Onconova Therapeutics, Inc. - Quarter Report: 2018 September (Form 10-Q)

Table of Contents

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2018

 

Or

 

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

 

Commission file number: 001-36020

 

Onconova Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code: (267) 759-3680

 

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.       x    Yes      o    No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       x    Yes      o    No

 

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. (Check one):

 

 

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.   o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     o  Yes      x  No

 

The number of outstanding shares of the registrant’s Common Stock, par value $0.01 per share, as of November 1, 2018 was 5,674,220

 

 

Table of Contents

 

ONCONOVA THERAPEUTICS, INC.

 

TABLE OF CONTENTS FOR QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

 

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Comprehensive Loss	4
Consolidated Statement of Stockholders’ (Deficit) Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	46
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3. Defaults Upon Senior Securities	48
Item 4. Mine Safety Disclosures	48
Item 5. Other Information	48
Item 6. Exhibits	49
SIGNATURES	51

 

All common stock, equity, share and per share amounts have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Onconova Therapeutics, Inc.

Condensed Consolidated Balance Sheets

 

		September 30,			December 31,
		2018			2017
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	22,384,000		$	4,024,000
Receivables		24,000			59,000
Prepaid expenses and other current assets		696,000			820,000
Total current assets		23,104,000			4,903,000
Property and equipment, net		20,000			64,000
Other non-current assets		12,000			12,000
Total assets		$	23,136,000		$	4,979,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	4,264,000		$	6,186,000
Accrued expenses and other current liabilities		3,488,000			3,335,000
Deferred revenue		455,000			455,000
Total current liabilities		8,207,000			9,976,000
Warrant liability		319,000			1,773,000
Deferred revenue, non-current		3,750,000			4,091,000
Total liabilities		12,276,000			15,840,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 authorized at September 30, 2018 and December 31, 2017, none issued and outstanding at September 30, 2018 and December 31, 2017		—			—
Common stock, $0.01 par value, 250,000,000 and 25,000,000 authorized at September 30, 2018 and December 31, 2017, 5,674,220 and 718,078 shares issued and outstanding at September 30, 2018 and December 31, 2017		57,000			8,000
Additional paid in capital		387,055,000			350,614,000
Accumulated other comprehensive income		(7,000		)	3,000
Accumulated deficit		(376,245,000		)	(362,316,000		)
Total Onconova Therapeutics, Inc. stockholders’ equity (deficit)		10,860,000			(11,691,000		)
Non-controlling interest		—			830,000
Total stockholders’ equity (deficit)		10,860,000			(10,861,000		)
Total liabilities and stockholders’ equity (deficit)		$	23,136,000		$	4,979,000

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Operations (unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2018			2017			2018			2017
Revenue		$	120,000		$	110,000		$	1,169,000		$	644,000
Operating expenses:
General and administrative		1,729,000			1,728,000			5,672,000			5,623,000
Research and development		3,985,000			5,141,000			12,632,000			14,641,000
Total operating expenses		5,714,000			6,869,000			18,304,000			20,264,000
Loss from operations		(5,594,000		)	(6,759,000		)	(17,135,000		)	(19,620,000		)
Gain on dissolution of GBO		—			—			693,000			—
Change in fair value of warrant liability		129,000			(210,000		)	1,454,000			1,716,000
Other income, net		117,000			8,000			229,000			19,000
Net loss		(5,348,000		)	(6,961,000		)	(14,759,000		)	(17,885,000		)
Net loss attributable to non-controlling interest		—			—			(163,000		)	—
Net loss attributable to Onconova Therapeutics, Inc.		$	(5,348,000	)	$	(6,961,000	)	$	(14,922,000	)	$	(17,885,000	)
Net loss per share, basic and diluted		$	(0.94	)	$	(10.60	)	$	(4.14	)	$	(31.37	)
Basic and diluted weighted average shares outstanding		5,674,125			656,744			3,601,679			570,123

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2018			2017			2018			2017
Net loss		$	(5,348,000	)	$	(6,961,000	)	$	(14,759,000	)	$	(17,885,000	)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments, net		(2,000		)	9,000			(10,000		)	30,000
Other comprehensive income (loss), net of tax		(2,000		)	9,000			(10,000		)	30,000
Comprehensive loss		(5,350,000		)	(6,952,000		)	(14,769,000		)	(17,855,000		)
Comprehensive loss attributable to non-controlling interest		—			—			(163,000		)	—
Comprehensive loss attributable to Onconova Therapeutics, Inc.		$	(5,350,000	)	$	(6,952,000	)	$	(14,932,000	)	$	(17,855,000	)

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Consolidated Statement of Stockholders’ (Deficit) Equity (unaudited)

 

		Stockholders’ Equity (Deficit)
													Accumulated
							Additional						other
		Common Stock					Paid in			Accumulated			comprehensive			Non-controlling
		Shares		Amount			Capital			deficit			income (loss)			interest			Total
Balance at December 31, 2017		718,078		$	8,000		$	350,614,000		$	(362,316,000	)	$	3,000		$	830,000		$	(10,861,000	)
Net loss		—		—			—			(14,922,000		)	—			163,000			(14,759,000		)
Other comprehensive loss		—		—			—			—			(10,000		)	—			(10,000		)
Stock-based compensation		—		—			833,000			—			—			—			833,000
Dissolution of GBO		—		—			—			993,000			—			(993,000		)	—
Shares issued in connection with reverse stock split		101		—			—			—			—			—			—
Issuance of common stock and pre-funded warrants, net		4,215,581		42,000			35,026,000			—			—			—			35,068,000
Issuance of common stock upon exercise of warrants		740,460		7,000			582,000			—			—			—			589,000
Balance at September 30, 2018		5,674,220		$	57,000		$	387,055,000		$	(376,245,000	)	$	(7,000	)	$	—		$	10,860,000

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

		Nine Months ended September 30,
		2018			2017
Operating activities:
Net loss		$	(14,759,000	)	$	(17,885,000	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		44,000			69,000
Change in fair value of warrant liabilities		(1,454,000		)	(1,716,000		)
Stock compensation expense		833,000			1,333,000
Gain on dissolution of GBO		(693,000		)	—
Changes in assets and liabilities:
Receivables		35,000			(26,000		)
Prepaid expenses and other current assets		124,000			588,000
Accounts payable		(1,229,000		)	113,000
Accrued expenses and other current liabilities		153,000			(1,283,000		)
Deferred revenue		(341,000		)	(340,000		)
Net cash used in operating activities		(17,287,000		)	(19,147,000		)
Investing activities:
Net cash provided by investing activities		—			—
Financing activities:
Proceeds from the sale of common stock and warrants, net of costs		35,068,000			5,317,000
Proceeds from the exercise of warrants		589,000			—
Net cash provided by financing activities		35,657,000			5,317,000
Effect of foreign currency translation on cash		(10,000		)	30,000
Net increase (decrease) in cash and cash equivalents		18,360,000			(13,800,000		)
Cash and cash equivalents at beginning of period		4,024,000			21,400,000
Cash and cash equivalents at end of period		$	22,384,000		$	7,600,000

 

See accompanying notes to condensed consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Nature of Business

 

Reverse Stock Split

 

All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

The Company

 

Onconova Therapeutics, Inc. (the “Company”) was incorporated in the State of Delaware on December 22, 1998 and commenced operations on January 1, 1999. The Company’s headquarters are located in Newtown, Pennsylvania. The Company is a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule product candidates primarily to treat cancer. Using its proprietary chemistry platform, the Company has created an extensive library of targeted anti-cancer agents designed to work against specific cellular pathways that are important to cancer cells. The Company believes that the product candidates in its pipeline have the potential to be efficacious in a variety of cancers. The Company has three clinical-stage product candidates and several preclinical programs. In 2011, the Company entered into a license agreement, as subsequently amended, with SymBio Pharmaceuticals Limited (“SymBio”), which grants SymBio certain rights to commercialize rigosertib in Japan and Korea. On March 2, 2018, the Company entered into a License, Development and Commercialization Agreement with Pint International SA (which, together with its affiliate Pint Pharma GmbH, are collectively referred to as “Pint”).  Under the terms of the agreement, the Company granted Pint an exclusive, royalty-bearing license, with the right to sublicense, under certain Company patent rights and know-how to develop and commercialize any pharmaceutical product containing rigosertib in all uses of rigosertib in certain Latin America countries. In 2012, the Company entered into a development and license agreement with Baxter Healthcare SA, the predecessor in interest to Baxalta GmbH (together with its affiliates, “Baxalta”), pursuant to which the Company granted an exclusive, royalty-bearing license for the research, development, commercialization and manufacture (in specified instances) of rigosertib in all therapeutic indications in Europe. The Baxalta agreement terminated effective August 30, 2016, at which time the rights the Company licensed to Baxalta reverted to the Company at no cost. The Company has retained development and commercialization rights to rigosertib in the rest of the world, including the United States. During 2012, Onconova Europe GmbH was established as a wholly owned subsidiary of the Company for the purpose of further developing business in Europe. In December 2017, the Company entered into a license and collaboration agreement with HanX Biopharmaceuticals, Inc. (“HanX”), a company focused on development of novel oncology products, for the further development, registration and commercialization of ON 123300 in Greater China. ON 123300 is a preclinical compound which the Company believes has the potential to overcome the limitations of current generation CDK 4/6 inhibitors. The key feature of the collaboration is that HanX will provide all funding required for future Chinese IND enabling studies necessary for filing an IND with the Chinese Food and Drug Administration.  The studies would be conducted to meet the Good Laboratory Practice (“GLP”) requirements of the FDA such that the Company could simultaneously file an IND with the US FDA. The Company and HanX will oversee the IND enabling studies. The Company will maintain global rights to ON 123300 outside of China. In April 2013, GBO, LLC, a Delaware limited liability company, (“GBO”) was formed pursuant to an agreement with GVK Biosciences Private Limited, a private limited company located in India, (“GVK”) to collaborate and develop two programs using the Company’s technology platform. The two preclinical programs sublicensed to GBO were not developed to clinical stage as initially hoped, and GBO was dissolved in June 2018.

 

On March 21, 2018, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock par value $0.01 per share from 25,000,000 to 100,000,000. On June 7, 2018, the Company amended its certificate of incorporation again to increase the number of authorized shares of common stock, par value $0.01 per share, from 100,000,000 to 250,000,000.

 

On September 25, 2018, the Company amended its certificate of incorporation to effect a one-for-fifteen reverse stock split of its common stock.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Liquidity

 

The Company has incurred recurring operating losses since inception. For the nine months ended September 30, 2018, the Company incurred a net loss of $14,759,000 and as of September 30, 2018 the Company had generated an accumulated deficit of $376,245,000. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of its product candidates and its preclinical programs, strategic alliances and its administrative organization. At September 30, 2018, the Company had cash and cash equivalents of $22,384,000. The Company will require substantial additional financing to fund its ongoing clinical trials and operations, and to continue to execute its strategy. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

From its inception through July 2013, the Company raised capital through the private issuance of preferred stock. On July 30, 2013, the Company completed its initial public offering (the “IPO”) of 39,611 shares of Common Stock, at a price of $2,250.00 per share. The Company received net proceeds of $79,811,000 from the sale, net of underwriting discounts and commissions and other estimated offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of preferred stock automatically converted into shares of Common Stock at the applicable conversion ratio then in effect. From the IPO through December 31, 2016, the Company closed on several offerings which included Common Stock and warrants. Total net proceeds from these offerings was approximately $24.9 million.

 

On April 26, 2017 the Company closed on an underwritten public offering of 165,079 shares of Common Stock. On May 17, 2017, the Company sold an additional 24,239 shares as a result of the underwriter’s exercise of its over-allotment option. Net proceeds from these transactions were approximately $5.3 million. (See Note 13)

 

On November 14, 2017 the Company closed on a registered direct offering to select accredited investors of 61,333 shares of common stock. Net proceeds were approximately $1.1 million. (See Note 13)

 

On February 12, 2018 the Company closed on an offering of units of common stock and warrants. The Company issued 467,000 shares of common stock, pre-funded warrants to purchase 196,167 share of common stock, and preferred stock warrants to purchase shares of Series A convertible preferred stock convertible into 696,325 shares of common stock. Net proceeds were approximately $8.7 million. (See Note 13)

 

On May 1, 2018 the Company closed on an offering of units of common stock and warrants. The Company issued 3,694,118 shares of common stock, pre-funded warrants to purchase 815,686 shares of common stock, and preferred stock warrants to purchase shares of Series B convertible preferred stock convertible into 4,509,804 shares of common stock. Net proceeds were approximately $25.6 million. (See Note 13)

 

The Company has and may continue to delay, scale-back, or eliminate certain of its research and development activities and other aspects of its operations until such time as the Company is successful in securing additional funding. The Company continues to explore various dilutive and non-dilutive sources of funding, including equity financings, strategic alliances, business development and other sources. The future success of the Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. The Company currently anticipates that current cash and cash equivalents will be sufficient to meet its anticipated cash requirements into the fourth quarter of 2019. Accordingly, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial statements include the consolidated accounts of the Company, its wholly-owned subsidiary, Onconova Europe GmbH, and GBO. All significant intercompany transactions have been eliminated.

 

Unaudited Interim Financial Information

 

The accompanying condensed consolidated balance sheet as of September 30, 2018, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018 and 2017, the consolidated statement of stockholders’ (deficit) equity for the nine months ended September 30, 2018 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2018, the results of its operations for the three and nine months ended September 30, 2018 and 2017, and its cash flows for the nine months ended September 30, 2018 and 2017. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2018 and 2017 are unaudited. The results for the three and nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018, any other interim periods, or any future year or period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2017 included in the Company’s annual report on Form 10-K filed with the SEC on March 16, 2018.

 

Certain prior year amounts have been reclassified to conform to current period presentation.  All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect a one-for-fifteen reverse stock split which was effective September 25, 2018.

 

Segment Information

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, which is the identification and development of oncology therapeutics.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2017 included in the Company’s annual report on Form 10-K filed with the SEC on March 16, 2018. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies.

 

Fair Value Measurements

 

The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, accounts payable, and accrued liabilities approximate their respective fair values because of the short-term nature of these accounts. The fair value of the warrant liability is discussed in Note 7, “Fair Value Measurements.”

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), which the Company adopted effective January 1, 2018 using the modified retrospective method. There was no material impact to our financial position and results of operations as a result of the adoption. The Company applies ASC 606 to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC 606, determines those that are performance obligations and assesses whether each promised good or service is distinct.  The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company derives revenue from collaboration and licensing agreements and from the sale of products associated with material transfer, collaboration and supply agreements.

 

License, Collaboration and Other Revenues

 

The Company enters into licensing and collaboration agreements, under which it licenses certain of its product candidates’ rights to third parties.  The Company recognizes revenue related to these agreements in accordance with ASC 606. The terms of these arrangements typically include payment from third parties of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; and royalties on net sales of the licensed product.

 

In determining the appropriate amount of revenue to be recognized as it fulfills its obligation under each of its agreements, the Company performs the five steps described above. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement of personnel costs, discount rates and probabilities of technical and regulatory success.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Licensing of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front-fees. The Company evaluates the measure of progress each reporting period, and, if necessary, adjusts the measure of performance and related revenue recognition.

 

Milestone Payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.  If it is probable that a significant revenue reversal will not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensees, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint and, if necessary, adjusts its estimate of the overall transaction price.  Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in their period of adjustment.

 

Manufacturing supply services. Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options. The Company assesses if these options provide material rights to the licensee and if so, they are accounted for as separate performance obligations. If the Company is entitled to additional payments when the customer exercises these options, any additional payments are recorded when the customer obtains control of the goods, which is upon shipment.

 

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some of all of the royalty has been allocated has been satisfied (or partially satisfied).  To date, the Company has not recognized any royalty revenue from its license agreements.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued guidance which supersedes much of the current guidance for leases. The new standard requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all the leases with terms greater than twelve months. Based on certain criteria, leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of the new guidance, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company is currently reviewing its leases and evaluating the impact of the adoption of the standard on its consolidated financial statements.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Summary of Significant Accounting Policies (Continued)

 

In November 2016, the FASB issued guidance requiring that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning in 2018 and should be applied using a retrospective transition method to each period presented. Early adoption is permitted. The Company adopted this guidance effective December 31, 2017. Restricted Cash was $50,000 at December 31 2017, 2016 and 2015. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

3.  Revenue

 

The Company’s revenue during the three and nine months ended September 30, 2018 and 2017 was from its license and collaboration agreements with SymBio, HanX and Pint (See Note 10).

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2018			2017			2018			2017
Symbio
Upfront license fee recognition over time		$	114,000		$	110,000		$	341,000		$	337,000
Supplies		6,000			—			59,000			307,000
Hanx
Upfront license payment regognized at a point in time		—			—			450,000			—
Pint
Upfront license payment recognized at a point it time		—			—			319,000			—
		$	120,000		$	110,000		$	1,169,000		$	644,000

 

Deferred revenue is as follows:

 

		Symbio
		Upfront Payment
Deferred balance at December 31, 2017		$	4,546,000
Recognition to revenue		341,000
Deferred balance at September 30, 2018		$	4,205,000

 

See Note 10, “License and Collaboration Agreements,” for a further discussion of the agreements with SymBio and HanX.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

4.  Net Loss Per Share of Common Stock

 

The following potentially dilutive securities outstanding at September 30, 2018 and 2017 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive (reflects the number of common shares as if the dilutive securities had been converted to common stock):

 

		September 30,
		2018		2017
Warrants		5,725,506		219,651
Stock options		332,918		60,492
		6,058,424		280,143

 

5.  Warrants

 

Common Stock warrants are accounted for in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Some of the Company’s warrants are classified as liabilities because in certain circumstances they could require cash settlement.

 

Warrants outstanding and warrant activity (reflects the number of common shares as if the warrants were converted to common stock) for the nine months ended September 30, 2018 is as follows:

 

									Balance								Balance
				Exercise			Expiration		Decemeber 31,		Warrants		Warrants		Warrants		September 30,
Description		Classification		Price			Date		2017		Issued		Exercised		Expired		2018
Non-tradable warrants		Liability		$	172.50		July 2021		6,456		—		—		—		6,456
Tradable warrants		Liability		$	73.80		July 2021		212,801		—		—		—		212,801
Non-tradable pre-funded warrants		Equity		$	0.15		July 2023		394		—		—		—		394
Non-tradable warrants		Equity		$	6.69375		*		—		663,167		—		—		663,167
Non-tradable warrants		Equity		$	7.96875		*		—		33,158		—		—		33,158
Non-tradable warrants		Equity		$	14.10		March 2021		—		5,000		—		—		5,000
Non-tradable warrants		Equity		$	21.15		March 2021		—		8,333		—		—		8,333
Non-tradable warrants		Equity		$	7.7895		June 2021		—		15,000		—		—		15,000
Non-tradable pre-funded warrants		Equity		$	0.15		none		—		196,167		(110,000	)	—		86,167
Non-tradable warrants		Equity		$	6.375		**		—		4,509,804		(76,842	)	—		4,432,962
Non-tradable pre-funded warrants		Equity		$	0.15		none		—		815,686		(553,618	)	—		262,068
									219,651		6,246,315		(740,460	)	—		5,725,506

 

* These preferred stock warrants expire on the earlier of (A) the one-month anniversary of the date on which the Company publically releases topline results of the INSPIRE Pivotal phase 3 that compare the overall survival (OS) of patients in the rigosertib group vs the Physician’s Choice group, in all patients and in a subgroup of patients with IPSS-R very high risk and (B) December 31, 2019. These preferred stock warrants may be exercised on a cashless basis in certain circumstances specified therein.

 

** These preferred stock warrants expire on the 18-month anniversary of June 8, 2018, the date on which the Company publicly announced through the filing of a Current Report on Form 8-K that a Certificate of Amendment to the Company’s Tenth Amended and Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock from 100,000,000 to 250,000,000, was filed with the Secretary of State of the State of Delaware. These preferred stock warrants may be exercised on a cashless basis in certain circumstances specified therein.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

6. Balance Sheet Detail

 

Prepaid expenses and other current assets:

 

		September 30,			December 31,
		2018			2017
Research and development		$	335,000		$	514,000
Manufacturing		81,000			48,000
Insurance		177,000			181,000
Other		103,000			77,000
		$	696,000		$	820,000

 

Property and equipment:

 

		September 30,			December 31,
		2018			2017
Property and equipment		$	2,228,000		$	2,228,000
Accumulated depreciation		(2,208,000		)	(2,164,000		)
		$	20,000		$	64,000

 

Accrued expenses and other current liabilities:

 

		September 30,			December 31,
		2018			2017
Research and development		$	2,102,000		$	1,912,000
Employee compensation		1,195,000			1,258,000
Professional fees		191,000			165,000
		$	3,488,000		$	3,335,000

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7. Fair Value Measurements

 

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

 

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

On January 5, 2016, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional investor providing for the issuance and sale by the Company of 12,912 shares of Common Stock, at a purchase price of $142.50 per share and warrants to purchase up to 6,456 shares of Common Stock (the “Warrants”) for aggregate gross proceeds of $1,840,000 (see Note 13). The Company has classified the warrants as a liability (see Note 5). The fair value was estimated using the Black-Scholes pricing model.

 

On July 29, 2016 the Company closed on a Rights Offering, issuing 239,986 shares of Common Stock, 212,801 Tradable Warrants and 43,760 Pre-Funded Warrants. The Tradable Warrants are exercisable for a period of five years for one share of Common Stock at an exercise price of $73.80 per share. After the one-year anniversary of issuance, the Company may redeem the Tradable Warrants for $0.001 per Tradable Warrant if the volume weighted average price of its Common Stock is above $184.50 for each of 10 consecutive trading days (see Note 13). The Company has classified the Tradable Warrants as a liability (see Note 5). The Tradable Warrants have been listed on the Nasdaq Capital Market since issuance and the Company regularly monitors the trading activity. During the period from issuance on July 29, 2016 through March 31, 2017 the Company determined that trading volume was insufficient to use the Nasdaq Capital Market value to determine the fair value of the warrant liability. The fair value was estimated using the Black-Scholes pricing model. During the quarter ended June 30, 2017, the Company determined that an active and orderly market for the Tradable Warrants had developed and that the Nasdaq Capital Market price was the best indicator of fair value of the warrant liability. Consequently, the Company changed its valuation technique from the Black-Scholes pricing model to the quoted market price, effective April 1, 2017. The change in valuation technique resulted in a reclassification of the liability within the valuation hierarchy from Level 3 to Level 1. The quoted market price was used to determine the fair value at December 31, 2017 and September 30, 2018.

 

The Company estimated the fair value of the non-tradable warrant liability at September 30, 2018, using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Risk-free interest rate		2.88	%
Expected volatility		78.94	%
Expected term		2.78 years
Expected dividend yield		0	%

 

Expected volatility is based on the historical volatility of the Company’s Common Stock since its IPO in July 2013.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7. Fair Value Measurements (Continued)

 

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017:

 

		Fair Value Measurement as of:
		September 30, 2018												December 31, 2017
		Level 1			Level 2			Level 3			Balance			Level 1			Level 2			Level 3			Balance
Tradable warrants liability		$	318,000		$	—		$	—		$	318,000		$	1,755,000		$	—		$	—		$	1,755,000
Non-tradable warrants liability		—			—			1,000			1,000			—			—			18,000			18,000
Total		$	318,000		$	—		$	1,000		$	319,000		$	1,755,000		$	—		$	18,000		$	1,773,000

 

The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

 

		Warrant Liability
Balance at December 31, 2017		$	18,000
Change in fair value upon re-measurement		(14,000		)
Balance at March 31, 2018		4,000
Change in fair value upon re-measurement		(3,000		)
Balance at June 30, 2018		1,000
Change in fair value upon re-measurement		—
Balance at September 30, 2018		$	1,000

 

There were no transfers between Level 1 and Level 2 in any of the periods reported.

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

8.  Stock-Based Compensation

 

The 2007 Equity Compensation Plan as amended (the “2007 Plan”), amended, restated and renamed the Company’s 1999 Stock Based Compensation Plan (the “1999 Plan”), which provided for the granting of incentive and nonqualified stock options and restricted stock to its employees, directors and consultants at the discretion of the board of directors.

 

The 2013 Equity Compensation Plan (the “2013 Plan”), amended, restated and renamed the 2007 Plan. Under the 2013 Plan, the Company may grant incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, deferred share awards, performance awards and other equity-based awards to employees, directors and consultants. The Company initially reserved 40,719 shares of Common Stock for issuance, subject to adjustment as set forth in the 2013 Plan. The 2013 Plan included an evergreen provision, pursuant to which the maximum aggregate number of shares that may be issued under the 2013 Plan is increased on the first day of each fiscal year by the lesser of (a) a number of shares equal to four percent (4%) of the issued and outstanding Common Stock of the Company, without duplication, (b) 13,333 shares and (c) such lesser number as determined by the Company’s board of directors, subject to specified limitations.

 

The 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”) was unanimously approved by the Company’s Board of Directors on May 24, 2018 and was approved by the Company’s stockholders on June 27, 2018. The 2018 Plan replaces the 2013 Plan. Upon stockholders’ approval of the 2018 Plan, no further awards will be made under the 2013 Plan. Awards granted under the 2013 Plan will continue in effect in accordance with the terms of the applicable award agreement and the terms of the 2013 Plan in effect when the awards were granted.

 

Under the 2018 Plan, the Company may grant incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards to employees, non-employee directors and consultants, and advisors. The maximum aggregate number of shares of the Company’s common stock that may be issued under the 2018 Plan is 402,354, which is equal to the sum of (i) 400,000 shares of the Company’s common stock, plus (ii) 2,354 shares, which is the number of shares of the Company common stock reserved for issuance under the 2013 Plan that remained available as of the effective date of the 2018 Plan. In addition, the number of shares of common stock subject to outstanding awards under the 2013 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Plan after the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. At September 30, 2018, there were 141,006 shares available for future issuance.

 

Stock-based compensation expense includes stock options granted to employees and non-employees and has been reported in the Company’s statements of operations and comprehensive loss in either research and development expenses or general and administrative expenses depending on the function performed by the optionee. No net tax benefits related to the stock-based compensation costs have been recognized since the Company’s inception. The Company recognized stock-based compensation expense as follows for the three and six months ended September 30, 2018 and 2017:

 

		Three Months ended September 30,						Nine Months ended September 30,
		2018			2017			2018			2017
General and administrative		$	159,000		$	250,000		$	420,000		$	769,000
Research and development		136,000			181,000			363,000			563,000
		$	295,000		$	431,000		$	783,000		$	1,332,000

 

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Onconova Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

8.  Stock-Based Compensation (Continued)

 

A summary of stock option activity for the six months ended September 30, 2018 is as follows:

 

				Options Outstanding
		Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance, December 31, 2017		3,842		59,666		$	855.30		6.72		$	0
Authorized		413,333		—
Granted		(283,405	)	283,405		$	8.01
Exercised		—		—		$	—
Forfeitures		10,153		(10,153	)	$	916.15
Cancelled		(2,917	)
Balance, September 30, 2018		141,006		332,918		$	87.52		9.33		$	0
Vested or expected to vest, September 30, 2018				321,163		$	540.62		6.94		$	0
Exercisable at September 30, 2018				48,677		$	540.62		6.94		$	0

 

Information with respect to stock options outstanding and exercisable at September 30, 2018 is as follows:

 

Exercise Price				Shares		Exercisable
$6.90 – $7.05				261,350		—
$16.35 – $97.50				50,901		28,948
$222.00 - $225.00				1,952		1,503
$348.00 – $597.00				4,962		4,539
$651.00 – $1,129.50				5,659		5,593
$1,992.00 - $2,268.00				7,738		7,738
$4,156.50 - $4,371.00				356		356
				332,918		48,677

 

Options granted after April 23, 2013

 

The Company accounts for all stock-based payments made after April 23, 2013 to employees and directors using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of forfeitures. Compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to the Company using the straight-line single option method. In accordance with authoritative guidance, the fair value of non-employee stock-based awards is re-measured as the awards vest, and the resulting increase in fair value, if any, is recognized as expense in the period the related services are rendered.

 

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