Company Description and Summary of Significant Accounting Policies |
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| Company Description and Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 twice-a-day oral tablet designed to target multiple pathways relevant to retinal and choroidal (the vascular layer of the eye) diseases such as diabetic retinopathy (“DR”) and diabetic macular edema
(“DME”) which, if left untreated, can result in permanent visual acuity loss and eventual blindness. The Company has also in-licensed APX2009 and APX2014, which are second-generation product candidates and analogs of APX3330.
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 treatment 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).
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”.
The Company’s headquarters is located in Farmington Hills, Michigan.
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 and
increased inflation. 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.
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 close 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 March 31, 2023, the Company had $39.0
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 May 15,
2023, which is the date that these condensed financial statements are being 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 ultimate 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. 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 one financial institution in the United States. Amounts on deposit exceed
federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. In addition, the Company limits its exposure
through the kind, quality and concentration of its investments. As of March 31, 2023, the Company had deposits that exceeded federally insured amounts by $38.7 million.
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 March 31, 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 Asset
The Company recognizes a contract asset when goods or services are transferred to the
customer before the customer pays or before payment is due, excluding any amounts presented as an accounts receivable. The Company recorded a contract asset in connection with a license and collaboration agreement in the amount of $2.5 million as of March 31, 2023. See Note 9- License and Collaboration Agreements.
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.
Warrant Liabilities
The Company assumed Rexahn warrants issued prior to the Merger. The Company accounts for these warrants as a liability while outstanding at fair value during
periods when certain provisions preclude equity accounting treatment for these instruments. The change in fair value of the warrant liabilities while outstanding are recognized as a component of the fair value change in warrant
liabilities line item in the condensed statements of comprehensive loss.
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:
As of March 31, 2023 and December 31, 2022, the fair values of cash and cash equivalents, accounts receivable, contract asset,
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 months ended March 31, 2023
and 2022.
The fair value of financial instruments measured on a
recurring basis is as follows (in thousands):
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 three months ended March 31, 2023 and 2022 (in thousands):
The following table provides a roll-forward of the warrant liabilities measured at fair value on a recurring basis using
unobservable level 3 inputs for the three months ended March 31, 2023 and 2022 (in thousands):
The fair value of the warrant liabilities associated with the Rexahn warrants was de minimis during the periods presented. See Note 2
- Merger.
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 a Securities and Exchange Commission (“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.
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