Company Quick10K Filing
Soleno Therapeutics
Price1.61 EPS-0
Shares32 P/E-3
MCap52 P/FCF-4
Net Debt-11 EBIT-16
TEV41 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-03-04
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-13
S-1 2019-03-29 Public Filing
10-K 2018-12-31 Filed 2019-03-20
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
S-1 2018-01-29 Public Filing
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-15
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-25
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-04
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-12-18
8-K 2020-06-08
8-K 2020-05-18
8-K 2020-05-12
8-K 2020-04-22
8-K 2020-04-15
8-K 2020-03-04
8-K 2020-01-23
8-K 2020-01-10
8-K 2020-01-03
8-K 2019-11-14
8-K 2019-11-13
8-K 2019-10-23
8-K 2019-10-22
8-K 2019-08-07
8-K 2019-06-10
8-K 2019-05-13
8-K 2019-04-26
8-K 2019-03-18
8-K 2019-03-14
8-K 2019-01-24
8-K 2018-12-19
8-K 2018-11-14
8-K 2018-10-16
8-K 2018-08-14
8-K 2018-06-11
8-K 2018-05-30
8-K 2018-05-16
8-K 2018-05-14
8-K 2018-01-02

SLNO 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Overview
Note 2. Going Concern and Management's Plans
Note 3. Summary of Significant Accounting Policies
Note 4. Fair Value of Financial Instruments
Note 5. Warrant Liabilities
Note 6. Commitments and Contingencies
Note 8. Stockholders' Equity
Note 9. Net Loss per Share
Note 10. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 slno-ex311_6.htm
EX-31.2 slno-ex312_7.htm
EX-32.1 slno-ex321_8.htm
EX-32.2 slno-ex322_9.htm

Soleno Therapeutics Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.10.10.0-0.0-0.1-0.12014201620182020
Assets, Equity
0.10.10.0-0.0-0.1-0.12015201620172018
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12014201620182020
Ops, Inv, Fin

10-Q 1 slno-10q_20200331.htm 10-Q slno-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2020

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: 001-36593

 

SOLENO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

77-0523891

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

203 Redwood Shores Parkway, Suite 500

Redwood City, California

(Address of principal executive offices)

94065

(Zip Code)

(650) 213-8444

(Registrant’s telephone number, including area code)

 

 

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

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

SLNO

NASDAQ

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      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 8, 2020, there were 44,710,790 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

 

 


SOLENO THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

Page

PART I—FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations (unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

5

Condensed Consolidated Statements of Cash Flows (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

20

Item 4. Controls and Procedures

20

PART II—OTHER INFORMATION

21

Item 1. Legal Proceedings

21

Item 1A. Risk Factors

21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 3. Defaults Upon Senior Securities

22

Item 4. Mine Safety Disclosures

22

Item 5. Other Information

22

Item 6. Exhibits

22

EXHIBIT INDEX

23

SIGNATURES

24

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Soleno Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,070

 

 

$

20,733

 

Prepaid expenses and other current assets

 

 

572

 

 

 

411

 

Total current assets

 

 

15,642

 

 

 

21,144

 

Long-term assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

19

 

 

 

22

 

Operating lease right-of-use assets

 

 

332

 

 

 

398

 

Finance lease right-of-use assets

 

 

22

 

 

 

24

 

Intangible assets, net

 

 

16,039

 

 

 

16,525

 

Other long-term assets

 

 

59

 

 

 

59

 

Total assets

 

$

32,113

 

 

$

38,172

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,480

 

 

$

1,995

 

Accrued compensation

 

 

338

 

 

 

283

 

Accrued clinical trial site costs

 

 

2,846

 

 

 

1,999

 

Operating lease liabilities

 

 

315

 

 

 

305

 

Other current liabilities

 

 

308

 

 

 

382

 

Total current liabilities

 

 

7,287

 

 

 

4,964

 

Long-term liabilities

 

 

 

 

 

 

 

 

2017 PIPE Warrant liability

 

 

7,656

 

 

 

10,822

 

2018 PIPE Warrant liability

 

 

1,107

 

 

 

1,354

 

Contingent liability for Essentialis purchase price

 

 

6,522

 

 

 

5,938

 

Other long-term liabilities

 

 

60

 

 

 

147

 

Total liabilities

 

 

22,632

 

 

 

23,225

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized,

   44,686,811 and 44,658,054 shares issued and outstanding at

   March 31, 2020 and December 31, 2019, respectively.

 

 

45

 

 

 

45

 

Additional paid-in-capital

 

 

173,100

 

 

 

172,708

 

Accumulated deficit

 

 

(163,664

)

 

 

(157,806

)

Total stockholders’ equity

 

 

9,481

 

 

 

14,947

 

Total liabilities and stockholders’ equity

 

$

32,113

 

 

$

38,172

 

 

See accompanying notes to condensed consolidated financial statements

3


 

 

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In thousands except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

$

6,695

 

 

$

2,760

 

General and administrative

 

 

2,003

 

 

 

2,012

 

Change in fair value of contingent consideration

 

 

584

 

 

 

206

 

Total operating expenses

 

 

9,282

 

 

 

4,978

 

Operating loss

 

 

(9,282

)

 

 

(4,978

)

Other income (expense)

 

 

 

 

 

 

 

 

Change in fair value of warrants liabilities

 

 

3,413

 

 

 

(1,919

)

Loss from minority interest investment

 

 

 

 

 

(190

)

Interest income

 

 

11

 

 

 

57

 

Total other income (expense)

 

 

3,424

 

 

 

(2,052

)

Net loss

 

$

(5,858

)

 

$

(7,030

)

Net loss per common share, basic and diluted

 

$

(0.13

)

 

$

(0.22

)

Weighted-average common shares outstanding used to calculate basic and

   diluted net loss per common share

 

 

44,679,858

 

 

 

31,756,120

 

 

See accompanying notes to condensed consolidated financial statements

4


 

 Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2020 and 2019

(unaudited)

(In thousands except share data)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2020

 

 

44,658,054

 

 

$

45

 

 

$

172,708

 

 

$

(157,806

)

 

$

14,947

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

 

296

 

Issuance of restricted stock units under equity incentive plans

 

 

28,757

 

 

 

 

 

 

96

 

 

 

 

 

 

 

96

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,858

)

 

 

(5,858

)

Balances at March 31, 2020

 

 

44,686,811

 

 

$

45

 

 

$

173,100

 

 

$

(163,664

)

 

$

9,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2019

 

 

31,755,169

 

 

$

32

 

 

$

157,413

 

 

$

(127,032

)

 

$

30,413

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

202

 

 

 

 

 

 

 

202

 

Issuance of restricted stock units under equity incentive plans

 

 

21,415

 

 

 

 

 

 

46

 

 

 

 

 

 

 

46

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,030

)

 

 

(7,030

)

Balances at March 31, 2019

 

 

31,776,584

 

 

$

32

 

 

$

157,661

 

 

$

(134,062

)

 

$

23,631

 

 

See accompanying notes to condensed consolidated financial statements

5


 

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,858

)

 

$

(7,030

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

489

 

 

 

489

 

Noncash lease expense

 

 

68

 

 

 

110

 

Stock-based compensation expense

 

 

392

 

 

 

248

 

Change in fair value of stock warrants

 

 

(3,413

)

 

 

1,919

 

Change in fair value of contingent consideration

 

 

584

 

 

 

206

 

Operating loss on minority interest investment

 

 

 

 

 

190

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses, other current assets and other assets

 

 

(161

)

 

 

(74

)

Due from related party

 

 

 

 

 

(8

)

Accounts payable

 

 

1,485

 

 

 

324

 

Accrued compensation

 

 

55

 

 

 

(92

)

Accrued clinical trial site costs

 

 

847

 

 

 

188

 

Operating lease liabilities

 

 

10

 

 

 

(117

)

Other liabilities

 

 

(157

)

 

 

(40

)

Net cash used in operating activities

 

 

(5,659

)

 

 

(3,687

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(10

)

Net cash used in investing activities

 

 

 

 

 

(10

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal paid on finance lease liabilities

 

 

(4

)

 

 

 

Net cash used in financing activities

 

 

(4

)

 

 

 

Net decrease in cash and cash equivalents

 

 

(5,663

)

 

 

(3,697

)

Cash and cash equivalents, beginning of period

 

 

20,733

 

 

 

23,099

 

Cash and cash equivalents, end of period

 

$

15,070

 

 

$

19,402

 

 

See accompanying notes to condensed consolidated financial statements.

 


6


 

Soleno Therapeutics, Inc.

March 31, 2020

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Overview

Soleno Therapeutics, Inc. (the “Company” or “Soleno”) was incorporated in the State of Delaware on August 25, 1999, and is located in Redwood City, California. The Company initially established its operations as Capnia, a diversified healthcare company that developed and commercialized innovative diagnostics, devices and therapeutics addressing unmet medical needs.  During 2017, Soleno received stockholder approval to amend its Amended and Restated Certificate of Incorporation to change its name from “Capnia, Inc.” to “Soleno Therapeutics, Inc.” and merged with Essentialis, Inc. After the merger, the Company’s primary focus has been the development and commercialization of novel therapeutics for the treatment of rare diseases and the Company divested itself of its prior business efforts.

The Company’s lead candidate is Diazoxide Choline Controlled Release tablets, or DCCR,  once-daily oral tablets for the treatment of Prader-Willi Syndrome, or PWS. DCCR is currently being evaluated in a Phase III clinical development program. The Phase III study (C601 or DESTINY PWS), a 3-month randomized, double-blind placebo-controlled study, completed enrollment in January 2020 with 127 patients at 29 sites in the US and UK. Patients who complete treatment in DESTINY PWS are eligible to receive DCCR for up to 36 months in C602, an open-label extension study. Top line results from DESTINY PWS are expected in 1H2020. DCCR has orphan designation for the treatment of PWS in the United States, or U.S., as well as in the European Union, or E.U.

Note 2. Going Concern and Management’s Plans

The Company had a net loss of $5.9 million during the three months ended March 31, 2020 and has an accumulated deficit of $163.7 million at March 31, 2020 resulting from having incurred losses since its inception. The Company had $15.1 million of cash on hand at March 31, 2020 and used $5.7 million of cash in its operating activities during the three months ended March 31, 2020. The Company has financed its operations principally through issuances of equity securities.

The accompanying condensed consolidated financial statements have been prepared under the assumption the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

The Company expects to continue incurring losses for the foreseeable future and will be required to raise additional capital to complete its clinical trials, pursue product development initiatives and penetrate markets for the sale of its products. Management believes that the Company will continue to have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means, but the Company’s access to such capital resources is uncertain and is not assured. If the Company is unable to secure additional capital, it may be required to curtail its clinical trials and development of new products and take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These measures could cause significant delays in the Company’s efforts to complete its clinical trials and commercialize its products, which is critical to the realization of its business plan and the future operations of the Company. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should it be unable to continue as a going concern.

Management believes that the Company does not have sufficient capital resources to sustain operations through at least the next twelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses for the foreseeable future it will be required to raise additional capital resources in order to fund its operations, although the availability of, and the Company’s access to such resources is not assured. Accordingly, management believes that there is substantial doubt regarding the Company’s ability to continue operating as a going concern within one year from the date of filing these financial statements.

Note 3. Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies during the three months ended March 31, 2020 as compared to the significant accounting policies described in Note 3 of the “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Below are those policies with current period updates.

7


 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2020. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements for the fiscal year ended December 31, 2019, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 4, 2020.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of expenses in the financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates included in the financial statements include the valuation of deferred income tax assets, the valuation of financial instruments, stock-based compensation, value and life of acquired intangibles, and the valuation of contingent liabilities. The contingent liability represents the fair value of the contingent consideration arising from the Company’s acquisition of Essentialis in 2017. As part of the purchase price, the Company is obligated to make cash earn out payments to Essentialis stockholders up to a maximum of $30 million upon the achievement of certain commercial milestones.

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company has adopted this ASU at the beginning of 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements disclosures.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12: “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.  The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company has not yet assessed the potential impact of adopting ASU 2019-12 on its condensed consolidated financial statements.

During the three months ended March 31, 2020, other than ASU 2019-12, there have been no new, or existing recently issued, accounting pronouncements that are of significance, or potential significance, that impact the Company’s condensed consolidated interim financial statements.

Note 4. Fair Value of Financial Instruments

The carrying value of the Company’s cash, cash equivalents and accounts payable, approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price 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

8


 

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 defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

 

Level I Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level II Inputs other than quoted prices included within Level I that are observable, unadjusted 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 related assets or liabilities; and

 

Level III Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.  

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017 PIPE warrant liability

 

$

7,656

 

 

$

 

 

$

 

 

$

7,656

 

2018 PIPE warrant liability

 

 

1,107

 

 

 

 

 

 

 

 

 

1,107

 

Essentialis purchase price contingency liability

 

 

6,522

 

 

 

 

 

 

 

 

 

6,522

 

Total common stock warrant and contingent

   consideration liability

 

$

15,285

 

 

$

 

 

$

 

 

$

15,285

 

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017 PIPE warrant liability

 

$

10,822

 

 

$

 

 

$

 

 

$

10,822

 

2018 PIPE warrant liability

 

 

1,354

 

 

 

 

 

 

 

 

 

1,354

 

Essentialis purchase price contingency liability

 

 

5,938

 

 

 

 

 

 

 

 

 

5,938

 

Total common stock warrant and contingent

   consideration liability

 

$

18,114

 

 

$

 

 

$

 

 

$

18,114

 

 

The Company’s estimated fair value of the 2017 PIPE Warrants and the 2018 PIPE Warrants was calculated using a Monte Carlo simulation of a geometric Brownian motion model. The Monte Carlo simulation-pricing model requires the input of highly subjective assumptions including the expected stock price volatility, the expected term, the expected dividend yield and the risk-free interest rate. The fair value of the Essentialis purchase price contingent liability is estimated using scenario-based methods based upon the Company’s analysis of the likelihood of obtaining specified approvals from the Federal Drug Administration as well as reaching cumulative revenue milestones. The Level 3 estimates are based, in part, on subjective assumptions.

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. There were no transfers between levels within the hierarchy during the periods presented.

9


 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 liabilities (dollars in thousands).

 

 

Series C Warrants

 

 

2017 PIPE Warrants

 

 

2018 PIPE Warrants

 

 

Purchase Price

 

 

 

Number of

Warrants

 

 

Liability

 

 

Number of

Warrants

 

 

Liability

 

 

Number of

Warrants

 

 

Liability

 

 

Contingent

Liability

 

Balance at December 31, 2019

 

 

118,083

 

 

$

 

 

 

6,024,425

 

 

$

10,822

 

 

 

513,617

 

 

$

1,354

 

 

$

5,938

 

Expiration of Series C Warrants

 

 

(118,083

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in value of 2017 PIPE Warrants

 

 

 

 

 

 

 

 

 

 

 

(3,166

)

 

 

 

 

 

 

 

 

 

Change in value of 2018 PIPE Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(247

)

 

 

 

Change in value of contingent liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

584

 

Balance at March 31, 2020

 

 

 

 

$

 

 

 

6,024,425

 

 

$

7,656

 

 

 

513,617

 

 

$

1,107

 

 

$

6,522

 

 

 

Note 5. Warrant Liabilities

The Company has issued multiple warrant series, of which the 2017 PIPE Warrants and the 2018 PIPE Warrants (the “Warrants”) remain outstanding at March 31, 2020 and are considered liabilities pursuant to the guidance established by ASC 815 Derivatives and Hedging.

Accounting Treatment

The Company accounts for the Warrants in accordance with the guidance in ASC 815. As indicated below, the Company may be obligated to settle Warrants in cash. The Company classified the Warrants as long-term liabilities at their fair value and will re-measure the warrants at each balance sheet date until they are exercised or expire. Any change in the fair value is recognized as other income (expense) in the Company’s condensed consolidated statements of operations.

Series C Warrants

As of March 31, 2020, the fair value of the Series C Warrants was zero as the warrants had expired. This balance is consistent with the balance as of December 31, 2019.

The Company calculated the fair value of the Series C Warrants as of December 31, 2019 using a Black-Scholes pricing model. The Black-Scholes pricing model requires the input of highly subjective assumptions including the expected stock price volatility. The Company used the following inputs.

 

 

 

December 31,

2019

 

Volatility

 

 

90

%

Contractual term (years)

 

 

0.17

 

Expected dividend yield

 

 

%

Risk-free rate

 

 

1.52

%

 

Warrants Issued as Part of the Units in the 2017 PIPE Offering

The 2017 PIPE Warrants were issued on December 15, 2017 in the 2017 PIPE Offering, pursuant to a Warrant Agreement with each of the investors in the 2017 PIPE Offering, and entitle the holder of each of the 8,141,116 units to purchase 0.74 shares of the Company’s common stock at an exercise price equal to $2.00 per share, subject to adjustment as discussed below, at any time commencing upon issuance of the 2017 PIPE Warrants and terminating at the earlier of December 15, 2020 or 30 days following positive Phase III results for the DCCR tablet in PWS.

The exercise price and number of shares of common stock issuable upon exercise of the 2017 PIPE Warrants may be adjusted in certain circumstances, including the event of a stock split, stock dividend, extraordinary dividend, or recapitalization, reorganization, merger or consolidation. However, the exercise price of the 2017 PIPE Warrants will not be reduced below $1.72.

10


 

In the event of a change of control of the Company, the holders of unexercised warrants may present their unexercised warrants to the Company, or its successor, to be purchased by the Company, or its successor, in an amount equal to the per share value determined by the Black Scholes methodology.

As of March 31, 2020, the fair value of the 2017 PIPE Warrants was estimated at $7.7 million. The decrease in the fair value of the liability for the 2017 PIPE Warrants of approximately $3.2 million during the three months ended March 31, 2020 was recorded as other income (expense) in the condensed consolidated statements of operations. 

The Company has calculated the fair value of the 2017 PIPE Warrants using a Monte Carlo simulation of a geometric Brownian motion model. The Monte Carlo simulation pricing model requires the input of highly subjective assumptions including the expected stock price volatility. The following summarizes certain key assumptions used in estimating the fair values.

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Volatility

 

 

105

%

 

 

99

%

Contractual term (years)

 

 

0.7

 

 

 

1.0

 

Expected dividend yield

 

 

%

 

 

%

Risk-free rate

 

 

0.10

%

 

 

1.60

%

 

Warrants Issued as Part of the Units in the 2018 PIPE Offering

The 2018 PIPE Warrants were issued on December 19, 2018 in the 2018 PIPE Offering, pursuant to a Warrant Agreement with each of the investors in the 2018 PIPE Offering, and entitle the holders of each of the 10,272,375 units to purchase 0.05 shares of the Company’s common stock at an exercise price equal to $2.00 per share, subject to adjustment as discussed below, at any time commencing upon issuance of the 2018 PIPE Warrants and terminating on December 21, 2023.  

The exercise price and number of shares of common stock issuable upon exercise of the 2018 PIPE Warrants may be adjusted in certain circumstances, including the event of a stock split, stock dividend, extraordinary dividend, or recapitalization, reorganization, merger or consolidation. However, the exercise price of the 2018 PIPE Warrants will not be reduced below $2.00.

In the event of a change of control of the Company, the holders of unexercised warrants may present their unexercised warrants to the Company, or its successor, to be purchased by the Company, or its successor, in an amount equal to the per share value determined by the Black Scholes methodology.

As of March 31, 2020, the fair value of the 2018 PIPE Warrants was estimated at $1.1 million. The approximate $247,000 decrease in the fair value of the liability for the 2018 PIPE Warrants during the three months ended March 31, 2020 was recorded as other income (expense) in the condensed consolidated statements of operations. 

The Company has calculated the fair value of the 2018 PIPE Warrants using a Monte Carlo simulation of a geometric Brownian motion model. The Monte Carlo simulation pricing model requires the input of highly subjective assumptions including the expected stock price volatility. The following summarizes certain key assumptions used in estimating the fair values.

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Volatility

 

 

105

%

 

 

99

%

Contractual term (years)

 

 

3.7

 

 

 

4.0

 

Expected dividend yield

 

 

%

 

 

%

Risk-free rate

 

 

0.33

%

 

 

1.56

%

 

The Monte Carlo simulation of a geometric Brownian motion model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. These assumptions include the following estimates.

 

Volatility: The Company calculates the estimated volatility rate based on the volatilities of common stock of comparable companies in its industry.

 

Contractual term: The expected life of the warrants, which is based on the contractual term of the warrants.

11


 

 

Expected dividend yield: The Company has never declared or paid any cash dividends and does not currently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero.

 

Risk-free rate: The risk-free interest rate is based on the U.S. Treasury rate for similar periods as those of expected volatility.

 

Note 6. Commitments and Contingencies

Facility Leases

The Company’s previous operating lease for its headquarters facility office space in Redwood City, California, terminated in August 2019, along with the related subleases. One of the subleases was with Capnia, of which the Company was a joint owner until September 2019. Sublease income received from Capnia during the three months ended March 31, 2019 was approximately $25,000.

In July 2019, the Company executed a non-cancellable lease agreement for 6,368 square feet of new space in Redwood City, California, which began in September 2019 and expires in May 2021. The lease also provides the Company with the right to use office furniture in the space and allows the purchase of this furniture at the end of the lease term for $1. The lease agreement requires monthly lease payments of approximately $29,000 beginning in November of 2019, with an increase to approximately $30,000 per month in September of 2020. The Company has accounted for the new lease as an operating lease for the office space and a finance lease for the office furniture, based on their relative standalone prices.

The components of lease expense during the three months ended March 31, 2019 and 2018 were as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating lease cost:

 

 

 

 

 

 

 

 

Operating lease cost

 

$

76

 

 

$

119

 

Sublease income

 

 

 

 

 

(65

)

Total operating lease cost

 

$

76

 

 

$

54

 

 

 

 

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

$

2

 

 

$

 

Interest on lease liabilities

 

 

1

 

 

 

 

Total finance lease cost

 

$

3

 

 

$

 

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

Note 7. CoSense Joint Venture Agreement and Discontinued Operations

In December 2017, the Company entered into a joint venture with OptAsia Healthcare Limited, or OAHL, with respect to its CoSense product by agreeing to sell shares of Capnia, its then wholly-owned subsidiary, to OAHL. CoSense was Soleno’s first Sensalyze Technology Platform product to receive 510(k) clearances from the FDA and CE Mark certification. The Company’s entry into the joint venture resulted from a comprehensive review of strategic alternatives for its legacy products and product candidates following its transition to a primarily therapeutic drug product company. The terms of the Joint Venture Agreement provided that OAHL would invest up to a total of $2.2 million in Capnia’s common shares on an incremental quarterly basis commencing in December 2017. OAHL was also responsible for funding a portion of the Capnia operations. The Joint Venture Agreement provided that Capnia would issue shares of common stock to OAHL based on a negotiated price of $1.00 per share when the cumulative investment made by OAHL equaled or exceeded $1.2 million. For financial reporting purposes, Capnia’s assets, liabilities and results of operations had historically been consolidated with those of the Company.

During October 2018, the Company and OAHL determined and agreed that the cumulative investment made by OAHL exceeded $1.2 million during the quarter ended September 30, 2018. Accordingly, on October 16, 2018, Capnia issued 1,690,322 shares of its common stock to OAHL, representing 53% of its outstanding shares. After the share issuance the Company no longer

12


 

held a controlling interest in Capnia and resulted in the deconsolidation of Capnia’s financial statements from those of the Company. The remaining 47% investment in Capnia was classified as an equity method investment and was presented as a Minority interest investment in former subsidiary in the condensed consolidated balance sheet.   The Company’s share of Capnia’s net losses during the three months ended March 31, 2019 are recorded in the condensed consolidated statements of operations in the line titled “Loss from minority interest investment”. During September 2019, the Company sold its remaining 47% investment in Capnia. Following the transaction, the Company has no interest remaining in Capnia and the previous joint venture agreement with OAHL has been terminated.

Note 8. Stockholders’ Equity

Equity Incentive Plans

The Company has adopted the 2014 Equity Incentive Plan, or the Plan. Under the Plan the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or performance shares to employees, directors, advisors, and consultants. Options granted under the Plan may be incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to Company employees, including officers and directors.

The Board of Directors has the authority to determine to whom stock options will be granted, the number of options, the term, and the exercise price. Options are to be granted at an exercise price not less than fair value. For individuals holding more than 10% of the voting rights of all classes of stock, the exercise price of an option will not be less than 110% of fair value. The vesting period is normally monthly over a period of 4 years from the vesting date. The contractual term of an option is no longer than five years for ISOs for which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than ten years for all other options. The terms and conditions governing restricted stock units is at the sole discretion of the Board. As of March 31, 2020, a total of 190,601 shares are available for future grant under the Plan.

The Company recognizes stock-based compensation expense related to options and restricted stock units granted to employees, directors and consultants. The compensation expense is allocated on a departmental basis, based on the classification of the award holder. No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements during any of the periods presented.  

Stock-based compensation expense was recognized in the condensed consolidated statements of operations as follows (in thousands).

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

99

 

 

$

41

 

General and administrative

 

 

293

 

 

 

207

 

Total

 

$

392

 

 

$

248

 

 

Stock Options

The Company granted options to purchase 464,000 of the Company’s common stock during the three months ended March 31, 2019. There were no options granted during the three months ended March 31, 2020. The fair value of each award granted during the three months ended March 31, 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions.

 

Expected life (years)

 

6.0-6.1

 

Risk-free interest rate

 

2.6%

 

Volatility

 

71%

 

Dividend rate

 

—  %

 

 

The Black-Scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. These assumptions include the following estimates:

 

Expected life: The expected life of stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the simplified method. The Company does not believe it is able to rely on historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use

13


 

 

in estimating the fair value-based measurement of stock options. Therefore, it has opted to use the “simplified method” for estimating the expected term of options.

 

Risk-free interest rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity.

 

Volatility: The estimated volatility rate based on the volatilities of common stock of comparable companies in the Company’s industry.

 

Dividend rate: The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero.

The following table summarizes stock option transactions for the three months ended March 31, 2020 as issued under the 2014 Plan:

 

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price per

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

 

Outstanding

 

 

Share

 

 

(in years)

 

Balance at December 31, 2019

 

 

2,123,117

 

 

$

4.62

 

 

 

7.87

 

Options canceled/forfeited

 

 

(38,359

)

 

$

2.11

 

 

 

 

 

Balance at March 31, 2020

 

 

2,084,758

 

 

$

4.66

 

 

 

7.59

 

Options vested at March 31, 2020

 

 

1,220,423

 

 

$

6.65

 

 

 

7.01

 

Options vested and expected to vest at March 31, 2020

 

 

2,084,758

 

 

$

4.66

 

 

 

7.59

 

 

The weighted-average grant date fair value of options granted was and $1.08 per share for the three months ended March 31, 2019. At March 31, 2020 total unrecognized employee stock-based compensation related to stock options was approximately $919,000, which is expected to be recognized over the weighted-average remaining vesting period of 2.2 years. As of March 31, 2020, the outstanding stock options had an intrinsic value of approximately $883,000.

Restricted Stock Units

There were 687,257 and 21,415 restricted stock units granted by the Company during the three months ended March 31, 2020 and March 31, 2019, respectively, to employees and directors. The shares granted to directors were 100% vested on the grant date and represent compensation for past board services. The shares granted to employees typically vest annually over a period of four years. The shares were valued based on the Company’s common stock price on the grant date.

The following table summarizes restricted stock unit transactions for the three months ended March 31, 2020 as issued under the Plan:

 

 

Number of

Restricted Stock Units

 

 

Weighted-

Average

Grant-Date Fair Value per Share

 

Outstanding at December 31, 2019

 

 

-

 

 

 

 

 

Restricted stock units granted

 

 

687,257

 

 

$

3.83

 

Restricted stock units vested

 

 

(28,757

)

 

$

3.35

 

Outstanding at March 31, 2020

 

 

658,500

 

 

$

3.85

 

The weighted-average grant-date fair value of all restricted stock units granted during the three months ended March 31, 2020 and March 31, 2019 was $3.83 and $2.18, respectively. The fair value of all restricted stock units vested during the three months ended March 31, 2020 and March 31, 2019 was approximately $96,000 and approximately $46,000, respectively. At March 31, 2020 total unrecognized employee stock-based compensation related to restricted stock units was $2.4 million, which is expected to be recognized over the weighted-average remaining vesting period of 3.7 years.

2014 Employee Stock Purchase Plan

The Company’s board of directors and stockholders have adopted the 2014 Employee Stock Purchase Plan, or the ESPP. The ESPP has become effective, and the board of directors will implement commencement of offers thereunder in its discretion. A total of

14


 

27,967 shares of the Company’s common stock has been made available for sale under the ESPP. In addition, the ESPP provides for annual increases in the number of shares available for issuance under the plan on the first day of each year beginning in the year following the initial date that the board of directors authorizes commencement, equal to the least of:

 

1.0% of the outstanding shares of the Company’s common stock on the first day of such year;

 

55,936 shares; or

 

such amount as determined by the board of directors.

As of March 31, 2020, there were no purchases by employees under this plan.

Series D Warrants

The Company issued 270,270 Series D Warrants in October 2015, which are exercisable into 540,540 shares of the Company’s common stock, with an exercise price of $8.75 and a term of five years expiring on October 15, 2020. The Company’s Series D Warrants contain standard anti-dilution provisions for stock dividends, stock splits, subdivisions, combinations and similar types of recapitalization events. They also contain a cashless exercise feature that provides for their net share settlement at the option of the holder in the event that there is no effective registration statement covering the continuous offer and sale of the warrants and underlying shares. The Company is required to comply with certain requirements to cause or maintain the effectiveness of a registration statement for the offer and sale of these securities. The Series D Warrant agreement further provides for the payment of liquidated damages at an amount per month equal to 1% of the aggregate VWAP of the shares into which each Series D Warrant is convertible in the event that the Company is unable to maintain the effectiveness of a registration statement as described herein. The Company evaluated the registration payment arrangement stipulated in the terms of this securities agreement and determined that it is probable that the Company will maintain an effective registration statement and has therefore not allocated any portion of the proceeds to the registration payment arrangement. The Series D Warrant agreement specifically provides that under no circumstances will the Company be required to settle any Series D Warrant exercise for cash, whether by net settlement or otherwise.

Accounting Treatment

The Company accounts for the Series D Warrants in accordance with the guidance in ASC 815 Derivatives and Hedging. As indicated above, the Company is not required under any circumstance to settle any Series D Warrant exercise for cash. The Company has therefore classified the value of the Series D Warrants as permanent equity.

Other Common Stock Warrants

As of March 31, 2020, the Company had 102,070 common stock warrants outstanding from the 2010/2012 convertible notes, with an exercise price of $24.35 and a term of 10 years expiring in November 2024. The Company also had 16,500 common stock warrants issued to the underwriter in the Company’s IPO, with an exercise price of $35.70 and a term of 10 years, expiring in November 2024.

Note 9. Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common stock actually outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock outstanding and dilutive potential common stock that would be issued upon the exercise of common stock warrants and options. For the three months ended March 31, 2020 and 2019, the effect of issuing the potential common stock is anti-dilutive due to the net losses in those periods and the number of shares used to compute basic and diluted earnings per share are the same in each of those periods.

15


 

The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares).

 

 

 

As of March 31,

 

 

 

2020

 

 

2019

 

Warrants issued to 2010/2012 convertible note

   holders to purchase common stock

 

 

102,070

 

 

 

102,070

 

Options to purchase common stock

 

 

2,084,758

 

 

 

2,116,107

 

Outstanding restricted stock units

 

 

658,500

 

 

 

 

Warrants issued to underwriter to purchase common stock

 

 

16,500

 

 

 

16,500

 

Series A warrants to purchase common stock

 

 

 

 

 

485,121

 

Series C warrants to purchase common stock

 

 

 

 

 

118,083

 

Series D warrants to purchase common stock

 

 

540,540

 

 

 

540,540

 

2017 PIPE warrants

 

 

6,024,425

 

 

 

6,024,425

 

2018 PIPE warrants

 

 

513,617

 

 

 

513,617

 

Total

 

 

9,940,410

 

 

 

9,916,463

 

 

Note 10. Subsequent Events

The Company has evaluated its subsequent events from March 31, 2020 through the date these condensed consolidated financial statements were issued and has determined that there are no subsequent events requiring disclosure in these condensed consolidated financial statements other than the item noted below.

PPP Term Note

On April 22, 2020, the Company entered into a $350,000 loan with Silicon Valley Bank (“SVB”) pursuant to the Small Business Administration’s (“SBA”) Paycheck Protection Program ("the PPP"). The loan proceeds were intended to be used for payroll, rent and utilities over the eight- week period following the date of the loan. At the time the Company applied for the PPP loan, it believed in good faith that it met all of the certification requirements for a PPP loan. However, on April 23, 2020, the SBA issued additional guidance with respect to PPP loans. The Company evaluated this new guidance and concluded that currently it may not be able to meet all of the certification requirements. As such, the Company decided to return all of the funds received under the PPP loan (including interest accrued on such funds) to the SBA and on May 6, 2020 the Company instructed SVB to make repayment. 

 

16


 

Item 2.

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

The interim consolidated financial statements included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2019, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Form 10-K for the year ended December 31, 2019. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to risks and uncertainties, including those set forth in Part II – Other Information, Item 1A. Risk Factors below and elsewhere in this report that could cause actual results to differ materially from historical results or anticipated results.

Overview

We were incorporated in the State of Delaware on August 25, 1999, and are located in Redwood City, California. We initially established our operations as Capnia, a diversified healthcare company that developed and commercialized innovative diagnostics, devices and therapeutics addressing unmet medical needs.  During 2017, we received stockholder approval to amend our Amended and Restated Certificate of Incorporation to change our name from “Capnia, Inc.” to “Soleno Therapeutics, Inc.” and merge with Essentialis, Inc. After the merger, our primary focus has been the development and commercialization of novel therapeutics for the treatment of rare diseases and we divested our self of our prior business efforts.

Our lead candidate is Diazoxide Choline Controlled Release tablets, or DCCR,  once-daily oral tablets for the treatment of Prader-Willi Syndrome, or PWS. DCCR is currently being evaluated in a Phase III clinical development program. The Phase III study (C601 or DESTINY PWS), a 3-month randomized, double-blind placebo-controlled study, completed enrollment in January 2020 with 127 patients at 29 sites in the US and UK. Patients who complete treatment in DESTINY PWS are eligible to receive DCCR for up to 36 months in C602, an open-label extension study. Top line results from DESTINY PWS are expected in 1H2020. DCCR has orphan designation for the treatment of PWS in the United States, or U.S., as well as in the European Union, or E.U.

 

The spread of the COVID-19 virus during the first quarter of 2020 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic. Due to stay at home orders both in the United States and United Kingdom, we have instituted a work from home policy for all of our employees and other service providers to protect their health and well-being. We have ensured that all of our employees have essential materials to work comfortably and efficiently from home during this time.

We have not experienced a significant financial impact directly related to the pandemic. As of March 31, 2020, we have cash and cash equivalents of $15.1 million, however management believes that the Company does not have sufficient capital resources to sustain operations through at least the next twelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses for the foreseeable future it will be required to raise additional capital resources in order to fund its operations, although the availability of, and the Company’s access to such resources is not assured. We have not experienced a significant operational impact on our primary development program, DCCR for the treatment of PWS, and our ongoing clinical trial DESTINY PWS, although we cannot rule out future delays as authorities fight the spread of the virus. As of March 31, 2020, we had an accumulated deficit of $163.7 million, primarily as a result of research and development and general and administrative expenses. We may never be successful in commercializing our novel therapeutic-lead candidate DCCR. Accordingly, we expect to incur significant losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenue or profits.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 3 of our most recent Form 10-K.

17


 

Results of Operations

Comparison of the three months ended March 31, 2020 and 2019

 

 

 

Three Months Ended March 31,

 

 

Increase (decrease)