UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-37500
(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 office) (Zip Code)
(617 ) 928-5300
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| 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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.| Large accelerated filer | ☐ | ☒ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in ☒
Rule 12b-2
of the Exchange Act). Yes ☐ No As of August 5, 2020, there were 57,802,283 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. These statements include all matters that are not related to present facts or current conditions or that are not historical facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth. The words “anticipate,” “believe,” “could,” “continue,” “should,” “predict,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “will,” “would,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:| • | our expected commercial launch timing of MYCAPSSA in the United States, if the U.S. Food and Drug Administration, or the FDA, accepts our manufacturing supplement, or CBE-30 supplement, to our approved NDA; |
| • | our expectations regarding the FDA’s review and acceptance of our CBE-30 supplement and the second manufacturing supplement we plan to submit; |
| • | our ability to obtain supply of sufficient amounts of octreotide capsules to support our planned commercial launch in the United States and clinical trials; |
| • | our views as to our readiness for commercial launch of MYCAPSSA in the United States, including our plans with respect our customer-facing team, the nature of our planned commercialization activities and strategy, our pricing of MYCAPSSA, and related assumptions; |
| • | our views as to potential future results of our commercialization efforts in the United States with respect to MYCAPSSA, including our expectations with respect to the scope, level and availability of reimbursement by private and government payors; |
| • | our development of octreotide capsules for the treatment of acromegaly; |
| • | our efforts to potentially obtain regulatory approval of octreotide capsules in the European Union by conducting the MPOWERED Phase 3 clinical trial; |
| • | the timing and receipt and announcement of top-line and other clinical data, including our ability to release top-line data from the MPOWERED trial during the fourth quarter of 2020; |
| • | the therapeutic benefits, effectiveness and safety of octreotide capsules; |
| • | our estimates of the size and characteristics of the markets that may be addressed by octreotide capsules; |
| • | the commercial success and market acceptance of octreotide capsules or any future product candidates that are approved for marketing in the United States or other countries; |
| • | our ability to generate future revenue; |
| • | the safety and efficacy of therapeutics marketed by our competitors that are targeted to indications which octreotide capsules have been developed to treat; |
| • | our ability to leverage our Transient Permeability Enhancer, or TPE, platform to develop and commercialize novel oral product candidates incorporating peptides that are currently only available in injectable or other non-absorbable forms; |
| • | the possibility that competing products or technologies may make MYCAPSSA, other product candidates we may develop and commercialize or our TPE technology obsolete; |
| • | our ability to secure collaborators to license, manufacture, market and sell octreotide capsules or any products for which we receive regulatory approval in the future; |
| • | our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; |
| • | our product development and operational plans generally; and |
| • | our estimates and expectations regarding our capital requirements, cash and expense levels and liquidity sources. |
These forward-looking statements are not exhaustive. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form
10-Q
and our prior filings with the U.S. Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.Unless the context requires otherwise, references in this Quarterly Report on Form
10-Q
to “we,” “us”, “our” and “Chiasma” refer to Chiasma, Inc. and our subsidiaries. We own various U.S. federal trademark registrations and applications, and unregistered trademarks and service marks, including “Chiasma,” “TPE”, “MYCAPSSA” and our corporate logo. Other trademarks or service marks that may appear in this Quarterly Report on Form 10-Q
are the property of their respective holders. For convenience, we do not use the ®
and ™
symbols in each instance in which one of our trademarks appears throughout this Quarterly Report on Form 10-Q,
but this should not be construed as any indication that we will not assert, to the fullest extent under applicable law, our rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.Chiasma, Inc.
INDEX
PART I — FINANCIAL INFORMATION
Item 1. |
Financial Statements |
Chiasma, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2020 |
December 31, 2019 |
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(in thousands except share data) |
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| Assets |
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| Current assets |
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| Cash and cash equivalents |
$ | $ | ||||||
| Marketable securities |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Other assets |
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| Restricted cash |
— | |||||||
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| Total assets |
$ | $ | ||||||
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| Liabilities and Stockholders’ Equity |
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| Current liabilities |
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| Accounts payable |
$ | $ | ||||||
| Accrued expenses |
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| Other current liabilities |
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| Total current liabilities |
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| Deferred royalty obligation |
— | |||||||
| Long-term liabilities |
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| Total liabilities |
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| Commitments and contingencies (Note 9) |
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| Stockholders’ equity: |
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| Common stock, $ June 30, 2020 and December 31, 2019; issued and outstanding |
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| Preferred stock, $ |
— | |||||||
| Additional paid-in capital |
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| Accumulated other comprehensive income |
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| Accumulated deficit |
( |
) | ( |
) | ||||
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | $ | ||||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
1
Chiasma, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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2020 |
2019 |
2020 |
2019 |
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(in thousands except share and per share data) |
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| Operating expenses: |
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| General and administrative |
$ | $ | $ | $ | ||||||||||||
| Research and development |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
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| Interest and other income, net |
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| Interest expense |
( |
) | — | ( |
) | — | ||||||||||
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| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
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| Provision for income taxes |
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| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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| Earnings per share |
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| Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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| Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Weighted-average shares outstanding: |
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| Basic |
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| Diluted |
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See accompanying notes to these unaudited condensed consolidated financial statements.
2
Chiasma, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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2020 |
2019 |
2020 |
2019 |
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(in thousands) |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
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| Unrealized gain (loss) on available for sale securities, net |
( |
) | ||||||||||||||
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| Total other comprehensive income (loss): |
( |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
3
Chiasma, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock |
Additional Paid-in |
Accumulated Other Comprehensive |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Capital |
Income (Loss) |
Deficit |
Equity |
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(in thousands except share data) |
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| Balance, December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation |
— | — | — | — | ||||||||||||||||||||
| Exercise of stock options |
— | — | ||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
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| Balance, March 31, 2020 |
( |
) | ||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | ||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
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| Balance, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
4
Chiasma, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock |
Additional Paid-in |
Accumulated Other Comprehensive |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Capital |
Income (Loss) |
Deficit |
Equity |
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(in thousands except share data) |
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| Balance, December 31, 2018 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Stock-based compensation |
— | — | — | — | ||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||
| Additional paid in capital on account of vested portion of restricted stock |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
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| Balance, March 31, 2019 |
( |
) | ||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | ||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||
| Issuance of common stock in follow-on offering, net |
— | — | ||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
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| Balance, June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
5
Chiasma, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, |
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2020 |
2019 |
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(in thousands) |
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| Operating Activities: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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| Depreciation |
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| Stock-based compensation |
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| Accretion on marketable securities, net |
( |
) | ( |
) | ||||
| Non-cash lease expense |
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| Amortization of debt discount and issuance costs |
— | |||||||
| Benefit for deferred income taxes |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: |
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| Prepaid expenses and other current assets |
( |
) | ||||||
| Insurance Recovery (Note 9) |
— | |||||||
| Accounts payable and accrued expenses |
( |
) | ||||||
| Settlement Liability (Note 9) |
— | ( |
) | |||||
| Other assets |
( |
) | ||||||
| Other current and long-term liabilities |
( |
) | ( |
) | ||||
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| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Investing Activities: |
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| Purchases of marketable securities |
( |
) | ( |
) | ||||
| Maturities of marketable securities |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
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| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Financing Activities: |
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| Proceeds from the issuance of common stock, net |
— | |||||||
| Exercise of stock options |
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| Payments of short-term borrowing |
( |
) | — | |||||
| Proceeds from deferred royalty obligation, net |
— | |||||||
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| Net cash provided by financing activities |
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| Net increase in cash, cash equivalents and restricted cash |
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| Cash, cash equivalents and restricted cash, beginning of period |
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| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
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| Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets |
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| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
— | |||||||
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| Total cash, cash equivalents and restricted cash |
$ | $ | ||||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
6
CHIASMA, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2020
1. |
Description of Business and Summary of Significant Accounting Policies |
Chiasma, Inc. is a commercial stage biopharmaceutical company incorporated in 2001 under the laws of the State of Delaware. Chiasma, Inc. is headquartered in Massachusetts and has two wholly owned subsidiaries; Chiasma (Israel) Ltd., and Chiasma Securities Corp, collectively referred to as “the Company,” “we,” “us,” “our” or “Chiasma”. We are focused on developing and commercializing oral therapies to improve the lives of patients who
face challenges associated with their existing treatments for rare and serious chronic disease. Employing our Transient Permeability Enhancer
(“TPE”) technology platform, we seek to develop oral medications that are currently available only as injections. On June 26, 2020, we received approval from the U.S. Food and Drug Administration (“FDA”) of our oral
octreotide
capsules product candidate, MYCAPSSA for long-term maintenance treatment in acromegaly patients who have responded to and tolerated treatment with
octreotide
or
lanreotide
.
Our planned U.S. commercial launch of MYCAPSSA is expected to commence in the fourth quarter of 2020.
Acromegaly is a rare and debilitating condition that is caused by the body’s production of excess growth hormone. Octreotide is an analog of somatostatin, a natural inhibitor of growth hormone secretion. Octreotide capsules have been granted orphan designation in the United States and the European Union for the treatment of acromegaly. We retain worldwide rights to develop and commercialize octreotide capsules.
We are currently conducting an international Phase 3 clinical trial, referred to as MPOWERED, of oral octreotide capsules for the maintenance treatment of adult patients with acromegaly to support regulatory approval in the European Union by the European Medicines Agency (“EMA”). The MPOWERED trial is a global, randomized, open-label and active-controlled 15 -month trial initially designed to enroll up to 150 patients. The EMA requested that a minimum of 80 patients who are responders to octreotide capsules per the protocol following the nine months . In June 2019, we completed the enrollment of 146 total patients in MPOWERED and in January 2020 completed the randomization in that trial.
-month
run-in
phase be randomized to either remain on octreotide capsules or return to injectable somatostatin receptor ligands (octreotide or lanreotide), and then followed for an additional In April 2019, we completed 7,263,158 shares of common stock at $4.75 per share for aggregate net proceeds of approximately $32.2 million after underwriting fees and offering expenses. In August 2019, we completed a 10,166,427 shares of common stock at $5.50 per share for aggregate net proceeds of approximately $52.3 million after underwriting fees and offering expenses.
an
underwritten
public offering of follow-on
public offering of common stock in which we sold In April 2020, we entered into an Open Market Sales Agreement (“ATM Agreement”) for “at the market offerings” with Jefferies LLC (“Jefferies”),
under
which
we
may
offer and sell
from time to time shares of our common stock having an aggregate offering price of
up to $60.0 million through Jefferies, acting as our sales agent or principal. To date, we have not sold any common stock under the ATM Agreement.
In April 2020, we entered into a Revenue Interest Financing Agreement (the “Revenue Interest Financing Agreement”) with Healthcare Royalty Partners IV, L.P. (“HCR”) for up to $75.0 million. The initial funding of $25.0 million, less certain transaction expenses, was completed in April 2020 and the second funding of $25.0 million, less certain transaction expenses, was completed in July 2020 (see Note 6).
In July 2020, we completed an underwritten public offering of 15,125,000 shares of common stock and 5,000,000 shares of common stock for aggregate net proceeds of approximately $75.5 million 0.0001 .
pre-funded
warrants (the “Pre-Funded
Warrants”) to purchase an aggregate of less
underwriting fees and offering expenses. The Pre-Funded
Warrants are
immediately exercisable at an exercise price per share of $We have incurred substantial operating losses since inception, and we expect our operating losses and negative operating cash flows to continue for the foreseeable future. We are heavily dependent on the commercial success of MYCAPSSA in the United States and the regulatory approval and subsequent commercial success of MYCAPSSA in the European Union, both of which may never occur. We plan to continue to invest in our commercial launch, the manufacturing of octreotide capsules for market consumption, as well as invest in manufacturing
scale-up
activities, and continuing the open label extension portion of our international Phase 3 CHIASMA OPTIMAL clinical trial of octreotide capsules in acromegaly and to continue to conduct our international Phase 3 MPOWERED clinical trial of octreotide capsules in acromegaly and, if the MPOWERED trial results are positive, prepare and submit a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, seeking potential regulatory approval of octreotide capsules as a treatment for acromegaly in the European Union. The FDA approved MYCAPSSA on June 26, 2020 and, 7
in July 2020, we completed an underwritten public offering of our common stock and 75.5 million and received the Revenue Interest Financing Agreement’s second tranche funding of $25.0 million, less certain transaction expenses. We currently expect our existing cash, cash equivalents and marketable securities to fund our operations for at least one year after the date these condensed consolidated financial statements are issued.
Pre-Funded
Warrants for aggregate net proceeds of approximately $Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. We plan to continue to fund our losses from operations and capital funding needs from existing balances of cash, cash equivalents and marketable securities, the anticipated $15.0 million of additional funding from HCR following the first commercial sale of MYCAPSSA and potentially through equity financings. We may also opportunistically consider license and collaboration agreements with potential partners or convertible debt financing to the extent such sources are identified and available. If our anticipated U.S. revenues are insufficient to fund our operations to attaining and sustaining profitability, additional financing may be required. Such financing, if required, may not be available on a timely basis on terms acceptable to us, or at all. If we are not able to secure adequate additional funding when required, we may be forced to make reductions in spending, extend payment terms with suppliers, suspend or curtail our development opportunities, or it may negatively impact our ability to adequately fund or delay our potential commercial preparations or launch readiness outside the United States if the MPOWERED trial results are positive and MYCAPSSA is approved by the EMA. Any of these actions could materially harm our business, results of operations and future prospects. Failure to successfully commercialize octreotide capsules in acromegaly will prevent us from achieving profitability and positive cash flows, which could raise significant concerns about our continued viability as a business.
Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for annual financial statements have been condensed or omitted. The information included in this quarterly report on Form
10-Q
should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2019. The year-end
condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP. In the opinion of management, we have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as our audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. Interim results are not necessarily indicative of results for a full year or for any other subsequent interim period.Cash Equivalents
Cash equivalents consist of highly liquid instruments that mature within three months or less from the date of purchase.
Marketable Securities
Our investments primarily consist of commercial paper and corporate and government debt securities. These marketable securities are classified as and as such, are reported at fair value on our condensed consolidated balance sheets. Unrealized holding gains and losses are reported within accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, together with interest on securities, are included in interest and other income, net, on our condensed consolidated statements of operations.
available-for-sale,
If a decline in the fair value of a marketable security below our cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. The cost of securities sold is based on the specific identification method.
Concentrations of credit risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. We routinely maintain deposits in financial institutions in excess of government insured limits. Management believes that we are not exposed to significant credit risk as our deposits are held at financial institutions that management believes to be of high credit quality and we have not experienced any
8
significant losses in these deposits. We regularly invest excess operating cash in deposits with major financial institutions and money market funds and in notes issued by the U.S. government, as well as in fixed income investments and U.S. bond funds, both of which can be readily purchased and sold using established markets. We believe that the market risk arising from our holdings of these financial instruments is mitigated
based
on the fact that many of these securities are either government backed or of high credit rating. Inventory
Prior to FDA approval of MYCAPSSA, all costs related to the manufacturing of MYCAPSSA that could potentially be available to support the planned U.S. commercial launch were charged to research and development expense in the period incurred. Generally, inventory may be capitalized if it is probable that future revenues will be generated from the sale of the inventory and that these revenues will exceed the cost of the inventory. Through the FDA approval date of MYCAPSSA, we expensed all of our manufacturing costs due to the high risk inherent in drug development and uncertainty as to whether MYCAPSSA would be approved. The manufacturing-related costs incurred following our June 26, 2020 FDA approval of MYCAPSSA were immaterial to our condensed consolidated financial statements. We will begin to capitalize our manufacturing-related costs to inventory starting July 1, 2020.
We capitalize the costs to manufacture our products incurred after regulatory approval when, based on our judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. In connection therewith, we value our inventories at the lower of cost or estimated net realizable value. We determine the cost of our inventories, which includes amounts related to active pharmaceutical ingredient and other raw materials, third party manufacturing costs and other overhead costs, on
a first-in,
first-out
basis. Inventories that may be used for either research and development or commercial sale are classified as inventory until the material is consumed or otherwise allocated for research and development. If the material is intended to be used for research and development, it is expensed as research and development once that determination is made. Prospectively, on a quarterly basis, we will review inventory quantities on hand and analyze the provision for excess and obsolete inventory based primarily on remaining product shelf life and our estimated sales forecast which is based on anticipated future demand. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance, and patient usage. Our estimates of future product demand may prove to be imprecise and changes in estimates will result in a change to the provision required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and results of operations.
Deferred Royalty Obligation
We treat the deferred royalty obligation, as discussed
further
in Note 6, as a debt obligation, amortized under the effective interest rate method over the estimated life of the agreement. We recognize interest expense thereon using the effective rate, which is based on our current estimates of future revenues over the life of the arrangement. In connection therewith, we periodically assess our expected revenues using internal projections, impute interest on the carrying value of the deferred royalty obligation, and record interest expense using the effective interest rate. To the extent our estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of our deferred royalty obligation between short- and long-term. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs requires that we make estimates that could impact the short-term and long-term classification of such costs, as well as the period over which such costs will be amortized. Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes during the reporting period. We base these estimates and assumptions on historical experience when available, and on various factors that we believe to be reasonable under the specific circumstances. Significant estimates relied upon in preparing the accompanying condensed consolidated financial statements include, but are not limited to, accounting for stock-based compensation, income taxes, the fair value of embedded derivatives and our deferred royalty obligation and accounting for certain accruals. We assess the above estimates on an ongoing basis; however, actual results could materially differ from those estimates.
9
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued new guidance which will require more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. On January 1, 2020, we adopted this standard. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
2. Investments
Our investments consisted of the following as of June 30, 2020 and December 31, 2019:
As of June 30, 2020 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
($ in thousands) |
||||||||||||||||
Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
Corporate notes |
— | |||||||||||||||
Commercial paper |
— | |||||||||||||||
U.S. treasury shares |
— | — | ||||||||||||||
Total |
$ | $ | $ | — | $ | |||||||||||
As of December 31, 2019 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
($ in thousands) |
||||||||||||||||
Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
Corporate notes |
— | |||||||||||||||
Commercial paper |
— | |||||||||||||||
Total |
$ | $ | $ | — | $ | |||||||||||
As of June 30, 2020, we consider those securities that are in an unrealized loss position no
as
temporary and not due to credit losses. We have the ability to hold such investments until recovery of the fair value. We utilize the specific identification method in computing realized gains and losses. We had available-for-sale
The fair values of our investments by classification in our condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 were as follows:
June 30, 2020 |
December 31, 2019 |
|||||||
($ in thousands) |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Marketable securities |
||||||||
Restricted cash |
— | |||||||
Total |
$ | $ | ||||||
Cash and cash equivalents in the table above exclude cash of $1.8 million and $2.8 million as of June 30, 2020 and December 31, 2019, respectively. The contractual maturity dates of all of our investments are less than one year .
10
3. Fair Value Measurements of Financial Instruments
Certain assets and liabilities are reported at fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
• |
Level 1 |
• |
Level 2 |
• |
Level 3 |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The fair value measurements of our financial instruments are summarized in the table below:
Fair Value Measurements at June 30, 2020 |
||||||||||||||||
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
||||||||||||
Financial assets |
($ in thousands) |
|||||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| U.S. treasury shares |
— | — | ||||||||||||||
| Corporate notes |
— | — | ||||||||||||||
| Commercial paper |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
$ | $ | $ | — | $ | |||||||||||
| Marketable securities: |
||||||||||||||||
| Corporate notes |
$ | — | $ | $ | — | $ | ||||||||||
| Commercial paper |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | — | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Financial liabilities |
||||||||||||||||
| Derivative liabilities |
$ | — | $ | — | $ | $ | ||||||||||
11
Fair Value Measurements at December 31, 2019 |
||||||||||||||||
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
||||||||||||
Financial assets |
($ in thousands) |
|||||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| Corporate notes |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
$ | $ | $ | — | $ | |||||||||||
| Marketable securities: |
||||||||||||||||
| Corporate notes |
$ | — | $ | $ | — | $ | ||||||||||
| Commercial paper |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | — | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Our cash equivalents are composed of money market funds and U.S. treasury shares and are classified as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets and do not have any restrictions on redemption. Our marketable securities consist of corporate notes and commercial paper and are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing services, which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based upon other significant observable market transactions. At the end of each reporting period, we perform quantitative and qualitative analysis of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analysis, we did not adjust or override any fair value measurements provided by our pricing services as of June 30, 2020 or December 31, 2019.
In certain cases where there is limited activity or less transparency around inputs to valuation, the related assets or liabilities are classified as Level 3. We recorded derivative liabilities associated with our deferred royalty obligation, as discussed further in Note 6, of
$1.3
million during the three months ended June 30, 2020. There was no change in the fair value of the derivative liabilities during the three months ended June 30, 2020. These derivative liabilities are measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative liabilities are subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of interest and other income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) the expected net sales of MYCAPSSA and any of our other future products; (2) our risk-adjusted discount rate that includes a company specific risk premium; (3) our cost of debt; (4) volatility; (5) the probability and timing of a change in control occurring during the term of the instrument; and (6) the probability and timing of an event of default during the term of the instrument. We did not have any Level 3 assets or liabilities being measured at fair value on a recurring basis as of December 31, 2019.
4. Earnings per Share of Common Stock
All common stock warrants and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an anti-dilutive impact due to net losses reported during the three and six months ended June 30, 2020 and 2019.
5. Accrued Expenses
As of June 30, 2020 and December 31, 2019, accrued expenses consisted of the following:
June 30, 2020 |
December 31, 2019 |
|||||||
($ in thousands) |
||||||||
| Accrued research and development expenses |
$ | $ | ||||||
| Accrued general, administrative and other expenses |
||||||||
| Accrued payroll and employee benefits |
||||||||
| |
|
|
|
|||||
| Total accrued expenses |
$ | $ | ||||||
| |
|
|
|
|||||
12
6. Deferred Royalty Obligation
In April 2020, we entered into the Revenue Interest Financing Agreement with HCR whereby HCR will receive payments from us at a tiered percentage (the “Applicable Tiered Percentage”) of future net revenues of MYCAPSSA and any of our other future products, including worldwide net product sales and upfront payments and milestones received from third parties under license agreements (the “Revenue Interests”). Under the terms of the agreement, we received $25.0 million, less certain transaction expenses, from HCR in April 2020 and an additional $25.0
million in July 2020 following the FDA approval of MYCAPSSA. We are entitled to receive an additional
$
million upon conditions related to commercial drug supply availability and first commercial sale of MYCAPSSA, subject to customary closing conditions. We are also entitled to receive an additional $
million in early 2022 subject to the achievement of a
revenue
milestone and customary closing conditions. In exchange for the total investment amount (“Investment Amount”) received, HCR will receive a tiered royalty starting in the low double digits on worldwide annual net revenues of MYCAPSSA and any other future products, subject to step-downs upon the achievement of certain annual revenues.HCR’s rights to receive the Revenue Interests shall terminate on the date on which HCR has received payments equal to 195 % 95
of the funded portion of the Investment Amount including the aggregate of all payments made to HCR as of such date, unless the Revenue Interest Financing Agreement is terminated earlier. If HCR has not received payments equal to the 195% of the funded portion of the Investment Amount by the
ten-year
anniversary of the initial closing date and no event of default has occurred or is ongoing, among other things, we shall pay HCR an amount equal to the funded portion of the Investment Amount plus a specific annual rate of return in the low to mid-teens
less payments previously received. If a change of control of the Company occurs, we must immediately repay HCR the total amount actually funded (including unfunded amounts conditionally eligible to be funded) plus a change of control premium, the amount of which is variable up
to
%
based on timing and circumstances of such change of control. Upon the occurrence of an event of default, including the withdrawal, suspension or other termination of the FDA approval of MYCAPSSA as a treatment for acromegaly that continues for sixty days that prevents us from marketing MYCAPSSA, HCR may accelerate payments due under the agreement to the 195% of the funded portion of the Investment Amount.
If HCR has not received 60 % of the 100 % 20.0
funded portion of the
Investment Amount by September 30, 2023 or of the funded portion
of the Investment Amount by September 30, 2024, we must make cash payments sufficient to gross HCR up to such minimum amounts. Further, the Revenue Interest Financing Agreement requires us to maintain a minimum of $million in securitized cash and investment accounts, which we recorded as restricted cash in the condensed consolidated balance sheet, during any quarter that the trailing four quarters of net revenue of MYCAPSSA is below a certain threshold. Our obligations under the Revenue Interest Financing Agreement are secured by a first priority perfected security interest in all of our Chiasma, Inc. cash and cash equivalents (as defined in the Revenue Interest Financing Agreement), all present and future net revenues of MYCAPSSA and all MYCAPSSA-related assets.
We
have evaluated the terms of the deferred royalty obligation and concluded that the features of the Investment Amount are similar to those of a debt instrument. Accordingly, we have accounted for the transaction as long-term debt. We have evaluated the terms of the debt and determined that the repayment of up to 195% of the Investment Amount, less any payments made to date, upon a change of control is an embedded derivative that requires bifurcation from the debt instrument and fair value recognition. In addition, we have determined that the repayment of 195% of the funded portion of the Investment Amount, less any payments made to date, upon an event of default is an embedded derivative that requires bifurcation from the debt instrument and fair value recognition. We determine the fair value of the derivatives using an option pricing Monte Carlo simulation model taking into account the probability and timing of a change of control and an event of default occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 3. The aggregate fair value of the embedded derivative
is $
million and is
pre
ed in deferred royalty obligation in the condensed consolidated balance sheet. We remeasure the embedded derivative to fair value each reporting period until the time the termination of the Revenue Interest Financing Agreement. sent
The effective interest rate as of June 30, 2020 was approximately
%.
In connection with the deferred royalty obligation, we incurred debt issuance costs totaling
$
million
in the six months ended June 30, 2020. Debt issuance costs have been netted against the deferred royalty obligation and are being amortized over the estimated term of the obligation using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs requires that we make estimates that could impact the short- and long-term classification of these costs, as well as the period over which these costs will be amortized.
13
The carrying value of the deferred royalty obligation, as presented on the condensed consolidated balance sheet, approximates fair value as of June 30, 2020 and was measured using Level 3 inputs. The estimated fair value was calculated using an option pricing Monte Carlo simulation model with inputs consistent with those used in determining the embedded derivative values as described in Note 3.
7. Warrants
As of December 31, 2019, there were 3,567,015 common stock warrants outstanding with exercise prices ranging from $0.09 per share to $9.13 per share. Such warrants were issued between October 2012 and February 2015 with expiration dates ranging from through . There were no 3,567,015 outstanding warrants as of June 30, 2020. As described in Note 1, in July 2020, we issued 5,000,000 shares of common stock which 0.0001 .
Pre-Funded
Warrants in connection with an underwritten public offering to purchase an aggregate of are
immediately exercisable at an exercise price per share of $8. Stock-based Compensation
In 2008, our board of directors adopted the 2008 Stock Incentive Plan (the “2008 Plan”), which provided for the grant of incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and nonemployees of the Company up to 3,547,741 shares of common stock. Option awards expire 10 years from the grant date and generally vest over four years but vesting conditions can vary at the discretion of our board of directors.
In July 2015, the Company approved the 2015 Stock Option and Incentive Plan (the “2015 Plan”), which became effective upon our initial public offering. The 2015 Plan allow3,566,296 shares of common stock. In connection with the adoption of the 2015 Plan, no further option grants were permitted under the 2008 Plan and any expirations, cancellations, or terminations under the 2008 Plan are available for issuance under the 2015 Plan. On January 1, 2020, the number of shares reserved and available for issuance under the 2015 Plan increased by 1,683,136 shares of common stock pursuant to a provision in the 2015 Plan that provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2016, by 4 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number as determined by the compensation committee of the board of directors. As of June 30, 2020, the total number of shares authorized for stock award plans is 9,775,418 of which 1,511,498 remain available for grant. There are 7,916,922 stock options outstanding as of June 30, 2020.
s
the grant of incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and nonemployees of the Company initially up to Stock-based compensation for the three and six months ended June 30, 2020 and 2019 consisted of the following:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
($ in thousands) |
||||||||||||||||
| General and administrative |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The fair value of each stock option issued was estimated at the date of grant using the Black-Scholes option model with the following weighted-average assumptions:
Six Months Ended June 30, |
||||||||
2020 |
2019 |
|||||||
| Expected volatility |
% | % | ||||||
| Expected term (years) |
||||||||
| Risk-free interest rate |
% | % | ||||||
| Expected dividend yield |
% | % | ||||||
We granted approximately 1,736,900 stock options in the six months ended June 30, 2020. The weighted-average grant date fair value per share of stock options granted during the six months ended June 30, 2020 was $3.32 . We granted approximately 1,533,000 stock options in the six months ended June 30, 2019. The weighted-average grant date fair value per share of options granted during the six months ended June 30, 2019 was $5.19 .
14
9. Commitments and Contingencies
Manufacturing Commitments
As of June 30, 2020, we had outstanding manufacturing commitments, including the acquisition of API, in the aggregate amount of $25.2 million of which $9.2 million is expected to be incurred in 2020 with the remainder to be incurred throughout 2021. The payments on these commitments will occur following the deliveries of the API or completion of the manufacturing services.
2019 Litigation Settlement
On June 9, 2016, Chiasma, Inc. and certain of our current and former officers were named as defendants in a purported federal securities class action lawsuit filed in the United States District Court for the District of Massachusetts, styled . An amended complaint was filed by the lead plaintiff on February 10, 2017 challenging our statements regarding our first Phase 3 clinical trial methodology and results, and our ability to obtain FDA approval for octreotide capsules, in violation of Sections 11 and 15 of the Securities Act of 1933. The amended complaint added as defendants current and former members of our board of directors, as well as the investment banks that underwrote our initial public offering on July 15, 2015. The plaintiff sought an unspecified amount of compensatory damages on behalf of himself and members of a putative shareholder class, including interest and reasonable costs and expenses incurred in litigating the action, and any other relief the court determines is appropriate. The defendants filed a motion to dismiss the amended complaint on March 27, 2017 and on February 15, 2018, the court denied defendants’ motion to dismiss. The defendants filed an answer to the amended complaint on March 30, 2018. On February 27, 2019, the parties agreed to a settlement of all legal claims in which defendants expressly denied that they have committed any act or omission giving rise to any liability under Sections 11 or 15 of the Securities Act of 1933. On March 14, 2019, the court issued an order of preliminary approval of the settlement. As a result of this settlement agreement, we have recorded a litigation settlement liability of $18.8 million as of December 31, 2018. Additionally, we have recorded a litigation insurance settlement recovery receivable of $18.3 million as of December 31, 2018 which represents the estimated insurance claim proceeds from our insurance carriers. On June 27, 2019, the court issued an order of final approval of the settlement. The litigation insurance settlement recovery and litigation settlement liability were settled during the three months ended June 30, 2019.
Gerneth v. Chiasma, Inc., et al
10. Leases
We determine if an arrangement is a lease at inception. We have operating leases for our office spaces and certain automobiles. assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The asset also includes direct costs incurred and is reduced by lease incentives. Lease agreements with lease and
Right-of-use
right-of-use
non-lease
components are accounted for separately. As our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We recognize operating lease expense on a straight-line basis over the lease term.Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
($ in thousands) |
||||||||||||||||
| The components of lease expense were as follows: |
||||||||||||||||
| Operating lease expense |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Supplemental cash flow information related to leases was as follows: |
||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
||||||||||||||||
| Operating cash flows from operating leases |
$ | $ | $ | $ | ||||||||||||
| Right-of-use |
||||||||||||||||
| Operating leases |
$ | $ | $ | $ | ||||||||||||
1
5
June 30, 2020 |
||||
($ in thousands) |
||||
| Supplemental balance sheet information related to leases was as follows: |
||||
| Right-of-use |
$ | |||
| |
|
|
|
|
| Other current liabilities |
$ | |||
| Long-term liabilities |
||||
| |
|
|||
| Total lease liabilities |
$ | |||
| |
|
|||
| Weighted average remaining lease term—operating leases |
||||
| Weighted average discount rate—operating leases |
% | |||
Our lease assets are recorded within other assets on our condensed consolidated balance sheets.
right-of-use
Future lease payments under noncancelable leases as of June 30, 2020 are as follows:
($ in thousands) |
||||
| Remainder of 2020 |
$ | |||
| 2021 |
||||
| 2022 |
||||
| |
|
|||
| Total future minimum lease payments |
||||
| Less: imputed interest |
( |
) | ||
| |
|
|||
| Total |
$ | |||
| |
|
|||
1
6
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form
10-Q
and the audited financial information and the notes thereto included in our Annual Report on Form 10-K
for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including
information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q
and our prior filings with the SEC, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview
We are a commercial stage biopharmaceutical company focused on improving the lives of patients who face challenges associated with their existing treatments for rare and serious chronic disease. Employing our proprietary Transient Permeability Enhancer, or TPE the U.S. Food and Drug Administration, or the FDA, approved MYCAPSSA
®
, technology platform, we seek to develop oral medications that are currently available only as injections. On June 26, 2020,®
(octreotide) capsules for long-term maintenance treatment in acromegaly patients who have responded to and tolerated treatment with octreotide or lanreotide. MYCAPSSA is the first and only oral somatostatin analog, or SSA, approved by the FDA and the first product approved by the FDA utilizing our TPE technology. The FDA approval of MYCAPSSA was based on the positive results of the randomized, double-blind, placebo-controlled, nine-month Phase 3 CHIASMA OPTIMAL clinical trial of octreotide capsules, which met the primary endpoint and all four secondary endpoints, as well as safety data from all of Chiasma’s Phase 3 clinical trials of MYCAPSSA. We are focused on the commercialization of MYCAPSSA for the treatment of patients with acromegaly in the United States and developing and seeking regulatory approval of MYCAPSSA in the European Union.Acromegaly is a rare and debilitating condition that results from the body’s production of excess growth hormone, which in turn elevates insulin-like growth factor 1,
or IGF-1.
These elevated hormone levels result in a number of painful and disfiguring symptoms, including some acute, such as headaches, joint pain and fatigue, and some long-term, such as enlarged hands, feet and internal organs, as well as altered facial features. If not treated promptly, acromegaly can lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. Octreotide is an analog of somatostatin, a natural inhibitor of growth hormone secretion. The current standard of care for patients diagnosed with acromegaly and not otherwise cured by surgical removal of the pituitary tumor consists of lifelong, once-monthly injections of an extended release somatostatin analog. Octreotide capsules have been granted orphan designation in the United States and the European Union for the treatment of acromegaly. The worldwide market for injectable somatostatin analogs is approximately $2.8 billion annually. We estimate the global market for SSAs in the treatment of acromegaly at approximately $800 million of which we estimate the U.S. market at approximately $400 million. We retain worldwide rights to develop and commercialize octreotide capsules.We are also conducting an international Phase 3 clinical trial, or MPOWERED, of oral octreotide capsules for the maintenance treatment of adult patients with acromegaly to support regulatory approval in the European Union. The MPOWERED trial is a randomized, open-label and be randomized to either remain on octreotide capsules or return to injectable somatostatin receptor ligands (octreotide or lanreotide), and then followed for an additional nine months. In June 2019, we completed the enrollment of 146 total patients in MPOWERED. In January 2020, the randomization of patients was completed. Of the 146 patients that entered the
active-controlled 15-month trial
initially designed to enroll up to 150 patients. The European Medicines Agency, or EMA, requested that a minimum of at least 80 patients who are responders to octreotide capsules following the six-month run-in phase
six-month
run-in
phase of the trial, 92 of these patients (or 63%) completed the run-in
phase and were deemed to be responders to octreotide capsules per protocol (IGF-1
<1.3 x ULN and GH<2.5 ng/mL). Of the 92 patients who completed the run-in
phase, 85 patients have completed the trial and four remain in the nine-month, randomized, controlled phase of the trial. MPOWERED has met the EMA requirement of a minimum of 80 patients randomized into the controlled phase of the trial. The primary endpoint will be calculated with time weighted average analysis, therefore missing monthly IGF-1
values are not anticipated to affect the completion of the primary endpoint analysis. We expect to release top-line data
from the MPOWERED trial in the fourth quarter of 2020. If the MPOWERED trial results are positive, we plan to prepare and submit a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, seeking potential regulatory approval of oral octreotide as a treatment for acromegaly in the European Union.17
In March 2020, we commenced enrolling patients in the first industry-sponsored disease state registry for acromegaly in the United States known as the Management of Acromegaly Registry, or MACRO Registry. The MACRO Registry is designed to enroll patients from over 40 planned clinical sites in the United States and collect real-world data on treatment burden and effectiveness of various acromegaly treatments.
We were incorporated in 2001 and commenced active operations in the same year. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our TPE technology, identifying potential drug candidates, undertaking nonclinical studies and, beginning in 2010, conducting clinical trials and preparing for regulatory submissions. In addition, we initiated
pre-commercial
activities in anticipation of FDA marketing approval of octreotide capsules in June 2020. In July 2015, we completed our initial public offering, or IPO, in which we raised $106.5 million. In April 2019, we completed a follow-on
public offering of common stock in which we raised an additional $32.2 million. In August 2019, we completed a follow-on
public offering of common stock in which we raised an additional $52.3 million. In April 2020, we entered into a Revenue Interest Financing Agreement, or the Revenue Interest Financing Agreement, with Healthcare Royalty Partners IV, L.P., or HCR for up to $75.0 million. In July 2020, we completed a follow-on
public offering which consisted of common stock and pre-funded
warrants in which we raised an additional $75.5 million. As of June 30, 2020, our consolidated cash, cash equivalents, marketable securities and restricted cash were $87.1 million, of which $0.4 million was held by Chiasma (Israel) Ltd., our wholly owned Israeli subsidiary. In April 2020, we entered into an Open Market Sales Agreement, or ATM Agreement, for “at the market offerings” under which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $60.0 million through Jefferies, acting as our sales agent or principal. To date, we have not sold any common stock under the ATM Agreement.We have incurred significant operating losses since our inception. Our net loss was $36.5 million for the six months ended June 30, 2020 and $36.3 million for the year ended December 31, 2019. As of June 30, 2020, we had an accumulated deficit of $309.4 million. We expect to incur significant operating losses over the next several years. These losses, combined with prior losses will continue to have an adverse effect on our cash resources, stockholders’ equity and working capital. We plan to invest in our commercial launch, manufacture octreotide capsules for market consumption, as well as invest in manufacturing
scale-up
activities, and continue the open label extension portion of our international Phase 3 CHIASMA OPTIMAL clinical trial of octreotide capsules in acromegaly and to continue to conduct our international Phase 3 MPOWERED clinical trial of octreotide capsules in acromegaly and, if the MPOWERED trial results are positive, prepare and submit an MAA to the EMA, seeking potential regulatory approval of oral octreotide as a treatment for acromegaly in the European Union. Because of the numerous risks and uncertainties facing our company and associated with developing and commercializing pharmaceutical products generally, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. We plan to continue to fund our losses from operations and capital funding needs from existing balances of cash, cash equivalents and marketable securities, the anticipated $15.0 million of additional funding from HCR following the first commercial sale of MYCAPSSA and potentially through equity financings. We may also opportunistically consider license and collaboration agreements with potential partners or convertible debt financing to the extent such sources are identified and available. If our anticipated U.S. revenues are insufficient to fund our operations to attaining and sustaining profitability, additional financing may be required. Such financing, if required, may not be available on a timely basis on terms acceptable to us, or at all. If we are not able to secure adequate additional funding when required, we may be forced to make reductions in spending, extend payment terms with suppliers, suspend or curtail our development opportunities, or it may negatively impact our ability to adequately fund or delay our potential commercial preparations or launch readiness outside the United States if the MPOWERED trial results are positive and MYCAPSSA is approved by the EMA. Any of these actions could materially harm our business, results of operations and future prospects. Failure to successfully commercialize octreotide capsules in acromegaly will prevent us from achieving profitability and positive cash flows, which could raise significant concerns about our continued viability as a business.COVID-19
Update In March 2020, the World Health Organization declared the novel strain of coronavirus, or
COVID-19,
a global pandemic and recommended containment and mitigation measures worldwide. We continue to closely monitor the impact of COVID-19
on our business and have implemented steps to ensure the well-being of our employees as well as the patients and health care professionals involved in the MPOWERED study and the MACRO Registry. At this time, we continue to plan for the approval of the “changes being effected in 30 days” supplement, CBE-30
supplement, which we submitted to the FDA on June 29, 2020 seeking a post-approval change to our FDA-approved
new drug application, or NDA, for MYCAPSSA to provide for the approval of our primary commercial API manufacturer and one of its large-scale manufacturing sites. In addition, we have not observed any significant disruptions to our manufacturing supply chain to date. Our MPOWERED trial is progressing as planned and we continue to expect to release top-line data
in the fourth quarter of 2020. The COVID-19
pandemic has caused us to modify our business practices, including taking steps to protect our employees and the broader community, such as curtailing or modifying employee travel, reducing access to our offices, moving employees to remote work where appropriate, and cancelling in-person
participation in meetings,18
events and conferences, while seeking to ensure our ability to execute our planned commercial launch by utilizing digital engagement and remote interaction with potential customers. However, restrictions on and discouragement of travel, access to hospitals and physicians’ office, and meetings may make it difficult to drive the awareness and adoption of MYCAPSSA. We are unable to predict the impact
face-to-face
that COVID-19 will
have on our future plans, including timing of FDA approval of our CBE-30
supplement, if any, for commercialization, and our future financial position and operating results due to numerous uncertainties. The duration and severity of the outbreak and its long-term impact on our business cannot be ascertained at this time.Commercial Manufacturing Supply
We began implementing launch readiness plans in 2019 in preparation for a commercial launch of MYCAPSSA capsules in the United States in the fourth quarter of 2020, pending the FDA’s approval of our NDA. Following FDA approval of our NDA and to secure commercial supply of our planned launch, we submitted our
CBE-30
supplement on June 29, 2020 to provide for the approval of our primary commercial API manufacturer and one of its large-scale manufacturing sites. At this time, we expect to have sufficient commercial supply of MYCAPSSA to support our planned commercial launch in the fourth quarter of 2020, pending the FDA’s timely acceptance of our CBE-30
supplement. Unless the FDA determines that this CBE-30
supplement is not sufficiently complete to permit a substantive review, we expect the FDA will accept the CBE-30
supplement and set a PDUFA target date in the fourth quarter of 2020 for the completion of its review. If the FDA accepts the CBE-30
supplement without delay or exception, we currently expect to begin distributing commercial product as part of our U.S. commercial launch as soon as we have commercial supplies of MYCAPSSA available at our third-party logistics provider. In addition, we also plan to file a second manufacturing supplement to the NDA, which we expect will be a prior approval manufacturing supplement, to provide for a large-scale manufacturing site affiliated with the small-scale manufacturing site currently referenced in the approved NDA. In April 2020, the FDA requested that we include certain stability data in this planned prior approval manufacturing supplement, which we expect will result in a planned submission of this supplement in early 2021.Financial Overview
Research and Development
Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, nonclinical pharmacology studies, manufacturing process-development and
scale-up
activities, clinical trial and related clinical and pre-approval
manufacturing expenses, fees paid to contract research organizations, or CROs, investigative sites, and other external expenses. In the early phases of development, our research and development costs included expanding our technology platform as well as early development of specific product candidates. The majority of our research and development expenses has been spent on the development of octreotide capsules, including the pre-approval
manufacturing expenses, manufacturing of clinical trial material, manufacturing process development and validation, regulatory and clinical activities, and our TPE platform. Now that MYCAPSSA has been approved by the FDA, manufacturing costs related to the production of commercial supplies of MYCAPSSA will no longer be captured in R&D expense but will be capitalized to inventory. We expense research and development costs as incurred.We have limited research and discovery functions and are currently not materially investing in those areas. We have focused our resources on the clinical development of octreotide capsules, including our two international Phase 3 trials, CHIASMA OPTIMAL and MPOWERED. Product candidates in late stages of development generally have higher development costs than those in earlier stages of development, primarily due to the increased size and duration of late-stage clinical trials. We plan to continue the open label extension portion of our international Phase 3 CHIASMA OPTIMAL clinical trial of octreotide capsules in acromegaly. We also expect to continue to conduct our international Phase 3 MPOWERED clinical trial of octreotide capsules in acromegaly to support potential regulatory approval in the European Union, as well as an open label extension of MPOWERED once the trial is completed. The successful development of octreotide capsules for commercialization outside the United States is highly uncertain.
General and Administrative
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, marketing, patient services, information technology and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax, and corporate, litigation and intellectual property-related legal services.
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Marketing expenses consist of professional fees related to preparation for the commercialization of MYCAPSSA, as well as salaries and related benefits for commercial employees. Our marketing expenses for the six months ended June 30, 2019 were immaterial. Following the
positive top-line data
from our CHIASMA OPTIMAL trial, which we released in July 2019, we incurred pre-commercial marketing
related expenses prior to FDA approval and we expect the commercial expenses to substantially increase as we commercialize MYCAPSSA in the United States following our FDA approval on June 26, 2020. In addition to anticipated future increases in marketing expenses, as we prepare for the potential commercialization of octreotide capsules and grow our operations, we have begun to incur additional other general and administrative expenses which we expect will continue to increase.Interest and Other Income, Net
Interest and other income, net consists primarily of interest income earned on our investments.
Interest Expense
Interest expense consists primarily of interest expense associated with our Revenue Interest Financing Agreement.
Provision for Income Taxes
We are subject to federal and state income taxes for earnings generated in the United States, and foreign taxes on earnings of our wholly-owned Israeli subsidiary. Our consolidated tax expense is primarily affected by the mix of our foreign subsidiary permanent items, discrete items, and unrecognized tax benefits and to a lesser extent our taxable income (loss) in the United States.
Critical Accounting Policies and Use of Estimates
We have adopted various accounting policies to prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our most significant accounting policies are described in Note 1 to our consolidated financial statements included in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2019. For information on accounting policies as well as new pronouncements adopted in the current period and recently issued standards, see Note 1 to our condensed consolidated financial statements. The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Our estimates and assumptions include those related to the accounting for stock-based compensation, income taxes, deferred royalty obligations, including embedded derivative liabilities, and accounting for certain accruals. We assess the above estimates on an ongoing basis; however, actual results could materially differ from those estimates.Results of Operations for the Three and Six Months ended June 30, 2020 and 2019
Research and Development
The following is a comparison of research and development expenses for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2019 |
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2019 |
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| Research and development |
$ | 9,672 | $ | 5,522 | $ | 4,150 | 75 | % | $ | 17,797 | $ | 11,993 | $ | 5,804 | 48 | % | ||||||||||||||||
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For the three months ended June 30, 2020, our total research and development expenses increased by $4.2 million to $9.7 million compared to the prior year period. For the six months ended June 30, 2020, our research and development expenses increased by $5.8 million compared to the prior year period. The increases for the three and six months ended June 30, 2020 as compared to the prior year periods were primarily due to an increase in manufacturing of octreotide capsules to support our planned U.S. commercial launch, costs associated with our disease state registry, scientific literature publications and increased regulatory costs which were offset by a decrease in clinical trial costs.
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General and Administrative
The following is a comparison of general and administrative expenses for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2020 |
2019 |
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2019 |
$ Change |
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| General and administrative |
$ | 10,665 | $ | 2,644 | $ | 8,021 | 303 | % | $ | 18,247 | $ | 5,094 | $ | 13,153 | 258 | % | ||||||||||||||||
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For the three months ended June 30, 2020, our general and administrative expenses increased by $8.0 million compared to the prior year period. The increase for the three months ended June 30, 2020 as compared to the prior year period was primarily due to our continuing
pre-commercialization
activities of $5.6 million, an increase in compensation-related expenses and increased other administrative costs as we prepare for commercialization of octreotide capsules. For the six months ended June 30, 2020, our general and administrative expenses increased by $13.2 million compared to the prior year period. The increase for the six months ended June 30, 2020 as compared to the prior year period was primarily due to our continuing pre-commercialization
activities of $8.6 million, an increase in compensation-related expenses and increased other administrative costs as we prepare for commercialization of octreotide capsules.Interest and Other Income, net
Interest and other income, net totaled $0.5 million for the six months ended June 30, 2020 compared to other income of $0.5 million for the same period in 2019. Our interest income was driven by the increase of our cash equivalents and marketable securities which were effectively offset by a decrease in the interest rate yield on our cash equivalents and marketable securities.
Interest Expense
Interest expense totaled $0.9 million for the six months ended June 30, 2020 primarily driven by interest expense related to our Revenue Interest Financing Arrangement which was entered into in April 2020.
Provision for Income Taxes
Our total tax provision was approximately $89,000 for the six months ended June 30, 2020, representing an effective tax rate of (0.2%), as compared to a tax provision of approximately $28,000 for the six months ended June 30, 2019, representing an effective tax rate of (0.2%).
Our effective tax rate differs from the statutory rate each year mainly due to a full valuation allowance maintained against U.S. deferred tax assets and due to lower tax rates applied to income of our Israeli subsidiary.
Liquidity and Capital Resources
In July 2015, we completed our IPO in which we raised $106.5 million by selling shares of common stock. In April 2019, we completed a
follow-on
public offering of common stock in which we raised an additional $32.2 million in net proceeds to finance our operations. In August 2019, we completed a follow-on
public offering of common stock in which we raised an additional $52.3 million in net proceeds to finance our operations. In July 2020, we completed a follow-on
public offering which consisted of common stock and pre-funded
warrants in which we raised an additional $75.5 million in net proceeds to finance our operations. In April 2020, we entered into the Revenue Interest Financing Agreement with HCR for up to $75.0 million. The initial funding of $25.0 million, less certain transaction expenses, was completed in April 2020 and the second funding of $25.0 million, less certain transaction expenses, was completed in July 2020. The remaining $25.0 million of funding is contingent upon the achievement of certain milestones. Further, the Revenue Interest Financing Agreement requires us to maintain a minimum of $20.0 million in securitized cash and investment accounts during any quarter that the trailing four quarters of net revenue of MYCAPSSA is below a certain threshold. In April 2020, we also entered into the ATM Agreement with Jefferies, which allows us to offer and sell up to $60.0 million in gross proceeds of common stock from time to time, through Jefferies, acting as our sales agent or principal. To date, we have not sold any common stock under the ATM Agreement. As of June 30, 2020, our cash and cash equivalents were $52.2 million, of which $0.4 million was held by our Israeli subsidiary. In addition, as of June 30, 2020, we had $14.9 million invested in short-term marketable securities and $20.0 million of restricted cash.21
Plan of Operations and Future Funding Requirements
We expect that our primary uses of capital will be associated with the commercialization of MYCAPSSA in the United States and the manufacturing of octreotide capsules for market consumption, seeking regulatory approval of octreotide capsules in the European Union, including clinical trial costs (including our international Phase 3 MPOWERED clinical trial to support regulatory approval of octreotide capsules in the European Union and its planned open label extension once completed, and our international Phase 3 CHIASMA OPTIMAL clinical trial open label extension), medical affairs activities, legal and regulatory expenses related to seeking regulatory approval of octreotide capsules in the European Union, compensation and related expenses, third-party clinical development services, and other general operating costs.
We currently expect our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations, as currently planned, through at least one year after the filing of this Quarterly Report. We cannot estimate the actual amounts necessary to successfully commercialize MYCAPSSA in the United States and complete the development and commercialization of octreotide capsules in the European Union, if at all, or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including, but not limited to:
| • | the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for octreotide capsules and any other future product candidates for which we receive marketing approval; |
| • | proceeds, if any, received from commercial sales of octreotide capsules and any future product candidates for which we receive marketing approval; |
| • | the costs, timing and outcome of the development and regulatory review of octreotide capsules and our CBE-30 supplement and planned prior approval manufacturing supplement; |
| • | the progress and results of our ongoing clinical trials of octreotide capsules or any future clinical trials or studies we may conduct; |
| • | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and |
| • | the extent to which we develop, acquire or in-license other product candidates and technologies or explore or consummate other strategic transactions. |
We filed a $200.0 million shelf registration statement on Form
S-3
with the SEC in September 2019, which the SEC declared effective in September 2019. In April 2020, we entered into the ATM Agreement with Jefferies, under which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $60.0 million through Jefferies, acting as our sales agent or principal. To date, we have not sold any shares of common stock under the ATM Agreement. In July 2020, we completed a follow-on
public offering which consisted of common stock and pre-funded
warrants, in which we raised $80.5 million in gross proceeds, or $75.5 million net proceeds less underwriting fees and offering expenses.To the extent that we raise additional capital through future issuance of equity or convertible debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through collaboration or other financing arrangements, we may have to relinquish valuable rights to our current or future product candidates, exploratory programs, technologies or future revenue streams on terms that may not be favorable to us. If we are unable to raise additional funds through equity or other financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts of octreotide capsules or grant rights to develop and market future potential product candidates that we would otherwise prefer to develop and market ourselves.
Revenue Interest Financing Agreement
In April 2020, we entered into a Revenue Interest Financing Agreement with HCR whereby HCR will receive payments from us at a tiered percentage, or the Applicable Tiered Percentage, of future net revenues of MYCAPSSA and any of our other future products, including worldwide net product sales and upfront payments, and milestones, collectively, the Revenue Interests. Under the terms of the agreement, we received $25.0 million, less certain transaction expenses, from HCR in April 2020 and received an additional $25.0 million following the FDA approval of MYCAPSSA in July 2020 , and are entitled to receive an additional $15.0 million upon certain conditions related to commercial drug supply availability and first commercial sale of MYCAPSSA, subject to customary closing conditions, which we expect to receive in the second half of 2020. We are also entitled to receive an additional $10.0 million in early 2022 subject to the achievement of a revenue milestone and customary closing conditions. In exchange for the total investment amount, or
22
Investment Amount, received, HCR will receive a tiered royalty in the low double digits on worldwide annual net revenues of MYCAPSSA and any other future products, subject to step-downs upon the achievement of certain annual revenues.
HCR’s rights to receive the Revenue Interests shall terminate on the date on which HCR has received payments equal to 195% of the funded portion of the Investment Amount including the aggregate of all payments made to HCR as of such date, unless the Revenue Interest Financing Agreement is earlier terminated. If HCR has not received payments equal to the 195% of the funded portion of the Investment Amount by the
ten-year
anniversary of the initial closing date and no event of default has occurred or is ongoing, among other things, we shall pay HCR an amount equal to the funded portion of the Investment Amount plus a specific annual rate of return in the low to mid-teens
less payments previously received. If a change of control of the Company occurs, we must immediately repay HCR the total amount actually funded, including any amount conditionally eligible to be funded, plus a change of control premium, the amount of which is variable up to 95% based on timing and circumstances of such change of control and the amount funded and conditionally eligible to be funded by HCR as of the date of the change of control. Upon the occurrence of an event of default, including the withdrawal, suspension or other termination of the FDA approval of MYCAPSSA as a treatment for acromegaly that continues for sixty days that prevents us from marketing MYCAPSSA, HCR may accelerate payments due under the agreement to the 195% of the funded portion of the Investment Amount.If HCR has not received 60% of the Investment Amount by September 30, 2023 or 100% of the Investment Amount by September 30, 2024, we must make cash payments sufficient to gross HCR up to such minimum amounts. Further, the Revenue Interest Financing Agreement requires us to maintain a minimum of $20.0 million in securitized cash and investment accounts during any quarter that the trailing four quarters of net revenue of MYCAPSSA is below a certain threshold. Our obligations under the Revenue Interest Financing Agreement are secured by a first priority perfected security interest in all of our cash and cash equivalents (as defined in the Revenue Interest Financing Agreement), all present and future net revenues of MYCAPSSA and all MYCAPSSA-related assets.
Cash Flows
The following is a summary of cash flows for the six months ended June 30, 2020 and 2019:
Six Months Ended June 30, |
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2020 |
2019 |
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($ in thousands) |
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| Cash flows provided by (used in): |
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| Operating activities |
$ | (28,952 | ) | $ | (16,108 | ) | ||
| Investing activities |
49,354 | (8,646 | ) | |||||
| Financing activities |
23,937 | 32,262 | ||||||
Operating Activities
Net cash used in operating activities was $29.0 million for the six months ended June 30, 2020, and primarily consisted of $36.5 million in net loss, adjusted for
non-cash
items of $2.7 million (primarily stock-based compensation) and working capital increase of $4.8 million (primarily due to the increase in accounts payable and accrued expenses offset by decreases in prepaid expenses and other assets). Net cash used in operating activities was $16.1 million for the six months ended June 30, 2019, and primarily consisted of $16.6 million in net loss, adjusted for non-cash
items of $1.1 million (primarily stock-based compensation) and working capital decrease of $0.6 million (primarily due to the decrease in accounts payable and accrued expenses and partially offset by the decrease in prepaid expenses and other current assets). The primary driver for the increase in our cash used in our operating activities during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was the manufacturing and pre-commercial
costs incurred as we prepared for the commercialization of octreotide capsules.Investing Activities
Net cash provided by investing activities was $49.4 million for the six months ended June 30, 2020, primarily related to the net maturities of marketable securities, compared to $8.6 million in cash used in investing activities for the six months ended June 30, 2019, primarily related to the net purchases of marketable securities driven by the net proceeds received from our
follow-on
public offering in April 2019.23
Financing Activities
Net cash provided by financing activities was $23.9 million during the six months ended June 30, 2020, primarily related to the net proceeds from the Revenue Interest Agreement with HCR in April 2020. For the six months ended June 30, 2019, net cash provided by financing activities was $32.3 million, primarily related to the net proceeds received from our
follow-on
public offering in April 2019.Contractual Obligations
As of June 30, 2020, we had outstanding manufacturing commitments, including the acquisition of API, in the aggregate amount of $25.2 million of which $9.2 million is expected to be incurred in 2020 with the remainder to be incurred throughout 2021. The payments on these commitments will occur following the deliveries of the API or completion of the manufacturing services. As of June 30, 2020, we had future minimum lease payments under
non-cancelable
operating leases in the aggregate amount of $1.6 million.As of April 7, 2020, we have contractual obligations under the Revenue Interest Financing Agreement with HCR, as noted above and disclosed in Note 6 included under Part I, Item 1 of this Quarterly Report on Form
10-Q.
Off-Balance
Sheet Arrangements We did not have during the periods presented, and we do not currently have, any
off-balance
sheet arrangements, as defined in the rules and regulations of the SEC.JOBS Act
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies.
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2020, we had $72.2 million in cash, cash equivalents and restricted cash, consisting of cash in checking accounts at U.S. and Israeli banking institutions as well as money market funds. In addition, as of June 30, 2020, we had $14.9 million of marketable securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. An immediate 100 basis point increase in interest rates would cause a decrease in the value of our short-term investments of approximately $28,000. As of June 30, 2020, we did not have any outstanding variable interest rate borrowings, and as a result we are not exposed to interest rate risk associated with credit facilities.
In addition, we are subject to currency risk for balances held, or denominated, in currencies other than U.S. dollars. We work to maintain all balances in U.S. dollars until payment in other currencies is required to minimize this currency risk. Fluctuations in the exchange rate between the U.S. dollar and each of the Euro, GBP and NIS over the past 24 months have been approximately (4%), (7%), and 5%, respectively. As of June 30, 2020, we held $0.4 million in Israeli banks and petty cash funds to support our Israeli operations, the majority of which is denominated in U.S. dollars. We contract with CROs internationally, primarily for the execution of clinical trials and manufacturing activities. Transactions with these providers are settled in U.S. dollars, Euros or GBP and, therefore, we believe that we have only minimal exposure to foreign currency exchange risks. We do not currently hedge against foreign currency exchange rate risks.
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
Item 4. |
Controls and Procedures |
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules
13a-15(e)
or 15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and24
reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In designing and evaluating our 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 their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of June 30, 2020, our disclosure controls and procedures were effective at the reasonable assurance level.
We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control Over Financial Reporting
During the three months ended June 30, 2020, there have been no changes in our internal control over financial reporting, as such term is defined in Rules
13a-15(f)
and 15(d)-15(f)
promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.PART II — OTHER INFORMATION
Item 1. |
Legal Proceedings |
As of the date of this filing, we were not party to any legal matters or claims. In the future, we may become party to legal matters and claims arising in the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
Item 1A. |
Risk Factors |
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form
10-Q
and in our other public filings before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any such risks or uncertainties actually occur, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and as a result, you may lose all or part of your investment. Those risk factors below denoted with a “*” are newly added or have been materially updated from our Annual Report on Form
10-K
filed with the Securities and Exchange Commission, or the SEC, on March 16, 2020
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Risks Related to the Development and Potential Regulatory Approval and Commercialization of Octreotide Capsules and any Future Product Candidates
*We are substantially dependent on the successful commercialization of MYCAPSSA, which received approval from the FDA in June 2020. If we are unable to successfully commercialize MYCAPSSA in the United States, including securing and maintaining regulatory approval necessary for distribution of commercial product, and obtain regulatory approval and successfully commercialize octreotide capsules in the European Union, or if we are substantially delayed in doing so, our business may be materially harmed.
On June 26, 2020, the FDA granted approval of oral octreotide capsules, MYCAPSSA
®
, for long-term maintenance treatment in acromegaly patients who have responded to and tolerated treatment with octreotide or lanreotide, which is our only regulatory approval of a product. MYCAPSSA is our only product that has been approved for sale by the FDA. We have not yet begun to commercialize MYCAPSSA and the commercial launch of MYCAPSSA is not expected to commence until the fourth quarter of 2020. We have invested a significant portion of our activities and resources toward the development of MYCAPSSA, and we believe our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize MYCAPSSA in the United States. Our NDA that was approved by the FDA in June 2020 references one small-scale manufacturing site for the active pharmaceutical ingredient, or API, in octreotide owned by our planned secondary commercial API manufacturer. However, we have not procured commercial API from this manufacturing site for our planned commercial launch. Accordingly, in order to commercially launch octreotide capsules, on June 29, 2020, we submitted to the FDA a manufacturing supplement to the NDA as a “changes being effected in 30 days” supplement, or comparability and API and drug product stability data, in accordance with the FDA’s cGMP requirements and may require regulatory inspections of each manufacturing site, which could prevent or delay approval of any such manufacturing supplement and prevent or delay our planned commercial launch. If the FDA determines during its review process that it has significant substantive issues with our
CBE-30
supplement, to provide for the approval of our primary API manufacturer and one of its large-scale manufacturing sites. If the FDA accepts the CBE-30
supplement without delay or exception, we expect to begin distributing commercial product as part of our U.S. commercial launch as soon as we have supplies of MYCAPSSA available at our third-party logistics provider, which we expect by the end of the third quarter of 2020 while the FDA’s review of the CBE-30
supplement is pending. In addition, we also plan to file a second manufacturing supplement to the NDA, which we expect will be a prior approval manufacturing supplement, to provide for a large-scale manufacturing site affiliated with the small-scale manufacturing site currently referenced in the approved NDA. In April 2020, the FDA requested that we include certain stability data in this planned prior approval manufacturing supplement, which we expect will result in a planned submission of this supplement in early 2021. If we are unable to obtain the FDA’s approval of our CBE-30
supplement or our planned second manufacturing supplement in a timely manner or at all, our planned commercial launch could be negatively impacted. The review of any manufacturing supplement to the NDA will require FDA review and approval of the manufacturing process, facility, equipment and procedures in place at each manufacturing site, including batch-to-batch
CBE-30
supplement, it could require us to cease or restrict our distribution of oral octreotide in the United States or potentially recall distributed drug product. The timing of the FDA’s review process related to our CBE-30
supplement and planned second manufacturing supplement and the outcome of such reviews are inherently uncertain, and we can provide no assurances that either manufacturing supplement will be approved in a timely manner or at all.Successful commercialization of MYCAPSSA is subject to many risks. We have never, as an organization, launched or commercialized a product, and there is no guarantee that we will be able to do so successfully with MYCAPSSA for its approved indication. There are numerous examples of other companies that have experienced unsuccessful product launches and failed to meet high expectations of market potential, including pharmaceutical companies with significantly more experience and resources than us.
The future success of MYCAPSSA, including the expected timing of the commercial launch, and the rate and degree of market acceptance, of MYCAPSSA in the United States, will depend on a number of factors, including:
| • | the efficacy and safety of MYCAPSSA in a larger number of patients in a non-clinical setting than those demonstrated in our clinical trials; |
| • | our ability to manufacture sufficient commercial supplies of MYCAPSSA in compliance with regulatory requirements; |
| • | the effectiveness of our sales, marketing and distribution efforts, particularly during the remote, COVID-19 environment; |
| • | the incidence and prevalence of acromegaly patients in the U.S. that respond to and tolerate treatment with octreotide or lanreotide; |
| • | the timing of market introduction of MYCAPSSA; |
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| • | the ability of MYCAPSSA to successfully compete against other products; acceptance by the medical community and patients of MYCAPSSA as a safe and effective product; |
| • | the potential and perceived advantages of MYCAPSSA over alternative products; |
| • | the ability to distinguish safety and efficacy from existing alternatives; |
| • | the willingness of medical professionals to prescribe and patients to use MYCAPSSA and continue to use MYCAPSSA instead of alternative products; |
| • | the prevalence and severity of adverse side effects; |
| • | the convenience of prescribing, administrating and initiating patients on MYCAPSSA; |
| • | the potential and perceived value and relative cost of MYCAPSSA over alternative products, including generic products or treatments; |
| • | the availability of coverage and adequate reimbursement and pricing by private and government payors; |
| • | the successful completion of any clinical trials, regulatory approval and commercialization of MYCAPSSA for one or more label expansion indications; and |
| • | our ability to enforce our intellectual property rights with respect to MYCAPSSA. |
While we have implemented our commercial launch readiness plans, we will need to incur significant additional expenses and commit significant additional management time to further develop our commercialization capabilities and to continue hiring, developing and training our sales force in order to be prepared to successfully coordinate the launch and commercialization of MYCAPSSA in the United States. We may not be able to successfully establish these capabilities on our expected timing or at all. Even if we are successful in building out our commercial team and sales force, there are many factors that could cause the launch and commercialization of MYCAPSSA to be unsuccessful and/or delayed, including a number of factors that are outside our control.
The commercial success of MYCAPSSA depends on the extent to which medical professionals and patients accept and adopt MYCAPSSA as a product for the for the treatment of acromegaly, and we do not know whether our or others’ revenue estimates in this regard will be accurate. For example, if the patient population suffering from acromegaly is smaller than we estimate or if medical professionals are unwilling to prescribe or patients are unwilling to try and then continue to use MYCAPSSA, the commercial potential of MYCAPSSA will be limited. We also do not know how medical professionals, patients and third-party payors will respond to the pricing of MYCAPSSA. Medical professionals may not prescribe MYCAPSSA and patients may be unwilling to use MYCAPSSA if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost, and we may find it necessary or desirable to provide rebates on MYCAPSSA to customers or third-party payors or to expand existing, or implement new or additional, patient assistance programs, including
co-pay
assistance programs, which could materially adversely affect our profitability.While the FDA granted approval of MYCAPSSA based on the data included in the NDA, we do not know whether the results when a larger number of patients are exposed to MYCAPSSA, including results related to safety and efficacy, will be consistent with the results from our clinical studies of MYCAPSSA that served as the basis of FDA approval of MYCAPSSA. New data relating to MYCAPSSA, including from any adverse event reports or any negative results during our MPOWERED trial or clinical development for additional indications of oral octreotide capsules, may adversely impact the commercial results and potential of MYCAPSSA. Thus, significant uncertainty remains regarding the commercial potential success of MYCAPSSA. In addition, such new data or any serious or unexpected side effects caused by MYCAPSSA may result in a number of potentially significant negative consequences, including:
| • | the FDA could withdraw its approval of MYCAPSSA, impose restrictions on its distribution or require the addition of labeling warnings or restrictions; |
| • | we could be required to change the way MYCAPSSA is promoted or administered or conduct additional clinical studies; |
| • | we could be sued and held liable for any harm caused to patients; or |
| • | our reputation may suffer. |
If the launch or commercialization of MYCAPSSA is delayed, unsuccessful or perceived as disappointing, our stock price could decline significantly and the long-term success of the product and our company could be materially harmed.
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While the FDA granted approval of MYCAPSSA, such approval does not guarantee FDA approval for any future product candidates. FDA approval of MYCAPSSA also does not guarantee that MYCAPSSA will be approved by the FDA for additional indications or by regulatory entities in countries outside of the United States.
See “Risk Factors—Risks Related to the Development and Potential Regulatory Approval and Commercialization of Octreotide Capsules and any Future Product Candidates” in our Quarterly Report on Form
10-Q
for the quarter ended March 31, 2020, which is incorporated by reference in this prospectus supplement, for a more detailed discussion of the risks related to the manufacturing, commercialization and ongoing regulation of drug products.*If we are unable to obtain regulatory approval and successfully commercialize octreotide capsules in the European Union, or if we are substantially delayed in doing so, our business may be materially harmed.
In October 2015, the European Medicines Agency, or EMA, accepted the design, enrollment criteria and required duration of our second Phase 3 trial to evaluate the
non-inferiority
of octreotide capsules to injectable somatostatin analogs in adult patients with acromegaly. This clinical trial, which is referred to as MPOWERED and was initiated in March 2016, is a global, randomized, open-label and active-controlled 15-month
trial initially designed to enroll up to 150 patients in Europe, Russia, the United States and certain other countries. This clinical trial is currently designed to show comparative effectiveness as required by the EMA, to support submission of an MAA and potential approval. Our ongoing MPOWERED Phase 3 clinical trial may not be successful, or acceptable to the EMA to support regulatory approval in the European Union.Importantly, the safety data generated in our completed clinical trials of octreotide capsules, including our first Phase 3 clinical trial and the CHIASMA OPTIMAL clinical trial as well as certain safety data from the MPOWERED clinical trial, as well as the efficacy data from our completed first Phase 3 clinical trial and the CHIASMA OPTIMAL trial, were integrated into the NDA that was approved by the FDA. We expect the safety and efficacy data from all three of our Phase 3 clinical trials to be submitted in our planned MAA filing. While the MPOWERED trial design has been accepted by the EMA, our ultimate success in the regulatory review process of our planned application for marketing approval in the European Union could be negatively impacted by the results from any of our clinical trials.
The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, export, import and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and these regulations differ from country to country and change over time. While we have obtained marketing approval for octreotide capsules in the United States, we are not permitted to market octreotide capsules in the European Union or any other countries outside the United States until we receive the requisite approvals in such countries. In the United States, the FDA generally requires the completion of nonclinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality and other factors before an NDA is approved. Regulatory authorities in other jurisdictions impose similar requirements and may impose pricing restrictions. Of the large number of drugs in development, only a small percentage result in the submission of an application for marketing authorization and even fewer are approved for commercialization.
Other than the June 2015 submission of our NDA for octreotide capsules as a treatment for acromegaly to the FDA and the December 2019 resubmission of our NDA, we have not yet submitted comparable applications to other regulatory authorities. If our development efforts for octreotide capsules, including our ability to obtain EMA regulatory approval, are not successful for the acromegaly indication or are delayed, if we are unsuccessful or delayed in obtaining regulatory approval of the
CBE-30
supplement and planned manufacturing supplement to our NDA or if adequate demand for octreotide capsules are not generated, our business and ability to generate revenues will be materially harmed. Failure to obtain regulatory approval of the CBE-30
supplement and planned manufacturing supplement will prevent us from commercializing the product candidate in a timely manner or at all, which could raise significant concerns about our continued viability as a business. The success of octreotide capsules will depend on the receipt of additional regulatory approvals the issuance of such approvals is uncertain and subject to a number of risks, including the following:| • | foreign regulatory authorities, institutional review boards, or IRBs, or ethics committees may disagree with the design or conduct of our clinical trials; |
| • | the results of our clinical trials may not provide acceptable evidence of octreotide capsules’ safety and efficacy; |
| • | the results of our clinical trials may not be sufficiently robust or meet the level of statistical or clinical significance required by, the EMA or other regulatory agencies for marketing approval; |
| • | the dosing of octreotide capsules in a particular clinical trial may not be at an optimal level; |
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| • | patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to octreotide capsules; |
| • | the data collected from our clinical trials may not be sufficient to obtain regulatory approval in the European Union or elsewhere; and |
| • | even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal of regulatory approval in such countries. |
In particular, we cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted to date, as was the case with the FDA’s review of our completed first Phase 3 clinical trial contained in the original NDA, or that any current or future trials will be successful. The regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional clinical trials, or nonclinical or other studies, as the FDA strongly recommended in its Complete Response Letter to our NDA that we received in April 2016, or the CRL. We have only limited experience in filing the applications necessary to gain regulatory approvals and have relied before, and expect to continue to rely, on consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process.
The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities. Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application or may result in future withdrawal of approval. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction.
*Our development, regulatory and commercialization strategy for octreotide capsules continues to depend, in part, on published scientific literature and prior findings regarding the safety and efficacy of approved products containing octreotide.
The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person or entity by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any difference from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the listed drug has been approved, as well as for any new indication(s) sought by the Section 505(b)(2) applicant as supported by additional data. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed drug’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions.
We designed our nonclinical and clinical programs to seek regulatory approval for octreotide capsules for registration filing in the United States using the FDA’s 505(b)(2) regulatory pathway and using the hybrid application pathway in the European Union. Our NDA for which we received FDA approval of octreotide capsules as a treatment for acromegaly relied, and we intend that our planned MAA will rely, in part, on previous findings of safety and efficacy for an approved immediate-release injectable octreotide product and published scientific literature for which we have not received a right of reference. Even though we designed our development programs to take advantage of Section 505(b)(2) and the hybrid application pathway to support potential regulatory approval of octreotide capsules in the United States and the European Union and obtained FDA approval of our NDA for octreotide capsules as a treatment for acromegaly, if the MPOWERED trial is successful and we submit an MAA to the EMA, the EMA may require us to perform additional clinical trials or measurements to support approval over and above the clinical trials that we have already completed or initiated. The EMA also may determine that we have not provided sufficient data to justify reliance on prior investigations involving the approved immediate-release injectable octreotide product.
In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), in the past some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). For example, parties have filed citizen petitions objecting to the FDA approving a Section 505(b)(2) NDA on scientific, legal and
29
regulatory grounds. Scientific arguments have included the assertions that for the FDA to determine the similarity of the drug in the 505(b)(2) NDA to the listed drug, the FDA would need to reference proprietary manufacturing information or trade secrets in the listed drug’s NDA; that it would be scientifically inappropriate for the FDA to rely on public or nonpublic information about the listed drug because it differs in various ways from the drug in the 505(b)(2) NDA; or that differences between the listed drug and the drug in the 505(b)(2) NDA may impair the latter’s safety and effectiveness. Legal and regulatory arguments have included the assertion that Section 505(b)(2) NDAs must contain a full report of investigations conducted on the drug proposed for approval, and that approving a drug through the 505(b)(2) regulatory pathway would lower the approval standards. In addition, citizen petitions have made patent-based challenges against 505(b)(2) NDAs. For example, petitioners have asserted that the FDA should refuse to file a 505(b)(2) NDA unless it references a specific NDA as the listed drug, because it is “most similar” to the proposed drug, and provides appropriate patent certification to all patents listed for that NDA; or that when a 505(b)(2) NDA is pending before the FDA, but before it is approved, where the FDA approves an NDA for a drug that is pharmaceutically equivalent to the drug that is the subject of the 505(b)(2) NDA, then the FDA should require that the 505(b)(2) NDA be resubmitted referencing the approved NDA as the listed drug and certifying to the listed patents for that approved drug. However, if the FDA or EMA changes its interpretation of Section 505(b)(2) or the hybrid application pathway, or if the FDA’s or EMA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA or EMA, as applicable, from approving any Section 505(b)(2) NDAs or hybrid application pathway MAAs that we submit. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of octreotide capsules for the treatment of acromegaly or any future product candidates we may develop.
*Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and our current and future clinical trials may not be successful. Results of earlier studies and trials may not be predictive of future trial results, and approval in one jurisdiction may not be predictive of approval in other jurisdictions.
Conducting clinical trials and developing drugs is a lengthy, time consuming and expensive process. For example, we incurred significant expenses in developing and obtaining the FDA’s approval of octreotide capsules for the treatment of acromegaly with no guarantees that doing so would result in such an approval and we expect to continue to incur significant expenses for our Phase 3 clinical trial of octreotide capsules in acromegaly called MPOWERED to support potential regulatory approval in the European Union and our planned MAA to the EMA if the MPOWERED trial is successful. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain, and we will continue to be subject to these risks. Failure can occur at any time during the clinical trial process and results of past, current or future trials, such as the MPOWERED trial, can adversely affect prospects of securing regulatory approval or regulatory approvals previously received.
The results of nonclinical studies and prior clinical trials may not be predictive of the results of future clinical trials. The results of our completed clinical trials for octreotide capsules in acromegaly, including the CHIASMA OPTIMAL Phase 3 trial, do not ensure that future clinical trials, including the MPOWERED Phase 3 trial designed to support EMA approval, will also generate comparable results. Among other considerations, these trials may be designed in a way that is different from our completed clinical trials. For example, the EMA required that we use multiple time points in the Phase 3 clinical trial that we initiated in March 2016 rather than a single time point for the primary endpoint determination used for our initial Phase 3 clinical trial. While the EMA agreed that we use the same cut off as used in our first Phase 3 clinical trial of
IGF-1
< 1.3 times the upper limit of normal as the threshold for response, the FDA agreed that we use IGF-1
£
1.0 times the upper limit of normal in the CHIASMA OPTIMAL trial. The fact that we have not used such endpoints previously for regulatory submissions outside the United States introduces an additional level of uncertainty in the outcome of the MPOWERED Phase 3 clinical trial, and the ability for the data from that trial to support regulatory approval from the EMA. We cannot provide assurance that the FDA or EMA will view the results as we do or that any of our ongoing or future trials of octreotide capsules, including our MPOWERED Phase 3 clinical trial in acromegaly, or any clinical trials we may conduct for other indications, if any, will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical studies and prior clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in prior trials.Despite the results reported in earlier nonclinical studies and clinical trials for octreotide capsules for the treatment of acromegaly, any current or future clinical trial results of octreotide capsules may not be successful in acromegaly, or any other indication, if studied. A number of factors could contribute to a lack of favorable safety and efficacy results for octreotide capsules for acromegaly or other indications. For example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in evaluation period, and varying patient characteristics, including demographic factors and health status. If later-stage clinical trials, such as MPOWERED, do not produce favorable results, it will raise substantial doubt about our ability to achieve regulatory approval of octreotide capsules for the treatment of acromegaly or other indications.
30
Further, our resubmitted NDA for which we obtained FDA approval relied upon the FDA’s 505(b)(2) regulatory pathway for octreotide capsules in acromegaly in the United States and we expect to rely on a similar hybrid application pathway for the MAA that we plan to submit in the European Union. There can be no assurance that our clinical trials, or the clinical trials conducted by third parties, will demonstrate sufficient safety and efficacy for the EMA to approve octreotide capsules for the treatment of acromegaly or for the FDA or EMA to approve octreotide capsules for any other indication that may be specified in future NDA or MAA submissions. Even though we did obtain approval from the FDA for octreotide capsules for the treatment of acromegaly in the United States, we may not be successful in obtaining approval from the EMA or other regulatory authorities.
*Any negative clinical results from, termination or suspension of, or delays in the commencement or completion of any ongoing or future trials of octreotide capsules for the treatment of acromegaly or for any additional indications, in the United States or other countries, or future clinical trials of product candidates we may develop could result in increased costs to us, delay or limit our ability to generate revenue or achieve or sustain profitability, negatively impact our commercial prospects, cause our market value and stock pri