UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2023

OR

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

For the transition period from                to ________

Commission File Number: 001-34079
 
Ocuphire Pharma, Inc.
(Exact name of Registrant as specified in its charter)

Delaware
  
11-3516358
(State or Other Jurisdiction of Incorporation or Organization)
  
(I.R.S. Employer Identification Number)

 
37000 Grand River Avenue, Suite 120
Farmington Hills, MI
  
48335
(Address of Principal Executive Offices)
  
(Zip Code)

Registrant’s Telephone Number, Including Area Code: (248) 957-9024
 
Not Applicable
(Former name, former address and former fiscal year, 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
Common Stock, $0.0001 par value per share
OCUP
  
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 ☒
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 ☒

The number of outstanding shares of the registrant’s common stock as of August 9, 2023 was 21,008,036.

OCUPHIRE PHARMA, INC.
FORM 10-Q
INDEX

   
Page
  2
Item 1.
 2
  2
  3
  4
  5
  6
Item 2.
 20
Item 3.
 32
Item 4.
 32
   
 
    32
Item 1.
 32
Item 1A.
 32
Item 2.
 32
Item 3.
 32
Item 4.
 32
Item 5.
 32
Item 6.
 33
   
34

1
PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

Ocuphire Pharma, Inc.
Condensed Balance Sheets
(in thousands, except share amounts and par value)
 
   
As of
  
   
June 30,
2023
(unaudited)
    
December 31,
2022
  
Assets
            
Current assets:
            
Cash and cash equivalents
  
$
39,977
    
$
42,634
  
Accounts receivable (Note 9)     135       1,298  
Contract assets and unbilled receivables (Note 9)
     2,595       3,552  
Prepaids and other current assets
     732       1,453  
Short-term investments
    
22
      
49
  
Total current assets
    
43,461
      
48,986
  
Property and equipment, net
    
4
      
6
  
Total assets
  
$
43,465
    
$
48,992
  
                 
Liabilities and stockholders’ equity
                
Current liabilities:
                
Accounts payable
  
$
2,323
    
$
1,069
  
Accrued expenses
    
3,438
      
1,684
  
Total current liabilities
    
5,761
      
2,753
  
Total liabilities
    
5,761
      
2,753
  
                 
Commitments and contingencies (Note 3 and Note 8)
            
                 
Stockholders’ equity
                
Preferred stock, par value $0.0001; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022; no shares issued and outstanding at June 30, 2023 and December 31, 2022.
    
—
      
—
  
Common stock, par value $0.0001; 75,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 20,985,784 and 20,861,315 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.
    
2
      
2
  
Additional paid-in capital
    
119,934
      
117,717
  
Accumulated deficit
    
(82,232
)
    
(71,480
)
Total stockholders’ equity
    
37,704
      
46,239
  
Total liabilities and stockholders’ equity
  
$
43,465
    
$
48,992
  
 
See accompanying notes.

2
Ocuphire Pharma, Inc.
Condensed Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
(Unaudited)


  
For the Three Months Ended
June 30,
    
For the Six Months Ended
June 30,
  
   
2023
    
2022
     2023     2022  
License and collaborations revenue
   $ 3,674     $ —     $ 5,423     $ —  
                                 
Operating expenses:
                                
General and administrative
    
4,340
      
1,776
       6,625       3,512  
Research and development
    
4,723
      
3,162
       10,318       7,934  
Total operating expenses
    
9,063
      
4,938
       16,943       11,446  
Loss from operations
    
(5,389
)
    
(4,938
)
     (11,520 )     (11,446 )
Interest expense
    
—
      
(4
)
     —       (9 )
Other income (expense), net
    
428
      
15
       768       (67 )
Loss before income taxes
    
(4,961
)
    
(4,927
)
     (10,752 )     (11,522 )
Benefit (provision) for income taxes
    
—
      
—
       —       —  
Net loss
    
(4,961
)
    
(4,927
)
     (10,752 )     (11,522 )
Other comprehensive loss, net of tax
    
—
      
—
       —       —  
Comprehensive loss
  
$
(4,961
)
  
$
(4,927
)
   $ (10,752 )   $ (11,522 )
Net loss per share:
                                
Basic and diluted (Note 10)
  
$
(0.24
)
  
$
(0.25
)
   $ (0.51 )   $ (0.60 )
Number of shares used in per share calculations:
                                
Basic and diluted
    
20,959,807
      
19,502,563
       20,949,763       19,197,213  

See accompanying notes.
 
3
Ocuphire Pharma, Inc.
Condensed Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)

   
Common Stock
    
Additional
Paid–In
    
Accumulated
    
Total
  
   
Shares
    
Amount
    
Capital
    
Deficit
    
Equity
 
                               
Balance at December 31, 2021
    
18,845,828
    
$
2
    
$
111,588
    
$
(89,368
)
  
$
22,222
  
Issuance of common stock in connection with the at-the-market program     336,544
       —
       1,208
       —
       1,208
  
Issuance costs
     —       —       (35 )     —       (35 )
Stock–based compensation
    
6,970
      
—
      
445
      
—
      
445
  
Exercise of stock options     24,309       —       27       —       27  
Net and comprehensive loss
    
—
      
—
      
—
      
(6,595
)
    
(6,595
)
Balance at March 31, 2022
    
19,213,651
      
2
      
113,233
      
(95,963
)
    
17,272
  
Issuance of common stock in connection with the at-the-market program     877,927       —       1,858       —       1,858  
Issuance costs     —       —       (53 )     —       (53 )
Stock–based compensation
    
8,024
      
—
      
445
      
—
      
445
  
Net and comprehensive loss
    
—
      
—
      
—
      
(4,927
)
    
(4,927
)
Balance at June 30, 2022
    
20,099,602
     $
2
     $
115,483
     $
(100,890
)
  
 $
14,595
  
                                         
Balance at December 31, 2022
    
20,861,315
    
$
2
    
$
117,717
    
$
(71,480
)
  
$
46,239
  
Issuance costs     —       —       (2 )     —       (2 )
Stock-based compensation
    
68,646
      
—
      
804
      
—
      
804
  
Exercise of warrants
    
17,869
      
—
      
—
      
—
      
—
  
Net and comprehensive loss
    
—
      
—
      
—
      
(5,791
)
    
(5,791
)
Balance at March 31, 2023
    
20,947,830
      
2
      
118,519
      
(77,271
)
    
41,250
  
Issuance costs
     —
      
—
      
(7
)
     —      
(7
)
Stock-based compensation
    
37,954
      
—
      
1,422
      
—
      
1,422
  
Net and comprehensive loss
    
—
      
—
      
—
      
(4,961
)
    
(4,961
)
Balance at June 30, 2023
    
20,985,784
     $
2
     $
119,934
     $
(82,232
)
  
$
37,704
  

See accompanying notes.

4
 Ocuphire Pharma, Inc.
Condensed Statements of Cash Flows
(in thousands)
(Unaudited)

   
For the Six Months Ended
June 30,
  
   
2023
    
2022
  
Operating activities
            
Net loss
  
$
(10,752
)
  
$
(11,522
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Stock-based compensation
    
2,226
      
890
  
Depreciation
    
2
      
2
  
Unrealized loss from short-term investments
     27       93  
Change in assets and liabilities:
                
Accounts receivable
     1,163     —  
Contract assets and unbilled receivables
     957       —  
Prepaid and other assets
    
721
      
574
  
Accounts payable
    
1,254
      
302
Accrued and other liabilities
    
1,745
      
(318
)
Net cash used in operating activities
    
(2,657
)
    
(9,979
)
Investing activities
                
Net cash used in investing activities
    
—
      
—
  
Financing activities
                
Proceeds from issuance of common stock in connection with the at-the-market program
     —       3,066  
Issuance costs     —       (85 )
Payments made in connection with short-term loan     —       (538 )
Exercise of Series B warrants
     —       —  
Exercise of stock options
    
—
      
27
  
Net cash provided by financing activities
    
—
      
2,470
  
Net decrease in cash and cash equivalents
    
(2,657
)
    
(7,509
)
Cash and cash equivalents at beginning of period
    
42,634
      
24,534
  
Cash and cash equivalents at end of period
  
$
39,977
    
$
17,025
  
Supplemental disclosure of cash flow information:
                
Cash paid for income taxes
  
$
—
    
$
—
  
Cash paid for interest
  
$
—
    
$
9
  
Supplemental non-cash financing transactions:
                
Unpaid issuance and deferred offering costs
  
$
9
    
$
3
  
 
See accompanying notes.

5
Notes to Condensed Financial Statements
 
1.
Company Description and Summary of Significant Accounting Policies

Nature of Business

Ocuphire Pharma, Inc. (the “Company” or “Ocuphire”) is a clinical-stage ophthalmic biopharmaceutical company focused on developing novel therapies for the treatment of unmet needs of patients with retinal and refractive eye disorders.

The Company’s lead retinal product candidate, APX3330, is a first-in-class small-molecule inhibitor of Ref-1 (reduction oxidation effector factor-1 protein). Ref-1 is a regulator of transcriptor factors such as HIF-1α and NF-kB. Inhibiting REF-1 reduces levels of vascular endothelial growth factor (“VEGF”) and inflammatory cytokines which are known to play key roles in ocular angiogenesis and inflammation. Through inhibition of Ref-1, APX3330 normalizes the levels of VEGF to physiologic levels, unlike biologics that abolish the VEGF levels required for normal function. APX3330 is an oral tablet administered twice per day for the treatment of diabetic retinopathy (“DR”) and diabetic macular edema (“DME”). A Phase 2 study in subjects with DR or DME has recently completed and an End-of-Phase 2 meeting is confirmed with the FDA in Q4 2023.

DR affects approximately 10 million people with diabetes and is projected to impact 14.6 million Americans by 2050. DR is classified as Non-Proliferative Diabetic Retinopathy (“NPDR”), the early stage of the disease in which symptoms may be mild or nonexistent or Proliferative Diabetic Retinopathy (“PDR”) which is the more advanced stage of diabetic eye disease that can be highly symptomatic with loss of vision. Approximately 80% of DR patients have NPDR that will progress to PDR if left untreated. Despite the risk for visual loss associated with this disease, over 90% of NPDR patients currently receive no course of treatment apart from observation by their eye care specialist until they develop sight-threatening complications. This is due to the burdensome and frequent eye injections currently required with currently approved therapies for this disease. APX3330, as an oral tablet, has the potential to be an early, non-invasive treatment for the 8 million NPDR patients in the US.

The Company has also in-licensed APX2009 and APX2014, which are second-generation analogs of APX3330. The unique dual mechanism of action of these Ref-1 inhibitors of reducing angiogenesis and inflammation could potentially be beneficial in treating other retinal diseases such as age-related macular degeneration (“AMD”), and geographic atrophy (“GA”). Ocuphire is currently evaluating local delivery routes in addition to the systemic (oral) route as part of its pipeline expansion in retinal therapies.

In November 2022, the Company entered into a license and collaboration agreement (the “Nyxol License Agreement”) with FamyGen Life Sciences, Inc. (acquired by Viatris, Inc. (“Viatris”) in January 2023) pursuant to which it granted Viatris an exclusive license to develop, manufacture, import, export and commercialize its refractive product candidate phentolamine ophthalmic solution 0.75% (Nyxol® Eye Drops or “Nyxol”). Nyxol is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. Nyxol can potentially be used across multiple indications such as reversal of pharmacologically-induced mydriasis (“RM”) (dilation of the pupil), presbyopia (age-related blurry near vision) and dim light or night vision disturbances (“DLD”) (halos, glares and starbursts).

The Company’s headquarters is located in Farmington Hills, Michigan.

Reverse Merger with Rexahn

On June 17, 2020, Ocuphire, Rexahn Pharmaceuticals, Inc. (“Rexahn”), Razor Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Rexahn (“Merger Sub”), entered into an Agreement and Plan of Merger and Reorganization, as amended on June 29, 2020 (as amended, the “Merger Agreement”), pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub would merge with and into Ocuphire, with Ocuphire continuing as a wholly-owned subsidiary of Rexahn and the surviving corporation of the merger (the “Merger”). The Merger closed on November 5, 2020. Upon completion of the Merger, Rexahn changed its name to Ocuphire Pharma, Inc. and changed its ticker symbol on the Nasdaq Capital Market to “OCUP”.

Global Economic Conditions

Generally, worldwide economic conditions remain uncertain, particularly due to the effects of the conflict between Russia and Ukraine, disruptions in the banking system and financial markets, lingering COVID‑19 pandemic, increased inflation and rising interest rates. The general economic and capital market conditions both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.

 

Additionally, the Company’s operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, disruptions in the banking system and financial markets, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates.


6
Notes to Condensed Financial Statements
Basis of Presentation

The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
 
The December 31, 2022 condensed balance sheet was derived from audited financial statements and may not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2022.
 
In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
 
On December 31, 2021, the Company merged its wholly-owned subsidiary, OcuSub Inc, with and into the Company, with the Company remaining as the surviving entity. The merger of the Company’s wholly-owned subsidiary did not have a financial impact in the periods presented. Upon closing of this merger, the Company did not have any remaining entities that required consolidation for financial statement reporting purposes. All significant intercompany accounts and transactions were eliminated in the preparation of the condensed financial statements prior to the December 31, 2021 merger with OcuSub Inc.
 
Liquidity


The accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern. From its inception, the Company has devoted substantially all of its efforts to drug development and conducting clinical trials.



As of June 30, 2023, the Company had $40.0 million in cash and cash equivalents.  The Company believes its current available cash and cash equivalents will be sufficient to fund the Company’s planned expenditures and meet its obligations for at least 12 months following August 11, 2023, which is the date that these condensed financial statements are available to be issued.



In the future, the Company may need to raise additional funds until it is able to generate sufficient revenues to fund its development activities. The Company’s future operating activities, coupled with its plans to raise capital or issue debt financing, may provide additional liquidity in the future, however these actions are not solely within the control of the Company and the Company is unable to predict the outcome of these actions to generate the liquidity ultimately required.

Use of Estimates

The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. Actual results could differ from those estimates.

 
Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer  or such person functioning in such role. The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of development of products related to vision performance and health. Accordingly, the Company has a single reporting segment.

Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of deposit to be cash equivalents.
 

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is held or managed by two financial institutions in the United States. Amounts on deposit exceed Federal Deposit Insurance Corporation (“FDIC”) limits. Management follows approved policies established by its Board of Directors to reduce credit risk associated with the Company’s cash deposit accounts. In addition, the Company limits its exposure through the kind, quality and concentration of its investments. As of June 30, 2023, the Company had cash equivalents of $39.5 million that were not eligible for coverage by the FDIC.


7
Notes to Condensed Financial Statements

Short-term Investments



The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and are recorded on a settlement date basis. The Company’s short-term investments are comprised of equity securities, which in accordance with the fair value hierarchy described below are recorded at fair value using Level l inputs on the balance sheets.  Subsequent changes in fair values are recorded in other income (expense), net on the  condensed statements of comprehensive loss. The Company classifies investments available to fund current operations as current assets on its balance sheets. The Company did not recognize any impairments on its investments to date through June 30, 2023.

Revenue Recognition
 

The Company follows the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The guidance provides a five-step model to determine how revenue is recognized. The Company has entered into license agreements which have revenue recognition implications (See Note 9 – License and Collaboration Agreements).

 

In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of the contracts with a customer; (ii) determination of the performance obligations in the contract; (iii) measurement of the transaction price, including potential constraints on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated stand-alone selling prices; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. Performance obligations may include license rights, development and other services. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations are either completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.



As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. The Company allocates the total transaction price to each performance obligation based on the relative standalone selling prices of the promised goods or service underlying each performance obligation.



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



Milestone payments: At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until such contingency occurs (such as receipt of those approvals).



Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).



Contract Assets and Unbilled Receivables



The Company recognizes contract assets and unbilled receivables when goods or services are transferred to the customer before the customer pays or before reimbursement for payment is billed or due, excluding any amounts presented as an account receivable. The Company recorded contract assets and unbilled receivables in connection with a license and collaboration agreement in the amount of $2.6 million as of June 30, 2023. See Note 9- License and Collaboration Agreements.


8
Notes to Condensed Financial Statements

Accounts Receivable and Allowances for Doubtful Accounts



 The Company records a provision for doubtful accounts, when appropriate, based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable, its historical write-offs, the credit worthiness of each customer, and economic conditions that could affect the collectability of the balances in the future. Account balances are charged off against the allowance when the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may be in excess of the Company’s estimated allowance. The Company has not incurred any bad debt expense to date and no allowance for doubtful accounts has been recorded during the periods presented.



General and Administrative Expenses



General and administrative expenses (“G&A”) consist primarily of personnel-related costs, including salaries and stock-based compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, settlement costs with third parties and other services provided by business consultants.



Research and Development



Research and development expenses (“R&D”) consist of costs incurred in performing research and development activities, including compensation for research and development employees and consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, fees paid to external service providers that conduct certain research and development, and an allocation of R&D related overhead expenses. R&D costs include costs that are reimbursed under the Nyxol License Agreement.



Other Income (Expense), net



Other income (expense), net reflected in this line item includes payments made by the Company in connection with the Contingent Value Rights Agreement discussed further below with former Rexahn shareholders. In addition, other income (expense), net includes interest earned from cash and cash equivalent investments, realized and unrealized gains (losses) from equity investments and reimbursements in connection with grants and other sources when they occur.
 

Stock-Based Compensation



The Company accounts for stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Compensation — Stock Compensation. Accordingly, compensation costs related to equity instruments granted are recognized at the grant date fair value. The Company records forfeitures when they occur. Stock-based compensation arrangements to non-employees are accounted for in accordance with the applicable provisions of ASC 718.


Fair Value Measurements
 
The Company follows accounting guidance that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three-level hierarchy:
 

●
Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in active markets;


●
Level 2 inputs: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, whether directly or indirectly, for substantially the full term of the asset or liability; and


●
Level 3 inputs: Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

As of June 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, accounts receivable, contract assets, unbilled receivables, prepaid and other assets, accounts payable, accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The fair value of the short-term investments, while outstanding, were based on observable Level 1 inputs in the form of quoted market prices from a major stock exchange. The fair value of the warrant liabilities, while outstanding, were based on a Black-Scholes option model using Level 3 inputs. There were no transfers between fair value hierarchy levels during the three and six months ended June 30, 2023 and 2022.

The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
 
   
As of June 30, 2023
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Short-term investments
 		 
$
22
    
$
22
    
$
—
    
$
—
  
Total assets at fair value
  
$
22
    
$
22
    
$
—
    
$
—
  

9
Notes to Condensed Financial Statements
   
As of December 31, 2022
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Short-term investments
 
$
49
    
$
49
    
$
—
    
$
—
  
Total assets at fair value
  
$
49
    
$
49
    
$
—
    
$
—
  

The following table provides a roll-forward of short-term investments measured at fair value on a recurring basis using observable level 1 inputs for the six months ended June 30, 2023 and 2022 (in thousands):

   
2023
   
2022
 
Short-term investments
            
Balance as of beginning of period
  
$
49
    
$
219
  
Unrealized loss
   
(27
)
    
(93
)
Balance as of end of period
  
$
22
    
$
126
  


Rexahn Warrants



The fair value of the warrant liabilities associated with the Rexahn warrants was de minimis during the periods presented.  The last of the Rexahn warrants classified as liabilities expired in April 2023 unexercised.  See Note 2 – Merger for additional background.



There were no financial instruments measured on a non-recurring basis for any of the periods presented.


Recent Accounting Pronouncements


In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a current expected credit loss (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The Company adopted this ASU on January 1, 2023 and it did not have a significant impact on its condensed financial statements.



In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ​ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company adopted this ASU on January 1, 2023 and the adoption did not have a material impact on its condensed financial statements.


In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance, to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 and it did not have a material impact to the condensed financial statements.
 
2.
Merger
  
On November 5, 2020, the Company completed the Merger transaction with Rexahn. In connection with the Merger, the Company, Shareholder Representatives Services LLC, as representative of the Rexahn stockholders prior to the Merger, and Olde Monmouth Stock Transfer Co., Inc., as the rights agent, entered into a Contingent Value Rights Agreement (the “CVR Agreement”).
 
Pursuant to the terms of the Merger and the CVR Agreement, Rexahn stockholders of record as of immediately prior to the effective time of the Merger received one contingent value right (“CVR”) for each share of Rexahn common stock held.
 
Each CVR entitles such holders to receive, for each calendar quarter (each, a “CVR Payment Period”) during the 15-year period after the closing (the “CVR Term”), an amount equal to the following:
 
10
Notes to Condensed Financial Statements

●
90% of all payments received by Rexahn or its affiliates during such CVR Payment Period from or on behalf of BioSense Global LLC (“BioSense”) pursuant to that certain License and Assignment Agreement, dated as of February 25, 2019, by and between BioSense and Rexahn, as amended by Amendment No. 1, dated August 24, 2019, and as further amended by Amendment No. 2, dated March 10, 2020, minus certain permitted deductions;
 

●
90% of all payments received by Rexahn or its affiliates during such CVR Payment Period from or on behalf of Zhejiang HaiChang Biotechnology Co., Ltd. (“HaiChang”) pursuant to that certain Exclusive License Agreement, dated as of February 8, 2020, by and between HaiChang and Rexahn, minus certain permitted deductions; and
 

●
75% of the sum of (i) all cash consideration paid by a third party to Rexahn or its affiliates during the applicable CVR Payment Period in connection with the grant, sale or transfer of rights to Rexahn’s pre-closing intellectual property (other than a grant, sale or transfer of rights involving a sale or disposition of the post-Merger combined company) that is entered into during the 10-year period after the closing (“Parent IP Deal”), plus (ii) with respect to any non-cash consideration received by Rexahn or its affiliates from a third party during the applicable CVR Payment Period in connection with any Parent IP Deal, all amounts received by Rexahn or its affiliates for such non-cash consideration at the time such non-cash consideration is monetized by Rexahn or its affiliates, minus (iii) certain permitted deductions.
 
The CVRs are not transferable, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVR Agreement will continue in effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder. As of June 30, 2023, no payments subject to the CVR had been received beyond those previously reported in the second and third quarters of calendar year 2021.  In addition, no milestones had been accrued as there were no potential milestones yet considered probable beyond those previously reported.

Former Rexahn Warrants
 
Following the closing of the Merger, 231,433 outstanding, unexercised Rexahn warrants to purchase common stock remained outstanding, the majority of which were subsequently repurchased according to the terms of the original warrant agreements.  As of June 30, 2023, 58,597 of the Rexahn warrants remained outstanding with an exercise price of $38.40 per share with an average remaining contractual life of 0.6 years and were accounted for and classified as equity.

3.
Commitments and Contingencies
 
Apexian Sublicense Agreement
 
On January 21, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc., pursuant to which it obtained exclusive worldwide patent and other intellectual property rights. In exchange for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future sales (See Note 8 — Apexian Sublicense Agreement). As of June 30, 2023, there was sufficient uncertainty with regard to any future cash milestone payments under the sublicense agreement that no liabilities were recorded related to the sublicense agreement.

Facility Leases

The Company has a short-term, non-cancellable facility lease (the “HQ Lease”) for its headquarters. The HQ Lease qualified for the short-term lease exception under ASC 842, Leases. The monthly base rent, as amended, for the HQ Lease is approximately $3,000. The rent expense associated with the HQ Lease amounted to  $9,000 during each of the three months ended June 30, 2023 and 2022. The rent expense associated with the HQ Lease amounted to $18,000 and $21,000 during the six months ended June 30, 2023 and 2022, respectively. The total remaining expected rental payments under the HQ Lease amount to $18,000 through its current expiration date of December 31, 2023.

Other

In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual allegations, patent infringement and other claims. In addition, the Company from time to time may be potentially committed to reimburse third parties for costs incurred associated with business development related transactions upon the achievement of certain milestones. The Company establishes accruals when applicable for matters and commitments which it believes losses are probable and can be reasonably estimated. To date, no loss contingency for such matters and potential commitments have been recorded. Although it is not possible to predict with certainty the outcome of these matters or potential commitments, the Company is of the opinion that the ultimate resolution of these matters and potential commitments will not have a material adverse effect on its results of operations or financial position.
 
4.
Supplemental Balance Sheet Information
 
Prepaid and Other Assets
 
Prepaid and other assets consist of the following as of (in thousands):

11
Notes to Condensed Financial Statements
   
June 30,
2023
    
December 31,
2022
  
Prepaids
  
$
687
    
$
1,373
  
Other
    
45
      
80
  
Total prepaids and other assets
  
$
732
    
$
1,453
  

Property and Equipment, net
 
Property and equipment held for use by category are presented in the following table as of (in thousands):

   
June 30,
2023
    
December 31,
2022
  
Equipment
  

20
    
$
20
  
Furniture
    
5
      
5
  
Total property and equipment
  

25
      
25
  
Less accumulated depreciation
    
(21
)
    
(19
)
Property and equipment, net
  

4
    
$
6
  

Depreciation expense was $1,000 during each of the three months ended June 30, 2023 and 2022. Depreciation expense was $2,000 during each of the six months ended June 30, 2023 and 2022.

Accrued Expenses
 

Accrued expenses consist of the following as of (in thousands):
 
   
June 30,
    
December 31,
  
   
2023
    
2022
  
Income taxes
   $
—
    
$
315
  
Payroll
    
300
      
782
  
Professional services
    
141
      
208
  
R&D services and supplies
    1,773       212  
Severance
    1,179       —  
Other
    
45
      
167
  
Total
   $
3,438
    
$
1,684
  

On April 19, 2023, the Company terminated the employment of Mina Sooch, the President and Chief Executive Officer of the Company.


Short-Term Loan


The Company entered into an unsecured short-term loan (the “Loan”) agreement in the amount of $0.6 million in November 2021 related to financing an insurance policy. The Loan was payable in six monthly installments of $108,000 beginning in December 2021. The Loan had an annual interest rate of 5.5% per annum.  Interest expense in the amount of $4,000 and $9,000 was recognized in connection with the Loan during the three and six months ended June 30, 2022, respectively. No interest expense was recognized during the three and six months ended June 30, 2023.

5.
Related Party Transactions
 
On April 8, 2022, Ocuphire entered into a consulting agreement with Jay Pepose, a director of the Company.  The consulting agreement provided for $10,000 a month in cash payments, effective as of April 1, 2022.  Additionally, on April 8, 2022, in connection with the consulting arrangement, Dr. Pepose received a stock option grant for 50,000 options, of which 25% vested on March 31, 2023, with the remainder vesting in equal monthly installments over 36 months. The consulting agreement was amended on September 19, 2022 to provide for vesting acceleration for stock-based awards in the event of a change in control. The consulting agreement was also amended effective December 1, 2022 to increase the cash payment to $25,000 per month.

The Company incurred related consulting expenses of $75,000 and $150,000 during the three and six months ended June 30, 2023, respectively. The Company incurred related consulting expenses of $30,000 during the three and six months ended June 30, 2022. As of June 30, 2023 and December 31, 2022, $25,000 of the related consulting expenses were unpaid, respectively.

On April 19, 2023, Ocuphire appointed Richard Rodgers, a director of the Company, as interim President and Chief Executive Officer.  In connection with his appointment, Ocuphire and Mr. Rodgers entered into a letter agreement concerning Mr. Rodgers’s services (the “Letter Agreement”). The Letter Agreement provides that Mr. Rodgers will receive (i) a $40,000 monthly salary, and (ii) is eligible for a potential prorated bonus at the discretion of Ocuphire’s Board of Directors, at the end of his term as interim President and Chief Executive Officer. Mr. Rodgers also received 50,000 restricted stock units under the Company’s 2020 Equity Incentive Plan which will vest 12 months following the grant date.

12
Notes to Condensed Financial Statements
The Company incurred related consulting expenses of $95,000 during the three and six months ended June 30, 2023. As of June 30, 2023, $80,000 of the related consulting expenses were unpaid.

6.
Stockholders’ Equity
 
At-The-Market Program

On February 4, 2021, Ocuphire filed a Form S-3 shelf registration under the Securities Act of 1933 which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer and sell, from time to time in its sole discretion, securities having an aggregate offering price of up to $125 million. In connection with the 2021 Shelf, on March 11, 2021, Ocuphire entered into a sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”) under which the Company may offer and sell, from time to time at its sole discretion, to or through JonesTrading, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $40 million (the “2021 ATM”). During the three and six months ended June 30, 2022, 877,927 and 1,214,471 shares of common stock were sold under the 2021 ATM for aggregate gross proceeds in the amount of $1.9 million and $3.1 million, respectively, before deducting issuance expenses, including the placement agent’s fees, legal and accounting expenses, in the amount of $53,000 and $88,000, respectively. There were no sales of common stock under the 2021 ATM during the three and six-month periods ended June 30, 2023.

Registered Direct Offering

On June 4, 2021, the Company entered into a placement agency agreement with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the placement agency agreement, AGP on June 8, 2021 sold an aggregate of 3,076,923 shares of the Company’s common stock and warrants to purchase 1,538,461 shares of the Company’s common stock (the “RDO Warrants”). The RDO Warrants are equity classified, have an exercise price of $6.09 per share, are exercisable from the initial issuance date of June 8, 2021, and will expire five years following the initial issuance date. As of June 30, 2023, 1,538,461 RDO Warrants were outstanding.

Pre-Merger Financing

On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by five directors of Ocuphire Pharma, Inc., prior to the Merger and one director of Rexahn upon closing of the Merger (the “Pre-Merger Financing”). The Pre-Merger Financing also included the issuance of Series A Warrants and Series B Warrants discussed further below.

Series A Warrants

The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and were outstanding as of June 30, 2023. The Series A Warrants were accounted for and classified as equity on the accompanying condensed balance sheets.

Series B Warrants

The Series B Warrants had an exercise price of $0.0001, were exercisable upon issuance and would have expired on the day following the later to occur of (i) the Reservation Date (as defined therein) or (ii) the date on which the investor’s Series B Warrants would have been exercised in full (without giving effect to any limitation on exercise contained therein). None of the Series B Warrants were outstanding as of June 30, 2023. During the six months ended June 30, 2023, 17,869 warrants were exercised for  shares of common stock. The Series B Warrants were accounted for and classified as equity on the accompanying condensed balance sheets while outstanding.

7.
Stock-based Compensation
 
Stock-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed statements of comprehensive loss for the three and six-month periods indicated below (in thousands):
 
 
  
Three Months
Ended
June 30,
    
Six Months
Ended
June 30,
  
 
  
2023
    
2022
    
2023
    
2022
  
General and administrative
   $ 1,166    
$
276
    
$
1,634
    
$
571
  
Research and development
    
256
      
169
      
592
      
319
  
Total stock-based compensation
  
$
1,422
    
$
445
    
$
2,226
    
$
890
  

13
Notes to Condensed Financial Statements
Ocuphire Stock Options
 
Inducement Plan 
  
On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 325,258 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

2020 Equity Incentive Plan
 
The stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards. The 2020 Plan became effective on November 5, 2020.  Under the 2020 Plan, (i) 1,000,000 new shares of common stock were reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued, consisting of (A) shares that remain available for the issuance of awards under prior equity plans and (B) shares of common stock subject to outstanding stock options or other awards covered by prior equity plans that have been cancelled or expire on or after the date that the 2020 Plan became effective. The 2020 Plan permits the grant of incentive and non-statutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and net loss awards, and other stock‑based awards.
 
2018 Equity Incentive Plan 
 
Prior to the 2020 Plan, the Company had adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,175,000 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants. Upon the effective date of the 2020 Plan, no additional shares were available for issuance under the 2018 Plan.

2020 Plan Evergreen Provision 
 
Under the 2020 Plan, the shares reserved automatically increase on January 1 of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the stockholders of the Company, commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1st of a given year to provide that there will be no January 1 increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1, 2023, 1,043,066 shares were added to the 2020 Plan as a result of the evergreen provision. 
 
Stock Options

During the three and six months ended June 30, 2023, 98,195 and 763,578 stock options were granted to directors, officers, employees and consultants, respectively, generally vesting over a five (5) to forty-eight (48) month period. During the three and six months ended June 30, 2022, 174,000 and 726,305 stock options were granted to directors, officers, employees and consultants, respectively, generally vesting over a twelve (12) to forty-eight (48) month period.

The Company recognized $1,186,000 and $418,000 in stock-based compensation expense related to stock options during the three months ended June 30, 2023 and 2022, respectively, and $1,686,000 and $835,000 during the six months ended June 30, 2023 and 2022, respectively. Stock-based compensation expense during the three and six-month periods ended June 30, 2023 included a one-time charge of $0.4 million attributed to the modification of the Company’s former Chief Executive Officer’s stock options with respect to their exercisability provisions.

During the six months ended June 30, 2022, 24,309 stock options were exercised with an intrinsic value of $59,000. There were no exercises during the three and six months ended June 30, 2023.

As of June 30, 2023 and December 31, 2022, 3,444,656 and 2,936,044 stock options were outstanding, respectively.
 
The weighted average fair value per share of options granted during the three and six months ended June 30, 2023 was $3.36 and $2.83, respectively. The weighted average fair value per share of options granted during the three and six months ended June 30, 2022 was $1.71 and $2.15, respectively. The Company measures the fair value of stock options with service-based vesting criteria to employees, directors, consultants and directors on the date of grant using the Black-Scholes option pricing model. The Company does not have sufficient share trading history to support an internal calculation of volatility and expected term. As such, the Company has used a weighted average volatility considering the volatilities of several guideline companies.
 
14
Notes to Condensed Financial Statements
For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was based on the midpoint between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.

The weighted average assumptions used in the Black-Scholes option pricing model are as follows during the three and six months ended June 30, 2023 and 2022:

 
  
Three Months
Ended
June 30,
    
Six Months
Ended
  June 30,
  
 
  
2023
    
2022
    
2023
    
2022
  
Expected stock price volatility
    
94.4
%
    
96.2
%
    
95.3
%
    
98.8
%
Expected life of options (years)
    
5.8
      
5.7
      
6.1
      
5.9
  
Expected dividend yield
    
0
%
    
0
%
    
0
%
    
0
%
Risk free interest rate
    
3.7
%
    
3.3
%
    
3.7
%
    
2.1
%

During the three and six months ended June 30, 2023, 374,757 and 620,824 stock options vested, respectively, inclusive of the vesting acceleration of stock options attributed to the departure of the Company’s former Chief Executive Officer in the amount of 145,418. During the three and six months ended June 30, 2022, 204,406 and 267,103 stock options vested, respectively.

During the three and six months ended June 30, 2023, 254,966 options were forfeited, inclusive of the stock option forfeited in connection with the departure of the Company’s former Chief Executive Officer in the amount of 249,633. During the three and six months ended June 30, 2022, 6,000 and 14,288 options were forfeited, respectively.
 
Restricted Stock Units
 
During the three and six months ended June 30, 2023, the Company granted an aggregate of 124,880 and 416,464 restricted stock units (“RSUs”), respectively, to certain officers and employees under the 2020 Plan. The weighted average grant date per unit fair value of the RSUs granted during the three and six months ended June 30, 2023 was $5.09 and $3.98, respectively. The vesting period of the RSUs range from a one year period to a four year period where 25 percent of the RSUs vest annually on each anniversary of the grant date, subject to the recipient’s continued service on such dates. There were no RSUs granted during the comparable periods in the prior year.

During the three and six months ended June 30, 2023, 33,614 RSUs vested and 100,842 RSUs were forfeited during the three and six months ended June 30, 2023, respectively, attributed solely to the departure of the Company’s former Chief Executive Officer. The total expense for the three and six months ended June 30, 2023 related to these RSUs was $208,000 and $265,000, respectively.

Common Stock Issued for Services
 

The Company granted stock for services in the amount of 4,340 and 72,986 common shares during the three and six months ended June 30, 2023, respectively, to board members who elected to receive their board retainers in the form of stock for services with a grant date fair value of $6.38 and $3.77 per share, respectively. The Company granted stock for services in the amount of 14,147 and 22,171 common shares during the three and six months ended June 30, 2022, respectively, to board members who elected to receive their board retainers in the form of stock for services with a grant date fair value of $1.92  and $2.40 per share, respectively.



The stock-based compensation related to these services amounted to $28,000 and $27,000 during the three months ended June 30, 2023 and 2022, respectively, and $275,000 and $55,000 during the six months ended June 30, 2023 and 2022, respectively.
 
General

As of June 30, 2023, 1,040,766 shares were available for future issuance under the 2020 Plan and Inducement Plan, in the aggregate. No shares were available for future issuance under the 2018 Plan. Unrecognized stock-based compensation cost was $4.0 million as of June 30, 2023. The unrecognized stock-based expense is expected to be recognized over a weighted average period of 1.4 years.

15
Notes to Condensed Financial Statements
8.
Apexian Sublicense Agreement

On January 21, 2020, the Company entered into a sublicense agreement (as amended on June 4, 2020, the “Apexian Sublicense Agreement”) with Apexian, pursuant to which it obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which the Company intends to develop as an oral tablet therapeutic to treat diabetic retinopathy initially, and potentially later to treat diabetic macular edema, geographic atrophy and age-related macular degeneration. In connection with the Apexian Sublicense Agreement, the Company issued a total of 891,422 shares of its common stock to Apexian and to certain affiliates of Apexian in calendar year 2020. As a result of the common stock issued pursuant to the Apexian Sublicense Agreement, Apexian is considered by Ocuphire to be a related party.

The Company also agreed to make one-time milestone payments under the Apexian Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication for the development and regulatory milestones, and once for each of several sales milestones. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales milestone payments are payable once, upon the first achievement of such milestone. Lastly, the Company also agreed to make a royalty payment equal to a single-digit percentage of its net sales of products associated with the covered patents under the Apexian Sublicense Agreement. If it is not terminated pursuant to its terms, the Apexian Sublicense Agreement shall remain in effect until expiration of the last to expire of the covered patents.
 
None of the milestone or royalty payments were triggered or deemed probable as of June 30, 2023 or December 31, 2022.

9.
License and Collaboration Agreements

Nyxol License Agreement

On November 6, 2022, the Company entered into the Nyxol License Agreement, pursuant to which it granted Famy an exclusive, perpetual, sub-licensable license to develop, manufacture, import, export and commercialize (i) Nyxol for treating (a) reversal of mydriasis, (b) night vision disturbances or dim light vision, and (c) presbyopia, and (ii) Nyxol and low dose pilocarpine for treating presbyopia (together, the “Nyxol Products”) worldwide except for certain countries and jurisdictions in Asia (the “Viatris Territory”). The Company retains the exclusive right to develop, manufacture, have manufactured, import, export and commercialize the Nyxol Products outside of the Viatris Territory. In January 2023, Famy was acquired by Viatris Inc., and Viatris has assumed all of Famy’s obligations under the Nyxol License Agreement.

Under the terms of the Nyxol License Agreement, the Company in partnership with Viatris, will develop the Nyxol Products in the United States. Viatris will reimburse the Company for budgeted costs related to the development of the Nyxol Products through FDA approval. Viatris will be responsible for developing the Nyxol Products in countries and jurisdictions in the Viatris Territory outside of the United States. The parties established a joint steering committee, which oversees and makes decisions regarding the development of the Nyxol Products. The committee is composed of an equal number of representatives of Viatris and Ocuphire. Viatris will commercialize the Nyxol Products in the Viatris Territory for each indication that receives regulatory approval.

Pursuant to the Nyxol License Agreement, the Company received a one-time non-refundable cash payment of $35 million in November 2022 for the exclusive, perpetual, sub-licensable license to develop, manufacture, import, export and commercialize the Nyxol Products in the Viatris Territory. In addition, with respect to each Nyxol Product, the Company will be eligible to receive potential additional payments of up to $130 million in the aggregate upon achieving certain specified regulatory or net sales milestones, with the first potential payment of $10 million to be made following approval by the FDA of Nyxol for reversal of mydriasis. The Company will also receive tiered royalties, starting at low double-digit royalties up to low twenty percent royalties, based on the aggregate annual net sales of all Nyxol Products in the United States, and will receive low double-digit royalties based on all annual net sales in the Viatris Territory outside of the United States. The royalty payments will continue on a country-by-country basis from the date of the first commercial sale of the first Nyxol Product in a country of the Viatris Territory until December 31, 2040.

Either party may terminate the Nyxol License Agreement upon written notice in the case of the other party’s material breach (subject to applicable cure periods) or if the other party becomes subject to an insolvency event. In addition, the Company may terminate the agreement in its entirety if Viatris or its affiliates commences an action challenging the validity, enforceability or scope of any of Ocuphire’s patents that are exclusively licensed under the Nyxol License Agreement. Additionally, if Viatris determines not to pursue development or commercialization of a Nyxol Product in a country or jurisdiction in the Viatris Territory, Viatris may terminate the license with respect to such Nyxol Product in such country or jurisdiction.

Both Ocuphire and Viatris have agreed to indemnify the other party against certain losses and expenses relating to any breach of the indemnifying party’s obligations, representations, warranties or covenants under the Nyxol License Agreement.

The Nyxol License Agreement was accounted for under the provisions of ASC 606. In accordance with the provisions under ASC 606, the Company identified two distinct performance obligations at the effective date: (1) the license to its intellectual property (“license transfer”) and (2) research and development services.

16
Notes to Condensed Financial Statements
The aggregate transaction price associated with the Nyxol License Agreement, as adjusted for variable consideration subsequent to December 31, 2022, was $40.0 million which comprised the initial license transfer fee of $35.0 million and the $5.0 million payment anticipated under the research and development services that were not subject to cancellation. The transaction price was allocated between performance obligations based on their relative standalone selling price (“SSP”). The performance obligations for research and development services through the non-cancellation period were fully met by the Company as of the first quarter of 2023.

The SSP for the license transfer and for the research and development services was determined to be $287.8 million and $5.0 million, respectively. The SSP for the license transfer was determined based on a discounted royalty cash flow approach, taking into consideration assumptions, including projected worldwide net profit for each of the respective programs based on probability assessments, projections based on internal forecasts, industry data, and information from other guideline companies within the same industry and other relevant factors. The SSP for the research and development services was determined using a cost-plus margin approach, based on anticipated expenditure outlays within the first 120-day non-cancellation window. On a relative SSP basis, $39.3 million and $0.7 million of the transaction price was allocated to the license transfer and to the research and development services obligations, respectively.

Recognition of Revenue

The Company determined that the licenses transferred represented functional intellectual property. As such, the revenue related to the licenses was recognized at the point in time in which the license/know-how was delivered to Viatris (as successor to Famy) which occurred during the fourth quarter of 2022. The Company determined that revenue related to the research and development services constrained to the 120-day non-cancellation period was to be recognized over time as the services are rendered based on an estimated percentage of completion input model.

Revenue recognized under the Nyxol License Agreement during the three and six months ended June 30, 2023 was $3.7 million and $5.4 million, respectively.

Regulatory Milestones under the Nyxol License Agreement

The Company has evaluated the regulatory milestones that may be received in connection with the Nyxol License Agreement. There is uncertainty that the events to obtain the regulatory milestones will be achieved given the nature of clinical development and the stage of the development of the Nyxol Products. The remaining regulatory milestones will be constrained until it is probable that a significant revenue reversal will not occur.

Sales Milestone and Royalty Payments

Sales milestones and royalties relate predominantly to a license of intellectual property granted to Viatris and are determined by sales or usage-based thresholds. The sales milestones and royalties are accounted for under the royalty recognition constraint and will be accounted for as constrained variable consideration. The Company applies the royalty recognition constraint for each commercial milestone and will not recognize revenue for each until the subsequent sale of a licensed product (achievement of each) occurs.

Each of the remaining regulatory and sales milestone performance obligations and royalty payments were fully constrained as of June 30, 2023 and no revenue was recognized.


A reconciliation of the closing balance of the contract assets and unbilled receivables associated with the Nyxol License Agreement is as follows as of June 30, 2023 (in thousands):


Contract Assets and Unbilled Receivables
      
Balance as of December 31, 2022
  
$
3,552
  
Revenue recognized
    
5,423
  
Reclassification to accounts receivable related to costs billed under the Nyxol License Agreement
    
(6,380
)
Balance as of June 30, 2023
  
$
2,595
  

The remaining amounts in contract assets and unbilled receivables as of June 30, 2023 attributed to the research and development services are expected to be settled during the third quarter of 2023.


BioSense License and Assignment Agreement


On March 10, 2020, pre-Merger, Rexahn entered into an amendment to its collaboration and license agreement, (as amended, the “BioSense License and Assignment Agreement”) with BioSense to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “BioSense Territory”). Under the terms of the BioSense License and Assignment Agreement, the Company (i) granted BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the BioSense Territory and (ii) assigned and transferred all of the former Rexahn patents and patent applications related to RX-3117 in the BioSense Territory. The upfront payment consisted of an aggregate of $1,650,000, of which $1,550,000 was paid to Rexahn prior to the Merger and the remaining $100,000 during calendar year 2021.


17
Notes to Condensed Financial Statements
Under the BioSense License and Assignment Agreement, the Company is eligible to receive additional milestone payments in an aggregate of up to $84,500,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties at low double-digit rates on annual net sales in the BioSense Territory. The Company determined that none of the milestone payments under the BioSense License and Assignment Agreement were probable of payment as of June 30, 2023, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control. Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the underlying sales transaction occurs.

 

Payments received under the BioSense License and Assignment Agreement are subject to the CVR Agreement described in Note 2 – Merger.

 
Processa License Agreement
 

On June 16, 2021, the Company entered into a license agreement (the “Processa License Agreement”) with Processa Pharmaceuticals, Inc. (“Processa”), pursuant to which the Company has agreed to grant Processa an exclusive license to develop, manufacture and commercialize RX-3117 globally, excluding the BioSense Territory.

 

Processa will make future payments to the Company upon the achievement of certain development and regulatory milestones, which primarily consist of dosing a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country. In addition, Processa will pay the Company mid-single-digit royalties based on annual sales under the license and will make one-time sales milestone payments based on the achievement during a calendar year of certain thresholds for annual sales. Processa is also required to give the Company 32% of any milestone payments received based on any sub-license agreement Processa may enter into with respect to the Processa License Agreement. The Company determined that none of the milestone payments under the Processa License Agreement were probable of payment as of June 30, 2023, and as a result, no revenue related to the milestones was recognized, as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control.

 

Processa is required to use commercially reasonable efforts, at its sole cost and expense, to conduct development activities in one or more countries, including meeting specific diligence milestones that consist of: (i) first patient administered drug in a clinical trial of a licensed product prior to the three (3) year anniversary of the effective date; and (ii) first patient administered drug in a pivotal clinical trial of a licensed product or first patient administered drug in a clinical trial for a second indication of a licensed product prior to the five (5) year anniversary of the effective date. Either party may terminate the agreement in the event of a material breach of the agreement that has not been cured following written notice and a 120-day opportunity to cure such breach, and Processa may terminate the agreement for any reason upon 120 days prior written notice to Ocuphire.

  

Future payments received under the Processa License Agreement will be subject to the CVR Agreement described in Note 2– Merger.

10.
Net loss per share
 
Basic loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company’s warrants,   stock options, RSUs and any unissued common stock for services, while outstanding, are considered common stock equivalents for this purpose. Diluted earnings is computed utilizing the treasury method for the warrants, stock options, RSUs and any unissued common stock for services. No incremental common stock equivalents were included in calculating diluted loss per share because such inclusion would be anti-dilutive given the net loss reported for the periods presented.

The following potential common shares were not considered in the computation of diluted net loss per share as their effect would have been anti-dilutive for the three and six-month periods presented below:
 
   
June 30,
  
   
2023
    
2022
  
Series A, Series B, and RDO warrants
    
7,204,299
      
7,283,000
  
Stock options
    
3,444,656
      
2,784,544
  
RSUs     282,008       —  
Unissued common stock for services
    
—
      
14,147
  
Former Rexahn warrants
    
58,597
      
63,734
  

18
Notes to Condensed Financial Statements

11.
Income Taxes
 
The effective tax rate for the three and six months ended June 30, 2023 and 2022 was zero percent. As of June 30, 2023, a full valuation allowance has been established to reduce the Company’s net deferred income tax assets. As such, no tax benefit related to the Company’s pre-tax loss was recognized for any of the periods presented.

The Company’s corporate returns are subject to examination for tax years beginning in 2019 for federal income tax purposes and subject to examination in various state jurisdictions. The Company does not have any reserves for income taxes that represent the Company’s potential liability for uncertain tax positions.

12.
Deferred Compensation Plan
 
Effective October 1st, 2021, the Company began offering a 401(k) plan (“401K Plan”) to its employees. All employees are eligible to participate in the 401K Plan. The Company makes matching contributions equal to 100% on the first 3% of compensation that is deferred as an elective deferral and an additional 50% on the next 2% of compensation. The Company’s matching contributions are made on a payroll-by-payroll basis. During the three months ended June 30,