SEC Form 10-Q filed by Soleno Therapeutics Inc.
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 Identification No.) |
(Address of principal executive offices)
(Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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, 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 |
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Smaller reporting company |
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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 October 31, 2024, there were
SOLENO THERAPEUTICS, INC.
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Soleno Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
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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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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Long-term marketable securities |
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- |
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Other long-term 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 compensation |
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Accrued clinical trial site costs |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Long-term liabilities |
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Contingent liability for Essentialis purchase price |
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Long-term lease liabilities |
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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 gain |
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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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See accompanying notes to condensed consolidated financial statements
3
Soleno Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)
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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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General and administrative |
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Change in fair value of contingent consideration |
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Total operating expenses |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other income (expense), net |
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Change in fair value of warrants liabilities |
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( |
) |
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( |
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Interest income, net |
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Total other income (expense), net |
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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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Other comprehensive income (loss) |
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Net unrealized gain on marketable securities |
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Foreign currency translation adjustment |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Total comprehensive loss |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss per common share, basic and diluted |
$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted-average common shares outstanding used to calculate basic and diluted net loss per common share |
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See accompanying notes to condensed consolidated financial statements
4
Soleno Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2024 and 2023
(unaudited)
(in thousands, except share data)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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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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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balances at January 1, 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 restricted stock units under equity incentive plans |
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- |
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- |
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- |
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- |
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- |
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Exercise of common stock warrants and pre-funded common stock warrants |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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Unrealized loss on 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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( |
) |
Foreign currency translation adjustment |
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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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( |
) |
Balances at March 31, 2024 |
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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 restricted stock units under equity incentive plans |
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- |
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- |
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- |
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- |
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- |
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Sale of common stock, net of issuance costs of $ |
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- |
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- |
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Exercise of common stock warrants and pre-funded common stock warrants |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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Unrealized loss on 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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( |
) |
Foreign currency translation adjustment |
|
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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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( |
) |
Balances at June 30, 2024 |
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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 restricted stock units under equity incentive plans |
|
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- |
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- |
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- |
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Exercise of common stock warrants and pre-funded common stock warrants |
|
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- |
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- |
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Exercise of stock options |
|
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- |
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- |
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- |
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Unrealized gain on 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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||
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
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|
( |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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|
( |
) |
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|
( |
) |
Balances 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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5
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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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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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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||||||
Balances at January 1, 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 restricted stock units under equity incentive plans |
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- |
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- |
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- |
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Tax withholding payments for net share-settled equity awards |
|
|
( |
) |
|
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- |
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- |
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- |
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|
- |
|
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- |
|
Foreign currency translation adjustment |
|
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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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( |
) |
Balances at March 31, 2023 |
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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 warrants, net of issuance costs |
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- |
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- |
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- |
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- |
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Sale of common stock, net of costs |
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- |
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- |
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|
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||||
Foreign currency translation adjustment |
|
|
- |
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|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
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|
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- |
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( |
) |
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( |
) |
Balances at June 30, 2023 |
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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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Exercise of common stock warrants, net of issuance costs |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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|
|||
Foreign currency translation adjustment |
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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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|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balances 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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See accompanying notes to condensed consolidated financial statements
6
Soleno Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
Nine Months Ended September 30, |
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|||||
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|
2024 |
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2023 |
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||
Cash flows from operating activities: |
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Net loss |
|
$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Accretion of premium/discount on marketable securities |
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( |
) |
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Non-cash lease expense |
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Stock-based compensation expense |
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Change in fair value of stock warrants |
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- |
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Change in fair value of contingent consideration |
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Other non-cash reconciling items |
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( |
) |
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( |
) |
Change in operating assets and liabilities: |
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||
Prepaid expenses, other current assets and other assets |
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( |
) |
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Accounts payable |
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||
Accrued compensation |
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|
( |
) |
|
Accrued clinical trial site costs |
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( |
) |
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Operating lease liabilities |
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( |
) |
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( |
) |
Other liabilities |
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||
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities |
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||
Purchases of property and equipment |
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( |
) |
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|
Purchases of marketable securities |
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( |
) |
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Maturities of marketable securities |
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||
Net cash used in investing activities |
|
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( |
) |
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Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from the sale of common stock, net of issuance costs |
|
|
|
|
|
|
||
Proceeds from the sale of common stock and common stock warrants, net of costs |
|
|
|
|
|
|
||
Proceeds from exercise of common stock warrants and pre-funded common stock warrants, net of costs |
|
|
|
|
|
|
||
Proceeds received prior to and for the issuance of common stock and pre-funded warrants |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash operating and financing information |
|
|
|
|
|
|
||
Operating lease right-of-use assets obtained in exchange for operating lease obligations |
|
$ |
|
|
$ |
|
||
Unpaid financing costs included in accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
7
Soleno Therapeutics, Inc.
September 30, 2024
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Overview
Soleno Therapeutics, Inc. (the Company or Soleno) is focused on the development and commercialization of novel therapeutics for the treatment of rare diseases. Its lead candidate is DCCR (Diazoxide Choline) Extended-Release tablets, a once-daily oral tablet for the treatment of Prader-Willi syndrome (PWS). DCCR has received Fast-Track and Breakthrough Therapy designations for the treatment of PWS in the United States (U.S.) and orphan designation for the treatment of PWS in the U.S. as well as in the European Union (E.U.). On June 28, 2024, the Company submitted a new drug application (NDA) to the FDA for DCCR for the treatment of PWS in individuals four years and older who have hyperphagia and on August 27, 2024 announced that the FDA granted Priority Review for the NDA and assigned a Prescription Drug User Fee Act (PDUFA) target action date of December 27, 2024.
The Company incorporated in the State of Delaware on August 25, 1999, and is located in Redwood City, California. It 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, the Company merged with Essentialis, Inc (Essentialis) and subsequently received stockholder approval to amend its Amended and Restated Certificate of Incorporation to change its name from “Capnia, Inc.” to “Soleno Therapeutics, Inc.”. Essentialis was a privately held clinical-stage company focused on the development of breakthrough medicines for the treatment of rare diseases where there is increased mortality and risk of cardiovascular and endocrine complications. 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 all prior business efforts.
Note 2. Liquidity
The Company used $
The Company has financed its operations principally through issuance of equity securities. On May 9, 2024, the Company closed an underwritten public offering of
In December 2022, the Company entered into a Securities Purchase Agreement providing for the sale of up to $
The Company expects to continue incurring losses for the foreseeable future. However, the Company expects that its current cash, cash equivalents and marketable securities balances will be sufficient to enable the Company to meet its obligations for at least the next twelve months from the date of this filing.
Note 3. Basis of Presentation and Summary of Significant Accounting Policies
Significant Accounting Policies
There have been no material changes to the significant accounting policies during the three and nine months ended September 30, 2024 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, 2023, except as noted below.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (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
8
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 and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2024. 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, 2023, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 7, 2024.
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, accrued costs for services rendered in connection with third-party contractor clinical trial activities, and the valuation of contingent liabilities for the purchase price of assets obtained through acquisition.
Marketable Securities
The Company classifies its marketable securities as available-for-sale and records such assets at estimated fair value in the balance sheets, with unrealized gains and non-credit related losses that are determined to be temporary, if any, reported as a component of other comprehensive income (loss) within the statements of operations and comprehensive loss and as a separate component of stockholders’ equity. The Company classifies marketable securities with remaining maturities greater than three months but less than one year as marketable securities, and those with remaining maturities greater than one year are classified as long-term marketable securities. Realized gains and losses are calculated using the specific identification method and recorded as interest income and were immaterial for all periods presented.
Recently Adopted Accounting Pronouncements
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.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures, which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company is currently evaluating the disclosure requirements related to the new standard but does not anticipate a material impact on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends the guidance in ASC 740, Income Taxes. This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This ASU is effective for fiscal years beginning after December 15, 2024. Adoption is permitted either prospectively or retrospectively, and the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies that do not require adoption until a future date are not currently expected to have a material impact on the Company’s financial statements upon adoption.
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 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:
9
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 fair value of marketable securities, which are Level 2 financial instruments, is based upon market prices quoted on the last day of the fiscal period or other observable market inputs. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, bids and/or offers.
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 September 30, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Total marketable securities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Essentialis purchase price contingency liability |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
Fair Value Measurements at December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Essentialis purchase price contingency liability |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Based on the terms of the Company’s completed merger with Essentialis on March 7, 2017, the Company is obligated to make cash earnout payments of up to a maximum of $
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between levels within the hierarchy during the periods presented.
10
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2024 and 2023 (dollars in thousands):
|
|
|
|
|
Purchase Price |
|
||||||
|
|
|
|
|
|
|
|
Contingent |
|
|||
Balance at January 1, 2024 |
|
|
|
|
|
|
|
$ |
|
|||
Change in value of contingent liability |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2024 |
|
|
|
|
|
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
2018 PIPE Warrants |
|
|
Purchase Price |
|
||||||
|
|
Number of |
|
|
Liability |
|
|
Contingent |
|
|||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
|
— |
|
|
|
|
|
|
— |
|
||
Change in value of contingent liability |
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
Note 5. Warrants
The Company has issued multiple warrant series, of which the 2018 PIPE Warrants were determined to be liabilities pursuant to the guidance established by ASC 815 Derivatives and Hedging.
Warrants Issued as Part of the Units in the 2018 PIPE Offering
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.
Since the Company may be obligated to settle the 2018 PIPE Warrants in cash, the Company classified the 2018 PIPE 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.
The 2018 PIPE Warrants were either exercised prior to or expired on December 21, 2023.
Note 6. Commitments and Contingencies
Facility Leases
On June 13, 2024, the Company entered into a new office lease in Redwood City, California for office space for its headquarters facility. The lease provides office space of approximately
The Company's operating lease ROU assets, current operating lease liabilities and long-term operating lease liabilities each appear as a separate line within the Company's condensed consolidated balance sheets. In September 2024, the Company recorded an increase to its right-of-use assets by $
The Company’s prior operating lease for its predecessor headquarters facility office space in Redwood City, California
11
July 2024, the Company provided notice of early termination of the license agreement for the additional space effective
The weighted average discount rate related to the Company's lease liabilities as of September 30, 2024 was
The components of lease expense during the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating lease cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
||
|
Nine Months Ended September 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Operating cash flows from operating leases |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
The following is a schedule by year of future maturities of the Company's operating lease liabilities as of September 30, 2024 (in thousands):
|
|
|
|
2024 (remainder of the year) |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
Total lease payments |
|
|
|
Less interest |
|
( |
) |
Total |
$ |
|
|
Other Commitments
The Company enters into agreements in the normal course of business, including with contract research organizations for clinical trials, contract manufacturing organizations for certain manufacturing services, and vendors for preclinical studies as well as other services and products for operating purposes, which are generally cancelable upon written notice. As of September 30, 2024, the Company’s non-cancelable other commitments aggregated $
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.
12
Note 7. Stockholders’ Equity
Convertible Preferred Stock
The Company is authorized to issue
Public Offering of Common Stock
On May 9, 2024, the Company closed an underwritten public offering of
Public Offering of Common Stock and Concurrent Private Placement of Common Stock and Pre-Funded Warrants
On October 2, 2023, the Company closed an underwritten public offering of
Securities Purchase Agreement
On December 16, 2022, the Company entered into a Securities Purchase Agreement for a private placement (Private Placement) with certain entities and members of management (collectively, Purchasers). Pursuant to the Securities Purchase Agreement, the Company agreed to sell to the Purchasers warrants to purchase up to an aggregate of
The warrants were separated into two tranches with
Underwritten Public Offering
On March 31, 2022, the Company sold
Through September 30, 2024,
13
30, 2024,
At the Market Offering
In July 2021, the Company entered into a Controlled Equity Offering Sales Agreement under which the Company was able to sell shares of its common stock having an aggregate offering price of up to $
On July 19, 2024, the Company entered into the Sales Agreement with Jefferies, pursuant to which the Company may offer and sell up to $
The Company will pay Jefferies a commission of
Common Stock Warrants
As of September 30, 2024 and December 31, 2023, the following table summarizes the Company's outstanding common stock warrants:
|
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
|
|
||||||||||
|
|
Number of Common Warrant Shares |
|
|
Weighted Average Exercise Price per Share |
|
|
Number of Common Warrant Shares |
|
|
Weighted Average Exercise Price per Share |
|
|
Expiration Date |
||||
Common stock warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|||||
March 2022 Common warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|||||
May 2023 Tranche A pre-funded warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|||||
May 2023 Tranche B warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|||||
May 2023 Tranche B pre-funded warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|||||
October 2023 pre-funded warrants |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
N/A |
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Subject to earlier expiration as described above.
Equity Incentive Plans
2014 Plan
The Company maintains the 2014 Equity Incentive Plan (the 2014 Plan). Under the 2014 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 2014 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 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
On January 17, 2024, the Company filed a Registration Statement on Form S-8 which registered an additional
14
Inducement Plan
The Company maintains the 2020 Inducement Equity Incentive Plan (the Inducement Plan). The Inducement Plan provides for the grant of equity-based awards, including non-statutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2014 Plan.
In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules, in connection with a merger or acquisition. On January 31, 2024, the Company filed a Registration Statement on Form S-8 which registered
As of September 30, 2024, a total of
Stock-based compensation expense
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.
Stock-based compensation expense was recognized in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Research and development |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Stock Options
The Company granted options to purchase
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Expected life (years) |
|
|
|
||||
Risk-free interest rate |
|
|
|
||||
Volatility |
|
|
|
||||
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:
15
The following table summarizes stock option transactions for the nine months ended September 30, 2024 which were for awards issued under the 2014 Plan and the Inducement Plan:
|
|
Number of |
|
|
Weighted- |
|
|
Weighted |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
Outstanding |
|
|
Share |
|
|
(in years) |
|
|
(in thousands) |
|
||||
Balance at January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options canceled/forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The weighted-average grant date fair value of options granted was $
Restricted Stock Units
There were
The following table summarizes restricted stock unit transactions for the nine months ended September 30, 2024 as issued under the 2014 Plan:
|
|
Number of |
|
|
Weighted- |
|
||
Outstanding at January 1, 2024 |
|
|
|
|
$ |
|
||
Restricted stock units granted |
|
|
|
|
$ |
|
||
Restricted stock units vested |
|
|
( |
) |
|
$ |
|
|
Restricted stock units canceled/forfeited |
|
|
- |
|
|
$ |
|
|
Outstanding at September 30, 2024 |
|
|
|
|
$ |
|
||
The weighted-average grant-date fair value of all restricted stock units granted during the nine months ended September 30, 2024 and 2023 was $
2014 Employee Stock Purchase Plan
The Company’s board of directors and stockholders have adopted the 2014 Employee Stock Purchase Plan (ESPP). The ESPP has become effective, and the board of directors will implement commencement of offers thereunder in its discretion. A total of
16
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:
As of September 30, 2024, there were
Note 8. Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common stock outstanding during the period. Shares of common stock that are potentially issuable for little or no cash consideration at issuance, such as the Company's pre-funded warrants issued in March 2022 and October 2023 and in connection with the exercise of certain May 2023 Tranche A and Tranche B warrants, are considered outstanding common stock and are included in the calculation of basic and diluted net loss per share in connection with ASC 260 Earnings Per Shares. 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 or vesting of common stock awards and exercise of common stock warrants that are not pre-funded. The Company applies the two-class method to calculate basic and diluted earnings per share as its warrants issued in March 2022, May 2023 and October 2023 are participating securities. However, the two-class method does not impact the net loss per share of common stock as the March 2022, May 2023 and October 2023 common warrants issued do not participate in losses. For the three and nine months ended September 30, 2024 and 2023, the effect of issuing potential common stock is anti-dilutive due to the net losses in those periods and therefore the number of shares used to compute basic and diluted net loss per share are the same in each of those periods.
The following securities are the weighted-average common shares outstanding used to calculate basic and diluted net loss per common share:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
March 2022 pre-funded warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
May 2023 Tranche A pre-funded warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
May 2023 Tranche B pre-funded warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
October 2023 pre-funded warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted-average shares outstanding for the periods presented because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares):
|
|
As of September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Warrants issued to 2010/2012 convertible note |
|
|
|
|
|
|
||
Warrants issued to underwriter to purchase common stock |
|
|
|
|
|
|
||
2018 PIPE warrants |
|
|
- |
|
|
|
|
|
March 2022 common warrants |
|
|
|
|
|
|
||
May 2023 Tranche A warrants |
|
|
- |
|
|
|
|
|
May 2023 Tranche B warrants |
|
|
|
|
|
|
||
Options to purchase common stock |
|
|
|
|
|
|
||
Outstanding restricted stock units |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
17
Note 9. Subsequent Events
The Company has evaluated its subsequent events from September 30, 2024 through the date these condensed consolidated financial statements were issued and has determined that there are no subsequent events disclosure required.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2023, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Form 10-K for the year ended December 31, 2023. 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.
Business Overview
We are focused on the development and commercialization of novel therapeutics for the treatment of rare diseases. Our lead candidate is DCCR (Diazoxide Choline) Extended-Release tablets, a once-daily oral tablet for the treatment of Prader-Willi syndrome (PWS). We have Fast-Track and Breakthrough Therapy designations for DCCR for the treatment of PWS in the United States (U.S.) and orphan designation for the treatment of PWS in the U.S. as well as in the European Union (E.U.).
DCCR has been evaluated in a Phase 3 study (C601 or DESTINY PWS), a 3-month randomized, double-blind placebo-controlled study, which completed enrollment in January 2020, with 127 patients at 29 sites in the U.S. and U.K. Participants who completed treatment in DESTINY PWS were eligible to receive DCCR in a long-term open-label extension period (C602). Top line results from DESTINY PWS were announced in June 2020. Although the trial did not meet its primary endpoint of change from baseline in hyperphagia, significant improvements were observed in two of three key secondary endpoints.
In January 2022, the FDA recommended that additional controlled data be included in a New Drug Approval (NDA) submission and in October 2022, we initiated the RW period of Study C602. This was a multi-center, randomized, double-blind, placebo-controlled study of DCCR in 77 patients with PWS at 17 sites in the U.S. and 5 sites in the U.K. This RW period consisted only of patients enrolled in Study C602 and did not enroll any new patients. In September 2023, we announced positive statistically significant top-line results from the RW period of Study C602.
In April 2024, the FDA granted Breakthrough Therapy Designation for DCCR, the first ever breakthrough designation for a drug being developed for PWS, in June 2024 we submitted an NDA for DCCR to the FDA, and on August 27, 2024, we announced the FDA granted Priority Review for the NDA and assigned a Prescription Drug User Fee Act (PDUFA) target action date of December 27, 2024.
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 critical accounting estimates and significant accounting policies are more fully described in Note 3 of our most recent Form 10-K and including the policy below.
Marketable Securities
The Company classifies its marketable securities as available-for-sale and records such assets at estimated fair value in the balance sheets, with unrealized gains and non-credit related losses that are determined to be temporary, if any, reported as a component of other comprehensive income (loss) within the statements of operations and comprehensive loss and as a separate component of stockholders’ equity. The Company classifies marketable securities with remaining maturities greater than three months but less than one year as marketable securities, and those with remaining maturities greater than one year are classified as long-term marketable securities. Realized gains and losses are calculated using the specific identification method and recorded as interest income and were immaterial for all periods presented.
19
Results of Operations
Comparison of the three months ended September 30, 2024 and 2023
|
|
Three Months Ended September 30, |
|
|
Increase (decrease) |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percentage |
|
||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
30,138 |
|
|
$ |
6,043 |
|
|
$ |
24,095 |
|
|
|
399 |
% |
General and administrative |
|
|
49,197 |
|
|
|
3,318 |
|
|
|
45,879 |
|
|
|
1383 |
% |
Change in fair value of contingent consideration |
|
|
877 |
|
|
|
1,021 |
|
|
|
(144 |
) |
|
|
14 |
% |
Total operating expenses |
|
|
80,212 |
|
|
|
10,382 |
|
|
|
69,830 |
|
|
|
673 |
% |
Operating loss |
|
|
(80,212 |
) |
|
|
(10,382 |
) |
|
|
(69,830 |
) |
|
|
673 |
% |
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrants liabilities |
|
|
- |
|
|
|
(653 |
) |
|
|
653 |
|
|
|
100 |
% |
Interest income, net |
|
|
3,596 |
|
|
|
174 |
|
|
|
3,422 |
|
|
|
1967 |
% |
Total other income (expense), net |
|
|
3,596 |
|
|
|
(479 |
) |
|
|
4,075 |
|
|
|
851 |
% |
Net loss |
|
$ |
(76,616 |
) |
|
$ |
(10,861 |
) |
|
$ |
(65,755 |
) |
|
|
605 |
% |
Revenue
To date, we have earned no revenue from the commercial development and sale of novel therapeutic products.
Research and development expense
Research and development expense was $30.1 million, which includes $18.5 million of non-cash stock-based compensation, for the three months ended September 30, 2024, compared to $6.0 million, which includes $0.9 million of non-cash stock-based compensation, in the same period of 2023. Personnel and other associated costs increased $2.4 million as we hired additional employees in support of our research and development activities. Costs in support of our NDA submission increased $2.7 million and we invested $1.3 million in supply chain activities in preparation for commercial launch. The cadence of our research and development expenditures will fluctuate depending upon the state of our clinical programs, the timing of manufacturing and other projects necessary to support the submission of an NDA and prepare for commercial launch. The $17.6 million of additional non-cash stock-based compensation being recognized in the period is predominantly due to performance-based RSU grants which partially vested upon the acceptance by the FDA of the NDA submission and fully vest upon the approval by the FDA.
General and administrative expense
General and administrative expense was $49.2 million, which includes $38.1 million of non-cash stock-based compensation, for the three months ended September 30, 2024, compared to $3.3 million, which includes $1.3 million of non-cash stock-based compensation, in the same period of 2023. Personnel and associated costs increased $3.0 million as we have hired additional employees in preparation for commercial launch and in support of our increased business activities. Professional services expenses and other program costs associated with preparation for commercial launch, including medical affairs activities, increased by $5.9 million. The $36.8 million of additional non-cash stock-based compensation being recognized in the period is predominantly due to performance-based RSU grants which partially vested upon acceptance by the FDA of the NDA submission and fully vest upon approval by the FDA.
Change in fair value of contingent consideration
We are obligated to make cash payments up to a maximum of $21.2 million to the former Essentialis stockholders upon the achievement of certain future commercial milestones associated with the sales of DCCR in accordance with the terms of our merger agreement with Essentialis. The fair value of the liability for the contingent consideration payable by us achieving two commercial sales milestones of $100 million and $200 million in cumulative revenue in future years was estimated to be $14.5 million as of September 30, 2024, a $0.9 million increase from the estimate as of June 30, 2024. During the three months ended September 30, 2023, the estimate increased by $1.1 million from the $9.4 million estimate as of June 30, 2023.
Other income, net
We had other income, net of approximately $3.6 million in the three months ended September 30, 2024, compared to other expense, net of approximately $479,000 during the three months ended September 30, 2023. The increase was primarily due to an
20
increase in interest income driven by higher cash and cash equivalents, marketable securities and long-term marketable securities during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
Comparison of the nine months ended September 30, 2024 and 2023
|
|
Nine months ended September 30, |
|
|
Increase (decrease) |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percentage |
|
||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
57,082 |
|
|
|
16,500 |
|
|
$ |
40,582 |
|
|
|
246 |
% |
General and administrative |
|
|
68,558 |
|
|
|
9,341 |
|
|
|
59,217 |
|
|
|
634 |
% |
Change in fair value of contingent consideration |
|
|
2,915 |
|
|
|
1,633 |
|
|
|
1,282 |
|
|
|
79 |
% |
Total operating expenses |
|
|
128,555 |
|
|
|
27,474 |
|
|
|
101,081 |
|
|
|
368 |
% |
Operating loss |
|
|
(128,555 |
) |
|
|
(27,474 |
) |
|
|
(101,081 |
) |
|
|
368 |
% |
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrants liabilities |
|
|
- |
|
|
|
(652 |
) |
|
|
652 |
|
|
|
100 |
% |
Interest income, net |
|
|
8,687 |
|
|
|
434 |
|
|
|
8,253 |
|
|
|
1902 |
% |
Total other income (expense), net |
|
|
8,687 |
|
|
|
(218 |
) |
|
|
8,905 |
|
|
|
4085 |
% |
Net loss |
|
$ |
(119,868 |
) |
|
$ |
(27,692 |
) |
|
$ |
(92,176 |
) |
|
|
333 |
% |
Revenue
To date, we have earned no revenue from the commercial development and sale of novel therapeutic products.
Research and development expense
Research and development expense was $57.1 million, which includes $23.7 million of non-cash stock-based compensation, for the nine months ended September 30, 2024, compared to $16.5 million, which includes $1.6 million of non-cash stock-based compensation, in the same period of 2023. Personnel and associated costs increased $4.9 million as we hired additional employees in support of our research and development activities. Costs in support of our NDA submission increased $9.9 million and we invested $3.7 million in supply chain activities in preparation for commercial launch. The cadence of our research and development expenditures will fluctuate depending upon the state of our clinical programs, the timing of manufacturing and other projects necessary to support the submission of an NDA and prepare for commercial launch. The $22.1 million of additional non-cash stock-based compensation being recognized in the period is predominantly due to performance-based RSU grants which partially vested upon the acceptance by the FDA of the NDA submission and fully vest upon the approval by the FDA.
General and administrative expense
General and administrative expense was $68.6 million, which includes $46.5 million of non-cash stock-based compensation, for the nine months ended September 30, 2024, compared to $9.3 million, which includes $2.4 million of non-cash stock-based compensation, in the same period of 2023. Personnel and associated costs increased $5.5 as we have hired additional employees in preparation for commercial launch and in support of our increased business activities. Professional services expenses and other program costs associated with preparation for commercial launch, including medical affairs activities, increased by $9.4 million. The $44.1 million of additional non-cash stock-based compensation being recognized in the period is predominantly due to performance-based RSU grants which partially vested upon the acceptance by the FDA of the NDA submission and fully vest upon the approval by the FDA.
Change in fair value of contingent consideration
We are obligated to make cash payments up to a maximum of $21.2 million to the former Essentialis stockholders upon the achievement of certain future commercial milestones associated with the sales of DCCR in accordance with the terms of our merger agreement with Essentialis. The fair value of the liability for the contingent consideration payable by us achieving two commercial sales milestones of $100 million and $200 million in cumulative revenue in future years was estimated to be $14.5 million as of September 30, 2024, a $2.9 million increase from the estimate as of December 31, 2023. During the nine months ended September 30, 2023, the estimate increased by $1.6 million from the $8.9 million estimate as of December 31, 2022.
21
Other income, net
We had other income, net of approximately $8.7 million in the nine months ended September 30, 2024, compared to other expense, net of approximately $0.2 million during the nine months ended September 30, 2023. The increase was primarily due to an increase in interest income driven by higher cash and cash equivalents, marketable securities and long-term marketable securities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Liquidity and Capital Resources
We used $45.1 million of cash in operating activities and had a net loss of $119.9 million during the nine months ended September 30, 2024. We had an accumulated deficit of $396.3 million at September 30, 2024 as a result of having incurred losses since our inception. We had $48.4 million in cash and cash equivalents, $208.4 million of marketable securities, $27.9 million of long-term marketable securities and $243.2 million of working capital on September 30, 2024. As of September 30, 2024, we had lease obligations totaling $3.0 million to be paid through August 2029, consisting of two operating leases for office space in Redwood City, California.
We have financed our operations principally through issuances of equity securities. In May 2024, we closed an underwritten public offering of 3,450,000 shares of our common stock at a public offering price of $46.00 per share, which included the exercise in full by the underwriters of their option to purchase additional shares. The gross proceeds of the public offering were $158.7 million, before deducting the underwriter discount and other offering expenses of $9.7 million. In July 2024, we entered into an Open Market Sale AgreementSM with Jefferies LLC, as sales agent ("Jefferies"), pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $150,000,000.
Previously in October 2023, we announced the closing of the underwritten public offering of 3,450,000 shares of our common stock at a public offering of $20.00 per share, which included the exercise in full by the underwriters of their option to purchase additional shares. The gross proceeds of the public offering were $69.0 million, before deducting the underwriting discount and other estimated offering expenses. We also announced the closing shares of our common stock and pre-funded warrants in a concurrent private offering pursuant to the securities purchase agreement with certain investors, including entities affiliated with existing stockholders, at a price per share of common stock equal to the public offering price of $20.00 and a price per pre-funded warrant of $19.99, for gross proceeds of approximately $60.0 million. In aggregate, we received $129.0 million of gross proceeds from this financing.
In December 2022, we entered into a securities purchase agreement providing for the sale of up to $60.0 million in warrants and the common stock issuable upon the exercise thereof. Through September 30, 2024, we have received $10.0 million from the sale of these warrants and $37.7 million in proceeds from the exercise of certain of these warrants. Warrants with an aggregate exercise price of $12.3 million are still outstanding.
We expect to continue incurring losses for the foreseeable future and may require additional capital to complete our clinical trials, pursue product development initiatives and penetrate markets for the sale of our products. We believe that we will continue to have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means, but the access to such capital resources is uncertain and is not assured. In the future, if we are unable to secure additional capital, we may be required to curtail our clinical trials and development of new products and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our efforts to complete clinical trials and commercialize our products, which is critical to the realization of our business plan and our future operations.
Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash used in operating activities |
|
$ |
(45,105 |
) |
|
$ |
(18,626 |
) |
Net cash used in investing activities |
|
|
(232,125 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
155,962 |
|
|
|
56,461 |
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(121,268 |
) |
|
$ |
37,835 |
|
22
Net cash used in operating activities
During the nine months ended September 30, 2024, operating activities used net cash of $45.1 million, which was primarily due to the net loss of $119.9 million, less non-cash expense of $70.2 million for stock-based compensation, $1.5 million for depreciation and amortization, $0.3 million for non-cash lease expense, $2.9 million related to the change in fair value of contingent consideration, and $3.5 million added back for accretion of premium/discount on marketable securities. Additionally, usage of cash during the nine months ended September 30, 2024 increased by $3.4 million due to changes in operating assets and liabilities.
During the nine months ended September 30, 2023, operating activities used net cash of $18.6 million, which was primarily due to the net loss of $27.7 million less non-cash expense of $4.0 million for stock-based compensation, $1.5 million for depreciation and amortization, $0.3 million for non-cash lease expense, and $2.3 million related to the change in fair value of common stock warrants and contingent consideration. Additionally, usage of cash during the nine months ended September 30, 2023 decreased by $1.0 million due to changes in operating assets and liabilities.
Net cash used in investing activities
During the nine months ended September 30, 2024, we used $308.9 million for purchases of marketable securities and $0.2 million for purchases of property and equipment. We received proceeds of $77.0 million from maturities of marketable securities.
During the nine months ended September 30, 2023, there were no investing activities.
Net cash provided by financing activities
During the nine months ended September 30, 2024, we received $149.0 million from the sale of common stock, net of issuance costs and $5.7 million from the exercise of common stock and pre-funded stock warrants. We also received $1.3 million from the exercise of stock options.
During the nine months ended September 30, 2023, we received $33.4 million from the sale and issuance of warrants pursuant to the Securities Purchase Agreement and $16.0 million prior to and for the issuance of common stock in conjunction with our October 2, 2023 financing. We also received net proceeds of $7.1 million from the sale of common stock through the at the market program.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have not been any material changes to our exposure to market risk during the nine months ended September 30, 2024. For additional information regarding market risk, refer to the Qualitative and Quantitative Disclosures About Market Risk section of the Form 10-K.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission, or SEC, rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.
23
(b) Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting that occurred during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, even if determined effective and no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives to prevent or detect misstatements. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
24
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We may, from time to time, be party to litigation and subject to claims that arise in the ordinary course of business. In addition, third parties may, from time to time, assert claims against us in the form of letters and other communications. We currently believe that these ordinary course matters will not have a material adverse effect on our business; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
An investment in our securities has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results. If any of these risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment. We have included in Part I, Item 1A of our Form 10-K, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the Risk Factors). There have been no material changes from the disclosure provided in the Form 10-K with respect to the Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
We have social media posts at Twitter (X) - @SolenoTX and LinkedIn - Soleno Therapeutics, Inc. It is possible that information we post on social media channels could be deemed to be material information. The information on, or that may be accessed through, our website and social media channels is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered a part of this Quarterly Report on Form 10-Q.
(c) Insider Adoption or Termination of Trading Arrangements
The following provides information regarding Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, each a "10b5-1 Plan") adopted in the third quarter of 2024 by any director or officer who is subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 ("Section 16 Director or Officer"):
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our common stock, and expires on
These trading arrangements are intended to satisfy the affirmative defense of Rule 10b5-1(c). Certain of our Section 16 Directors or Officers may participate in employee stock purchase plans, 401(k) plans or dividend investment plans of us that have been designed to comply with Rule 10b5-1(c). No non-Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934) were
Item 6. Exhibits
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference.
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EXHIBIT INDEX
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Incorporated by Reference from |
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Exhibit Number |
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Description of Document |
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Registrant’s Form |
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Date Filed with the SEC |
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Exhibit Number |
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Filed Herewith |
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10.1 |
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8-K |
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July 19, 2024 |
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10.1 |
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31.1 |
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X |
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31.2 |
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X |
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32.1† |
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X |
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32.2† |
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X |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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X |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
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X |
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104 |
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Cover Page formatted as Inline XBRL and contained in Exhibit 101.
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X |
† The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 6, 2024 |
SOLENO THERAPEUTICS, INC. |
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By: |
/s/ James Mackaness |
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James Mackaness Chief Financial Officer (authorized officer and principal financial and |
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