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WINT Windtree Therapeutics

Filed: 13 May 21, 7:14am
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2021

 

or

 

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

 

For the transition period from _____ to _____

 

Commission file number 000-26422

 

Windtree Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

94-3171943

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

2600 Kelly Road, Suite 100

Warrington, Pennsylvania

(Address of principal executive offices)

18976-3622

(Zip Code)

 

Registrant’s telephone number, including area code: (215) 488-9300

 

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, $0.001 par value

 WINT

 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 ☒  No ☐

 

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 ☒  No ☐

 

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      ☐

Accelerated filer      ☐

 

 

Non-accelerated filer      ☒ 

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 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐  NO ☒

 

As of May 12, 2021, there were 26,257,065 shares of the registrant’s common stock outstanding, par value $0.001 per share.

 

 

 

 
 

Unless the context otherwise requires, all references to “we,” “us,” “our,” and the “Company” include Windtree Therapeutics, Inc., and its consolidated subsidiaries.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements provide our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including such terms as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “will,” “should,” “could,” “targets,” “projects,” “contemplates,” “predicts,” “potential” or “continues” or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking.

 

We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from any future results expressed or implied by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Examples of such risks and uncertainties, which potentially could have a material adverse effect on our development programs, business and/or operations, include, but are not limited to the following:

 

 

our estimates regarding future results of operations, financial position, research and development costs, capital requirements and our needs for additional financing;

 

 

 

 

how long we can continue to fund our operations with our existing cash and cash equivalents;

 

 

 

 

delays in our anticipated timelines and milestones and additional costs associated with the novel coronavirus, or COVID-19, pandemic;

 

 

 

 

the results, cost and timing of our preclinical studies and clinical trials, as well as the number of required trials for regulatory approval and the criteria for success in such trials;

 

 

 

 

legal and regulatory developments in the United States, or U.S., and foreign countries, including any actions or advice that may affect the design, initiation, timing, continuation, progress or outcome of clinical trials or result in the need for additional clinical trials;

 

 

 

 

the difficulties and expenses associated with obtaining and maintaining regulatory approval of our product candidates, and the indication and labeling under any such approval;

 

 

 

 

our plans and the plans of our licensee in Asia and our respective abilities to successfully execute clinical and business development activities in a timely manner, if at all, and commercialize our product candidates;

 

 

 

 

risks related to manufacturing active pharmaceutical ingredients, drug product, medical devices and other materials we need;

 

 

 

 delays, interruptions or failures in the manufacture and supply of our product candidates;
   
 the performance of third parties, both foreign and domestic, upon which we depend, including contract research organizations, contract manufacturing organizations, contractor laboratories and independent contractors;
   
 

the size and growth of the potential markets for our product candidates, the regulatory requirements in such markets, the rate and degree of market acceptance of our product candidates and our ability to serve those markets;

 

 

 

 

the success of competing therapies and products that are or become available;

 

 

 

 

our ability to limit our exposure under product liability lawsuits;

 

 

 

 

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

 

 

 

 

recently enacted and future legislation regarding the healthcare system in the U.S. and other potential markets, including in the U.S. changes to the Patient Protection and Affordable Care Act;

 

 

 

 

our ability to recruit or retain key scientific, commercial or management personnel or to retain our executive officers;

 

 

 

 

our ability to secure electronically stored work product, including clinical data, analyses, research, communications and other materials necessary to gain regulatory approval of our product candidates, including those acquired from third parties, and assure the integrity, proper functionality and security of our internal computer and information systems and prevent or avoid cyber-attacks, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption; and

   
 the potential impairment of our intangible assets and goodwill on our condensed consolidated balance sheet, which could lead to material impairment charges in the future.

 

 

Pharmaceutical, biotechnology and medical technology companies have suffered significant setbacks conducting clinical trials, even after obtaining promising earlier preclinical and clinical data. In addition, data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. After gaining approval of a drug product, medical device or combination drug/device product, pharmaceutical and biotechnology companies face considerable challenges in marketing and distributing their products and may never become profitable.

 

The forward-looking statements contained in this report or the documents incorporated by reference herein speak only as of their respective dates. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict them all. Except to the extent required by applicable laws, rules or regulations, we do not undertake any obligation to publicly update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, whether as a result of new information, future events or otherwise.

 

Trademark Notice

AEROSURF®, AFECTAIR®, SURFAXIN®, SURFAXIN LS™, WINDTREE THERAPEUTICS® (logo),

WINDTREE THERAPEUTICS™, and WINDTREE™ are registered and common law trademarks of Windtree Therapeutics, Inc. (Warrington, PA).

 

 

ITEM 1.      Financial Statements

 

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

(in thousands, except share and per share data)

 

 

 
  

March 31, 2021

  

December 31, 2020

 
  

Unaudited

     

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $38,490  $16,930 

Prepaid expenses and other current assets

  851   1,188 

Total current assets

  39,341   18,118 
         

Property and equipment, net

  879   924 

Restricted cash

  154   154 

Operating lease right-of-use assets

  2,747   917 

Intangible assets

  77,090   77,090 

Goodwill

  15,682   15,682 

Total assets

 $135,893  $112,885 
         

LIABILITIES & STOCKHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts payable

 $939  $1,161 

Accrued expenses

  3,744   3,813 

Operating lease liabilities - current portion

  392   805 

Loans payable - current portion

  2,409   352 

Total current liabilities

  7,484   6,131 
         

Operating lease liabilities - non-current portion

  2,438   201 

Loans payable - non-current portion

  -   2,423 

Restructured debt liability - contingent milestone payments

  15,000   15,000 

Other liabilities

  2,800   2,800 

Deferred tax liabilities

  16,683   16,778 

Total liabilities

  44,405   43,333 
         

Stockholders’ Equity:

        

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2021 and December 31, 2020

  -   - 

Common stock, $0.001 par value; 120,000,000 shares authorized at March 31, 2021 and December 31, 2020; 26,257,089 and 16,921,506 shares issued at March 31, 2021 and December 31, 2020, respectively; 26,257,065 and 16,921,482 shares outstanding at March 31, 2021 and December 31, 2020, respectively

  26   17 

Additional paid-in capital

  821,165   790,277 

Accumulated deficit

  (726,649)  (717,688)

Treasury stock (at cost); 24 shares

  (3,054)  (3,054)

Total stockholders’ equity

  91,488   69,552 

Total liabilities & stockholders’ equity

 $135,893  $112,885 

 

See notes to condensed consolidated financial statements

 

 

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

 

(in thousands, except per share data)

 

 
  

Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 
         

Expenses:

        

Research and development

 $4,410  $3,461 

General and administrative

  4,669   3,242 

Total operating expenses

  9,079   6,703 

Operating loss

  (9,079)  (6,703)
         

Other (expense) income:

        

Interest income

  50   89 

Interest expense

  (41)  (44)

Other income, net

  109   124 

Total other (expense) income, net

  118   169 
         

Net loss

 $(8,961) $(6,534)
         

Net loss per common share

        

Basic and diluted

 $(0.51) $(0.48)
         

Weighted average number of common shares outstanding

        

Basic and diluted

  17,695   13,697 

 

See notes to condensed consolidated financial statements

 

 

 

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

(in thousands)

 

 
  

Common Stock

          

Treasury Stock

     
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Shares

  

Amount

  

Total

 
                             

Balance - December 31, 2019

  13,697  $14  $763,097  $(685,122)  -  $(3,054) $74,935 

Net loss

              (6,534)          (6,534)

Stock-based compensation expense

          1,689               1,689 

Balance - March 31, 2020

  13,697  $14  $764,786  $(691,656)  -  $(3,054) $70,090 

 

  

Common Stock

          

Treasury Stock

     
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Shares

  

Amount

  

Total

 
                             

Balance - December 31, 2020

  16,922  $17  $790,277  $(717,688)  -  $(3,054) $69,552 

Net loss

              (8,961)          (8,961)

Stock-based compensation expense

          2,443               2,443 
Issuance of common stock, ATM Program  105   -   570               570 
Issuance of common stock warrants, equity consideration for service agreement          494               494 
Issuance of common stock and common stock warrants, net of issuance costs  9,230   9   27,381               27,390 

Balance - March 31, 2021

  26,257  $26  $821,165  $(726,649)  -  $(3,054) $91,488 

 

See notes to condensed consolidated financial statements

 

 

 

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

(in thousands)

 

 
  

Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net loss

 $(8,961) $(6,534)

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

        

Depreciation

  45   42 

Amortization of debt discount

  -   3 

Stock-based compensation

  2,443   1,689 

Non-cash lease expense

  170   177 

Non-cash expense related to equity consideration for a service agreement

  494   - 

Unrealized gain on foreign exchange rate changes

  (109)  - 

Changes in:

        

Prepaid expenses and other current assets

  337   (16)

Accounts payable

  (222)  (307)

Collaboration and device development payable

  -   (108)

Accrued expenses

  (69)  (238)

Operating lease liabilities

  (176)  (190)

Net cash used in operating activities

  (6,048)  (5,482)
         

Cash flows from financing activities:

        

Proceeds from issuance of common stock and warrants, net of issuance costs

  27,390   - 
Proceeds from the ATM Program, net of expenses  570   - 

Principal payments on loans payable

  (352)  (199)

Net cash provided by (used in) financing activities

  27,608   (199)

Effect of exchange rate changes on cash and cash equivalents

  -   (98)

Net increase (decrease) in cash, cash equivalents, and restricted cash

  21,560   (5,779)

Cash, cash equivalents, and restricted cash - beginning of period

  17,084   22,732 

Cash, cash equivalents, and restricted cash - end of period

 $38,644  $16,953 
         
Operating lease liabilities arising from obtaining right-of-use assets $2,000  $- 

 

See notes to condensed consolidated financial statements

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

Note 1 - The Company and Description of Business

 

We are a clinical-stage, biopharmaceutical and medical device company focused on the development of novel therapeutics intended to address significant unmet medical needs in important acute care markets. Our development programs are primarily focused in the treatment of acute cardiovascular and acute pulmonary diseases. Our lead acute cardiovascular product candidate, istaroxime, is a first-in-class, dual-acting agent being developed to improve cardiac function in patients with acute heart failure, or AHF, with a potentially differentiated safety profile from existing treatments. Istaroxime demonstrated significant improvement in both diastolic and systolic aspects of cardiac function and was generally well tolerated in two phase 2 clinical trials. Istaroxime has been granted Fast Track designation for the treatment of AHF by the U.S. Food and Drug Administration, or FDA. Based on the profile observed in the phase 2 clinical studies in AHF, where istaroxime significantly improved cardiac function and systolic blood pressure in heart failure patients, we initiated a small clinical study to evaluate istaroxime for the treatment of early cardiogenic shock, a severe form of heart failure characterized by very low blood pressure and hypo-perfusion to critical organs. We believe that istaroxime may fulfill an unmet need in early cardiogenic shock. In addition, our drug product candidates include rostafuroxin, a novel medicine for the treatment of hypertension in patients with a specific genetic profile, for which we are pursuing potential out-licensing transactions or other strategic opportunities and not advancing on our own. Our cardiovascular portfolio also includes early exploratory research programs to evaluate potential preclinical product candidates for development, including oral and intravenous sarco (endo) plasmic reticulum Ca2+ -ATPase 2a, or SERCA2a, activator heart failure compounds.

 

Our lead pulmonary product candidate is our proprietary lyophilized KL4 surfactant (lucinactant), which we believe may potentially support a product pipeline, alone or in combination with our proprietary Aerosol Delivery System, or ADS, technology, to address a broad range of serious respiratory conditions in children and adults. We are developing KL4 surfactant to be delivered either as a liquid instillate or noninvasively as an aerosol. In September 2020, the FDA accepted our investigational new drug, or IND, application for a small phase 2 pilot study to assess the ability of our KL4 surfactant liquid instillate to impact key respiratory parameters in the treatment of lung injury and acute respiratory distress syndrome, or ARDS, resulting from severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, the causative agent in novel coronavirus, or COVID-19, infections. We dosed the first patient in this clinical trial in January 2021 and plan to enroll up to 20 patients with COVID-19 and ARDS who are on mechanical ventilation, with results expected in the third quarter of 2021. Our aerosolized product candidate, AEROSURF® (lucinactant for inhalation), is a novel drug/medical device combination product for noninvasive delivery of aerosolized KL4 surfactant using our ADS technology for the treatment of respiratory distress syndrome, or RDS, in premature infants. Our licensee in Asia, Lee’s Pharmaceutical (HK) Ltd., or Lee’s (HK), has agreed to fund and conduct a phase 2b clinical bridging study for AEROSURF in Asia, referred to as the phase 2b bridging study, under the terms of our License, Development and Commercialization Agreement between us and Lee’s (HK) dated as of June 12, 2017, as amended, or the Asia License Agreement. Accordingly, we have suspended our AEROSURF clinical activities and ceased enrollment in the phase 2b bridging study being conducted in the European Union. To support the future development of AEROSURF and our lyophilized KL4 surfactant liquid instillate in markets outside of Asia, including the United States, or U.S., we are pursuing one or more licensing transactions, collaboration arrangements or other strategic opportunities.

 

Our ability to advance our development programs is dependent upon our ability to secure additional capital in both the near and long-term, through public or private equity offerings; through potential strategic opportunities, including licensing agreements, drug product development and marketing collaboration arrangements, pharmaceutical research cooperation arrangements or other similar transactions in geographic markets outside of Asia, including the U.S.; and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. We have engaged with potential counterparties in various markets and will continue to pursue non-dilutive sources of capital as well as potential private and public offerings. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs, or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition and results of operations.

 

The reader is referred to, and encouraged to read in its entirety, “Item 1 – Business” in our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the Securities and Exchange Commission, or the SEC, on March 29, 2021, which contains a discussion of our business and business plans, as well as information concerning our proprietary technologies and our current and planned development programs. 

 

 

Note 2 - Basis of Presentation

 

These interim unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or US GAAP, for interim financial information in accordance with the instructions to Form 10-Q and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation. All adjustments (consisting of normally recurring accruals) considered for fair presentation have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. There have been no changes to our significant accounting policies since December 31, 2020. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2020 contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

 

Note 3 - Liquidity Risks and Managements Plans

 

As of March 31, 2021, we had cash and cash equivalents of $38.5 million and current liabilities of $7.5 million.

 

On March 25, 2021, we completed a registered public offering, or the March 2021 Offering, of 9,230,500 shares of our common stock and warrants to purchase 9,230,500 shares of our common stock, at a combined price of $3.25 resulting in net proceeds of $27.4 million (see, Note 8 - Stockholders’ Equity).

 

We also have an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. As of March 31, 2021, we sold 105,083 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million (see, Note 8 - Stockholders’ Equity).

 

 

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical and clinical studies, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, and risks associated with our international locations and activities abroad, including but not limited to having foreign suppliers, manufacturers and clinical sites in support of our development activities.

 

We have incurred net losses since inception. Our net loss was $9.0 million and $6.5 million, respectively, for the three-month periods ended March 31, 2021 and 2020. We expect to continue to incur operating losses for at least the next several years. As of March 31, 2021, we had an accumulated deficit of $726.6 million. Our future success is dependent on our ability to identify and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

 

We believe that our cash and cash equivalents as of the filing date of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 are sufficient to fund operations through at least the next 12 months. In the future, we will need to raise additional capital to continue funding our development activities and operations. We plan to obtain funding through a combination of public or private equity offerings, or strategic transactions including collaborations, licensing arrangements or other strategic partnerships. There is inherent uncertainty associated with these fundraising activities, and thus they are not considered probable.

 

Our funding requirements are based on estimates that are subject to risks and uncertainties and may change as a result of many factors currently unknown. Although management continues to pursue the plans described above, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, including as a result of market volatility following the COVID-19 pandemic. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, strategic partnerships and licensing arrangements. The terms of any future financing may adversely affect the holdings or the rights of our existing stockholders.

 

 

Note 4 - Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The interim unaudited condensed consolidated financial statements are prepared in accordance with US GAAP and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries, CVie Investments Limited and its wholly owned subsidiary, CVie Therapeutics Limited; and a presently inactive subsidiary, Discovery Laboratories, Inc. (formerly known as Acute Therapeutics, Inc.).

 

Goodwill and Intangible Assets

 

We record acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. The acquired in-process research and development, or IPR&D, assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D is not amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value may be impaired.

 

When performing the quantitative impairment assessment for our indefinite-lived IPR&D intangible assets, we estimate the fair values of the assets using the multi-period excess earnings method, or MPEEM. MPEEM is a variation of the income approach which estimates the fair value of an intangible asset based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant factors considered in the calculation of IPR&D intangible assets include the risks inherent in the development process, including the likelihood of achieving commercial success and the cost and related time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Other significant estimates and assumptions inherent in this approach include (i) the amount and timing of the projected net cash flows associated with the IPR&D assets, (ii) the long-term growth rate, (iii) the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and (iv) the tax rate, which considers geographic diversity of the projected cash flows. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows could differ significantly based on the commercial success of the related drug candidates and market conditions which could result in future impairment charges related to our indefinite-lived intangible asset balances.

 

Based on our annual quantitative impairment assessment of our indefinite-lived IPR&D intangible assets as of December 1, 2020, we concluded that the assets were not impaired, and no subsequent events or changes in circumstances have occurred indicating the intangible assets are more likely than not impaired. With respect to IPR&D related to our rostafuroxin drug candidate, we are evaluating possible out-licensing arrangements and anticipate securing an agreement in 2021. However, if we are unable to secure an out-licensing agreement during 2021, or if we secure an agreement for an amount less than anticipated, there is a risk for impairment of this intangible asset in the near term.

 

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is not amortized. When conducting our annual impairment test of goodwill as of December 1, 2020, we elected to perform a quantitative assessment. Our company consists of one reporting unit. In order to perform the quantitative goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment exists. If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill. When performing our annual goodwill impairment assessment as of December 1, 2020, we determined the fair value of our reporting unit based upon the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium. Based on the quantitative test performed, the fair value of our reporting unit exceeded its carrying value and no impairment loss was recognized as of December 31, 2020.

 

Goodwill is reviewed for impairment at least annually or when events or changes in the business environment indicate that its carrying value may be impaired. For example, a significant decline in our share price and market capitalization may suggest that the fair value of our reporting unit has fallen below its carrying amount, indicating that an interim goodwill impairment test is required. Accordingly, we monitor changes in our share price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for the decline in our share price, the significance of the decline, and the duration of time that our securities have been trading at a lower value. We have experienced a declining trend in our closing share price following the March 2021 Offering, which was completed on March 25, 2021, due to both market conditions and the dilution of our common stock as a result of the March 2021 Offering. While this trend began prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the SEC on March 29, 2021, we believe that the March 2021 Offering priced at $3.25 per unit corroborated the results of our quantitative analysis of goodwill as of December 1, 2020. However, if our share price does not improve during the remainder of the second quarter, our reporting unit is at risk for future impairment in the near term.

 

 

The following table represents identifiable intangible assets as of March 31, 2021 and December 31, 2020:

 

   March 31,   December 31, 

(in thousands)

 

2021

  

2020

 
         

Rostafuroxin drug candidate

 $54,750  $54,750 

Istaroxime drug candidate

  22,340   22,340 

Intangible assets

  77,090   77,090 
         

Goodwill

 $15,682  $15,682 

 

Foreign Currency Transactions

 

The functional currency for our foreign subsidiaries is US Dollars. We remeasure monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from the remeasurement of foreign currency transactions are recognized in other (expense) income, net. Foreign currency transactions resulted in gains of approximately $0.1 million and $0.2 million, respectively, for the three-month periods ended March 31, 2021 and 2020.

 

Use of Estimates


The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets and goodwill, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are held at domestic and foreign financial institutions and consist of liquid investments, money market funds, and U.S. Treasury notes with a maturity from date of purchase of 90 days or less that are readily convertible into cash.

 

Severance

 

In July 2020, we entered into separation agreements with two executives, which provide that the former employees are entitled to receive: (i) a severance amount equal to the sum of their respective base salaries then in effect and their respective annual target bonus amounts, payable in equal installments through August 2021 and (ii) subject to certain exceptions, a pro rata bonus commensurate with the bonus of other contract executives for the year 2020, prorated for the number of days of their respective employment during 2020, and payable at the time that other contract executives are paid bonuses with respect to 2020. The severance amount related to the departure of these executives is approximately $0.9 million, was accrued at the date of the separations, and will be paid ratably through August 2021. During the three months ended March 31, 2021$0.2 million was paid and $0.3 million remains accrued.

 

Restructured Debt Liability – Contingent Milestone Payment

 

In conjunction with the November 2017 restructuring and retirement of long-term debt (see, Note 7 - Restructured Debt Liability), we have established a $15.0 million long-term liability for contingent milestone payments potentially due under the Exchange and Termination Agreement dated as of October 27, 2017, or the Exchange and Termination Agreement, between ourselves and affiliates of Deerfield Management Company L.P., or Deerfield. The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

 

Research and Development

 

We track direct research and development expenses by preclinical and clinical programs, which include third-party costs such as contract research organization, consulting and clinical trial costs. We do not allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical and regulatory operations expenses, to specific programs. Indirect research and development expenses include personnel, facilities, manufacturing and quality operations, pharmaceutical and device development, research, regulatory, and medical affairs. Research and development costs are charged to operations as incurred in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 730, Research and Development.

 

Income Taxes

 

We account for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.

 

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Because we have never realized a profit, management has fully reserved the net deferred tax asset since realization is not assured.

 

Net Loss per Common Share

 

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by giving effect to all potentially dilutive securities outstanding for the period. As of March 31, 2021 and 2020, the number of shares of common stock potentially issuable upon the exercise of certain stock options and warrants was 19.9 million and 6.5 million shares, respectively. For the three months ended March 31, 2021 and 2020, all potentially dilutive securities were anti-dilutive and therefore have been excluded from the computation of diluted net loss per share.

 

We do not have any components of other comprehensive (loss) income.

 

 

COVID-19

 

The COVID-19 pandemic continues to evolve, and we continue to closely monitor its impact on our business, operations, including its potential impact on our clinical development plans and timelines, and financial condition. As of the date of the issuance of this Quarterly Report on Form 10-Q, our operations, capital and financial resources and overall liquidity position and outlook have been impacted by COVID-19, primarily due to delays experienced in our operations, including in clinical study initiation and enrollment. The potentially extended timelines may force us to expend more of our capital resources than planned to achieve our projected milestones. For example, certain of our ongoing clinical trials, including our phase 2 study of istaroxime for early cardiogenic shock in heart failure patients, have experienced delays. The full extent, duration, or impact that the COVID-19 pandemic will have, directly or indirectly, on our financial condition and operations, including ongoing and planned clinical trials, will depend on future developments that are highly uncertain and cannot be accurately predicted. These potential future developments include new information that may emerge concerning the severity of the COVID-19 outbreak, the severity and transmissibility of new variants of the virus, information about any regional resurgences in one or more markets where our current or intended clinical trial sites, our principal executive offices, research and development laboratories or other facilities are located, and the actions taken to contain it or treat its impact, which may include, among others, the timing and extent of governments reopening activities and the economic impact on local, regional, national, and international markets. The maintenance, or strategic re-implementation, of mitigating COVID-19 measures in one or more markets where our clinical trial sites, principal executive offices, research and development laboratories or other facilities are located remains possible and we believe there could be further impact on the clinical development of our product candidates, which may include potential delays, halts or modifications to our ongoing and planned trials in 2021.

 

We are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities as of the date of issuance of these interim unaudited condensed consolidated financial statements. These estimates may change, as new events occur and additional information is obtained.

 

 

Note 5 - Fair Value of Financial Instruments

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

 

Level 1 – Quoted prices in active markets for identical assets and liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Fair Value on a Recurring Basis

 

The tables below categorize assets and liabilities measured at fair value on a recurring basis for the periods presented:

 

  

Fair Value

  

Fair value measurement using

 
  

March 31,

             

(in thousands)

 

2021

  

Level 1

  

Level 2

  

Level 3

 
                 

Cash equivalents:

                

Money market funds

 $32,077  $32,077  $-  $- 

U.S. Treasury notes

  3,029   3,029   -   - 

Total Assets

 $35,106  $35,106  $-  $- 

 

                 
  

Fair Value

  

Fair value measurement using

 
  

December 31,

             

(in thousands)

 

2020

  

Level 1

  

Level 2

  

Level 3

 
                 

Cash equivalents:

                

Money market funds

 $6,518   6,518  $-  $- 

U.S. Treasury notes

  9,101   9,101   -   - 

Total Assets

 $15,619  $15,619  $-  $- 

 

 

Note 6 - Loans Payable - Current and Non-Current Portions

 

O-Bank Co., Ltd. Credit Facility

 

In September 2016, CVie Therapeutics Limited entered into a 12-month revolving credit facility of approximately $2.9 million with O-Bank Co., Ltd., or O-Bank, to finance operating activities, or the O-Bank Facility. The O-Bank Facility was later renewed and increased to approximately $5.8 million in September 2017. The O-Bank Facility is guaranteed by Lee’s Pharmaceutical Holdings Limited, or Lee’s, which pledged bank deposits in the amount of 110% of the actual borrowing amount. Interest, payable in cash on a monthly basis, was determined based on the 90-day Taipei Interbank Offer Rate, or TAIBOR, plus 0.91%. The O-Bank Facility expired on September 11, 2019 and the loans were set to mature six months after the expiration date, on March 11, 2020. In March 2020, the O-Bank Facility was amended, among other things, to extend the maturity date to March 2022, to decrease the total amount of the O-Bank Facility to approximately $5.0 million, to change the applicable interest rate to the TAIBOR plus 1.17% and to adjust the term to 24-month non-revolving.

 

In the second quarter of 2020, we were informed by Lee’s of their desire to reduce the amount of pledged bank deposits with O-Bank by 50%. To remain in compliance with the terms of the O-Bank Facility, we repaid approximately $2.3 million of the outstanding principal in August 2020. In November 2020, Lee’s committed to maintain the required level of pledged bank deposits with O-Bank through the date of full repayment of the O-Bank Facility.

 

 

As of March 31, 2021 and December 31, 2020, the outstanding principal of the O-Bank Facility was approximately $2.4 million. As of March 31, 2021, the outstanding principal is classified as loans payable - current portion as it is due within one year of the balance sheet date. As of December 31, 2020, the outstanding principal was classified as loans payable - non-current portion.

 

Loan Payable to Bank Direct Capital Finance

 

In June 2020, we entered into an insurance premium financing and security agreement with Bank Direct Capital Finance, or Bank Direct. Under the agreement, we financed $1.1 million of certain premiums at a 4.26% annual interest rate. Payments of approximately $117,000 were due monthly from July 2020 through March 2021. As of December 31, 2020, the outstanding principal of the loan was $0.4 million. The balance of the loan was repaid during the first quarter of 2021 and there was no outstanding balance on the loan as of March 31, 2021.

 

 

Note 7 - Restructured Debt Liability

 

On October 27, 2017, we and Deerfield entered into the Exchange and Termination Agreement pursuant to which (i) promissory notes evidencing a loan with affiliates of Deerfield Management Company L.P., or the Deerfield Loan, in the aggregate principal amount of $25.0 million and (ii) warrants to purchase up to 8,333 shares of our common stock at an exercise price of $2,360.40 per share held by Deerfield were cancelled in consideration for (i) a cash payment in the aggregate amount of $2.5 million, (ii) 23,703 shares of common stock, representing 2% of fully-diluted shares outstanding (as defined in the Exchange and Termination Agreement) on the closing date, and (iii) the right to receive certain milestone payments based on achievement of specified AEROSURF development and commercial milestones, which, if achieved, could potentially total up to $15.0 million. In addition, a related security agreement, pursuant to which Deerfield held a security interest in substantially all of our assets, was terminated. We established a $15.0 million long-term liability for the contingent milestone payments potentially due to Deerfield under the Exchange and Termination Agreement (seeNote 4 - Summary of Significant Accounting Policies). The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

 

As of March 31, 2021 and December 31, 2020, the restructured debt liability balance was $15.0 million.

 

 

Note 8 - Stockholders’ Equity

 

March 2021 Public Offering

 

On March 23, 2021, we entered into an underwriting agreement with Oppenheimer & Co. Inc. as representative for the several underwriters named therein, relating to the March 2021 Offering, for an aggregate of 9,230,500 units with each unit consisting of one share of common stock and a warrant, or the March 2021 Warrants. The March 2021 Warrants are immediately exercisable for shares of common stock at a price of $3.60 per share and expire five years from the date of issuance. The shares of common stock and the March 2021 Warrants were immediately separable and were issued separately in the March 2021 Offering.

 

The closing of the March 2021 Offering occurred on March 25, 2021. The offering price to the public was $3.25 per unit resulting in gross proceeds of $30.0 million. After deducting underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the March 2021 Warrants issued pursuant to the March 2021 Offering, the net proceeds to us were approximately $27.4 million.

 

We have determined that the appropriate accounting treatment under ASC 480, Distinguishing Liabilities from Equity, or ASC 480, is to classify the common stock and the March 2021 Warrants issued in the March 2021 Offering as equity. We have also determined that the March 2021 Warrants are not in their entirety a derivative under the scope of ASC 815, Derivatives and Hedging, or ASC 815, due to the scope exception under ASC 815-10-15-74, nor are there any material embedded derivatives that require separate accounting. We allocated the net proceeds from the March 2021 Offering based on the relative fair value of the common stock and the March 2021 Warrants.

 

At-The-Market Program

 

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or in privately negotiated transactions.

 

We agreed to pay Ladenburg a commission of 3% of the gross sales price of any shares sold pursuant to the ATM Program. The rate of compensation will not apply when Ladenburg acts as principal.


As of March 31, 2021, we sold 105,083 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million.

 

 

Note 9 - Stock Options and Stock-Based Employee Compensation

 

We recognize in our condensed consolidated financial statements all stock-based awards to employees and non-employee directors based on their fair value on the date of grant, calculated using the Black-Scholes option-pricing model. Compensation expense related to stock-based awards is recognized ratably over the vesting period, which for employees is typically three years. We recognize restricted stock unit awards to employees and non-employee directors based on their fair value on the date of grant. Compensation expense related to restricted stock unit awards is recognized ratably over the vesting period, which typically has been between approximately six to 18 months.

 

 

A summary of activity under our long-term incentive plans is presented below:

 

(in thousands, except for weighted-average data)            

Stock Options

 

Shares

  

Weighted- Average Exercise Price

  

Weighted- Average Remaining Contractual Term (In Yrs)

 
             

Outstanding at January 1, 2021

  1,903  $15.57     

Granted

  1,339   5.46     

Forfeited or expired

  (2)  11.85     

Outstanding at March 31, 2021

  3,240  $11.39   8.6 
             

Vested and exercisable at March 31, 2021

  1,353  $17.19   7.5 
             

Vested and expected to vest at March 31, 2021

  3,020  $11.50   8.5 

 

The table below summarizes the total stock-based compensation expense included in the interim unaudited condensed consolidated statements of operations for the periods presented:

 

  

Three Months Ended March 31,

 

(in thousands)

 

2021

  

2020

 
         

Research and development

 $939  $714 

General and administrative

  1,504   975 

Total

 $2,443  $1,689 

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities are based upon the historical volatility of our common stock and other factors. We also use historical data and other factors to estimate option exercises, employee terminations and forfeiture rates. The risk-free interest rates are based upon the U.S. Treasury yield curve in effect at the time of the grant.

 

  

Three Months Ended

 
  

March 31, 2021

 
     

Weighted average expected volatility

  105% 

Weighted average expected term (in years)

  6.6 

Weighted average risk-free interest rate

  0.48% 

Expected dividends

  - 
 

 

Note 10 - Collaboration, Licensing and Research Funding Agreements

 

In March 2020, we entered into the Term Sheet with Lee’s (HK), pursuant to which Lee’s (HK) provided financing for the development of AEROSURF. In August 2020, we entered into a Project Financing Agreement with Lee’s (HK), the PF Agreement, formalizing the terms of the Term Sheet, and under which we have received payments totaling $2.8 million through October 2020. In November 2020, Lee’s (HK) provided notice of termination of additional funding under the PF Agreement. Thereafter, we and Lee’s (HK) revised our plans for the continued development of AEROSURF. Lee’s (HK) agreed to continue the development of AEROSURF in Asia at its cost. Lee’s (HK) has agreed to fund an additional $1.0 million to us in 2021 for certain transition and analytical services to be provided by us with respect to the development of AEROSURF, which will be considered “Project Expenses” under the terms of the PF Agreement.

 

To repay the funds provided under the terms of the PF Agreement, until such time as we have repaid 125% of the amounts funded by Lee’s (HK) for the development of AEROSURF, we will pay to Lee’s (HK) 50% of all revenue amounts and payments received by us for any sale, divestiture, license or other development and/or commercialization of the KL4/AEROSURF patent portfolio, excluding (i) payments for bona fide research and development services; (ii) reimbursement of patent expenses and (iii) all amounts paid to us under the Asia License Agreement, minus certain deductions and certain reductions for any payments made by us with respect to third party intellectual property not previously funded by Lee’s (HK).

 

As of March 31, 2021, the liability balance related to the payments under the PF Agreement was $2.8 million and is recorded in other liabilities.

 

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing activities, includes 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. The reader should review the Forward-Looking Statements section, any risk factors discussed elsewhere in this Quarterly Report on Form 10-Q, which are in addition to and supplement the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the Securities and Exchange Commission, or SEC, on March 29, 2021, and our other filings with the SEC and any amendments thereto, 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 or elsewhere in this Quarterly Report on Form 10-Q.

 

This Management’s Discussion and Analysis, or MD&A, is provided as a supplement to the accompanying interim unaudited Condensed Consolidated Financial Statements (including the notes thereto) to help provide an understanding of our financial condition and changes in our financial condition and our results of operations. This item should be read in connection with our accompanying interim unaudited Condensed Consolidated Financial Statements (including the notes thereto) and our Annual Report on Form 10-K for the year ended December 31, 2020. Unless otherwise specified, references to Notes in this MD&A shall refer to the Notes to Condensed Consolidated Financial Statements (unaudited) in this Quarterly Report on Form 10-Q.

 

 

OVERVIEW

 

We are a clinical-stage, biopharmaceutical and medical device company focused on the development of novel therapeutics intended to address significant unmet medical needs in important acute care markets. Our development programs are primarily focused in the treatment of acute cardiovascular and acute pulmonary diseases. Our lead acute cardiovascular product candidate, istaroxime, is a first-in-class, dual-acting agent being developed to improve cardiac function in patients with acute heart failure, or AHF, with a potentially differentiated safety profile from existing treatments. Istaroxime demonstrated significant improvement in both diastolic and systolic aspects of cardiac function and was generally well tolerated in two phase 2 clinical trials. Istaroxime has been granted Fast Track designation for the treatment of AHF by the U.S. Food and Drug Administration, or FDA. Based on the profile observed in the phase 2 clinical studies in AHF, where istaroxime significantly improved cardiac function and systolic blood pressure in heart failure patients, we initiated a small clinical study to evaluate istaroxime for the treatment of early cardiogenic shock, a severe form of heart failure characterized by very low blood pressure and hypo-perfusion to critical organs. We believe that istaroxime may fulfill an unmet need in early cardiogenic shock. In addition, our drug product candidates include rostafuroxin, a novel medicine for the treatment of hypertension in patients with a specific genetic profile, for which we are pursuing potential out-licensing transactions or other strategic opportunities and not advancing on our own. Our cardiovascular portfolio also includes early exploratory research programs to evaluate potential preclinical product candidates for development, including oral and intravenous sarco (endo) plasmic reticulum Ca2+ -ATPase 2a, or SERCA2a, activator heart failure compounds.

 

Our lead pulmonary product candidate is our proprietary lyophilized KL4 surfactant (lucinactant), which we believe may potentially support a product pipeline, alone or in combination with our proprietary Aerosol Delivery System, or ADS, technology, to address a broad range of serious respiratory conditions in children and adults. We are developing KL4 surfactant to be delivered either as a liquid instillate or noninvasively as an aerosol. In September 2020, the FDA accepted our investigational new drug, or IND, application for a small phase 2 pilot study to assess the ability of our KL4 surfactant liquid instillate to impact key respiratory parameters in the treatment of lung injury and acute respiratory distress syndrome, or ARDS, resulting from severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, the causative agent in novel coronavirus, or COVID-19, infections. We dosed the first patient in this clinical trial in January 2021 and plan to enroll up to 20 patients with COVID-19 and ARDS who are on mechanical ventilation, with results expected in the third quarter of 2021. Our aerosolized product candidate, AEROSURF® (lucinactant for inhalation), is a novel drug/medical device combination product for noninvasive delivery of aerosolized KL4 surfactant using our ADS technology for the treatment of respiratory distress syndrome, or RDS, in premature infants. Our licensee in Asia, Lee’s Pharmaceutical (HK) Ltd., or Lee’s (HK), has agreed to fund and conduct a phase 2b clinical bridging study for AEROSURF in Asia, referred to as the phase 2b bridging study, under the terms of our License, Development and Commercialization Agreement between us and Lee’s (HK) dated as of June 12, 2017, as amended, or the Asia License Agreement. Accordingly, we have suspended our AEROSURF clinical activities and ceased enrollment in the phase 2b bridging study being conducted in the European Union. To support the future development of AEROSURF and our lyophilized KL4 surfactant liquid instillate in markets outside of Asia, including the United States, or U.S., we are pursuing one or more licensing transactions, collaboration arrangements or other strategic opportunities.

 

Our ability to advance our development programs is dependent upon our ability to secure additional capital in both the near and long-term, through public or private equity offerings; through potential strategic opportunities, including licensing agreements, drug product development and marketing collaboration arrangements, pharmaceutical research cooperation arrangements or other similar transactions in geographic markets outside of Asia, including the U.S.; and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. We have engaged with potential counterparties in various markets and will continue to pursue non-dilutive sources of capital as well as potential private and public offerings. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs, or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition and results of operations.

 

We have incurred operating losses since our incorporation on November 6, 1992. For the three-month periods ended March 31, 2021 and 2020, we had operating losses of $9.1 million and $6.7 million, respectively. As of March 31, 2021, we had an accumulated deficit of $726.6 million. To date, we have financed our operations primarily through private placements and public offerings of our common and preferred stock and borrowings from investors and financial institutions.
 

We expect to continue to incur significant research and clinical development, regulatory and other expenses as we (i) continue to develop our product candidates; (ii) seek regulatory clearances or approvals for our product candidates; (iii) conduct clinical trials on our product candidates; and (iv) manufacture, market and sell any product candidates for which we may obtain regulatory approval.

 

As a result, we will need additional financing to support our continuing operations. Until such time that we can generate substantial product revenues, if ever, we expect to finance our operations through public or private equity offerings; through potential strategic opportunities, including licensing agreements, drug product development and marketing collaboration arrangements, pharmaceutical research cooperation arrangements or other similar transactions in geographic markets outside of Asia, including the U.S.; and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs, or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition and results of operations.

 

Business and Program Updates

 

The reader is referred to, and encouraged to read in its entirety, Item 1 – Business in our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the SEC on March 29, 2021, which contains a discussion of our business and business plans, as well as information concerning our proprietary technologies and our current and planned development programs. 

 

Istaroxime (Early Cardiogenic Shock)

 

In September 2020, we initiated a small phase 2 clinical study of istaroxime for the acute treatment of early cardiogenic shock in heart failure patients with a more severe case of heart failure to evaluate the potential to improve blood pressure and organ perfusion. The study also will evaluate the safety and side effect profile of istaroxime in this patient population. We expect data to be available in the second half of 2021. With the current global COVID-19 pandemic, however, and its disruptive effect on hospital resources, including intensive care units, where this study is being conducted, and availability of services and professional staff, we have experienced delays in our site-set-up activities and anticipate that we may have continuing delays that could affect our clinical timelines and milestones.

 

 

Istaroxime (AHF)

 

To advance istaroxime for the treatment of AHF potentially through the phase 2 clinical program and be in a phase 3-ready position, our strategy includes, subject to adequate resources, planning an additional phase 2 clinical trial that will enroll up to 300 patients in approximately 75 clinical sites globally. The trial will focus on enrolling patients with low blood pressure and those who are diuretic resistant, two of the specific patient populations that we believe could particularly benefit from the unique profile and potential ability of istaroxime to increase cardiac function, increase blood pressure and improve renal function. This trial has been designed to collect data on measures that may serve as primary endpoints in a phase 3 clinical trial, and will include an optimized dosing regimen, potentially extending the infusion time beyond 24 hours. We currently do not have sufficient capital to initiate this clinical trial. We are exploring capital from public and private equity offerings and potential strategic opportunities to fund the initiation of this clinical trial, and plan to initiate the clinical trial after obtaining adequate funding. We plan to closely monitor the impact of the COVID-19 pandemic and its impact on hospital resources and resulting potential changes in regulatory timelines for conducting non-COVID-19-related clinical trials.

 

Rostafuroxin

 

Rostafuroxin has been studied in three phase 2 clinical trials assessing reduction in blood pressure in a hypertensive population selected in accordance with the specified genetic profile. After positive phase 2a results, a phase 2b study was initiated. In this most recent phase 2b clinical trial, rostafuroxin demonstrated efficacy in Caucasian patients but not in Chinese patients. We are nearing the end of a process to test the industry’s interest in investing in new drugs in this market and are pursuing potential licensing transactions and/or other strategic opportunities.

 

Preclinical Oral, Chronic and Acute Heart Failure Product Candidates

 

We are pursuing several early exploratory research programs to assess potential product candidates, including oral and intravenous SERCA2a activator heart failure compounds, and believe that we can add value to our cardiovascular portfolio by advancing these SERCA2a activator candidates through preclinical studies. To further advance these product candidates, we are actively exploring potential licensing transactions, research partnership arrangements or other strategic opportunities.

 

Lyophilized KL4 Surfactant (COVID-19 related Lung Injury)

 

In September 2020, the FDA accepted our IND application for a phase 2 clinical trial to assess the impact of our lyophilized KL4 surfactant on key respiratory parameters in ventilated COVID-19 patients. This small pilot study is designed to evaluate changes in physiological parameters in patients who are intubated and mechanically ventilated for COVID-19 associated lung injury and ARDS. The study will evaluate the dosing regimen, tolerability, and functional changes in gas exchange and lung compliance after KL4 surfactant administration. We dosed the first patient in this clinical trial in January 2021 and plan to enroll up to 20 patients with COVID-19 and ARDS who are on mechanical ventilation, from four to five U.S. sites, with data expected in the third quarter of 2021.

 

AEROSURF (lucinactant for inhalation)

 

We are supporting, and plan to continue to support, Lee’s (HK) efforts to plan, fund and initiate in Asia the phase 2b bridging study needed to advance AEROSURF to phase 3 clinical trials. With termination of the Project Financing Agreement, we ceased enrollment in our phase 2b bridging study at the EU clinical sites and are preparing to transfer AEROSURF development activities to Lee’s (HK) to be implemented under the terms of our Asia License Agreement. Our decision to cease enrollment and transfer the AEROSURF development activities to Lee’s (HK) in Asia was not related to any communications between ourselves and the FDA or the EU regulatory authorities and was not based on any underlying safety or efficacy concern, but rather compelled by our desire to preserve our limited capital to focus on acute cardiovascular and other KL4 surfactant programs, primarily treatment of lung injury in patients with COVID-19.

 

Lyophilized KL4 Surfactant (Lung Injury and Other Studies)

 

We believe our lyophilized KL4 surfactant and ADS technologies may potentially support a product pipeline to address a broad range of serious respiratory conditions in children and adults. We have from time to time worked with independent investigators and pharmaceutical companies to conduct or assist with preclinical studies, some of which were funded under grants from National Institutes of Health, or NIH, and other government agencies, to assess the utility of using our KL4 surfactant, alone or in combination with other pharmaceutical compounds, to address various respiratory conditions.

 

Impact of COVID-19

 

The COVID-19 pandemic continues to evolve, and we continue to closely monitor its impact on our business, operations, including its potential impact on our clinical development plans and timelines, and financial condition. As of the date of the issuance of this Quarterly Report on Form 10-Q, our operations, capital and financial resources and overall liquidity position and outlook have been impacted by COVID-19, primarily due to delays experienced in our operations, including in clinical study initiation and enrollment. The potentially extended timelines may force us to expend more of our capital resources than planned to achieve our projected milestones. For example, certain of our ongoing clinical trials, including our phase 2 study of istaroxime for early cardiogenic shock in heart failure patients, have experienced delays. The full extent, duration, or impact that the COVID-19 pandemic will have, directly or indirectly, on our financial condition and operations, including ongoing and planned clinical trials, will depend on future developments that are highly uncertain and cannot be accurately predicted. These potential future developments include new information that may emerge concerning the severity of the COVID-19 outbreak, the severity and transmissibility of new variants of the virus, information about any regional resurgences in one or more markets where our current or intended clinical trial sites, our principal executive offices, research and development laboratories or other facilities are located, and the actions taken to contain it or treat its impact, which may include, among others, the timing and extent of governments reopening activities and the economic impact on local, regional, national, and international markets. The maintenance, or strategic re-implementation, of mitigating COVID-19 measures in one or more markets where our clinical trial sites, principal executive offices, research and development laboratories or other facilities are located remains possible and we believe there could be further impact on the clinical development of our product candidates, which may include potential delays, halts or modifications to our ongoing and planned trials in 2021.

 

CRITICAL ACCOUNTING POLICIES

 

There have been no changes to our critical accounting policies since December 31, 2020. For a discussion of our accounting policies, see, Note 4 - Summary of Significant Accounting Policies and, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020, Note 4 – Accounting Policies and Recent Accounting Pronouncements. Readers are encouraged to review those disclosures in conjunction with this Quarterly Report on Form 10-Q.

 

 

Goodwill and Intangible Assets

 

We record acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. The acquired in-process research and development, or IPR&D, assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D is not amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value may be impaired.

 

When performing the quantitative impairment assessment for our indefinite-lived IPR&D intangible assets, we estimate the fair values of the assets using the multi-period excess earnings method, or MPEEM. MPEEM is a variation of the income approach which estimates the fair value of an intangible asset based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant factors considered in the calculation of IPR&D intangible assets include the risks inherent in the development process, including the likelihood of achieving commercial success and the cost and related time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Other significant estimates and assumptions inherent in this approach include (i) the amount and timing of the projected net cash flows associated with the IPR&D assets, (ii) the long-term growth rate, (iii) the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and (iv) the tax rate, which considers geographic diversity of the projected cash flows. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows could differ significantly based on the commercial success of the related drug candidates and market conditions which could result in future impairment charges related to our indefinite-lived intangible asset balances.

 

Based on our annual quantitative impairment assessment of our indefinite-lived IPR&D intangible assets as of December 1, 2020, we concluded that the assets were not impaired, and no subsequent events or changes in circumstances have occurred indicating the intangible assets are more likely than not impaired. With respect to IPR&D related to our rostafuroxin drug candidate, we are evaluating possible out-licensing arrangements and anticipate securing an agreement in 2021. However, if we are unable to secure an out-licensing agreement during 2021, or if we secure an agreement for an amount less than anticipated, there is a risk for impairment of this intangible asset in the near term.

 

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is not amortized. When conducting our annual impairment test of goodwill as of December 1, 2020, we elected to perform a quantitative assessment. Our company consists of one reporting unit. In order to perform the quantitative goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment exists. If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill. When performing our annual goodwill impairment assessment as of December 1, 2020, we determined the fair value of our reporting unit based upon the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium. Based on the quantitative test performed, the fair value of our reporting unit exceeded its carrying value and no impairment loss was recognized as of December 31, 2020.

 

Goodwill is reviewed for impairment at least annually or when events or changes in the business environment indicate that its carrying value may be impaired. For example, a significant decline in our share price and market capitalization may suggest that the fair value of our reporting unit has fallen below its carrying amount, indicating that an interim goodwill impairment test is required. Accordingly, we monitor changes in our share price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for the decline in our share price, the significance of the decline, and the duration of time that our securities have been trading at a lower value. We have experienced a declining trend in our closing share price following a registered public offering, or the March 2021 Offering, which was completed on March 25, 2021, due to both market conditions and the dilution of our common stock as a result of the March 2021 Offering. While this trend began prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the SEC on March 29, 2021, we believe that the March 2021 Offering priced at $3.25 per unit corroborated the results of our quantitative analysis of goodwill as of December 1, 2020. However, if our share price does not improve during the remainder of the second quarter, our reporting unit is at risk for future impairment in the near term.

 

The following table represents identifiable intangible assets as of March 31, 2021 and December 31, 2020:

 

   March 31,   December 31, 

(in thousands)

 

2021

  

2020

 
         

Rostafuroxin drug candidate

 $54,750  $54,750 

Istaroxime drug candidate

  22,340   22,340 

Intangible assets

  77,090   77,090 
         

Goodwill

 $15,682  $15,682 

 

RESULTS OF OPERATIONS

 

Operating Loss and Net Loss

 

The operating loss for the three months ended March 31, 2021 and 2020 was $9.1 million and $6.7 million, respectively. The increase in operating loss from 2020 to 2021 was due to a $2.4 million increase in operating expenses, which includes a $0.8 million increase in non-cash stock compensation expense and $0.5 million of non-cash expense related to equity consideration for a financial advisory service agreement.

 

The net loss for the three months ended March 31, 2021 and 2020 was $9.0 million and $6.5 million, respectively.

 

 

Research and Development Expenses

 

Our research and development expenses are charged to operations as incurred and we incur both direct and indirect expenses for each of our programs. We track direct research and development expenses by preclinical and clinical programs, which include third-party costs such as contract research organization, consulting and clinical trial costs. We do not allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical and regulatory operations expenses, to specific programs. We also account for research and development and report annually by major expense category as follows: (i) contracted services; (ii) salaries and benefits; (iii) stock-based compensation; (iv) raw materials, aerosol devices and supplies; (v) royalties; (vi) rents and utilities; (vii) depreciation; (viii) travel; and (ix) other. We expect to increase our investment in research and development in order to advance our product candidates through additional clinical trials. As a result, we expect that our research and development expenses will increase throughout the foreseeable future as we pursue clinical development of istaroxime, KL4 surfactant and our other current and future product candidates. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates.

 

Research and development expenses are as follows: 

 

  

Three Months Ended March 31,

 

(in thousands)

 

2021

  

2020

 
         

Istaroxime - early cardiogenic shock

 $506  $170 

KL4 surfactant

  244   331 

Istaroxime - AHF

  499   174 

Preclinical studies

  -   4 

Total direct clinical and preclinical programs

  1,249   679 
         

Product development and manufacturing

  1,087   1,064 

Clinical, medical and regulatory operations

  2,074   1,718 

Total research and development expenses

 $4,410  $3,461 

 

Research and development expenses include non-cash charges associated with stock-based compensation and depreciation of $1.0 million and $0.7 million, respectively, for the three months ended March 31, 2021 and 2020.

 

Direct Clinical and Preclinical Development Programs
 
Direct clinical and preclinical development programs include: (i) activities associated with conducting clinical trials, including patient enrollment costs, clinical site costs, clinical device and drug supply, and related external costs, such as consultant fees and expenses; and (ii) development activities, toxicology studies and other preclinical studies.
 
Direct clinical and preclinical development programs expenses increased $0.6 million for the three months ended March 31, 2021 compared to the same period in 2020 due to ongoing clinical studies of istaroxime for early cardiogenic shock and our continued development of istaroxime for AHF.
 

Product Development and Manufacturing

 

Product development and manufacturing includes (i) manufacturing operations, both in-house and with contract manufacturing organizations, validation activities, quality assurance and analytical chemistry capabilities that support the manufacture of our drug products used in research and development activities, and our medical devices, including our ADS, (ii) design and development activities related to our ADS for use in our AEROSURF clinical development program; and (iii) pharmaceutical and manufacturing development activities of our drug product candidates including development of istaroxime, lyophilized KL4 surfactant, and rostafuroxin. These costs include employee expenses, facility-related costs, depreciation, costs of drug substances (including raw materials), supplies, quality control and assurance activities, analytical services, and expert consultants and outside services to support pharmaceutical and device development activities.

 

Product development and manufacturing expenses were comparable for the three months ended March 31, 2021 and 2020.

 

Clinical, Medical and Regulatory Operations

 

Clinical, medical and regulatory operations include (i) medical, scientific, preclinical and clinical, regulatory, data management and biostatistics activities in support of our research and development programs; and (ii) medical affairs activities to provide scientific and medical education support for our KL4 surfactant and aerosol delivery systems under development. These costs include personnel, expert consultants, outside services to support regulatory and data management, symposiums at key medical meetings, facilities-related costs, and other costs for the management of clinical trials.

 

Clinical, medical and regulatory operations expenses increased $0.4 million for the three months ended March 31, 2021 compared to the same period in 2020 due to an increase of $0.3 million in personnel costs and an increase of $0.1 million in non-cash, stock compensation expense.

 

General and Administrative Expenses

 

  

Three Months Ended March 31,

 

(in thousands)

 

2021

  

2020

 
         

General and administrative expenses

 $4,669  $3,242 

 

General and administrative expenses consist of costs for executive management, business development, intellectual property, finance and accounting, legal, human resources, information technology, facility, and other administrative costs.

 

General and administrative expenses increased $1.4 million for the three months ended March 31, 2021 compared to the same period in 2020 due to (i) an increase of $1.0 million in professional fees and insurance, including $0.5 million of non-cash expense related to equity consideration for a financial advisory service agreement; (ii) an increase of $0.5 million in non-cash, stock compensation expense; partially offset by (iii) a decrease of $0.1 million in personnel costs.

 

 

Other (Expense) Income, Net

 

  

Three Months Ended March 31,

 

(in thousands)

 

2021

  

2020

 
         

Interest income

 $50  $89 

Interest expense

  (41)  (44)

Other income, net

  109   124 

Total other (expense) income, net

 $118  $169 

 

Interest income relates to interest on our money market account and U.S. Treasury notes.

 

For the three months ended March 31, 2021 and 2020, interest expense consists of interest expense associated with loans payable and for the three months ended March 31, 2020 also includes interest expense related to collaboration and device development payables.

 

For the three months ended March 31, 2021 and 2020, other income, net primarily consists of $0.1 million and $0.2 million, respectively, in gains on foreign currency translation, partially offset by $38,000 in realized losses on U.S. Treasury notes for the three months ended March 31, 2020.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2021, we had cash and cash equivalents of $38.5 million and current liabilities of $7.5 million.

 

On March 25, 2021, we completed a registered public offering of 9,230,500 shares of our common stock and warrants to purchase 9,230,500 shares of our common stock, at a combined price of $3.25 resulting in net proceeds of $27.4 million (see, Note 8 - Stockholders’ Equity).

 

We also have an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. As of March 31, 2021, we sold 105,083 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million (see, Note 8 - Stockholders’ Equity).

 

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical and clinical studies, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, and risks associated with our international locations and activities abroad, including but not limited to having foreign suppliers, manufacturers and clinical sites in support of our development activities.

 

We have incurred net losses since inception. Our net loss was $9.0 million and $6.5 million, respectively, for the three-month periods ended March 31, 2021 and 2020. We expect to continue to incur operating losses for at least the next several years. As of March 31, 2021, we had an accumulated deficit of $726.6 million. Our future success is dependent on our ability to identify and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

 

We believe that our cash and cash equivalents as of the filing date of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 are sufficient to fund operations through at least the next 12 months. In the future, we will need to raise additional capital to continue funding our development activities and operations. We plan to obtain funding through a combination of public or private equity offerings, or strategic transactions including collaborations, licensing arrangements or other strategic partnerships. There is inherent uncertainty associated with these fundraising activities, and thus they are not considered probable.

 

Our funding requirements are based on estimates that are subject to risks and uncertainties and may change as a result of many factors currently unknown. Although management continues to pursue the plans described above, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, including as a result of market volatility following the COVID-19 pandemic. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, strategic partnerships and licensing arrangements. The terms of any future financing may adversely affect the holdings or the rights of our existing stockholders.

 

Cash Flows

 

Cash flows for the three months ended March 31, 2021 consist of $6.0 million of net cash used in operating activities and $27.6 million of net cash provided by financing activities. Cash flows for the three months ended March 31, 2020 consist of $5.5 million of net cash used in operating activities and $0.2 million of net cash used in financing activities.

 

Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2021 and 2020 was $6.0 million and $5.5 million, respectively. Net cash used in operating activities is a result of our net losses for the period, adjusted for non-cash items and changes in working capital. The increase in net cash used in operating activities from 2020 to 2021 is primarily due to a $2.4 million increase in operating expenses and $0.1 million in changes in working capital, partially offset by $3.0 million of non-cash items for the three months ended March 31, 2021.

 

Financing Activities

 

Net cash provided by financing activities for the three months ended March 31, 2021 was $27.6 million and includes the following: (i) $27.4 million in net proceeds from the March 2021 public offering; (ii) $0.6 million in proceeds from the ATM Program, net of expenses; partially offset by (iii) $0.4 million of principal payments on loans payable. Net cash used in financing activities for the three months ended March 31, 2020 was $0.2 million and represents principal payments on loans payable.

 

The following sections provide a more detailed discussion of our available financing facilities.

 

 

O-Bank Co., Ltd. Credit Facility

 

In September 2016, CVie Therapeutics Limited entered into a 12-month revolving credit facility of approximately $2.9 million with O-Bank Co., Ltd., or O-Bank, to finance operating activities, or the O-Bank Facility. The O-Bank Facility was later renewed and increased to approximately $5.8 million in September 2017. The O-Bank Facility is guaranteed by Lee’s Pharmaceutical Holdings Limited, or Lee’s, which pledged bank deposits in the amount of 110% of the actual borrowing amount. Interest, payable in cash on a monthly basis, was determined based on the 90-day Taipei Interbank Offer Rate, or TAIBOR, plus 0.91%. The O-Bank Facility expired on September 11, 2019 and the loans were set to mature six months after the expiration date, on March 11, 2020. In March 2020, the O-Bank Facility was amended, among other things, to extend the maturity date to March 2022, to decrease the total amount of the O-Bank Facility to approximately $5.0 million, to change the applicable interest rate to the TAIBOR plus 1.17% and to adjust the term to 24-month non-revolving.

 

In the second quarter of 2020, we were informed by Lee’s of their desire to reduce the amount of pledged bank deposits with O-Bank by 50%. To remain in compliance with the terms of the O-Bank Facility, we repaid approximately $2.3 million of the outstanding principal in August 2020. In November 2020, Lee’s committed to maintain the required level of pledged bank deposits with O-Bank through the date of full repayment of the O-Bank Facility.

 

As of March 31, 2021 and December 31, 2020, the outstanding principal of the O-Bank Facility was approximately $2.4 million. As of March 31, 2021, the outstanding principal is classified as loans payable - current portion as it is due within one year of the balance sheet date. As of December 31, 2020, the outstanding principal was classified as loans payable - non-current portion.

 

Loan Payable to Bank Direct Capital Finance

 

In June 2020, we entered into an insurance premium financing and security agreement with Bank Direct Capital Finance, or Bank Direct. Under the agreement, we financed $1.1 million of certain premiums at a 4.26% annual interest rate. Payments of approximately $117,000 were due monthly from July 2020 through March 2021. As of December 31, 2020, the outstanding principal of the loan was $0.4 million. The balance of the loan was repaid during the first quarter of 2021 and there was no outstanding balance on the loan as of March 31, 2021.

 

Common Stock Offerings

 

Historically, we have funded, and expect that we will continue to fund, our business operations through various sources, including financings in the form of common stock offerings.

 

At-The-Market Program

 

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal under the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or in privately negotiated transactions.

 

As of March 31, 2021, we sold 105,083 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million (see, Note 8 - Stockholders’ Equity).

 

March 2021 Public Offering

 

On March 23, 2021, we entered into an underwriting agreement with Oppenheimer & Co. Inc. as representative for the several underwriters named therein, relating to the public offering, or the March 2021 Offering, for an aggregate of 9,230,500 units with each unit consisting of one share of common stock and a warrant, or the March 2021 Warrants. The March 2021 Warrants are immediately exercisable for shares of common stock at a price of $3.60 per share and expire five years from the date of issuance. The shares of common stock and the March 2021 Warrants were immediately separable and were issued separately in the March 2021 Offering.
 

The closing of the March 2021 Offering occurred on March 25, 2021. The offering price to the public was $3.25 per unit resulting in gross proceeds of $30.0 million. After deducting underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the March 2021 Warrants issued pursuant to the March 2021 Offering, the net proceeds to us were approximately $27.4 million.

 

Off-Balance Sheet Arrangements

 

We did not have any material off-balance sheet arrangements at March 31, 2021 and 2020 or during the periods then ended.

 

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4.      Controls and Procedures

 

Evaluation of disclosure controls and procedures 

 

Our management, including our President and Chief Executive Officer (principal executive officer) and our Senior Vice President and Chief Financial Officer and Treasurer (principal financial and accounting officer), do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In designing and evaluating the 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.

 

 

Our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer and Treasurer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer and Treasurer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer and Treasurer, to allow for timely decisions regarding required disclosures, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in internal control

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1.      LEGAL PROCEEDINGS

 

We are not aware of any pending legal actions that would, if determined adversely to us, have a material adverse effect on our business and operations.

 

We have from time to time been involved in disputes and proceedings arising in the ordinary course of business, including in connection with the conduct of our clinical trials. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations and financial condition.

 

ITEM 1A.      RISK FACTORS

 

Investing in our securities involves risks. In addition to any risks and uncertainties described elsewhere in this Quarterly Report on Form 10-Q, stockholders and potential investors should carefully consider the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020. These risks are not the only risks that could materialize. Additional risks and uncertainties not presently known to us or that we currently consider to be immaterial may also impair our business operations and development activities. Should any of the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2020 actually materialize, our business, financial condition and/or results of operations could be materially adversely affected, the trading price of our common stock could decline and a stockholder could lose all or part of his or her investment. In particular, the reader’s attention is drawn to the discussion in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.

 

We have a significant amount of intangible assets, including goodwill, recorded on our condensed consolidated balance sheets which may lead to potentially significant impairment charges.

 

We have recorded significant goodwill and intangible assets on our condensed consolidated balance sheets as a result of a previous acquisition, which could become impaired and lead to material charges in the future. The amount of identifiable intangible assets and goodwill in our condensed consolidated balance sheets is significant due to the acquisition of CVie Therapeutics Ltd., or CVie Therapeutics, in December 2018. The identifiable intangible assets resulting from the CVie Therapeutics acquisition relate to in-process research and development, or IPR&D, of istaroxime and rostafuroxin, which as of March 31, 2021 are $22.3 million and $54.8 million, respectively, recorded in aggregate on our condensed consolidated balance sheets as intangible assets of $77.1 million. At March 31, 2021, goodwill recorded on our condensed consolidated balance sheets was $15.7 million. 

 

We review intangible assets and goodwill for impairment at least annually or when events or changes in the business environment indicate that the carrying value may be impaired. If an impairment exists, we would be required to take an impairment charge with respect to the impaired asset. Events giving rise to impairment are difficult to predict, including the uncertainties associated with the development of product candidates and the success of business development activities, and are an inherent risk in the pharmaceutical industry.

 

With respect to IPR&D related to our rostafuroxin drug candidate, we are evaluating possible out-licensing arrangements and anticipate securing an agreement in 2021. However, if we are unable to secure an out-licensing agreement during 2021, or if we secure an agreement for an amount less than anticipated, there is a risk for impairment of this intangible asset in the near term. We have also experienced a declining trend in our closing share price following a registered public offering, or the March 2021 Offering, which was completed on March 25, 2021, due to both market conditions and the dilution of our common stock as a result of the March 2021 Offering. If our share price does not improve during the remainder of the second quarter, our reporting unit is at risk for future impairment in the near term. Should such an impairment of goodwill or intangible assets occur, which would require us to record a potentially significant impairment charge, our financial condition and results of operations in a future period could be negatively impacted.

 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On February 2, 2021, we issued 170,000 warrants to a service provider as compensation for certain financial advisory services. The warrants are immediately exercisable for shares of common stock at a price of $8.25 per share and expire three years from the date of issuance. 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.

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.      MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.      OTHER INFORMATION

 

None.

 

 

ITEM 6.      EXHIBITS

 

Exhibits are listed on the Index to Exhibits at the end of this Quarterly Report on Form 10-Q. The exhibits required by Item 601 of Regulation S-K, listed on such Index in response to this Item, are incorporated herein by reference.

 

INDEX TO EXHIBITS

 

The following exhibits are included with this Quarterly Report on Form 10-Q.

 

Exhibit

No.

Description

 

Method of Filing

 

 

 

 

10.1†

Agreement for Scientific Collaboration between Universita degli Studi di Milano-Bicocca and CVie Therapeutics Ltd, a wholly-owned subsidiary of the Registrant, dated March 19, 2021.

 

Filed herewith.

 

 

 

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.

 

Filed herewith.

 

 

 

 

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.

 

Filed herewith.

 

 

 

 

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Furnished herewith.

    
101.1The following condensed consolidated financial statements from Windtree Therapeutics, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Extensive Business Reporting Language (XBRL): (i) Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020, (ii) Statements of Operations (unaudited) for the three months ended March 31, 2021 and March 31, 2020, (iii) Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and March 31, 2020, and (iv) Notes to Condensed Consolidated Financial Statements.  
    

101.INS

Instance Document.

 

Filed herewith.

 

 

 

 

101.SCH

XBRL Taxonomy Extension Schema Document.

 

Filed herewith.

 

 

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

 

Filed herewith.

    

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

 

Filed herewith.

 

 

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

 

Filed herewith.

 

 

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

 

Filed herewith.

 

# Compensation Related Contract.

† Certain confidential portions have been omitted from this exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Windtree Therapeutics, Inc.

 

 

(Registrant)

 

 

 

Date: May 13, 2021

 

By: /s/ Craig Fraser

 

 

Craig Fraser

 

 

President and Chief Executive Officer

 

 

 

 

 

 

Date: May 13, 2021

 

By: /s/ John P. Hamill

 

 

John P. Hamill

 

 

Senior Vice President and Chief Financial Officer

 

22