Notes to the Condensed Consolidated Financial Statements
(in thousands, except share and per share data)
The unaudited interim condensed consolidated financial statements of Delcath Systems, Inc. (“Delcath” or the “Company”) as of and for the three and six months ended June 30, 2021 and 2020 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 and may also be found on the Company’s website (www.delcath.com). In these notes to the condensed consolidated financial statements the terms “us”, “we” or “our” refer to Delcath and its consolidated subsidiaries.
Description of Business
We are an interventional oncology company focused on the treatment of primary and metastatic liver cancers. Our lead product candidate, the HEPZATO™ KIT (melphalan hydrochloride for injection/hepatic delivery system), or HEPZATO™, is a drug/device combination product. HEPZATO is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and associated side effects. In Europe, our commercial product is a stand-alone medical device having the same device components as the HEPZATO KIT but without the melphalan hydrochloride and is approved for sale under the trade name CHEMOSAT® Hepatic Delivery System for Melphalan, or CHEMOSAT, where it has been used at major medical centers to treat a wide range of cancers of the liver.
Our clinical development program for HEPZATO is primarily comprised of the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (FOCUS Trial), a global registration clinical trial that is investigating objective response rate in metastatic ocular melanoma, or mOM. We are currently reviewing the incidence, unmet need, available efficacy data and development requirements for a broad set of liver cancers in order to select a portfolio of follow-on indications which will maximize the value of the HEPZATO platform.
Risks and Uncertainties
Due to the global outbreak of SARS-CoV-2, a novel strain of coronavirus that causes Coronavirus disease (COVID-19), the Company experienced an impact on certain areas of its business. These effects included a slowing of patient recruitment in the FOCUS trial and a reduction in the pace at which we can monitor data at our clinical trial sites. The resulting delay in completing enrollment and additional time required to monitor data caused our announcement for the top-line data from our FOCUS Trial to shift to early 2021 and to be modified to a preliminary analysis. We now plan to submit a New Drug Application (NDA) to the FDA in the first quarter of 2022 for the treatment of mOM. The ability to achieve this goal is contingent on our ability to monitor data at our clinical sites and therefore the timeline may shift as access to the clinical sites changes in response to the rapidly evolving situation. We have also experienced an increased volatility in EU commercial product revenue and additional impacts to the business may arise that we are not aware of currently. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time.
Liquidity and Going Concern
The accompanying interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and expects to continue incurring losses for the next several years. These losses, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern.
8
The Company’s existence is dependent upon management’s ability to obtain additional funding sources or to enter into strategic alliances. Adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise additional capital and/or enter into strategic alliances when needed or on attractive terms, it would be forced to delay, reduce, or eliminate its research and development programs or any commercialization efforts. There can be no assurance that the Company’s efforts will result in the resolution of the Company’s liquidity needs. If Delcath is not able to continue as a going concern, it is likely that holders of its common stock will lose all of their investment. The accompanying interim condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales. These circumstances raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. Additional working capital is required to continue operations. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of product development and clinical trial results; uncertainty regarding regulatory approval; technological uncertainty; uncertainty regarding patents and proprietary rights; comprehensive government regulations; limited commercial manufacturing, marketing, or sales experience; and dependence on key personnel.
Basis of Presentation
These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with generally accepted accounting principles in the United States of America (GAAP) and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all entities controlled by Delcath and all significant inter-company accounts and transactions have been eliminated in consolidation.
The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended June 30, 2021 and 2020; however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report on Form 10-K have been condensed or omitted as permitted by GAAP. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period.
Significant Accounting Policies
There have been no material changes to our significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, except for the following:
Reclassifications. Certain prior period balances have been reclassified in order to conform to current period presentation. These reclassifications have no effect on previously reported results of operations or loss per share.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The list of changes is comprehensive; however, the changes will not significantly impact the Company due to the full valuation allowance that is recorded against the Company’s deferred tax assets. Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12 on January 1, 2021, and there was no material impact on the Company’s financial statements or disclosures.
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim
9
periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating this new standard.
(2)
|
Cash, Cash Equivalents and Restricted Cash
|
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in Restricted Cash on the balance sheets. Restricted cash does not include required minimum balances.
Cash, cash equivalents, and restricted cash balances were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
Cash and cash equivalents
|
|
$
|
19,274
|
|
|
$
|
28,575
|
|
Letters of credit
|
|
|
101
|
|
|
|
131
|
|
Security for credit cards
|
|
|
50
|
|
|
|
50
|
|
Total cash, cash equivalents and restricted cash shown in
the statements of cash flows
|
|
$
|
19,425
|
|
|
$
|
28,756
|
|
Inventories consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw materials
|
|
$
|
517
|
|
|
$
|
435
|
|
Work-in-process
|
|
|
704
|
|
|
|
420
|
|
Total inventories
|
|
$
|
1,221
|
|
|
$
|
855
|
|
(4)
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Clinical trial expenses
|
|
$
|
1,497
|
|
|
$
|
1,497
|
|
Insurance premiums
|
|
|
290
|
|
|
|
845
|
|
Other
|
|
|
398
|
|
|
|
328
|
|
Total prepaid expenses and other current assets
|
|
$
|
2,185
|
|
|
$
|
2,670
|
|
(5)
|
Property, Plant, and Equipment
|
Property, plant, and equipment consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
Estimated
|
|
|
2021
|
|
|
2020
|
|
|
Useful Life
|
Buildings and land
|
|
$
|
1,191
|
|
|
$
|
1,109
|
|
|
30 years - Buildings
|
Enterprise hardware and software
|
|
|
1,862
|
|
|
|
1,862
|
|
|
3 years
|
Leaseholds
|
|
|
1,814
|
|
|
|
1,826
|
|
|
Lesser of lease term or estimated useful life
|
Equipment
|
|
|
1,068
|
|
|
|
1,063
|
|
|
7 years
|
Furniture
|
|
|
204
|
|
|
|
204
|
|
|
5 years
|
Property, plant and equipment, gross
|
|
|
6,139
|
|
|
|
6,064
|
|
|
|
Accumulated depreciation
|
|
|
(4,778
|
)
|
|
|
(4,713
|
)
|
|
|
Property, plant and equipment, net
|
|
$
|
1,361
|
|
|
$
|
1,351
|
|
|
|
10
Depreciation expense for the three and six months ended June 30, 2021 was approximately $39.6 and $78.4 as compared to approximately $44.4 and $92.0 for the same period in 2020.
Accrued expenses consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Clinical expenses
|
|
$
|
2,216
|
|
|
$
|
2,698
|
|
Compensation, excluding taxes
|
|
|
747
|
|
|
|
1,598
|
|
Professional fees
|
|
|
188
|
|
|
|
225
|
|
Interest on convertible note
|
|
|
313
|
|
|
|
234
|
|
Other
|
|
|
157
|
|
|
|
486
|
|
Total accrued expenses
|
|
$
|
3,621
|
|
|
$
|
5,241
|
|
The Company recognizes right-of-use (“ROU”) assets and lease liabilities when it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company leases its facilities under non-cancellable operating and financing leases.
The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the ROU asset and lease liabilities based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.
The following table summarizes the Company’s operating leases as of and for the six months ended June 30, 2021:
|
|
US
|
|
|
Ireland
|
|
|
Total
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
214
|
|
|
$
|
110
|
|
|
$
|
324
|
|
Sublease income
|
|
|
—
|
|
|
|
(109
|
)
|
|
|
(109
|
)
|
Total
|
|
$
|
214
|
|
|
$
|
1
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows out from operating leases
|
|
|
(214
|
)
|
|
|
(110
|
)
|
|
|
(324
|
)
|
Operating cash flows in from operating leases
|
|
|
-
|
|
|
|
109
|
|
|
|
109
|
|
Weighted average remaining lease term
|
|
|
1.7
|
|
|
|
-
|
|
|
|
|
|
Weighted average discount rate - operating leases
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:
|
|
US
|
|
|
Ireland
|
|
|
Total
|
|
Year ended December 31, 2021
|
|
$
|
203
|
|
|
$
|
18
|
|
|
$
|
221
|
|
Year ended December 31, 2022
|
|
|
406
|
|
|
|
-
|
|
|
|
406
|
|
Year ended December 31, 2023
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Total
|
|
|
676
|
|
|
|
18
|
|
|
|
694
|
|
Less present value discount
|
|
|
(44
|
)
|
|
|
-
|
|
|
|
(44
|
)
|
Operating lease liabilities included in the condensed
consolidated balance sheet at June 30, 2021
|
|
$
|
632
|
|
|
$
|
18
|
|
|
$
|
650
|
|
11
|
(8)
|
Convertible Notes Payable
|
|
|
Conversion
price
|
|
|
Current interest
rate
|
|
|
Principal
|
|
Convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0% July 2019 Notes (maturity date - July 16, 2021)
|
|
$
|
1,500
|
|
|
|
8
|
%
|
|
$
|
2,000
|
|
The note payable is convertible into Preferred Stock.
See Note 12 Subsequent Events for information related to an amendment which reduced the conversion price and extended the maturity of the convertible notes payable.
Preferred Stock
Series E and Series E-1 Preferred Stock
During the six months ended June 30, 2021, 8,924 shares of Preferred Stock were converted into 892,379 shares of the Company’s common stock.
As of June 30, 2021, there were an aggregate of 11,707 shares of Series E and Series E-1 Preferred Stock outstanding.
Other Common Stock Issuances
During the six months ended June 30, 2021, the Company issued 458,661 shares of common stock associated with the exercise of warrants, including 215,000 prefunded warrants at an exercise price of $0.01 per share.
Stock Incentive Plan
2020 Omnibus Equity Incentive Plan
As of June 30, 2021, there were 2,475,000 shares of the Company’s common stock reserved under the Delcath Systems, Inc. Omnibus Equity Incentive Plan (the “2020 Plan”), of which 1,881,608 remained available to be issued. On March 30, 2021, the Company’s Board of Directors approved an amendment of the 2020 Plan to increase the number of shares of the Company’s common stock available for issuance under the 2020 Plan by 1,800,000, subject to stockholder approval of the amendment. The amendment of the 2020 Plan was approved by the stockholders at the Company’s annual meeting of stockholders held on May 6, 2021, and, effective as of such date, the number of shares of the Company’s common stock available for issuance under the 2020 Plan increased by 1,800,000 resulting in a total share reserve of 2,475,000 shares of common stock.
Share-Based Compensation
The following is a summary of stock option activity for the six months ended June 30, 2021:
|
|
Number of Option
|
|
|
Weighted Average Exercise
Price Per Share
|
|
|
Weighted Average
Remaining Contractual Term
(in years)
|
|
Aggregate Intrinsic
Value
|
|
Outstanding at January 1, 2021
|
|
|
1,078,499
|
|
|
$
|
12.68
|
|
|
|
|
|
|
|
Granted
|
|
|
15,000
|
|
|
|
9.87
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(1,611
|
)
|
|
|
11.67
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
1,091,888
|
|
|
$
|
12.65
|
|
|
9.3
|
|
$
|
929
|
|
Exercisable at June 30, 2021
|
|
|
262,388
|
|
|
$
|
12.87
|
|
|
9.2
|
|
$
|
246
|
|
12
The following table summarizes information for stock option shares outstanding and exercisable at June 30, 2021
|
|
|
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Outstanding Number of Options
|
|
|
Weighted Average
Remaining Option Term (in years)
|
|
Number of Options
|
|
$9 - $15
|
|
|
959,389
|
|
|
9.2
|
|
|
236,389
|
|
$15 - $20
|
|
|
81,000
|
|
|
9.3
|
|
|
12,750
|
|
$20 - $25
|
|
|
51,000
|
|
|
9.3
|
|
|
12,750
|
|
$25+
|
|
|
499
|
|
|
7.6
|
|
|
499
|
|
|
|
|
1,091,888
|
|
|
9.2
|
|
|
262,388
|
|
The following is a summary of share-based compensation expense in the statement of operations for the three and six months ended June 30, 2021
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of goods sold
|
|
|
39
|
|
|
|
—
|
|
|
|
91
|
|
|
|
—
|
|
Research and development
|
|
|
463
|
|
|
|
117
|
|
|
|
1,093
|
|
|
|
122
|
|
Selling, general and administrative
|
|
$
|
1,124
|
|
|
$
|
488
|
|
|
$
|
2,590
|
|
|
$
|
537
|
|
Total
|
|
$
|
1,626
|
|
|
$
|
605
|
|
|
$
|
3,774
|
|
|
$
|
660
|
|
At June 30, 2021, there was $5,176 of aggregate unrecognized compensation expense related employee and board stock option grants. This will be recognized over the next 2.9 years.
Warrants
The following is a summary of warrant activity for the six months ended June 30, 2021:
|
|
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
(in years)
|
|
Outstanding at January 1, 2021
|
|
|
4,236,687
|
|
|
$
|
9.13
|
|
|
|
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Warrants exercised
|
|
|
(463,421
|
)
|
|
|
5.37
|
|
|
|
|
|
Warrants expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
3,773,266
|
|
|
$
|
9.59
|
|
|
|
3.7
|
|
Exercisable at June 30, 2021
|
|
|
3,773,266
|
|
|
$
|
9.59
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information related to stock warrants at June 30, 2021
|
|
|
|
|
|
|
|
Warrants Exercisable
|
|
Range of Exercise Prices
|
|
|
Outstanding Number of Warrants
|
|
|
Weighted Average
Remaining Warrant Term (in years)
|
|
Number of Warrants
|
|
$
|
0.01
|
|
|
|
156,000
|
|
|
3.8
|
|
|
156,000
|
|
$
|
10.00
|
|
|
|
3,617,266
|
|
|
3.7
|
|
|
3,617,266
|
|
|
|
|
|
|
3,773,266
|
|
|
3.7
|
|
|
3,773,266
|
|
As of June 30, 2021, warrants to purchase 156,000 shares of the Company’s common stock were pre-funded, and the exercise price was $0.01 per share. The remaining warrants were exercisable at $10.00 per share.
13
(10)
|
Net Loss per Common Share
|
Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.
The following potentially dilutive securities were excluded from the computation of earnings per share as of June 30, 2021 and 2020 because their effects would be anti-dilutive:
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
1,091,888
|
|
|
|
1,640
|
|
Common stock warrants - equity
|
|
|
3,773,266
|
|
|
|
4,051,499
|
|
Common stock reserved for conversion of preferred shares
|
|
|
1,170,700
|
|
|
|
2,595,087
|
|
Assumed conversion of convertible notes
|
|
|
154,222
|
|
|
|
146,288
|
|
Total
|
|
|
6,190,076
|
|
|
|
6,794,514
|
|
At June 30, 2021, the Company had 156,000 pre-funded warrants outstanding. The following table provides a reconciliation of the weighted average shares outstanding calculation for the three and six months ended June 30, 2021 and 2020:
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Three months ended June 30,
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Six months ended June 30,
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|
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2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Weighted average shares issued
|
|
6,511,194
|
|
|
|
2,038,297
|
|
|
|
6,319,622
|
|
|
|
1,054,549
|
|
Weighted average pre-funded warrants
|
|
170,175
|
|
|
|
234,890
|
|
|
|
270,033
|
|
|
|
117,445
|
|
Weighted average shares outstanding
|
|
6,681,369
|
|
|
|
2,273,187
|
|
|
|
6,589,655
|
|
|
|
1,171,994
|
|
(11)
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Commitments and Contingencies
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Litigation, Claims and Assessments
Following the May 18, 2020 resignation (effective June 1, 2020) of Jennifer Simpson, the Company’s former President and CEO, and Barbra Keck, the Company’s former CFO (the “Claimants”), it became evident that there was a dispute regarding the Company’s compensation obligations. In a letter dated, June 29, 2020, an attorney representing the Claimants made certain claims and threatened litigation against the Company. On or about July 27, 2020, the Claimants filed a statement of claim with the American Arbitration Association against the Company. The Claimants sought payment of certain purported unpaid compensation amounts claimed to be due to them, in an approximate amount of $1,140 in the aggregate, as well as unspecified statutory damages under the New York Labor Law, attorneys’ fees and costs, and statutory interest. The Company denied any liability or wrongdoing and was vigorously defending against the claims, with contested arbitration hearings initially scheduled to commence in the week of May 17, 2021. However, the Claimants and the Company agreed to participate in non-binding mediation of their dispute before a neutral mediator, which resulted in the arbitration proceedings being placed in abeyance pending the outcome of the mediation process. With the assistance of the neutral mediator and after careful consideration by the Company’s board of directors following several weeks of negotiations, the Claimants and the Company agreed in mid-May of 2021 to a confidential settlement of their dispute to avoid the expenses and distractions of further arbitration proceedings, with no admission of liability or wrongdoing on the part of the Company. While the Company had accrued for the full purported unpaid compensation amount of $1,140 as of December 31, 2020, the Company ultimately paid less in full and final settlement of its dispute with both of the Claimants. As a result of the confidential settlement, the AAA Arbitration was dismissed with prejudice on June 1, 2021.
Other Transactions
In April 2021, the Company issued an invoice for $1,178 to medac, the Company’s EU product distribution partner, for a milestone payment due under the License, Supply and Marketing Agreement (the “Agreement”) dated December 10, 2018, between the Company and medac, Per the Agreement, a milestone is due upon achieving positive efficacy in the FOCUS trial as defined by the FOCUS trial protocol. Per the trial protocol and associated Statistical Analysis Plan, positive efficacy is based on whether the Objective Response Rate (ORR) exceeds a prespecified threshold. A preliminary analysis of the FOCUS trial data
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based on 87% of enrolled patients was released on March 31, 2021, and subsequently presented at the American Society of Clinical Oncology (ASCO) Annual Meeting held virtually from the 4th through the 8th of June 2021. Per that analysis, the ORR exceeded the prespecified threshold. While the final ORR is not yet known, given the magnitude by which the ORR exceeded the prespecified endpoint and the small number of patients yet to be assessed, the final ORR will be greater than the prespecified endpoint regardless of the responder status of the remaining patients. medac disagrees that the milestone is due and claims that a full clinical study report is required in addition to the existing ORR analysis. medac has not disputed the accuracy of the ORR analysis or underlying data but simply asserts that a full clinical study report is required prior to payment. While the Company disagrees with this interpretation, since medac has stated they do not intend to pay the invoice at this time, under revenue recognition criteria set out in ASC 606 we cannot recognize the revenue in the quarter ending June 30, 2021.
Warrant Exercises
Subsequent to June 30, 2021, warrants to purchase 6,512 shares of the Company’s common stock with an exercise price of $10.00 per share were exercised for proceeds of $65,120.
Other Transactions
Growth Capital Term Loan
On August 6, 2021, the Company entered into a Loan and Security Agreement (the “Loan”) with Avenue Venture Opportunities Fund, L.P. (the “Lender,” or “Avenue”) for an aggregate principal amount of up to $20,000. The Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.70% plus the prime rate as reported in The Wall Street Journal and (b) 10.95%. The Loan is secured by all of the Company’s assets globally, including intellectual property. The Loan maturity date is August 1, 2024.
The initial tranche of the Loan is $15,000, including $4,000 which has been funded into a restricted account and will be released upon achievement of (a)(x) positive FOCUS trial efficacy per the trial’s predefined Statistical Analysis Plan (SAP) (specifically the Overall Response Rate exceeds the prespecified threshold for success defined in the SAP by a statistically significant amount); and (y) based on data contained within the FOCUS trial database and appropriate for use with the U.S. Food and Drug Administration, safety and tolerability among FOCUS trial participants is within the range of currently approved and commonly used cytotoxic chemotherapeutic agents; and (b) raising subsequent net equity proceeds of at least $20,000. The Company may request an additional $5,000 of gross proceeds between October 1, 2022 and December 31, 2022, with funding, subject to the approval of Avenue’s Investment Committee.
In connection with the Loan, the Company issued to the Lender warrants to purchase 127,755 shares of common stock at an exercise price per share equal to $0.01. The warrants are exercisable until August 31, 2026.
Up to $3,000 of the principal amount outstanding may be converted at the option of the Lender into shares of the Company’s common stock at a conversion price of $11.98 per share.
The Company will make monthly interest-only payments during the first fifteen months of the Loan, which could be increased to up to twenty-four months upon the achievement of specified performance milestones. Following the interest-only period, the Company will make equal monthly payments of principal until the maturity date, plus interest. If the Company prepays the Loan, it will be required to pay (a) a prepayment fee of 3% if the Loan is prepaid during the interest-only period; and (b) a prepayment fee of 1% if the Loan is prepaid after the interest-only period. The Company must make an incremental final payment equal to 4.25% of the aggregate funding.
The Company paid an aggregate commitment fee of $150 at closing. Upon a second tranche, the Lender will earn a 1.0% fee on the $5,000 of incremental committed capital, for a total commitment fee of $200.
The Loan requires the Company to make and maintain representations and warranties and other agreements that are customary in loan agreements of this type. The Loan also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments.
The Company intends to use any proceeds from the Loan for general corporate purposes.
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Extension and Amendment of Convertible Note Payable
On August 6, 2021, the Company executed an agreement to amend an aggregate of $2,000 outstanding secured convertible notes payable to Rosalind Opportunities Fund I L.P. and Rosalind Master Fund L.P., respectively, which (a) reduces the conversion price to $1,198 per share of the Company’s Series E Convertible Preferred Stock; and (b) extends the maturity date to October 30, 2024. In addition, in order to induce Avenue to provide the Loan described above, the holders of the convertible notes payable agreed to subordinate (a) all of the Company’s indebtedness and obligations to the holders; and (b) all of the holders’ security interest, to the Loan and Avenue’s security interest in the Company’s property.
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