Company. While management of the Company believes that it has a plan to fund ongoing operations, its plan may not be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or appropriately manage certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives.
As a result of these factors, together with the anticipated increase in spending that will be necessary to continue to develop the Company’s product candidates, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.2022.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim reporting. The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosures of the Company normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted under the SEC’s rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2019,2020, included in the Company's Annual Report on Form 10-K forfiled with the fiscal year ended December 31, 2019SEC on March 19, 2021 (the "2019"2020 Annual Report").
The condensed consolidated financial statements include the accounts of Ocugen, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with current period presentation.
Use of Estimates
In preparing the condensed consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions primarily include those used in the accounting for clinical trialresearch and development accruals warrant transactions, asset held for sale, and the valuationfair value measurement of debt and equity instruments, including embedded derivatives and stock-based compensation.
Collaboration Arrangements
The Company assesses whether collaboration agreements are subject to the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 808, Collaborative Arrangements (“ASC 808”), based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and the collaboration partner are subject to other accounting literature. If payments from the collaboration partner represent consideration from a customer, the Company accounts for those payments within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). However, if the Company concludes that its collaboration partner is not a customer, the Company will determine if analogy to other authoritative literature is appropriate.
During the three months ended June 30, 2020, the Company entered into a collaboration agreement subject to ASC 808. Under this arrangement, the Company records cost reimbursements received as a reduction of research and development expense in the period incurred andrecord royalty payments received as collaboration revenue in the period in which the underlying sale occurs. See Note 5 for additional information.occurs and record expenses and expense reimbursements as either research and
development expense or general and administrative expense, or a reduction thereof, based on the underlying nature of the expense or expense reimbursement.
Exit and Disposal Activities
The Company records liabilities for one-time termination benefits in accordance with FASB ASC Topic 420, Exit and Disposal Cost Obligations ("ASC 420"). In accordance with ASC 420, an arrangement for one-time termination benefits exists at the date the plan of the termination meets the following criteria: (i) management commits to a plan of termination, (ii) the plan identifies the impacted employees and expected completion date, (iii) the plan identifies the terms of the benefits arrangement, (iv) it is unlikely significant changes to the plan will be made or the plan will be withdrawn, and (v) the plan has been communicated to employees. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits, are recognized ratably over the future service period.
The Company records liabilities for employee termination benefits covered by ongoing benefit arrangements in accordance with FASB ASC Topic 712, Compensation—Nonretirement Postemployment Benefits ("ASC 712"). In accordance with ASC 712, costs for termination benefits under ongoing benefits arrangements are recognized when management has committed to a plan of termination and the costs are probable and estimable.
Severance-related charges, once incurred, are recognized as either research and development expense or general and administrative expense within the condensed consolidated statements of operations and comprehensive loss depending on the job function of the employee.
Asset Held for Sale
An asset is considered to be held for sale when all of the following criteria are met: (i) management commits to a plan to sell the asset; (ii) it is unlikely that the disposal plan will be significantly modified or discontinued; (iii) the asset is available for immediate sale in its present condition; (iv) actions required to complete the sale of the asset have been initiated; (v) sale of the asset is probable and the completed sale is expected to occur within one year; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its current market value.
A long-lived asset classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell. If the long-lived asset is newly acquired, the carrying amount of the long-lived asset is established based on its fair value less cost to sell at the acquisition date. A long-lived asset is not depreciated or amortized while it is classified as held for sale, and an impairment loss would be recognized to the extent the carrying amount exceeds the asset's fair value less cost to sell.
As of June 30, 2020 and December 31, 2019, Ocugen had an intangible asset held for sale acquired from Histogenics. The intangible asset qualified as held for sale as of the date of the reverse asset acquisition and is carried at its original fair value less cost to sell of $7.0 million. See Note 3 for additional information.
Fair Value Measurements
The company follows the provisions of the FASB ASC Topic 820, Fair Value Measurements (“ASC 820”), which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair measurements.
The carrying value of certain financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses approximates their fair values due to the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company had derivative instruments that were fair valued on a recurring basis using Level 3 inputs during the three and six months ended June 30, 2019. There were no derivative instruments fair valued on a recurring basis using Level 3 inputs during the three and six months ended June 30, 2020. As of June 30, 2020, the Company estimates the fair value of the note with EB5 Life Sciences, L.P. was $1.0 million using Level 2 inputs. As of June 30, 2020,March 31, 2021, the Company believes the fair values using Level 2 inputs of both the Warrant Exchange Promissory Notes (asPPP Note and the borrowings under the EB-5 Loan Agreement (both as defined in Note 9) and the loan received under the PPP of the CARES Act (as defined in Note 9)7) approximate their carrying values. See Note 97 for additional information.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper, and United StatesU.S. government and United StatesU.S. government agency obligations. The Company’s restricted cash balance consists of cash held to collateralize a corporate credit card account.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:flows (in thousands):
| | | As of June 30, | | | As of March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 14,968,161 | | | $ | 678,492 | | Cash and cash equivalents | $ | 44,792 | | | $ | 3,193 | |
| Restricted cash | Restricted cash | 151,157 | | | 150,776 | | Restricted cash | 151 | | | 151 | |
| Total cash, cash equivalents and restricted cash | $ | 15,119,318 | | | $ | 829,268 | | |
| Total cash, cash equivalents, and restricted cash | | Total cash, cash equivalents, and restricted cash | $ | 44,943 | | | $ | 3,344 | |
Property and Equipment, Net
Property and equipment is recorded at cost. Significant additions or improvements are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Gains and losses on disposal of assets are included in the condensed consolidated statements of operations and comprehensive loss. Depreciation is calculated using the straight-line method and is recognized over the expected useful life of the underlying asset. The Company's property and equipment includes office equipment, lab equipment, leasehold improvements, and a right-of-use asset under a financing lease. The Company's office equipment includes computers and other office technology equipment with a useful life of five years as well as furniture and fixtures with a useful life of seven years. The Company's lab equipment has a useful life of five years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease term. If a leasehold improvement transfers ownership to the Company at the end of the lease term, the leasehold improvement is amortized over its useful life. The right-of-use asset under the Company's financing lease is amortized over five years, which represents the estimated useful life of the underlying leased equipment.
Leases
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company hasCompany’s current and historical lease agreements which include lease and non-lease components, which the Company has elected not to account for as a single lease componentseparately for all classes of underlying assets. Lease expense for variable lease components areis recognized when the obligation is probable.
Operating leases are included in other assets and operating lease obligations on the Company’s condensed consolidated balance sheets. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term.term and recognized as research and development expense or general and administrative expense based on the underlying nature of the expense. The Company primarily leases real estate and leases for real estate are classified as operating leases. FASB ASC Topic 842, Leases ("ASC 842") requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As anThe implicit interest rate is not readily determinable in the Company’s operating leases therefore the incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Companyan option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed asis probable. Variable lease payments include the Company's proportionate share of certain utilities and other operating expenses and are presented as operating expenses in the Company’s condensed consolidated statements of operations and comprehensive loss in the same line item as expense arising from fixed lease payments.
Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Compensation — Stock Compensation (“ASC 718”). The Company has issued stock-based compensation awards consisting of stock options and restricted stock units ("RSUs"). ASC 718 requires all stock-based payments, to employees, including grants of employee stock options and restricted stock units and modifications to existing agreements,RSUs to be recognized in the condensed consolidated statements of operations and comprehensive loss based on their grant date fair values. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options granted. For RSUs, the fair value of the RSUs is determined by the Company’s market price of a share of common stock at the grant date. The Company recognizes forfeitures as they occur.
The Company’s stock-based awards are subject to service-based vesting conditions. Compensation expense related to awards to employees and directorsgranted with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Stock-based awards generally vest over a one to three year requisite service period and have a contractual term of 10 years. Shares issued upon stock option exercise are newly issued common shares.
Estimating the fair value of options requires the input of subjective assumptions, including the expected life of the option, stock price volatility, the risk-free interest rate, and expected dividends. The assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties, and assumptions, and the application of management’s judgment, as they are inherently subjective. If any assumptions change, the Company’s stock-based compensation expense could be materially different in the future.
Recently Adopted Accounting Standards
In August 2018,December 2019, the FASB issued Accounting Standards Update ("ASU") No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements and was effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company's disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, ASC 606 guidance should be applied, including recognition, measurement, presentation and disclosure requirements. The standard adds unit-of-account guidance to ASC 808 to align with the guidance in ASC 606 when an entity is assessing whether the collaborative arrangement or a part of the collaborative arrangement is within the scope of ASC 606. The standard also precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue from contracts with customers recognized under ASC 606 if the collaborative arrangement participant is not a customer. This standard was effective for the Company on January 1, 2020. Consistent with the guidance in this standard, the Company assesses whether collaboration arrangements are within the scope of ASC 606. For collaboration arrangements that are not within the scope of ASC 606, applicable transactions with collaborative arrangement participants are presented as collaboration revenue rather than revenue from contracts with customers. See above and Note 5 for additional information.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective
date and transition date of January 1, 2023. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company does not currently expect the adoption of these standards to have a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.Taxes This standard will have an effective date and transition date of January 1, 2021.. This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocations, and calculating income taxes in interim periods. This standard also adds guidance to reduce complexity in certain areas, including recognizing franchise tax, recognizing deferred taxes for tax goodwill, allocating taxes to the members of a consolidated group, and recognizing the effect of enacted changes in tax laws or rates during an interim period. TheThis standard was effective for the Company does not currently expect theon January 1, 2021. The adoption of this standard todid not have a material impact on itsthe Company's condensed consolidated financial statements.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Hedging — Contracts in Entity's Own Equity (Subtopic 815-40). This standard will have an effective and transition date of January 1, 2024. Early adoption is permitted beginning January 1, 2021.currently permitted. This standard simplifies an issuer's accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features as well as simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. This standard also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. The standard requires new disclosures about events that occur during the reporting period and cause conversion contingencies to be met and about the fair value of a public business entity's convertible debt at the instrument level, among other things. The Company isdoes not currently evaluating the impact ofexpect the adoption of this standard to have a material impact on itsthe Company's condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU No. 2016-13, which have the same effective date and transition date of January 1, 2023. These require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company does not currently expect the adoption of these standards to have a material impact on the Company's condensed consolidated financial statements.
3. MergerLicense and FinancingDevelopment Agreements
Pre-Merger Financing
In June 2019, OpCo and HistogenicsFebruary 2021, the Company entered into the Covaxin Agreement with Bharat Biotech to co-develop COVAXIN, a Securities Purchase Agreement (as amended,whole-virion inactivated COVID-19 vaccine being developed to prevent COVID-19 infection, for the "Financing SPA") with certain accredited investors (the "Investors").U.S. market. Pursuant to the Financing SPA, amongCovaxin Agreement, the Company obtained an exclusive right and license under certain of Bharat Biotech’s intellectual property rights, with the right to grant sublicenses, to develop, manufacture, and commercialize COVAXIN in the Ocugen Covaxin Territory. In consideration of the license and other things, (i) immediately priorrights granted by Bharat Biotech to the Merger, OpCo issued 2.2 million sharesCompany, the parties agreed to share any profits generated from the commercialization of common stockCOVAXIN in the Ocugen Covaxin Territory, with the Company retaining 45% of such profits, and Bharat Biotech receiving the balance of such profits. The Covaxin Agreement is a collaboration arrangement within the scope of ASC 808.
Under the Covaxin Agreement, the Company and Bharat Biotech will collaborate to develop COVAXIN for their respective territories. Except with respect to U.S. manufacturing rights under certain circumstances as described below, the Company has the exclusive right and is solely responsible for researching, developing, manufacturing, and commercializing COVAXIN for the Ocugen Covaxin Territory. Bharat Biotech has the exclusive right and is solely responsible for researching, developing, manufacturing, and commercializing COVAXIN outside of the Ocugen Covaxin Territory.
Bharat Biotech has agreed to provide to the Investors, (ii) on October 4, 2019,Company all preclinical and clinical data, and to transfer to the Company certain proprietary technology owned or controlled by Bharat Biotech, that is necessary for the successful commercial manufacture and supply of COVAXIN to support commercial sale in the Ocugen Covaxin Territory, including pursuant to any EUA for the Ocugen Covaxin Territory granted by the FDA. In certain circumstances set forth in the Covaxin Agreement, and until the Company is capable and primarily responsible for the manufacture and supply of COVAXIN for the Ocugen Covaxin Territory, Bharat Biotech has the exclusive right to manufacture COVAXIN for the Ocugen Covaxin Territory and is responsible for manufacturing and supplying clinical testing materials required for the Company’s development activities, and all of the Company’s requirements of commercial quantities of COVAXIN. The parties expect to enter into supply agreements setting forth the terms of such supply. Bharat Biotech has agreed to provide a specified minimum number of doses in calendar year 2021. On March 18, 2021, the Company issued 2.2 million shares of Series B Convertible Preferred Stock (as defined in Note 8) as an advance payment for the Company's common stocksupply of COVAXIN to be provided by Bharat Biotech under an expected future supply agreement. See Note 8 for additional information about the Series B Convertible Preferred Stock issuance to Bharat Biotech.
The Covaxin Agreement continues in effect for the commercial life of COVAXIN, subject to the Investors and (iii) on October 4, 2019, the Company issued 3 series of warrants to purchase sharesearlier termination of the Company’s common stock (the “Series A Warrants,” the “Series B Warrants” and the “Series C Warrants” and collectively, the “Pre-Merger Financing Warrants”) in exchange for an aggregate purchase price of $25.0 million. See Note 12 for additional information.
Merger with Histogenics
On September 27, 2019, the Company completed the MergerCovaxin Agreement in accordance with the termsits terms. The Covaxin Agreement also contains customary representations and warranties made by both parties, and customary provisions relating to indemnification, limitation of liability, confidentiality, information and data sharing, and other matters.
4.Property and Equipment
The following table provides a summary of the Merger Agreement. The Merger was structuredmajor components of property and equipment as a stock-for-stock transaction whereby all of OpCo’s outstanding shares of common stock and securities convertible into or exercisable for OpCo’s common stock were converted intoreflected on the right to receive Histogenics’ common stock and securities convertible into or exercisable for Histogenics’ common stock.condensed consolidated balance sheets (in thousands):
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Office equipment | $ | 221 | | | $ | 166 | |
| Lab equipment | 545 | | | 452 | |
| Leasehold improvements | 158 | | | 177 | |
| Financing lease right-of-use asset | 64 | | | 64 | |
| Total property and equipment | 988 | | | 859 | |
| Less: accumulated depreciation | (226) | | | (226) | |
| Total property and equipment, net | $ | 762 | | | $ | 633 | |
In accordance with ASC Topic 805, Business Combinations5. (“ASC 805”),Leases the Company concluded that, while Histogenics was the legal acquirer, OpCo was the accounting acquirer due to the fact that (i) OpCo’s shareholders had the majority of the voting rights in Ocugen, (ii) OpCo held all of the board seats of the combined company and (iii) OpCo management held all key positions in the management of the combined company.
Operating Leases
The Company further concluded that Histogenics did not meethas commitments under an operating lease with WPT Land 2 LP (the “Landlord”) for certain facilities used in its operations including for the definitionuse of laboratory, office, and storage space located in Malvern, Pennsylvania (the “Lease Agreement”). The Lease Agreement was determined to have two lease components per ASC 842, a business under ASC 805 due to the fact that substantially all of the fair value of the gross assets disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets. Therefore, the Merger was accounted for as a reverse asset acquisition.
In connection with the Merger, on May 8, 2019, Histogenics entered into an asset purchase agreement (the "Asset Purchase Agreement") with Medavate Corp. ("Medavate"), pursuant to which Histogenics agreed to sell substantially all of its assets relating to its NeoCart® program for $6.5 million. The parties subsequently amended the Asset Purchase Agreement to increaselaboratory space lease
component (the "Initial Premises") and an office, storage, and future expanded laboratory space lease component (the "Expansion Premises"), with varying commencement dates. The Initial Premises commencement date occurred in December 2020 and the purchase price to $7.0 million with the purchase price increasing 10% per month (or any portion thereof) starting October 31, 2019 if the closingExpansion Premises commencement date occurred in January 2021. The Lease Agreement has an initial term of the Asset Purchase Agreement did not occur prior to October 31, 2019. The Company may terminate the Asset Purchase Agreement at any time without recourse. The Asset Purchase Agreement closing date did not occur as of June 30, 2020seven years and the Company has not terminated the Asset Purchaseoption to extend the Lease Agreement as of June 30, 2020.
for 1 additional five year term. The NeoCart® asset qualified as heldoption for sale as of the date of the reverse asset acquisition and is carried at its original fair value less cost to sell on the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The NeoCart® asset held for sale was valued at the acquisition date based on a quoted price of $7.0 million, which is an observable Level 2 fair value input. Any subsequent increases in fair value, if applicable, are not recognized beyond the initial value at the time the asset was classified as held for sale.
4. Net Loss Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Net loss—basic and diluted | $ | (3,613,975) | | | $ | (3,538,810) | | | $ | (7,557,794) | | | $ | (9,851,416) | |
| Deemed dividend related to Warrant Exchange (Note 12) | (12,546,340) | | | — | | | (12,546,340) | | | — | |
| Net loss to common stockholders | $ | (16,160,315) | | | $ | (3,538,810) | | | $ | (20,104,134) | | | $ | (9,851,416) | |
| Shares used in calculating net loss per common share—basic and diluted | 83,537,463 | | | 6,067,401 | | | 68,082,346 | | | 5,461,576 | |
| Net loss per common share—basic and diluted | $ | (0.19) | | | $ | (0.58) | | | $ | (0.30) | | | $ | (1.80) | |
The following potentially dilutive securities haveextension has been excluded from the computationlease term (and lease liability) for the Lease Agreement as it is not reasonably certain that the Company will exercise such option.
The Company had a former lease agreement with the Landlord for the Company's former office space. Pursuant to the terms of diluted weighted average shares outstanding,the Lease Agreement, the Company terminated the former lease agreement with the Landlord without penalty upon the commencement of the Expansion Premises in January 2021.
The components of lease expense were as their inclusion would have been antidilutive:follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Options to purchase common stock | 4,503,961 | | | 502,863 | | | 4,503,961 | | | 502,863 | |
| Warrants | 870,020 | | | 870,020 | | | 870,020 | | | 870,020 | |
| Total | 5,373,981 | | | 1,372,883 | | | 5,373,981 | | | 1,372,883 | |
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2021 | | 2020 | | | | |
| Operating lease cost | $ | 68 | | | $ | 48 | | | | | |
| Variable lease cost | 30 | | | 21 | | | | | |
| Total lease cost | $ | 98 | | | $ | 69 | | | | | |
Supplemental balance sheet information related to leases was as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Right-of-use assets, net | $ | 1,528 | | | $ | 434 | |
| | | |
| Current lease obligations | $ | 164 | | | $ | 44 | |
| Non-current lease obligations | 1,375 | | | 389 | |
| Total lease liabilities | $ | 1,539 | | | $ | 433 | |
Supplemental information related to leases was as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2021 | | 2020 |
| Weighted-average remaining lease term — operating leases (years) | 6.7 | | 1.8 |
| Weighted-average discount rate — operating leases | 4.6 | % | | 7.6 | % |
Future minimum operating lease base rent payments are approximately as follows (in thousands):
| | | | | |
| For the Years Ending December 31, | Amount |
| Remainder of 2021 | $ | 163 | |
| 2022 | 252 | |
| 2023 | 261 | |
| 2024 | 269 | |
| 2025 | 277 | |
| Thereafter | 578 | |
| Total | $ | 1,800 | |
| Less: present value adjustment | (261) | |
| Present value of minimum lease payments | $ | 1,539 | |
5.Collaboration Agreements
In April 2020, the Company entered into a collaboration agreement (the “Advaite Agreement”) with Advaite, Inc. (“Advaite”) with respect to the development of Advaite’s RapCov COVID-19 Testing Kit (the “COVID-19 Test”). Advaite was co-founded and is being managed by Mr. Karthik Musunuri, the son of the Company's Chief Executive Officer, Chairman of the Board and co-founder, Dr. Shankar Musunuri. Pursuant to the Advaite Agreement, the Company will provide certain production, research and development, technical, regulatory and quality support services to Advaite in connection with the development and commercialization of the COVID-19 Test (the “Ocugen Services”). Advaite will research, develop, and seek to obtain regulatory approval of the COVID-19 Test, and where regulatory approval is obtained, commercialize the COVID-19 Test.
Advaite will solely own all data and materials, including the COVID-19 Test, generated by the Company and its representatives solely in the course of the performance of the Ocugen Services. Advaite is responsible for all preparation and submission of regulatory materials for the COVID-19 Test to regulatory authorities, and Advaite will hold all regulatory approvals of the COVID-19 Test in its name and own all related submissions.
The Company is entitled to receive cost reimbursements from Advaite, beginning as of April 1, 2020, for (a) costs incurred by the Company related to its personnel who are subject matter experts involved in providing the Ocugen Services ("SME Costs") and (b) Advaite's pro-rata share of all costs (other than SME Costs) incurred by the Company in providing the Ocugen Services. As partial consideration for the Company's performance of the Ocugen Services, Advaite will pay to the Company a quarterly royalty in the range of mid to high single digits based on net sales of the COVID-19 Tests.
The Advaite Agreement expires on April 29, 2021, unless extended upon mutual agreement of both the Company and Advaite. Except as otherwise specified in the terms of the Advaite Agreement, Advaite’s obligation to make royalty payments to the Company will survive expiration of the Advaite Agreement.
The Advaite Agreement is considered to be within the scope of ASC 808 as the Advaite Agreement represents a joint operating activity and both Advaite and the Company are active participants and exposed to the risks and rewards. The Company has evaluated the Advaite Agreement and determined it is not within the scope of ASC 606 as Advaite does not meet the definition of a customer.
Cost reimbursements are recorded as a reduction in research and development expense in the period incurred. Royalty payments are recorded as collaboration revenue in the period in which the underlying sale occurs. For the three and six months ended June 30, 2020, the Company recorded $0.2 million as a reduction of research and development expense and $42,620 as collaboration revenue in connection with the Advaite Agreement.
6. Accrued Expenses and Other Current Liabilities
Accrued Expensesexpenses and other current liabilities are as follows:follows (in thousands):
| | | June 30,
2020 | | December 31,
2019 | | March 31, 2021 | | December 31, 2020 |
| Accrued expenses: | | | | |
| Research and development | Research and development | $ | 60,458 | | | $ | 271,322 | | Research and development | $ | 454 | | | $ | 512 | |
| Clinical | Clinical | 435,281 | | | 421,788 | | Clinical | 115 | | | 117 | |
| Professional fees | Professional fees | 376,031 | | | 917,568 | | Professional fees | 1,259 | | | 405 | |
| Employee-related | Employee-related | 508,474 | | | 624,420 | | Employee-related | 336 | | | 963 | |
| Severance-related (1) | Severance-related (1) | 693,585 | | | — | | Severance-related (1) | 405 | | | 712 | |
| Other | Other | 11,086 | | | 34,947 | | Other | 134 | | | 232 | |
| Total accrued expenses | $ | 2,084,915 | | | $ | 2,270,045 | | |
| Total accrued expenses and other current liabilities | | Total accrued expenses and other current liabilities | $ | 2,703 | | | $ | 2,941 | |
_______________________
(1) See Note 7 for additional information regarding severance-related accrued expenses.
7.Exit and Disposal Activities
OnIn June 15, 2020, the Company as part of its recent shift in focus toward its gene therapy platform and novel biologics program aimed at curing blindness diseases, communicated notice to 5 employees of the termination of their employment.employment as a result of the discontinuation of the Company's OCU300 product candidate for the treatment of symptoms associated with ocular graft-versus-host disease ("oGVHD"). This reduction representsrepresented one-third of the Company’s workforce.workforce at the time of communication. All terminations were “without cause” and each employee is entitled to receivereceived termination benefits upon departure. The termination dates varyvaried for each employee and rangeranged from June 30, 2020 to December 31, 2020.
As a result of During the workforce reduction,three months ended March 31, 2021, the Company recognized severance-related chargesmade severance payments of $0.7 million during the three and six months ended June 30, 2020.$0.3 million. The Company expects to pay severance benefits of $0.4 million during 2020 and $0.3 million duringthroughout the remainder of 2021. For the three and six months ended June 30, 2020, the Company recognized severance-related charges of $0.2 million within general and administrative expense and $0.5 million within research and development expense.
The following table outlines the components of the severance-related charges:
| | | | | |
| Amount |
Accrued Severance at December 31, 2019 | $ | — | |
Severance-related charges | 693,585 | |
Accrued Severance at June 30, 2020 | $ | 693,585 | |
8.Equity Transactions
At-the-Market Offerings
During the three months ended June 30, 2020, the Company sold an aggregate of 59.1 million shares of common stock in separate at-the-market offerings (“ATMs”) commenced in May 2020 and June 2020. The Company received net proceeds of $15.4 million, after deducting commissions, fees and expenses of $0.7 million. The offerings were made pursuant to the Company's effective "shelf" registration statement on Form S-3 filed with the Securities and Exchange Commission on March 27, 2020, the base prospectus contained therein dated May 5, 2020, and the prospectus supplements related to the offerings dated May 8, 2020 and June 12, 2020. As of June 30, 2020, the Company had sold all of the shares of common stock available for issuance under the prospectus supplements filed in connection with the ATMs.
Subscription Agreements
On April 22, 2020, the Company entered into a subscription agreement with an accredited investor for the sale of 1,000 shares of the Company's common stock in a private placement for an aggregate offering price of $395. This private placement constituted a Dilutive Issuance (as defined in Note 12) and resulted in adjustments to the Series A Warrants.
On June 6, 2020, the Company entered into a subscription agreement with an accredited investor for the issuance of 1.3 million shares of the Company's common stock in a private placement. The shares of common stock were issued as part of a transaction in settlement of an outstanding obligation of the Company to the accredited investor, in which (i) the Company agreed to make certain cash payments, (ii) the Company issued the 1.3 million shares of common stock in exchange for the accredited investor's agreement to cancel $0.3 million of the outstanding obligation and (iii) the accredited investor agreed to cancel an additional portion of the amount owed by the Company representing a discount of $0.2 million.
On April 5, 2019, OpCo entered into a subscription agreement (the "April 2019 Subscription Agreement") with existing investors for the sale of 0.1 million shares of common stock for $1.0 million. This capital raise triggered the conversion features on the convertible debt described in Note 9 below.
9.7. Debt
The following table provides a summary of the carrying values for the components of debt as reflected on the condensed consolidated balance sheets:sheets (in thousands):
| | | June 30,
2020 | | December 31,
2019 | | March 31, 2021 | | December 31, 2020 |
| PPP Note | PPP Note | $ | 421,415 | | | $ | — | | PPP Note | $ | 421 | | | $ | 421 | |
| Warrant Exchange Promissory Notes | 4,068,176 | | | — | | |
| EB-5 Loan Agreement borrowings | 1,597,511 | | | 1,072,123 | | |
| EB-5 Loan Agreement | | EB-5 Loan Agreement | 1,655 | | | 1,636 | |
| Total carrying value of debt, net | Total carrying value of debt, net | $ | 6,087,102 | | | $ | 1,072,123 | | Total carrying value of debt, net | $ | 2,076 | | | $ | 2,057 | |
PPP Note
On April 30, 2020, the Company was granted a loan from Silicon Valley Bank ("SVB"), in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”). On June 5, 2020, the PPP Flexibility Act of 2020 (the "PPPFA") was signed into law amending the original terms of the PPP. Among other things, the PPPFA extendsextended the deferral period for monthly principal and interest payments from six months to either (i) the time whendate the Small Business Administration (the "SBA"("SBA") compensates the lender for any forgiven amounts forgiven as well as extendingor (ii) 10 months after the end of the borrower's loan forgiveness covered period. The PPPFA also extended the covered period for qualifying expenses from eight weeks to the earlier of 24 weeks or December 31, 2020. Certain amounts of the loan may be forgiven if they are used for qualifying expenses as described by the CARES Act.
The loan was in the form of a promissory note dated April 30, 2020 in favor of SVB (the "PPP Note"). The PPP Note matures on April 30, 2022 and bears interest at a rate of 1.0% per annum. Principal and interest payments are payable monthly commencing on either (i) the date the SBA compensates SVB for forgiven amounts or within(ii) 10 months followingafter the expirationend of the Company's covered period, ifwhich ended in October 2020. If the PPP Note is fully forgiven, the Company haswill not appliedbe responsible for forgiveness.any payments. The Company did not provide any collateral or guarantees for the loan, nor did the Company pay any facility charge to obtain the loan. The PPP Note provides for customary events of default, including, among others, failure to make payment, bankruptcy, breaches of representations, and material adverse events.
At June 30,As of March 31, 2021 and December 31, 2020, the carrying value of the PPP LoanNote was $0.4 million.
Warrant Exchange Promissory Notes
On April 22, 2020, in connection with the Warrant Exchange as defined in Note 12, the Company issued to Investors certain promissory notes (the "Warrant Exchange Promissory Notes") with an aggregate principal amountOn April 22, 2020, the Warrant Exchange Promissory Notes were recorded at a fair value of $5.0 million. The difference of $0.6 million between the fair value and the aggregate principal amount of $5.6 million was recorded as a debt discount to be accreted to interest expense over the life of the Warrant Exchange Promissory Notes. The accretion amounted to $0.2 million for the three and six months ended June 30, 2020.
The Company is required to use 20% of the net proceeds of the ATMs discussed in Note 8 to redeem the outstanding amount under the Warrant Exchange Promissory Notes. During the three and six months ended June 30, 2020, the Company made payments to the Warrant Exchange Promissory Note holders of $1.1 million. On July 1, 2020, the Company made additional payments of $1.9 million, further reducing the principal amount outstanding.
The carrying values of the Warrant Exchange Promissory Notes at June 30, 2020 and December 31, 2019 are summarized below:
| | | | | | | | | | | | | | |
| | June 30,
2020 | | December 31,
2019 |
Principal outstanding | | $ | 4,485,280 | | | $ | — | |
Less: unamortized debt discount | | (417,104) | | | — | |
Carrying value | | $ | 4,068,176 | | | $ | — | |
EB-5 Loan Agreement Borrowings
In September 2016, pursuant to the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”), the Company entered into an arrangement (the “EB-5 Loan Agreement”) to borrow up to $10.0 million from EB5 Life Sciences, L.P. (“EB-5 Life Sciences”) in $0.5 million increments. Borrowing may be limited by the amount of funds raised by the EB-5 Life Sciences and are subject to certain job creation requirements by the Company. Borrowings are at a fixed interest rate of 4.0% per annum and are to be utilized in the clinical development, manufacturing, and commercialization of the Company’s productsproduct candidates and for the general working capital needs of the Company. Outstanding borrowings pursuant to the EB-5 Program,Loan Agreement, including accrued interest, become due upon the seventh anniversary of the final disbursement. Amounts repaid cannot be re-borrowed. The EB-5 ProgramLoan Agreement borrowings are secured by substantially all assets of the Company, except for any patents, patent applications, pending patents, patent license,licenses, patent sublicense,sublicenses, trademarks, and other intellectual property rights.
Under the terms and conditions of the EB-5 Loan Agreement, the Company borrowed $1.0 million in 2016 and an additional $0.5 million onin March 26, 2020. Issuance costs were recognized as a reduction to the loan balance and are amortized to interest expense over the term of the loan.
The carrying values of the EB-5 Loan Agreement borrowings as of June 30, 2020March 31, 2021 and December 31, 20192020 are summarized below:below (in thousands): | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Principal outstanding | $ | 1,500 | | | $ | 1,500 | |
| Plus: accrued interest | 196 | | | 181 | |
| Less: unamortized debt issuance costs | (41) | | | (45) | |
| Carrying value | $ | 1,655 | | | $ | 1,636 | |
8.Equity
COVAXIN Preferred Stock Purchase Agreement
On March 1, 2021, the Company entered into a Preferred Stock Purchase Agreement, pursuant to which the Company agreed to issue and sell 0.1 million shares of the Company’s Series B Convertible Preferred Stock, par value $0.01 per share (the “Series B Convertible Preferred Stock”), at a price per share equal to $109.60, to Bharat Biotech. On March 18, 2021, the Company issued the Series B Convertible Preferred Stock as an advance payment for the supply of COVAXIN to be provided by Bharat Biotech pursuant to a supply agreement expected to be entered into with respect to the parties' Covaxin Agreement (the "Supply Agreement").
Each share of Series B Convertible Preferred Stock is convertible, at the option of Bharat Biotech, into 10 shares of the Company’s common stock (the "Conversion Ratio") only after (i) the Company’s receipt of stockholder approval to increase the number of authorized shares of common stock under its Sixth Amended and Restated Certificate of Incorporation and (ii) the Company’s receipt of shipments by Bharat Biotech of the first 10.0 million doses of COVAXIN manufactured by Bharat Biotech pursuant to the Supply Agreement, and further on the terms and subject to the conditions set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (the "Certificate of Designation"). The conversion rate of the Series B Convertible Preferred Stock is subject to adjustment in the event of a stock dividend, stock split, reclassification, or similar event with respect to the Company’s common stock. Subsequent to March 31, 2021, the Company's stockholders approved an increase in the number of the Company's authorized shares of common stock. See Note 12 for additional information.
Bharat Biotech is entitled to receive dividends on the Series B Convertible Preferred Stock equal (on an as-converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock, when and if such dividends are paid. Except as provided by law and certain protective provisions set forth in the Certificate of Designation, the Series B Convertible Preferred Stock has no voting rights. Upon a liquidation or dissolution of the Company, holders of Series B Convertible Preferred Stock would be entitled to receive the same amount that a holder of common stock would receive if the Series B Convertible Preferred Stock were fully converted to common stock.
The Company accounted for the issuance of the Series B Convertible Preferred Stock in accordance with ASC 718 and recorded the fair value of $5.0 million within equity during the three months ended March 31, 2021, with a corresponding short-term asset for the advanced payment for the doses of COVAXIN. The Company utilized the traded common stock price,
| | | | | | | | | | | | | | |
| | June 30,
2020 | | December 31,
2019 |
| Principal outstanding | | $ | 1,500,000 | | | $ | 1,000,000 | |
| Plus: accrued interest | | 151,054 | | | 127,777 | |
| Less: unamortized debt issuance costs | | (53,543) | | | (55,654) | |
| Carrying value | | $ | 1,597,511 | | | $ | 1,072,123 | |
Senior Secured Convertible NotesRegistered Direct Offering
On May 21, 2019, the Company issued senior secured convertible notes to certain investors for $2.4 million at an original issue discount of $0.5 million, and on June 28, 2019,February 7, 2021, the Company entered into an agreementa Securities Purchase Agreement pursuant to which the Company agreed to issue additional senior secured convertible notes to the investors for $2.9 million with an original issue discount of $0.4 million (together the "Senior Secured Convertible Notes"). The amounts borrowed under the June 28, 2019 agreement were received subsequent to June 30, 2019, and were therefore recognizedsell in July 2019. Immediately prior to the Merger completed on September 27, 2019, the Investors offset $5.3 million from the amount to be received under the Pre-Merger Financing and the Senior Secured Convertible Notes were deemed to have been repaid and cancelled. The accretion of the original issue discount to interest expense amounted to $0.2 million during three and six months ended June 30, 2019.
Convertible Promissory Note
On April 4, 2019, the Company issued a convertible promissory note (the "Convertible Promissory Note") to an existing stockholder for $0.9 million at an interest rate of 5% per annum. On May 16, 2019, the Convertible Promissory Note was converted into equity. OpCo issued 0.1registered direct offering, 3.0 million shares of the Company's common stock at an offering price of $7.65 per share (the "February 2021 Registered Direct Offering"). The closing of the conversion date to extinguish the debt at $12.41 per share. This non-cash transaction resulted in an increase of $0.9 million in additional paid-in capital, which was basedFebruary 2021 Registered Direct Offering occurred on the principal balance outstandingFebruary 10, 2021 and the unpaid interest upon conversion.Company received net proceeds of $21.2 million after deducting equity issuance costs of $1.7 million.
Convertible NotesAt-the-Market Offering
During the yearsthree months ended DecemberMarch 31, 2019 and 2018,2021, the Company sold 1.0 million shares of the Company's common stock in an at-the-market offering (“ATM”) commenced in August 2020 (the "August 2020 ATM"). The Company received net proceeds of $4.8 million, after deducting equity issuance costs of $0.1 million. The offering was made pursuant to the Company's effective "shelf" registration statement on Form S-3 filed with the SEC on March 27, 2020, the base prospectus contained therein dated May 5, 2020, and the prospectus supplement related to the offering dated August 17, 2020. As of March 31, 2021, the Company had the remaining capacity to raise $3.3 million by issuing shares of the Company's common stock under the prospectus supplement in connection with the August 2020 ATM.
OpCo Warrants
Prior to 2018, OpCo issued convertible noteswarrants to purchase the Company's common stock (the “Convertible Notes”"OpCo Warrants") to new and existing stockholders in the Company, including Convertible Notes in the aggregate principal amount of $3.5 million to members of the Board of Directors. As of December 31, 2019, all Notes had been converted and were 0 longer outstanding.
At issuance, the following amounts were recorded:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible Note Issuance Date | | Convertible Note
Principal
Amount | | Fair Value of Embedded Derivatives | | Debt
Issuance
Costs | | Carrying
Value upon Issuance |
| January 2018 | | $ | 5,000,000 | | | $ | (2,657,711) | | | $ | (35,969) | | | $ | 2,306,320 | |
| June 2018 | | 1,000,000 | | | (724,216) | | | (3,000) | | | 272,784 | |
| November 2018 | | 1,150,400 | | | (21,127) | | | (50,646) | | | 1,078,627 | |
| December 2018 | | 150,000 | | | (2,857) | | | (14,310) | | | 132,833 | |
| January 2019 | | 450,000 | | | (182,882) | | | (29,358) | | | 237,760 | |
| February 2019 | | 1,000,000 | | | (302,379) | | | (55,875) | | | 641,746 | |
| Total | | $ | 8,750,400 | | | $ | (3,891,172) | | | $ | (189,158) | | | $ | 4,670,070 | |
All Convertible Notes accrued interest at a rate of 5% per annum and had scheduled maturity dates on the eighteen month anniversary of the date of the issuance of the Convertible Notes (the “Maturity Date”). If prior to the Maturity Date, there was a consummation of the sale of all or substantially all of the assetsinvestors of the Company change in control or event of default, the Convertible Notes would become duepursuant to a stockholders' agreement and payable at an amount equal to 1.5 times the principal amount of the Convertible Notes together with all accrued interest (the “Change in Control Feature”).
If the Company received equity financing from the issuance of stock2 employees of the Company from an investor or grouppursuant to their respective employment agreements. As of investors in a transaction or series of related transactions above a certain amount of gross proceeds, the principal amount and all interest accrued but not paid through the closing date of the qualified equity financing was to automatically convert into the same class of equity securities as those issued in the qualified equity financing ("Conversion Feature"). The price per share varied among
the Convertible Notes ranging from a 0% to 30% discount to the lowest price per share being paid by investors in the qualified equity financing.
The Company bifurcated the Conversion Feature for the January 2018, June 2018, January 2019, and February 2019 Convertible Notes and classified it as a derivative liability because the conversion feature did not have a fixed conversion price and conversion would be settled in a variable number of shares of common stock. There was no bifurcated conversion feature for the November 2018March 31, 2021 and December 2018 Convertible Notes as there is no discount to the lowest equity price triggering conversion. The Company also bifurcated the Change in Control Feature for all of the Convertible Notes because it was determined to be a redemption feature not clearly and closely related to the debt host.
The fair value of both of the embedded features was accounted for as a derivative liability and was recorded as a discount on the Convertible Notes. Inputs used in valuation31, 2020, 0.9 million OpCo Warrants were unobservable and therefore considered Level 3 in the fair value hierarchy. The debt discount was accreted into interest expense over the expected time until conversion of the Convertible Notes. The accretion amounted to $36,827 and $0.5 million for the three and six months ended June 30, 2019, respectively. There was 0 accretion during the three and six months ended June 30, 2020 as all Convertible Notes had been converted and were 0 longer outstanding as of December 31, 2019.
The fair value of the embedded features was classified as a liability in the Company’s condensed consolidated balance sheets at issuance, with subsequent changes in fair value recorded on the Company’s condensed consolidated statements of operations and comprehensive loss as a change in fair value of derivative liabilities.
As a result of the April 2019 Subscription Agreement as described and defined within Note 8, the triggers for conversion were met on the Convertible Notes. On April 5, 2019, the Convertible Notes were modified to change the discount percentage from the 0% discount per the terms of the November 2018 and December 2018 Convertible Notes and the 15% discount per the terms of the January 2019 and February 2019 Convertible Notes to 30% at the time of conversion. The Company issued 1.1 million shares of common stock at $8.69 per share on the date of conversion to extinguish the debt, which resulted in a loss of $0.3 million. This non-cash conversion also resulted in an increase of $13.0 million in additional paid-in capital, which was based on the principal balance outstanding and the unpaid interest upon conversion.exercisable and had a weighted average exercise price of $5.67 per share. The OpCo Warrants expire between 2026 and 2027.
Principal Maturities
Debt maturities (excluding interest) are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Twelve months ending June 30, | | | | | | |
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| Principal Maturities | $ | 4,485,280 | | $ | 421,415 | | $ | — | | $ | — | | $ | — | | $ | 1,500,000 | | $ | 6,406,695 | |
10.9. Stock-based Compensation
Stock-based compensation expense for options granted is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:follows (in thousands):
| | | Three months ended June 30, | | | Six months ended June 30, | | | Three months ended March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| General and administrative | General and administrative | $ | 44,563 | | | $ | (20,873) | | | $ | 148,039 | | | $ | 250,395 | | General and administrative | $ | 590 | | | $ | 103 | | |
| Research and development | Research and development | 104,646 | | | 132,680 | | | 223,683 | | | 276,614 | | Research and development | 243 | | | 119 | | |
| Total | Total | $ | 149,209 | | | $ | 111,807 | | | $ | 371,722 | | | $ | 527,009 | | Total | $ | 833 | | | $ | 222 | | |
As of June 30, 2020,March 31, 2021, the Company had $1.6$9.3 million of unrecognized compensation expense related to options outstanding under its equity plans. This expense is expected to be recognized over a weighted average period of 2.32.6 years as of June 30, 2020March 31, 2021.
Equity Plans
The Company maintains 2 equity compensation plans, the 2014 Ocugen OpCo, Inc. Stock Option Plan (the “2014 Plan”) and the Ocugen, Inc. 2019 Equity Incentive Plan (the “2019 Plan”, collectively with the 2014 Plan, the "Plans"), which replaced the Histogenics Corporation 2013 Equity Incentive Plan (the "2013 Plan").
In 2019, Ocugen’s stockholders approved the adoption of the 2019 Plan and the 2013 Plan was frozen. No additional awards have been or will be made under the 2013 Plan and any remaining authorized shares under the 2013 Plan were recycled into the 2019 Plan. On the first business day of each fiscal year, pursuant to the "Evergreen" provision of the 2019 Plan, the aggregate number of shares that may be issued under the 2019 Plan will automatically increase by a number equal to the lesser of 4% of the total number of shares of Companythe Company's common stock outstanding on December 31st of the prior year, or a number of shares of Companythe Company's common stock determined by the Board.Board of Directors.
As of June 30, 2020,March 31, 2021, the 2014 Plan provides for the granting of up to 0.80.4 million equity awards in respect to Ocugen'sthe Company's common stock. As of June 30, 2020,March 31, 2021, the 2019 Plan provides for the granting of up to 4.21.3 million equity awards in respect to
the Company's common stock, inclusive of equity awards that were previously available for issuance under the 2013 Plan and the additional shares authorized for issuance pursuant to the 2019 Plan's "Evergreen" provision on January 1, 2020.2021.
As of June 30, 2020,March 31, 2021, an aggregate of 0.50.4 million and 4.08.8 million shares of Companythe Company's common stock were issuable upon the exercise of outstanding stock options under the 2014 Plan and 2019 Plan, respectively.
Options to Purchase Common Stock
The following table summarizes the stock option activity under the Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Options outstanding at December 31, 2019 | 731,189 | | | $ | 4.59 | | | 8.0 | | $ | 24,028 | |
| Granted | 3,967,950 | | | $ | 0.41 | | | | | |
| Forfeited | (195,178) | | | $ | 1.97 | | | | | |
| Options outstanding at June 30, 2020 | 4,503,961 | | | $ | 1.02 | | | 9.4 | | $ | — | |
| Options exercisable at June 30, 2020 | 461,327 | | | $ | 4.82 | | | 6.7 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) | | Aggregate Intrinsic Value (in thousands) |
| Options outstanding at December 31, 2020 | 4,224,433 | | | $ | 0.84 | | | 8.9 | | $ | 5,496 | |
| Granted | 5,192,550 | | | $ | 2.10 | | | | | $ | — | |
| Exercised | (157,468) | | | $ | 1.11 | | | | | $ | 980 | |
| Forfeited | (23,970) | | | $ | 13.52 | | | | | $ | — | |
| Options outstanding at March 31, 2021 | 9,235,545 | | | $ | 1.51 | | | 9.3 | | $ | 49,598 | |
| Options exercisable at March 31, 2021 | 860,287 | | | $ | 1.88 | | | 7.7 | | $ | 4,477 | |
The weighted average grant date fair value of stock options granted during the three and six months ended June 30,March 31, 2021 and 2020 were $0.28$1.73 and $0.34$0.42, respectively. The total fair value of stock options vested during the three months ended March 31, 2021 and 2020 was $0.3 million and $0.1 million, respectively.
10. Net Loss Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share respectively.for the three months ended March 31, 2021 and 2020 (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2021 | | 2020 | | | | |
| Net loss — basic and diluted | $ | (7,077) | | | $ | (3,944) | | | | | |
| | | | | | | |
| | | | | | | |
| Shares used in calculating net loss per common share — basic and diluted | 186,298,122 | | | 52,627,228 | | | | | |
| Net loss per common share — basic and diluted | $ | (0.04) | | | $ | (0.07) | | | | | |
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as their inclusion would have been antidilutive:
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2021 | | 2020 | | | | |
| Options to purchase common stock | 9,235,545 | | | 2,496,771 | | | | | |
| RSUs | 2,190 | | | 0 | | | | | |
| Warrants | 870,017 | | | 9,643,945 | | | | | |
| Series A Convertible Preferred Stock (as converted to common stock) | 3,115 | | | 3,115 | | | | | |
| Series B Convertible Preferred Stock (as converted to common stock) | 547,450 | | | 0 | | | | | |
| Total | 10,658,317 | | | 12,143,831 | | | | | |
Total warrants excluded from the computation of diluted weighted average shares outstanding for the three months ended March 31, 2021 is comprised of 0.9 million OpCo Warrants. Total warrants excluded from the computation of diluted weighted average shares outstanding for the three months ended March 31, 2020 is comprised of 0.9 million OpCo Warrants as well as an aggregate of 8.8 million warrants issued in October 2019 under a securities purchase agreement with certain accredited investors (the "SPA Warrants"). No SPA Warrants were outstanding as of March 31, 2021 and December 31, 2020.
11. Commitments and Contingencies-
Operating LeasesCommitments
The Company has commitments under operating leases for certain facilities used in its operations. The Company’s leases have initial lease terms ranging from one to five years. Certainlicense agreements, lease agreements, contain provisions fordebt agreements, and separation agreements. Commitments under certain license agreements primarily include annual payments, payments upon the achievement of certain milestones, and royalty payments based on net sales of licensed products. Commitments under the Company's licensing agreements are more fully described within Note 3 and within the Company's 2020 Annual Report. Commitments under lease agreements are future rent increases.
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Operating lease cost | $ | 47,696 | | | $ | 81,696 | | | $ | 95,392 | | | $ | 154,969 | |
| Variable lease cost | 20,077 | | | 21,031 | | | 41,246 | | | 36,879 | |
| Total lease cost | $ | 67,773 | | | $ | 102,727 | | | $ | 136,638 | | | $ | 191,848 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| Right-of-use assets, net | $ | 260,708 | | | $ | 344,574 | |
| | | |
| Current lease obligations | $ | 175,538 | | | $ | 172,310 | |
| Non-current lease obligations | 75,577 | | | 163,198 | |
| Total lease liabilities | $ | 251,115 | | | $ | 335,508 | |
Supplemental information related to leases was as follows:
| | | | | | | | | | | |
| Six months ended June 30, | | |
| 2020 | | 2019 |
| Weighted-average remaining lease terms—operating leases (years) | 1.5 | | 2.5 |
| Weighted-average discount rate—operating leases | 7.6 | % | | 7.6 | % |
Future minimum operating minimum lease payments for all leases, exclusiveoperating leases. See Note 5 for additional information about commitments under lease agreements. Commitments under debt agreements are payments for any amount of taxesprincipal and other carrying charges,accrued interest under the PPP Note that is determined to be not forgiven by the SBA as well as the future payment of principal and accrued interest under the EB-5 Loan Agreement. See Note 7 for additional information about commitments under debt agreements. Commitments under separation agreements are approximatelyseverance payments to be paid throughout the remainder of 2021 as follows:a result of the reduction in force in connection with the Company's discontinuation of its OCU300 product candidate. See Note 6 for additional information about commitments under separation agreements.
| | | | | | | | |
| For the Years Ending December 31, | | Amount |
| Remainder of 2020 | | $ | 96,112 | |
| 2021 | | 160,909 | |
| 2022 | | 11,354 | |
| Total | | $ | 268,375 | |
| Less: present value adjustment | | (17,260) | |
| Present value of minimum lease payments | | $ | 251,115 | |
Financing Leases
In June 2018,From time to time, the Company leased specialized research equipment under a lease classified as a financing lease. The leased equipment is includedsubject to claims in property and equipment, net and is amortized on a straight-line basis over five years. Financing lease liabilities are includedlegal proceedings arising in other liabilities on the Company's condensed consolidated balance sheets. The interest rate related to the lease obligation is 7.6% and the maturity date is July 2021.
Future minimum lease payments for all financing leases, exclusive of taxes and other carrying charges, are approximately as follows:
| | | | | | | | |
| For the Years Ending December 31, | | Amount |
| Remainder of 2020 | | $ | 11,928 | |
| 2021 | | 9,941 | |
| Total | | $ | 21,869 | |
| Less: present value adjustment | | (809) | |
| Present value of minimum lease payments | | $ | 21,060 | |
its business. The Company does not believe that it is currently party to any pending legal actions that could reasonably be expected to have any leases that have not yet commenced which are significant.a material adverse effect on the business, financial condition, results of operations, or cash flows.
12. WarrantsSubsequent Events
Pre-Merger Financing WarrantsPromissory Note
On September 27, 2019, Ocugen completedApril 13, 2021, the MergerCompany issued a promissory note in the principal amount of $0.8 million to a company (the “Promissory Note”). The Promissory Note bears interest at a rate per annum of 5%. The outstanding principal balance of the Promissory Note plus any accrued and unpaid interest thereon is payable in full on April 13, 2022. The Promissory Note may be prepaid in whole or in part at any time, together with OpCo. Immediately priorany accrued and unpaid interest, without premium, penalty, or discount. The Promissory Note contains customary covenants and events of default, including, among others, failure to make payment, breach of agreement, and bankruptcy.
Increase in Authorized Shares of Common Stock
On April 14, 2021, the Company's stockholders approved an increase in the number of the Company's authorized shares of common stock from 200.0 million to 295.0 million. Following receipt of the stockholder approval, the Company filed a Certificate of Amendment to the Merger, OcugenCompany's Sixth Amended and OpCo completedRestated Certificate of Incorporation with the State of Delaware to effect the increase in authorized shares.
Registered Direct Offering
On April 23, 2021, the Company entered into a previously announced private placement transactionsecurities purchase agreement with certain Investorshealthcare-focused institutional investors pursuant to the Financing SPA, whereby, among other things,which the Company agreed to issue Series A Warrants, Series B Warrants, and Series C Warrants.
On November 5, 2019, the Company entered intosell in a registered direct offering (the "April 2021 Registered Direct Offering") an agreement with each Investor that amended the termsaggregate of each of the Pre-Merger Financing Warrants held by each such Investor (collectively, the “Warrant Amendments”). The terms of the Pre-Merger Financing Warrants and the Warrant Amendments are discussed below. There were no Pre-Merger Financing Warrants outstanding at June 30, 2020.
Series A Warrants
The Series A Warrants had an initial exercise price per share of $7.13, were exercisable upon issuance and had a term of 60 months from the date of issuance. The Series A Warrants were exercisable for up to 8.810.0 million shares of Ocugen common stock.
The Series A Warrants had an anti-dilution adjustment whereby if Ocugen issues or sells, enters into a definitive, binding agreement pursuant to which Ocugen is required to issue or sell or is deemed, pursuant to the provisions of the Series A Warrants, to have issued or sold, any common stock for a price per share lower than the exercise price then in effect (a “Dilutive Issuance”), subject to certain limited exceptions, then (i) the exercise price of the Series A Warrants shall be reduced to such lower price per share and (ii) the number of shares issuable upon exercise of the Series A Warrants shall be increased to the number of shares of common stock determined by multiplying (a) the exercise price in effect immediately prior to such Dilutive Issuance by (b) the number of shares of common stock issuable upon exercise of the Series A Warrants immediately prior to such Dilutive Issuance (without giving effect to any limitation on exercise contained therein), and dividing the product thereof by the exercise price resulting from such Dilutive Issuance.
All of the Series A Warrants were outstanding and exercisable as of December 31, 2019. Pursuant to the Warrant Exchange (as defined below), no Series A Warrants were outstanding as of June 30, 2020.
Series B Warrants
The Series B Warrants had an exercise price of $0.01, were exercisable after the completion of a 10 trading-day period following the effectiveness of a registration statement covering the resale of common stock into which such warrants were exercisable and were to expire on the date on which the 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 by the holders for 8.0 million shares of common stock.
Additionally, each Series B Warrant included a Reset Period pursuant to which the number of shares issuable upon exercise of the Series B Warrants shall be increased during certain Reset Periods (as defined in the Series B Warrants). The Reset Period concluded in November 2019 and resulted in an aggregate of 12.6 million additional shares of common stock becoming issuable upon exercise of the Series B Warrants. There were 1,000 Series B Warrants outstanding at December 31, 2019. During the three months ended June 30, 2020, the remaining 1,000 Series B Warrants were exercised.
Series C Warrants
The Series C Warrants were exercisable upon issuance for up to 50.0 million shares ofCompany's common stock at an initial exerciseoffering price of $7.13 per share. Each of the Series C Warrants was amended pursuant to the Warrant Amendments to permit the Investors, in lieu of making any cash payment otherwise contemplated to be made to the Company upon the exercise of the Series C Warrant, to elect instead to receive upon such exercise up to 20.0 million shares of common stock. Prior to the Warrant Amendments, the Series C Warrants had permitted the exercise without any cash payment of up to 50.0 million shares of common stock in the event that the volume weighted-average price of the common stock on Nasdaq was less than or equal to $1.20 per share on any five trading days following the issuance of the Series C Warrants. There were 1,000 Series C Warrants outstanding at December 31, 2019. During the three months ended June 30, 2020, the remaining 1,000 Series C Warrants were exercised.
Warrant Exchange
On April 22, 2020, the Company entered into a subscription agreement as discussed within Note 8. The subscription agreement constituted a Dilutive Issuance (as defined above) and resulted in adjustments to the number of issuable Series A Warrants and the exercise price under the Series A Warrants.
Contemporaneously with the subscription agreement, the Company and OpCo entered into Amendment and Exchange Agreements (each an "Exchange Agreement" and collectively, the "Exchange Agreements") with the Investors. Pursuant to the Exchange Agreements, the Company, OpCo and the Investors agreed, among other things, after giving effect to the Dilutive Issuance, to amend the Series A Warrants to provide for an adjustment to the number of common stock issuable upon the exercise of the Series A Warrants. Concurrently with such amendments, the Investors exchanged the Series A Warrants for (i) an aggregate of 21.9 million shares of common stock and (ii) the Warrant Exchange Promissory Notes as defined in Note 9 (collectively the "Warrant Exchange"). Following the consummation of the Warrant Exchange and the concurrent exercise of the remaining Series B Warrants and Series C Warrants, there were no Pre-Merger Financing Warrants outstanding at June 30, 2020.
Accounting for Warrant Exchange
The Company accounted for the Warrant Exchange by recognizing the fair value of the consideration transferred in excess of the carrying value of the Series A Warrants as a reduction of additional paid-in capital as of June 30, 2020. The fair value of the consideration transferred to settle the Series A Warrants was approximately $13.6 million, comprised of $8.6 million in shares of common stock and the fair value of the Warrant Exchange Promissory Notes of $5.0 million. The fair value of consideration transferred to settle the Series A warrants was in excess of the fair value of the Series A Warrants immediately prior to the transaction by approximately $12.5 million. The excess consideration was accounted for as a deemed dividend to the warrant holders and is reflected as an additional net loss attributed to common stockholders in the calculation of basic and diluted net loss per common share for the three and six months ended June 30, 2020. The fair value of the Series A Warrants immediately prior to the Warrant Exchange was $1.1 million, which was estimated using a Black-Scholes valuation model utilizing Level 3 inputs.
OpCo Warrants
Prior to 2018, OpCo issued warrants to investors of the Company pursuant to a stockholders' agreement and to 2 employees of the Company pursuant to their respective employment agreements. As of June 30, 2020 and December 31, 2019, 0.9 million warrants to purchase common stock were outstanding and exercisable and had a weighted average exercise price of $5.67$10.00 per share. The warrants expire between 2025closing of the April 2021 Registered Direct Offering occurred on April 27, 2021 and 2027.the Company received net proceeds of $93.4 million after deducting equity issuance costs of $6.6 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements for the year ended December 31, 2019,2020, included in our 2020 Annual Report on Form 10-K filed with the SEC on March 27, 2020 (the "2019 Annual Report").Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, include forward-looking statements that involve risks, uncertainties, and assumptions. These statements are based on our beliefs and expectations about future outcomes and are subject to risks and uncertainties that could cause our actual results to differ materially from anticipated results. We undertake no obligation to publicly update these forward-looking statements, whether as a result of new information, future events, or otherwise. You should read the “Risk Factors” section included in our 20192020 Annual Report and the "Risk Factors" and “Disclosure Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on discovering, developing and commercializing transformativegene therapies to cure blindness diseases.diseases and developing a vaccine to save lives from COVID-19.
Our cutting-edge technology pipeline includes:
•COVID-19 Vaccine — COVAXIN is a whole-virion inactivated COVID-19 vaccine candidate being developed to prevent COVID-19 infection in humans. We are co-developing COVAXIN with Bharat Biotech for the U.S. market.
•Modifier Gene Therapy Platform—Based on nuclear hormone receptors ("NHRs"),NHRs, we believe our gene therapy platform has the potential to address many retinal diseases, including retinitis pigmentosa ("RP"), with one product.RP, LCA, and dry AMD.
•Novel Biologic Therapy for Retinal Diseases—We are developing OCU200, which is being developeda novel biologic product candidate, to treat diabetic macular edema ("DME"), diabetic retinopathy ("DR")DME, DR, and wet age-related macular degeneration ("AMD")AMD.
COVID-19 Vaccine
In February 2021, we entered into the Covaxin Agreement with Bharat Biotech, pursuant to which we obtained an exclusive right and license under certain of Bharat Biotech's intellectual property rights, with the right to grant sublicenses to develop, manufacture, and commercialize COVAXIN for the prevention of COVID-19 in humans in the Ocugen Covaxin Territory. COVAXIN is a whole-virion inactivated COVID-19 vaccine candidate and is formulated with the inactivated SARS-CoV-2 virus, an antigen, and an adjuvant. COVAXIN requires a two-dose vaccination regimen given 28 days apart and is stored in standard vaccine storage conditions (2-8°C).
COVAXIN has been granted approval for emergency use in India and millions have been dosed to date. The Phase 1 and Phase 2 clinical trials conducted in India reported strong IgG responses against the spike protein, RBD, and the nucleocapsid protein of the SARS-CoV-2 virus, along with strong cellular responses. Strong cellular responses are necessary for memory and long-term durability of vaccines. Both the Phase 1 and Phase 2 clinical trials were published in the Lancet. Bharat Biotech is currently conducting a Phase 3 clinical trial in India. Enrollment in the Phase 3 clinical trial is complete. In April 2021, COVAXIN demonstrated positive results in the second interim analysis of the Phase 3 clinical trial showing a vaccine efficacy in mild, moderate, and severe COVID-19 disease of 78%, efficacy against severe COVID-19 disease alone of 100%, and efficacy against asymptomatic COVID-19 infection of 70%. The 78% efficacy result represents a point estimate of vaccine efficacy with a 95% confidence interval of 61% to 88% against mild, moderate, and severe COVID-19 disease. In an in vitro study conducted by the ICMR-National Institute of Virology, COVAXIN demonstrated potential effectiveness against the Brazilian variant of SARS-CoV-2, B.1.1.28.2, which contains the E484K mutation found in New York. An additional in vitro study conducted by the ICMR-National Institute of Virology suggested that COVAXIN was effective against the U.K. variant, B.1.1.7, as well as the Indian double mutant variant, B.1.617. These studies suggest that COVAXIN vaccination may be effective against infection from multiple SARS-CoV-2 variants.
We are currently evaluating the clinical and regulatory path for COVAXIN in the United States including obtaining EUA from the FDA and, eventually, BLA approval in the United States, as well as our commercialization strategy, if authorized or approved. We have initiated discussions with the FDA regarding the development of COVAXIN and EUA. Consistent with the FDA guidance document on EUA for vaccines to prevent COVID-19, we have submitted key information and data to date (including preclinical studies, CMC, and clinical studies) as a “Master File” for FDA review and input prior to a planned EUA submission. We are currently waiting for additional data from Bharat Biotech from the ongoing Phase 3 clinical trial for an
EUA submission. Due to the crisis in India generated by the current surge in COVID-19 cases it is experiencing, this process is taking longer than anticipated. We are continuing to monitor the situation and intend to file the EUA submission as soon as practicable.
Modifier Gene Therapy Platform
We are developing a breakthrough modifier gene therapy platform to generate therapies designed to fulfill unmet medical needs in the area of retinal diseases, including inherited retinal diseases ("IRDs"),IRDs and dry AMD. Our modifier gene therapy platform is based on NHRs, which have the potential to restore homeostasis, the basic biological processes in the retina. Unlike single-gene replacement therapies, which only target one genetic mutation, we believe that our gene therapy platform, through its use of NHRs, represents a novel approach in that it may address multiple retinal diseases with one product. IRDs such as RP, a group of rare genetic disorders that involvesinvolve a breakdown and loss of cells in the retina and can lead to visual impairment and blindness, affect over 1.52.0 million people worldwide. Over 150 gene mutations have been associated with RP and this number represents only 60% of the RP population. The remaining 40% of RP patients cannot be genetically diagnosed, making it difficult to develop individual treatments.
We believe that OCU400, our first product candidate being developed with our modifier gene therapy candidate,platform, has the potential to be broadly effective in restoring retinal integrity and function across a range of genetically diverse IRDs, including RP and LCA. For example, we believe OCU400 has the potential to eliminate the need for developing more than 150 individual products and provide one treatment option for all RP patients.
OCU400 has received 4 Orphan Drug Designations ("ODDs")four ODDs from the Food and Drug Administration ("FDA")FDA for the treatment of certain disease genotypes: nuclear receptor subfamily 2 group E member 3 ("NR2E3"), centrosomal protein 290 ("CEP290"), rhodopsin ("RHO"), and phosphodiesterase 6B ("PDE6B") mutation-associated RP. The third ODD, for the RHOPDE6ß mutation, was received in late July 2020. The RHO mutation is one of the more common mutations that cause RP, representing about 12% of RP patients in the United States. The fourth ODD, for the PDE6B mutation, was received in early August 2020. RP caused by PDE6B mutation is anmutation-associated inherited retinal dystrophy that leads to blindness by midlife and is characterized by the progressive loss of photoreceptors, with or without the loss of retinal pigment epithelium cells.degenerations. We are planning to initiate two Phase 1/2a clinical trials for OCU400 in the United States in the second half of 2021. OCU400 additionally received OMPD from the EC, based on the recommendation of the EMA, for RP and LCA in February 2021, which we believe further supports the potential broad spectrum application of OCU400 to treat many IRDs. We are currently evaluating options to commence OCU400 clinical trials in Europe in 2022. Our second gene therapy candidate, OCU410, is being developed to utilize the nuclear receptor genes RAR-related orphan receptor A ("RORA") for the treatment of dry AMD. This candidate is currently in preclinical development. We are planning to initiate a Phase 1/2a clinical trial for OCU410 in 2022.
Novel Biologic Therapy for Retinal Diseases
We are also conducting preclinical development for a novelour biologic product candidate, OCU200. OCU200 is a novel fusion protein designed to treat DME, DR, and wet AMD. We had a pre-IND meeting with the FDA in November 2020 and received guidance on IND-enabling preclinical studies to support the Phase 1/2a study. We expect to initiate IND-enabling preclinical studies for OCU200 in 2021 and plan to initiate a Phase 1/2a clinical trial for OCU200 in 2022.
Product Candidate for the first halfTreatment of 2022. We plan to expand the therapeutic applications of OCU200 beyond DME, DR and wet AMD to potentially include macular edema following retinal vein occlusion and myopic choroidal neovascularization.oGVHD
We were developing OCU300, a small molecule therapeutic for the treatment of symptoms associated with ocular graft versus-host disease. On June 1, 2020, we announced that we had discontinued theoGVHD. The Phase 3 clinical trial offor OCU300 was discontinued in 2020 based on results of a pre-planned interim sample size analysis conducted by an independent Data Monitoring Committee, which indicated the trial was unlikely to meet its co-primary endpoints upon completion.
Impact of COVID-19 on our Business
The COVID-19 pandemic continues to evolve and we are closely monitoring the situation. If the number of active cases of COVID-19 continues to be high in the United States and elsewhere, the pandemic may delay enrollment in our planned clinical trials. Among other things, continued spread of COVID-19 may result in limitations on global international travel, which may delay key trial activities including necessary interactions with regulators. We may be faced with limitations in employee resources that would otherwise be focused on the conduct of clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people. Moreover, we may experience additional disruptions that could severely impact our business and development activities, including, but not limited to, strain on our suppliers and other third parties and the disruption of our ability to raise capital when needed on acceptable terms, if at all. Disruptions in our operations or supply chain, whether as a result of restricted travel, quarantine requirements or otherwise, could negatively impact our ability to proceed with our clinical trials, preclinical development, and other activities and delay our ability to receive product approval and generate revenue. Impacts that may result from the COVID-19 pandemic remain highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our preclinical development efforts, healthcare systems, or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
unlikely to meet its co-primary endpoints upon completion. The trial was not stopped based on safety concerns. We are no longer pursuing the development of this product candidate.
We were previously developing OCU310 for patients with dry eye disease. We completed a Phase 3 clinical trial for OCU310 that was initiated in September 2018. Although the trial showed that OCU310 is safe and well-tolerated, it did not meet its co-primary endpoints for symptom and sign. We are no longer pursuing the development of this product candidate.Financial Operations Overview
We have no products approved for commercial sale and have not generated anysignificant revenue from product sales.to date. We have never been profitable and have incurred operating losses in each year since inception. We incurred net losses of approximately $7.6$7.1 million and $9.9$3.9 million for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. As of June 30, 2020,March 31, 2021, we had an accumulated deficit of $59.0$80.4 million and a cash, cash equivalents, and restricted cash balance of $15.1$44.9 million. Substantially all
As of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
To date,March 31, 2021, we have viewed our operations and managemanaged our business as one operating segment.segment consistent with how our chief operating decision-maker, our Chief Executive Officer, makes decisions regarding resource allocation and assessing performance. As of June 30, 2020,March 31, 2021, substantially all of our assets were located in the United States. Our headquarters and operations are located in Malvern, Pennsylvania.
Financial Operations Overview
Collaboration Revenue
Collaboration revenue consists of royalty payments received in connection with agreements accounted for as collaborative arrangements under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 808, Collaborative Arrangements ("ASC 808"). The Company assesses whether royalty payments from collaboration partners represent consideration from a customer. If the collaboration partner is considered a customer, the Company accounts for those payments within the scope of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). However, when the Company concludes that its collaboration partner is not a customer, the Company will record royalty payments received as collaboration revenue in the period in which the underlying sale occurs. See Note 5 to our condensed consolidated financial statements included in this report for additional information.
Research and development expense
Research and development costs are expensed as incurred. These costs consist of internal and external expenses.expenses, as well as depreciation on assets used within our research and development activities. Internal expenses include the cost of salaries, benefits, severance, and other related costs, including stock-based compensation, for personnel serving in our research and development functions, as well as allocated rent and utilities expenses. External expenses include development, clinical trials, patent costs, and regulatory compliance costs incurred with research organizations, contract manufacturers, and other third-party vendors. License fees paid to acquire access to proprietary technology are expensed to research and development unless it is determined that the technology is expected to have an alternative future use. All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred to research and development expense due to the uncertainty about the recovery of the expenditure. We record costs for certain development activities, such as preclinical studies and clinical trials, based on our evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred.tasks. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued research and development expense, as applicable. Our recording of costs for certain development activities requires us to use estimates. We believe our estimates and assumptions are reasonable under the casecurrent conditions; however, actual results may be.differ from these estimates.
Research and development expenses account for a significant portion of our operating expenses. We plan to incur research and development expenses for the foreseeable future as we expect to continue the development of our product candidates. We anticipate that our research and development expenses will increase modestlybe higher in 2021 as compared to prior periods as we evaluate the regulatory and commercialization path for COVAXIN in the United States as well as conduct preclinical and clinical activities in preparation forwith respect to our other product candidates. We are planning to initiate two Phase 1/2a clinical trials for OCU400 in the United States in the second half of 2021 and Phase 1/2a clinical trials for OCU410 and OCU200 in 2022. We are also currently evaluating options to commence OCU400 clinical trials in Europe in 2022.
Our research and development expenses are not currently tracked on a program-by-program basis for indirect and overhead costs. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying, developing, and commercializing product candidates.
At this time, due to the inherently unpredictable nature of preclinical and clinical development as well as regulatory approval and commercialization, we are unable to estimate with any certainty the costs we will incur and the timelines we will require in our continued development and commercialization efforts. As a result of these uncertainties, successful development and completion of clinical trials as well as regulatory approval and commercialization are uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We will continue to make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to our ability to enter into collaborations with respect to OCU400, OCU410,each product candidate, the scientific and OCU200 that we planclinical success of each product candidate as well as ongoing assessments as to commence in 2021 and 2022.the commercial potential of each product candidate.
General and administrative expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits, severance, insurance, and stock-based compensation expense, for employees in executive, accounting, and other administrative functions. General and administrative expense also includes corporate facility costs, including allocated rent and utilities, insurance premiums, legal fees related to corporate matters, and fees for auditing, accounting, and other consulting services.
We anticipate that our general and administrative expenses will increasebe higher in 2021 as compared to prior periods as a result of higher corporate infrastructure costs including, but not limited to, accounting, legal, human resources, consulting, and investor relations fees, as well as increased directorfees. Additionally, if and officer insurance premiums, associated with operatingwhen we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a public company.
our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates. Severance-related expense
In June 2020, we communicated notice to five employees of the termination of their employment.employment as a result of the discontinuation of our OCU300 product candidate for the treatment of symptoms associated with oGVHD. This reduction representsrepresented one-third of our workforce.workforce at the time of communication. All terminations were “without cause” and each employee is entitled to receivereceived termination benefits upon departure. The termination dates varyvaried for each employee and rangeranged from June 30, 2020 to December 31, 2020.
As a result of the workforce reduction, we recognized severance-related charges of $0.7 million during the three and six months ended June 30, 2020. We expect to pay severance benefits of $0.4 million during 2020 and $0.3 million duringthroughout the remainder of 2021. ForDuring the three and six months ended June 30, 2020,March 31, 2021, we recognized severance-related chargesmade severance payments of $0.2 million within general and administrative expense and $0.5 million within research and development expense. We expect that the workforce reduction will result in approximately $2.0 million in annualized cost savings commencing in 2021.
Change in fair value of derivative liabilities
Change in fair value of derivative liabilities includes the change in fair value each reporting period of the conversion and change in control features embedded in certain convertible notes, which were required to be bifurcated and recognized at fair value.
Interest Expense
Interest expense primarily includes debt coupon interest, the amortization of debt issuance costs, and the accretion of debt discounts.$0.3 million.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires us to make judgments, estimates, and assumptions in the preparation of our condensed consolidated financial statements. Actual results could differ from those estimates. There were no material changes to our critical accounting policies and estimates as reported in our 20192020 Annual Report.
Results of Operations
Comparison of the Three Months Ended June 30,March 31, 2021 and 2020 and 2019
The following table summarizes the results of Ocugen���sour operations for the three months ended June 30,March 31, 2021 and 2020 and 2019:(in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | |
| (in thousands) | | 2020 | | 2019 | | Change |
| Revenues: | | | | | | |
| Collaboration revenue | | $ | 43 | | | $ | — | | | $ | 43 | |
| Total revenues | | 43 | | | — | | | 43 | |
| Operating expenses: | | | | | | |
| Research and development | | 1,630 | | | 1,240 | | | 390 | |
| | | | | | |
| General and administrative | | 1,779 | | | 1,088 | | | 691 | |
| Total operating expenses | | 3,409 | | | 2,328 | | | 1,081 | |
| Loss from operations | | (3,366) | | | (2,328) | | | (1,038) | |
| Other income (expense): | | | | | | |
| Change in fair value of derivative liability | | — | | | (608) | | | 608 | |
| Loss on debt conversion | | — | | | (341) | | | 341 | |
| | | | | | |
| Interest expense | | (248) | | | (262) | | | 14 | |
| | | | | | |
| Total other income (expense) | | (248) | | | (1,211) | | | 963 | |
| Net loss | | $ | (3,614) | | | $ | (3,539) | | | $ | (75) | |
Collaboration revenue
Collaboration revenue increased by $42,620 for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 as a result of collaboration revenue generated from our collaboration agreement with Advaite, Inc. ("Advaite"), which commenced in April 2020. We did not have any collaboration revenue in 2019. | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2021 | | 2020 | | Change |
| | | | | |
| | | | | |
| | | | | |
| Operating expenses: | | | | | |
| Research and development | $ | 2,872 | | | $ | 1,652 | | | $ | 1,220 | |
| | | | | |
| General and administrative | 4,185 | | | 2,277 | | | 1,908 | |
| Total operating expenses | 7,057 | | | 3,929 | | | 3,128 | |
| Loss from operations | (7,057) | | | (3,929) | | | (3,128) | |
| Other income (expense): | | | | | |
| | | | | |
| Interest expense | (20) | | | (15) | | | (5) | |
| | | | | |
| Total other income (expense) | (20) | | | (15) | | | (5) | |
| Net loss | $ | (7,077) | | | $ | (3,944) | | | $ | (3,133) | |
Research and development expense
Research and development expense increased by $0.4$1.2 million for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020. The increase was primarily as a result ofdue to an increase of $0.5$0.7 million in severance charges related to the employee terminations announced in June 2020 and an increase ofOCU400 preclinical activities, $0.4 million related to COVAXIN development, $0.3 million related to OCU300 clinical trialOCU200 preclinical activities, $0.2 million related to professional fees, and $0.1 million related to stock-based compensation expense, partially offset by a decrease of $0.2$0.5 million related to cost reimbursements received under our collaboration agreement with Advaite.the discontinuation of OCU300 clinical trial activities in 2020.
General and administrative expense
General and administrative expensesexpense increased by $0.7$1.9 million for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 primarily as a result of increases of $0.3 million in employee-related expenses, $0.3 million in insurance premiums, and $0.2 million in severance charges for employee terminations announced in JuneMarch 31, 2020.
Change in fair value of derivative liability
The change in fair value of derivative liability was zero for the three months ended June 30, 2020 compared to a loss of $0.6 million due to a change in fair value of derivatives related to convertible debt instruments during the three months ended June 30, 2019.
Loss on Debt Conversion
The loss on debt conversion was zero for the three months ended June 30, 2020 compared to a loss of $0.3 million during the three months ended June 30, 2019 relating to the conversions of all previously issued convertible debt during the three months ended June 30, 2019.
Interest expense
Interest expense was $0.2 million for the three months ended June 30, 2020 and $0.3 million for the three months ended June 30, 2019. The decrease in interest expenseincrease was primarily due to incurring $1.2 million in costs associated with obtaining an increase in the conversionsauthorized shares of all previously issued convertible debt during 2019. Interest expense for the three months ended June 30, 2020 primarily relates to the Warrant Exchange Promissory Notes.our common stock including proxy solicitation fees and an increase of $0.5 million related
Comparison ofto stock-based compensation expense. See Note 12 in the Six Months Ended June 30, 2020 and 2019
The following table summarizes the results of Ocugen's operations for the six months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | |
| (in thousands) | | 2020 | | 2019 | | Change |
| Revenues: | | | | | | |
| Collaboration revenue | | $ | 43 | | | $ | — | | | $ | 43 | |
| Total revenues | | 43 | | | — | | | 43 | |
| Operating expenses: | | | | | | |
| Research and development | | 3,282 | | | 5,033 | | | (1,751) | |
| | | | | | |
| General and administrative | | 4,056 | | | 2,137 | | | 1,919 | |
| Total operating expenses | | 7,338 | | | 7,170 | | | 168 | |
| Loss from operations | | (7,295) | | | (7,170) | | | (125) | |
| Other income (expense): | | | | | | |
| Change in fair value of derivative liability | | — | | | (1,384) | | | 1,384 | |
| Loss on debt conversion | | — | | | (341) | | | 341 | |
| Interest income | | — | | | 1 | | | (1) | |
| Interest expense | | (263) | | | (957) | | | 694 | |
| | | | | | |
| Total other income (expense) | | (263) | | | (2,681) | | | 2,418 | |
| Net loss | | $ | (7,558) | | | $ | (9,851) | | | $ | 2,293 | |
Collaboration revenue
Collaboration revenue increased by $42,620 for the six months ended June 30, 2020 comparednotes to the six months ended June 30, 2019 as a result of collaboration revenue generated from our collaboration agreement with Advaite, which commencedcondensed consolidated financial statements included in April 2020. We did not have any collaboration revenue in 2019.
Research and development expense
Research and development expense decreased by $1.8 millionthis report for additional information about the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily as a result of a net decrease in program development and clinical trial activities of $2.0 million, partially offset by an increase of $0.5 million in severance charges for employee terminations announced in June 2020.
The net decrease in program development and clinical trial activities is primarily comprised of a decrease of $2.4 million related to OCU310 which was discontinued in 2019 and a $0.3 million decrease related to OCU400 preclinical activities, partially offset by a $0.7 million increase in OCU300 clinical activities.
General and administrative expense
General and administrative expenses increased by $1.9 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily as a resultauthorized shares of increases of $0.7 million in professional fees, $0.6 million in insurance premiums, $0.2 million for severance charges for employee terminations announced in June 2020, and $0.2 million in employee-related expenses.
Change in fair value of derivative liability
The change in fair value of derivative liability was zero for the six months ended June 30, 2020 compared to a loss of $1.4 million for the six months ended June 30, 2019 due to a change in fair value of derivatives related to convertible debt instruments during the six months ended June 30, 2019.
Loss on Debt Conversion
The loss on debt conversion was zero for the six months ended June 30, 2020 compared to a loss of $0.3 million for the six months ended June 30, 2019 relating to 2019 conversions of all previously issued convertible debt.
Interest expense
Interest expense was $0.3 million for the six months ended June 30, 2020 compared to $1.0 million for the six months ended June 30, 2019. The decrease in interest expense was primarily due to the conversions of all previously issued convertible debt in 2019.our common stock.
Liquidity and Capital Resources
As of June 30, 2020,March 31, 2021, we had $15.1$44.9 million in cash, cash equivalents, and restricted cash. We have not generated anysignificant revenue from product sales to date and have primarily funded our operations to date through the sale of common stock, warrants to purchase common stock, the issuance of convertible notes, debt, and grant proceeds. Specifically, since our inception and through June 30, 2020,March 31, 2021, we have raised an aggregate of $68.6$118.4 million to fund our operations, of which $56.0$105.8 million was from gross proceeds from the sale of our common stock and warrants, $10.3 million was from the issuance of convertible notes, $2.1 million was from debt, and $0.2 million was from grant proceeds.
DuringIn February 2021, we issued and sold 3.0 million shares of our common stock at an offering price of $7.65 per share in the February 2021 Registered Direct Offering pursuant to a securities purchase agreement. We received net proceeds of $21.2 million. For additional information about the February 2021 Registered Direct Offering, see Note 8 in the notes to the condensed consolidated financial statements included in this report. In April 2021, we issued and sold 10.0 million shares of our common stock at an offering price of $10.00 per share in the April 2021 Registered Direct Offering pursuant to a securities purchase agreement with healthcare-focused institutional investors. We received net proceeds of $93.4 million. For additional information about the April 2021 Registered Direct Offering, see Note 12 in the notes to the condensed consolidated financial statements included in this report.
Additionally, during the three months ended June 30, 2020,March 31, 2021, we sold an aggregate of 59.11.0 million shares of our common stock in separate at-the-market offerings (“ATMs”) commenced in Maythe August 2020 and June 2020.ATM. We received net proceeds of $15.4 million, after deducting commissions, fees and expenses of $0.7$4.8 million. The offerings wereoffering was made pursuant to our effective "shelf" registration statement on Form S-3 filed with the Securities and Exchange CommissionSEC on March 27, 2020, the base prospectus contained therein dated May 5, 2020, and the prospectus supplementssupplement related to the offeringsoffering dated May 8, 2020 and June 12,August 17, 2020. As of June 30, 2020,March 31, 2021, we had sold all of theremaining capacity to raise $3.3 million by issuing shares of our common stock available for issuance under the prospectus supplements filedsupplement in connection with the ATMs.August 2020 ATM. For additional information about the August 2020 ATM, see Note 8 in the notes to the condensed consolidated financial statements included in this report.
Since our inception, we have devoted substantial resources to research and development and have incurred significant net losses and expect tomay continue to incur net losses forin the foreseeable future. We incurred net losses of approximately $7.6$7.1 million and $9.9$3.9 million for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. As of June 30, 2020,March 31, 2021, we had an accumulated deficit of $59.0 million. In addition, as of June 30, 2020, we had accounts payable and accrued expenses of $2.6 million and indebtedness of $6.1$80.4 million.
The following table shows a summary of our cash flows for the periods indicated:three months ended March 31, 2021 and 2020 (in thousands):
| | | Six months ended June 30, | | | Three months ended March 31, |
| (in thousands) | 2020 | | 2019 | |
| | | 2021 | | 2020 |
| Net cash used in operating activities | Net cash used in operating activities | $ | (7,773) | | | $ | (6,031) | | Net cash used in operating activities | $ | (5,283) | | | $ | (4,686) | |
| Net cash used in investing activities | Net cash used in investing activities | (34) | | | (132) | | Net cash used in investing activities | (261) | | | (53) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 15,331 | | | 5,214 | | Net cash provided by financing activities | 26,297 | | | 488 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 7,524 | | | $ | (949) | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 20,753 | | | $ | (4,251) | |
Operating activities
Cash used in operating activities was $7.8$5.3 million for the sixthree months ended June 30, 2020March 31, 2021 compared with $6.0to $4.7 million for the sixthree months ended June 30, 2019.March 31, 2020. The increase in cash used in operating activities was primarily driven by an increase in our research and development expenses for product candidates, including COVAXIN, during the decrease in accounts payable and accrued expenses during 2020three months ended March 31, 2021 as compared to 2019.the three months ended March 31, 2020.
Investing activities
Cash used in investing activities was $34,458$0.3 million for the sixthree months ended June 30, 2020March 31, 2021 compared withto $0.1 million for the sixthree months ended June 30, 2019.March 31, 2020. The decreaseincrease in cash used in investing activities was primarily driven by payments for reverse asset acquisition costsan increase in purchases of $0.1 millionproperty and equipment during the sixthree months ended June 30, 2019 with no comparable payments made duringMarch 31, 2021 as compared to the sixthree months ended June 30,March 31, 2020.
Financing activities
Financing activities
Cash provided by financing activities was $15.3$26.3 million for the sixthree months ended June 30, 2020March 31, 2021 compared to $5.2$0.5 million for the sixthree months ended June 30, 2019. The increase inMarch 31, 2020. During the three months ended March 31, 2021, cash provided by financing activities was primarily driven byconsisted of gross proceeds of $16.2$22.9 million received from the February 2021 Registered Direct Offering, gross proceeds of $5.0 million received under MayAugust 2020 ATM, and June 2020 ATMs,$0.2 million in proceeds from the exercise of stock options, partially offset by payments of equity issuance costs of $0.6 million, repayments$1.8 million. During the three months ended March 31, 2020, cash provided by financing activities primarily consisted of debt of $1.1 million, and a decrease in proceeds from debt issuance of debt during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Convertible debt of $4.3 million was issued during the six months ended June 30, 2019 as compared to debt of $0.9 million issued during the six months ended June 30, 2020 related to borrowings under the PPP (as defined below) and a loan agreement with EB5 Life Sciences, L.P.$0.5 million.
Indebtedness
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. OnIn April 30, 2020, we were granted a loan from Silicon Valley Bank ("SVB"),SVB in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program (the "PPP")PPP of the CARES Act. The loan was in the form of a promissory note dated April 30, 2020 in favor of SVB. The PPP Note matures on April 30, 2022 and bears interest at a rate of 1.0% per annum. Principal and interest payments are payable monthly commencing on either (i) the date the SBA compensates SVB for any forgiven amounts or (ii) 10 months after the end of our loan forgiveness covered period, which ended in October 2020. Certain amounts of the loan may be forgiven if they are used for qualifying expenses as described by the CARES Act. The loan was inPPP. If the formPPP Note is fully forgiven, we will not be responsible for any payments. As of a promissory note which matures on April 30, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on the date the Small Business Administration (the "SBA") compensates SVB for amounts forgiven or within 10 months following the expiration of the 24-week covered period for qualifying expenses if we have not applied for forgiveness. At June 30, 2020,March 31, 2021, there was $0.4 million of principal outstanding under the PPP loan.
On April 22, 2020, we issued promissory notes (the "Warrant Exchange Promissory Notes") with an aggregate principal amount of $5.6 million to existing investors in connection with an exchange of our Series A Warrants. The Warrant Exchange Promissory Notes have a maturity date of April 21, 2021 and do not bear interest. We may prepay the Warrant Exchange Promissory Notes in whole or in part at any time without penalty or premium. In the event that we consummate a financing transaction that generates cash to us, we are required to use 20% of the net proceeds of such transaction to prepay a portion of the outstanding amount under each Warrant Exchange Promissory Note if the transaction occurs on or prior to August 22, 2020, and 30% of the net proceeds to prepay a portion of the outstanding amount under each Warrant Exchange Promissory Note if the transaction occurs after August 22, 2020. As of June 30, 2020, there was $4.5 million of principal outstanding under the Warrant Exchange Promissory Notes. On July 1, 2020, we made additional payments of $1.9 million, further reducing the principal amount outstanding.Note.
In September 2016, pursuant to the U.S. Government’s Immigrant Investor Program, commonly known as the EB-5 program, (the “EB-5 Program”), we entered into an arrangement (the “EB-5the EB-5 Loan Agreement”)Agreement to borrow up to $10.0 million from EB5EB-5 Life Sciences L.P. ("EB5 Life Sciences") in $0.5 million increments. Borrowings are at a fixed interest rate of 4.0% and are to be utilized in the clinical development, manufacturing, and commercialization of our productsproduct candidates and for our general working capital needs. Outstanding borrowings pursuant to the EB-5 Program become due upon the seventh anniversary of the final disbursement. Amounts repaid cannot be re-borrowed. Under the terms and conditionsAs of the EB-5 Loan Agreement, we borrowed $0.5 million on March 26, 2020. At June 30, 2020,31, 2021, there was $1.5 million of principal outstanding under the EB-5 program.Loan Agreement.
Funding requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we continue research and development, including preclinical and clinical development activities of our product candidates, andcontract to manufacture our product candidates, add operational, financial, and information systems to execute our business plan, maintain, expand, and protect our patent portfolio, contract to manufacture our product candidates and operate as a public company.
Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:
•the initiation, progress, timing, costs, and results of clinical trials for our product candidates;
•the outcome, timing, and cost of the regulatory approval process for our product candidates by the Food and Drug Administration;FDA including EUA for COVAXIN;
•future costs of manufacturing and commercialization;commercialization, including COVAXIN if authorized or approved;
•the cost of filing, prosecuting, defending, and enforcing our patent claims and other intellectual property rights;
•the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
•the costs of expanding infrastructure, as well as the higher corporate infrastructure costs associated with operating as a public company;
•the expenses needed to attract and retain skilled personnel;
•the extent to which we in-license or acquire other products, product candidates, or technologies.technologies; and
As•the impact of June 30, 2020,the COVID-19 pandemic.
Although we had $15.1 million inbelieve our cash, cash equivalents, and restricted cash. This amount is unlikelycash will enable us to meetfund our near-termoperating expenses and capital requirements through at least one year from the date the condensed consolidated financials included in this report are issued, our management plans to continue to raise additional capital to support the development and will not meetcommercialization of our capital requirements over the next 12 months. Our management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include, but are not limited to:product candidates through public and private placements of equity and/or debt, payments from potential strategic research and development, sale of assets, andgovernment grants, licensing and/or collaboration arrangements with pharmaceutical companies or other institutions.institutions, or other funding from the government. There can be no assurance that these future funding efforts will be successful. If we cannot obtain the necessary funding, we will need to delay, scale back, or eliminate some or all of our research
and development programs; consider other various strategic alternatives, including a merger or sale; or cease operations. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.
As previously disclosed, on December 27, 2019, we received a deficiency letter from the NASDAQ Capital Market ("Nasdaq") due to the bid price of our common stock falling below the minimum bid price for continued listing under Nasdaq listing rules for 30 consecutive days. In response to the COVID-19 pandemic and related extraordinary market conditions, Nasdaq has tolled the compliance period for non-compliance with the minimum bid price listing requirement, effective April 16, 2020, until June 30, 2020 (the "Tolling Period"). Following the Tolling Period, we will have until September 7, 2020 to regain compliance with the applicable minimum bid price. We may regain compliance during or after the Tolling Period by maintaining a bid price of our common stock above $1.00 for ten consecutive business days. If we are unable to regain compliance with Nasdaq listing rules regarding the price of our common stock in a timely manner, our common stock may become subject to delisting and we may find it difficult or impracticable to raise additional funds through public equity offerings.
As a result of these factors, together with the anticipated increase in spending that will be necessary to continue to develop our products, we have concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements included in this report are issued. See Note 1 to our condensed consolidated financial statements included in this report for additional information.
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements as defined in the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").SEC.
Recently Adopted Accounting Pronouncements
For a discussion of recently adopted accounting pronouncements, see Note 2 in the notes to ourthe condensed consolidated financial statements included in this report.
Other Company Information
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of 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)amended (the “Exchange Act”"Exchange Act"), as of June 30, 2020.March 31, 2021. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (b) 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. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to claims in legal proceedings arising in the normal course of our business. To our knowledge, thereWe do not believe that we are no threatened orcurrently party to any pending legal actions that could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Item 1A. Risk Factors.
ThereExcept as set forth below, there have been no material changes in our risk factors as previously disclosed in our 20192020 Annual Report and in our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020.Report. The risks described in our 20192020 Annual Report and suchthis Quarterly Report on Form 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.
The ongoing COVID-19 pandemic and actions taken in response to it may result in disruptions to our business operations, which would have a material adverse effect on our business, financial position, operating results, and cash flows.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the United States declared the COVID-19 pandemic a national emergency. The Governor of Pennsylvania declared a state of emergency and has issued orders impacting our business operations.
We are developing COVAXIN, the COVID-19 vaccine candidate developed in India by Bharat Biotech, for the U.S. market pursuant to the Covaxin Agreement. Our ability to obtain EUA or BLA approval depends on Bharat Biotech’s ability to complete its ongoing Phase 3 clinical trial of COVAXIN in India, in which they have enrolled 25,800 participants between 18 to 98 years of age, including 2,433 over the age of 60 and 4,500 with comorbidities. Moreover, if authorized or approved, our ability to commercialize COVAXIN in the U.S. market will depend in part on our ability obtain sufficient doses of the vaccine from Bharat Biotech to meet our anticipated needs for 2021. As of the date of this Quarterly Report on Form 10-Q, India is currently experiencing a significant surge in COVID-19 infections, including novel and variant strains of the virus, which has resulted in overwhelmed hospitals and shortages in oxygen, ventilators, and medical supplies. In addition, the Indian government has imposed a temporary suspension of the export of COVID-19 vaccines as a result of this wave of COVID-19 infections in India. The ongoing surge in COVID-19 infections in India presents risks that the completion of Bharat Biotech’s Phase 3 clinical trial will be delayed, due, in part by the diversion of medical resources and COVAXIN supply, patients’ unwillingness to complete required follow-up, and the emergence of new strains of the virus that may reduce the efficacy of COVAXIN or otherwise complicate clinical development. The Indian government’s temporary suspension of the export of COVID-19 vaccines may require Bharat Biotech to focus its resources, including COVAXIN supply, on domestic Indian requirements and thereby prevent Bharat Biotech from shipping supply of COVAXIN abroad, including to the United States. Any such developments in clinical development or vaccine supply may cause significant delays in our ability to submit required documentation to the FDA, to obtain EUA or BLA approval for COVAXIN in the United States or to commercialize COVAXIN in the United States on our anticipated timelines. We are currently waiting for additional data from Bharat Biotech from the ongoing Phase 3 clinical trial for an EUA submission. Due to the current surge in COVID-19 cases in India, this process is taking longer than anticipated. We are continuing to monitor the situation and intend to file the EUA submission as soon as practicable. Any significant delays could adversely affect our business, results of operations, or financial condition.
With respect to our gene therapy product candidates, we currently expect to commence two Phase 1/2a clinical trials for OCU400, our product candidate for the treatment of multiple IRDs, in the United States in the second half of 2021. If COVID-19 continues to spread in the United States and elsewhere, it may delay enrollment in these planned clinical trials, and in any clinical trials that we may commence for our other product candidates in 2022. Some patients may not be able to comply with clinical trial protocols if any future quarantines impede patient movement or interrupt healthcare services. Moreover, limitations on global international travel may delay key trial activities, including necessary interactions with regulators, ethics committees, and other important agencies and contractors. We may be faced with limitations in employee resources that would otherwise be focused on the conduct of clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people. Any of the above could delay our planned clinical trials for OCU400 or prevent us from completing these clinical trials at all, and harm our ability to obtain approval for OCU400 or our other product candidates.
Moreover, we may experience additional disruptions that could severely impact our business and development activities, including, but not limited to, strain on our suppliers and other third parties, possibly resulting in supply disruptions of our product candidates for preclinical development and potential future clinical trials we expect to initiate, decrease in clinical enrollment in any clinical trials we initiate, and the ability to raise capital when needed on acceptable terms, if at all. Disruptions in our operations or supply chain, whether as a result of government intervention, restricted travel, quarantine requirements, or otherwise, could negatively impact our ability to proceed with our clinical trials, preclinical development, and other activities and delay our ability to receive product approval and generate revenue.
In addition, the continued spread of COVID-19 may lead to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets. It is possible that the continued spread of COVID-19 could cause an economic slowdown or recession or cause other unpredictable events, each of which could adversely affect our business, results of operations, or financial condition.
The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, the emergence of any new mutations or variants of the virus, the duration of the outbreak, travel restrictions imposed by the United States, India, and other countries, business closures or business disruption in the United States, India, and other countries, and the actions taken throughout the world, including in our markets, to contain COVID-19 or treat its impact. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our preclinical development efforts, healthcare systems, or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
As referenced in Note 8 toDuring the condensed consolidated financial statements included in Item 1 of Part I ofperiod covered by this Quarterly Report, there were no sales by us of unregistered securities that were not previously reported by us in a Current Report on Form 10-Q, on April 22, 2020, the Company entered into a subscription agreement with an accredited investor for the sale of 1,000 shares of the Company's common stock in a private placement for an aggregate offering price of $395.
On June 6, 2020, the Company entered into a subscription agreement with an accredited investor for the issuance of 1,325,405 shares of the Company's common stock in a private placement. The shares of common stock were issued as part of a transaction in settlement of an outstanding obligation of the Company to the accredited investor, in which (i) the Company agreed to make certain cash payments, (ii) the Company issued the 1,325,405 shares of common stock in exchange for the accredited investor's agreement to cancel $331,218 of the outstanding obligation and (iii) the accredited investor agreed to cancel an additional portion of the amount owed by the Company.
The issuances of these securities were exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, in that the transactions were by an issuer not involving any public offering.8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
| | | | | | | | |
| Exhibit | | Description |
| | |
10.13.1* | | |
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10.23.2 | | |
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| 10.1*# | | |
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| 10.2*+ | | |
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| 10.3 | | |
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| 10.4 | | |
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10.5 | | |
| | |
| 31.1* | | |
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| 31.2* | | |
| | |
| 32.1** | | |
| | |
| 101.INS* | | Inline XBRL Instance Document |
| | |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL |
_______________________
* Filed herewith.
** Furnished herewith.
# Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulations S-K.
+ Indicates a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| Ocugen, Inc. |
| |
Dated: August 14, 2020May 7, 2021 | /s/ Shankar Musunuri |
| Shankar Musunuri, Ph.D., MBA
Chief Executive Officer and Chairman
(Principal Executive Officer) |
| |
Dated: August 14, 2020May 7, 2021 | /s/ Sanjay Subramanian |
| Sanjay Subramanian
Chief Financial Officer
(Principal Financial Officer and Accounting Officer) |