UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 |
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Smaller reporting company |
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Emerging growth company |
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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 October 31, 2024, the registrant had
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues and profitability, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may differ materially from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.
This report includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties as well as our own estimates. All of the market data used in this report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for Haduvio include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. We own the trademarks Trevi® and Haduvio. Other trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names. We intend to propose Haduvio as the trade name for our oral nalbuphine ER investigational product.
RISK FACTOR SUMMARY
The following is a summary of the principal factors that make an investment in our company speculative or risky. This summary does not address all of the risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Additional discussion of the risks summarized in this summary and other risks that we face, can be found in the “Risk Factors” section of this Quarterly Report on Form 10-Q and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, before making an investment decision regarding our common stock. The forward-looking statements discussed above are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Table of Contents
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PART I. |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 3. |
28 |
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Item 4. |
28 |
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PART II. |
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Item 1. |
28 |
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Item 1A. |
28 |
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Item 5. |
70 |
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Item 6. |
70 |
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72 |
i
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
Trevi Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
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September 30, |
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December 31, |
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Assets |
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Unaudited |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Operating lease right-of-use assets |
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Finance lease right-of-use assets |
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Property, equipment and leasehold improvements, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liabilities |
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Finance lease liabilities |
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Total current liabilities |
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Operating lease liabilities |
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Finance lease liabilities |
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— |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock: $ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Trevi Therapeutics, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
(Amounts in thousands, except share and per share amounts)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
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( |
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( |
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Other income (expense): |
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Interest income, net |
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Other (expense) income, net |
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( |
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( |
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Interest expense |
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( |
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( |
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( |
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( |
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Total other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Income tax benefit |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Basic and diluted net loss per common share outstanding |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Weighted average common shares used in net loss per share |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Other comprehensive income (loss): |
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Net unrealized gains (losses) on available-for-sale marketable securities |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Trevi Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(Amounts in thousands, except share amounts)
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid- |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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in Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock from exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees |
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— |
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— |
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Issuance of common stock from pre-funded warrant exercise |
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( |
) |
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— |
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— |
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— |
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Unrealized gains on available-for-sale marketable securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock from exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees |
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— |
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— |
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Unrealized gains on available-for-sale marketable securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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3
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid- |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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in Capital |
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Gain (Loss) |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock from exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees |
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— |
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— |
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Issuance of common stock from Employee Stock Purchase Plan |
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— |
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— |
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— |
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Issuance of common stock from pre-funded warrant exercise |
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( |
) |
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— |
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— |
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— |
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Unrealized gains on available-for-sale marketable securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2024 |
|
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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||||||
Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock from exercise of stock options |
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— |
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— |
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— |
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|||
Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees |
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— |
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— |
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||||
Issuance of common stock from Employee Stock Purchase Plan |
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— |
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— |
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— |
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Issuance of common stock from pre-funded warrant exercise |
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( |
) |
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— |
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— |
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— |
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Unrealized losses on available-for-sale marketable securities |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Trevi Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(Amounts in thousands)
|
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Operating lease right-of-use assets |
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Depreciation and amortization |
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Accretion of available-for-sale marketable securities, net |
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( |
) |
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( |
) |
Accretion/accrual of term loan discounts and debt issuance costs |
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— |
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Loss on disposal of property, equipment and leasehold improvements |
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— |
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Changes in operating assets and liabilities: |
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Accrued expenses and other liabilities |
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Prepaid expenses and other current assets |
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( |
) |
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Accounts payable |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Investing activities: |
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Proceeds from maturities of available-for-sale marketable securities |
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||
Purchases of available-for-sale marketable securities |
|
|
( |
) |
|
|
( |
) |
Purchases of property, equipment and leasehold improvements |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
|
||
Proceeds from at-the-market sales, net of commissions |
|
|
|
|
|
|
||
Proceeds from exercises of stock options |
|
|
|
|
|
|
||
Proceeds from employee stock purchase plan |
|
|
|
|
|
|
||
Payments of finance lease |
|
|
( |
) |
|
|
( |
) |
Repayments of term loan |
|
|
— |
|
|
|
( |
) |
Payments of offering costs |
|
|
— |
|
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Trevi Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)
Trevi Therapeutics, Inc. (“Trevi” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (oral nalbuphine ER) for the treatment of chronic cough in idiopathic pulmonary fibrosis (“IPF”) and refractory chronic cough. Haduvio is an oral extended-release formulation of nalbuphine. Haduvio acts on the cough reflex arc both centrally and peripherally as a kappa agonist and a mu antagonist (KAMA). Kappa and mu are opioid receptors that play a key role in controlling cough hypersensitivity. Nalbuphine has been approved and marketed as an injectable for pain indications for more than 30 years in the United States (“U.S.”) and Europe. Nalbuphine’s mechanism of action also mitigates the risk of abuse associated with mu-opioid agonists because it antagonizes, or blocks, the mu-opioid receptor. Parenteral nalbuphine is not scheduled as a controlled substance in the U.S. and most of Europe.
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2024 and 2023 included herein have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim information. Certain information and footnote disclosures typically prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying unaudited Condensed Consolidated Financial Statements and notes should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The accompanying Condensed Consolidated Financial Statements include the accounts of Trevi Therapeutics, Inc. and its wholly-owned subsidiary Trevi Therapeutics Limited. Intercompany balances and transactions have been eliminated.
All amounts presented are in thousands of dollars, except share and per share amounts, unless noted otherwise. The Company has evaluated events occurring subsequent to September 30, 2024 for potential recognition or disclosure in the Condensed Consolidated Financial Statements and concluded there were no subsequent events that required recognition or disclosure other than those provided in Note 8.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of the expenses during the reporting periods. Significant estimates and assumptions reflected in these Condensed Consolidated Financial Statements include but are not limited to the recognition of research and development (“R&D”) expenses, the valuation of stock-based awards and the valuation allowance of deferred tax assets. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Unaudited Interim Financial Information
The accompanying interim Condensed Consolidated Balance Sheet as of September 30, 2024 and the Condensed Consolidated Statements of Comprehensive Loss, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the Company’s opinion, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of its financial position as of September 30, 2024 and the results of its operations and its cash flows for the three and nine months ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2024 or any other interim period or any future year or period.
Cash Equivalents
The Company classifies short-term, highly liquid investments with an original term of three months or less at the date of purchase as cash equivalents.
Marketable Securities
The Company generally invests its excess cash in money market funds and investment grade short- to intermediate-term fixed income securities. Such investments are included in cash and cash equivalents or marketable securities on the Condensed Consolidated Balance Sheets. Marketable securities with an original maturity date greater than 90 days at each balance sheet date are classified as short-term. Marketable securities are classified as current assets as these investments are intended to be available to the Company for
use in funding current operations. All of the Company’s marketable securities are considered available-for-sale and are reported at fair value. For securities with unrealized gains and losses, when the Company expects to receive cash flows sufficient to recover the amortized cost basis of a security, such gains and losses are included in accumulated other comprehensive income as a component of stockholders’ equity. Credit losses are identified when the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in interest income, net on the Condensed Consolidated Statements of Comprehensive Loss. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income, net on the Condensed Consolidated Statements of Comprehensive Loss. Realized gains and losses, if any, on marketable securities are included in interest income, net on the Condensed Consolidated Statements of Comprehensive Loss. The cost of securities sold is determined using specific identification.
The Company evaluates whether declines in the fair values of its marketable securities below their amortized cost are credit losses on a quarterly basis. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the marketable security or whether it is more likely than not that it will be required to sell any marketable securities before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and the Company’s strategy and intentions for holding the marketable security.
Fair Value Measurements
The Company’s financial instruments have consisted of cash and cash equivalents, available-for-sale marketable securities, other current assets, accounts payable, accrued expenses, term loans and warrants to acquire the Company’s common stock. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. The carrying amounts of cash and cash equivalents, other current assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Available-for-sale marketable securities are reported at their fair values, based upon pricing of securities with the same or similar investment characteristics as provided by third-party pricing services, as described below. The warrants to acquire the Company’s common stock are not required to be accounted for at fair value.
Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions and are classified into the following fair value hierarchy:
Level 1—Observable inputs—quoted prices in active markets for identical assets and liabilities.
Level 2—Observable inputs other than the quoted prices in active markets for identical assets and liabilities—such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs—includes amounts derived from valuation models where one or more significant inputs are unobservable and require the company to develop relevant assumptions.
Valuation Techniques - Level 2 Inputs
The Company estimates the fair values of its financial instruments categorized as level 2 in the fair value hierarchy, including U.S. treasury securities, U.S. government agency obligations, corporate bonds, commercial paper, asset-backed securities and municipal bonds, by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, benchmark yields, issuer credit spreads, benchmark securities, and other observable inputs. The Company obtains a single price for each financial instrument and does not adjust the prices obtained from the pricing service.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements (consisting of furniture, computer and office equipment and leasehold improvements) are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets (
Foreign Currency Transactions
The Company, at times, contracts with vendors and consultants outside of the U.S., resulting in liabilities denominated in foreign currency. The transactions are recorded in U.S. dollars on the transaction dates and any currency fluctuation through the
7
payment date is recorded as currency gains or losses in other income, net in the Condensed Consolidated Statements of Comprehensive Loss.
Deferred Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the financings. Should the planned equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed immediately as a charge to general and administrative expenses. The deferred offering costs are included in Other current and non-current assets on the Condensed Consolidated Balance Sheets.
Research and Development (“R&D”) Expenses
All of the Company’s R&D expenses consist of expenses incurred in connection with the development of Haduvio. These expenses include certain payroll and personnel expenses, including stock-based compensation, consulting costs, contract manufacturing costs and fees paid to contract research organizations (“CROs”) to conduct certain R&D activities on the Company’s behalf. The Company expenses both internal and external R&D expenses as they are incurred.
Accrued R&D Expenses
The Company has entered into agreements with CROs, contract manufacturing organizations (“CMOs”) and other companies that provide services in connection with the Company’s R&D activities. The Company’s R&D accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events and contracted costs. The estimated costs of R&D provided, but not yet invoiced, are included in accrued expenses on the Condensed Consolidated Balance Sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CROs, CMOs and other companies under these arrangements in advance of the performance of the related services are recorded as prepaid expenses or as other non-current assets, as applicable, and are recognized as expenses as the goods are delivered or the related services are performed.
Patent Costs
All patent-related costs in connection with filing and prosecuting patent applications are expensed to general and administrative expense as incurred, as recoverability of such expenditures is uncertain.
Warrants
The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and then in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.
If the warrants do not meet liability classification under ASC 480, the Company assesses the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of comprehensive loss as a gain or loss. For equity classified warrants, no changes in fair value are recognized after the issuance date.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements with employees and non-employees for consultancy services in accordance with ASC 718, Stock Compensation (“ASC 718”). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock-based awards including stock options. The Company’s determination of the fair value of stock-based awards on the date of grant utilizes the Black-Scholes valuation model for stock options with time-based and performance-based vesting and is impacted by the price of its common stock as well as changes in assumptions regarding a number of subjective variables. These variables include the expected term that stock options will remain outstanding, expected common stock price volatility over the term of the stock options, risk-free interest rates and expected dividends.
Changes in the variables can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require analysis and judgment to develop.
Expected Term—The expected term assumption represents the weighted average period that the stock-based awards are expected to be outstanding. The Company has elected to use the “simplified method” for estimating the expected term of its stock options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option.
8
Expected Volatility—For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies.
Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently has
Risk-Free Interest Rate—The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the stock-based award.
The fair value is recognized over the period during which an optionee is required to provide services in exchange for the stock option, known as the requisite service period (usually the vesting period) on a straight-line basis. For performance-based vesting, the fair value is recognized when it is probable the performance conditions will be achieved. The Company reassesses the probability of achieving the performance conditions at each reporting date. Forfeitures are accounted for as they occur.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
The Company applies the provisions of ASC 740, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. These Condensed Consolidated Financial Statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts. There are no material uncertainties regarding the tax positions that the Company has taken through September 30, 2024 and December 31, 2023. The Company does not have any interest or penalties accrued related to tax positions as it does not have any unrecognized tax benefits.
Leases
Under ASC 842, Leases, the Company determines if an arrangement is a lease at its inception. Leases are classified as either operating or finance, based on the Company’s evaluation of certain criteria. If a lease has a term greater than one year, the lease is recognized in the balance sheet as a right-of-use asset and a lease liability at lease commencement. The Company elected the short-term lease practical expedient, therefore, if a lease has a term less than one year, the Company will not recognize the lease on its balance sheet. The right-of-use asset represents the Company’s right of use to an underlying asset for the term of the lease and the lease liability represents the Company’s obligation to make lease payments arising from the lease. If the Company’s leases do not provide an implicit rate within the lease, the Company uses its incremental borrowing rate, based on information available at the commencement date of the lease to determine the present value of the lease payments.
Operating lease right-of-use assets and operating lease liabilities are determined and recognized on the commencement date of the lease based on the present value of lease payments over the term of the lease. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease, and right-of-use assets are subsequently re-measured to reflect the effect of uneven lease payments.
For finance leases, right-of-use assets are amortized on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset. Expenses for finance leases include the amortization of right-of-use assets, which is recorded as depreciation and amortization expense, and interest expense, which reflects interest accrued on the lease liability.
Basic and Diluted Net Loss per Common Share
Basic and diluted net loss per common share outstanding is determined by dividing net loss by the weighted average common shares outstanding during the period. Basic shares outstanding includes the weighted average effect of the Company’s outstanding pre-funded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock.
For all periods presented, shares issuable upon exercise of stock options and warrants to purchase shares of common stock (other than pre-funded warrants) have been excluded from the calculation because their effects would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per share are the same for each of the periods presented.
Segments
The Company has
Recently Adopted Accounting Pronouncements
There have been no new pronouncements adopted during the nine months ended September 30, 2024.
Recently Issued Accounting Pronouncements
9
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, Segment Reporting, on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.
The fair value and amortized cost of available-for-sale marketable securities by major security type are presented in the following tables as of the periods presented:
|
|
September 30, 2024 |
|
|||||||||||||
Type of security |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Corporate bonds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
U.S. government agency securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Asset backed securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|
December 31, 2023 |
|
|||||||||||||
Type of Security |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Corporate bonds |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. government agency securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The net amortized cost and fair value of available-for-sale marketable securities are presented in the following table as of the periods presented by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company may intend to sell a security prior to maturity.
|
|
September 30, 2024 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Due to mature: |
|
|
|
|
|
|
||
Less than one year |
|
$ |
|
|
$ |
|
||
One year through two years |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
|
December 31, 2023 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Due to mature: |
|
|
|
|
|
|
||
Less than one year |
|
$ |
|
|
$ |
|
||
One year through two years |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
During the three and nine months ended September 30, 2024 and 2023, there were
As of each September 30, 2024 and December 31, 2023, the Company had
10
more likely than not that it would be required to sell these securities before recovery of their amortized cost basis. Accordingly, the Company did
As of September 30, 2024 and December 31, 2023, accrued interest receivables on the Company’s available-for-sale marketable securities were $
The following table summarizes the Company's financial assets and financial liabilities measured at fair value on a recurring basis and the basis for that measurement, by level within the fair value hierarchy, as follows:
|
|
|
|
Fair Value Measurement Using: |
|
|||||||||||||
Balance Sheet Classification |
|
Type of Instrument |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Marketable securities |
|
Corporate bonds |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Marketable securities |
|
U.S. government agency securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Marketable securities |
|
U.S. treasury securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Marketable securities |
|
Commercial paper |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Marketable securities |
|
Asset backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Cash equivalents |
|
Commercial paper |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
|
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
Fair Value Measurement Using: |
|
|||||||||||||
Balance Sheet Classification |
|
Type of Instrument |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
December 31, 2023 |
|
|
|
|
|
|
|