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 biopharmaceutical company focused on developing novel therapies for the treatment of unmet needs of patients with retinal and refractive eye disorders. The Company’s headquarters is located in Farmington Hills,
Michigan.
The Company’s lead retinal product candidate, APX3330, is a small-molecule inhibitor of Ref-1 (reduction oxidation effector factor-1 protein).
Ref-1 is a regulator of transcription 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. APX3330 is an oral tablet administered once or twice per day in development for the treatment of diabetic retinopathy (“DR”). A
Phase 2 study in subjects with DR or diabetic macular edema was completed and results were reported in January 2023. An End-of-Phase 2 (“EOP2”) meeting with the U.S. Food and Drug Administration (the “FDA”) was held in October 2023 at
which the Company obtained agreement on the registration endpoint supporting the advancement of APX3330 into future clinical trials. Ocuphire submitted a Special Protocol
Assessment (“SPA”) to the FDA in February 2024 to seek agreement on the clinical trial protocol and statistical analysis plan.
The Company has also in-licensed APX2009 and APX2014, which are second-generation analogs of APX3330. The unique mechanism of action of this family of Ref-1 inhibitors of reducing
angiogenesis and inflammation could potentially be beneficial in treating other retinal diseases such as age-related macular degeneration, geographic atrophy, and non-ophthalmic diseases.
In November 2022, the Company entered into a license and collaboration agreement (the “Viatris License Agreement”) with FamyGen Life Sciences, Inc. (“Famy”) (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%, formerly known as Nyxol
(“PS”). PS is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. PS was approved by the FDA for the treatment for pharmacologically-induced mydriasis under the brand name
RYZUMVI in September 2023. The VEGA-2 Phase 3 study in presbyopia achieved its primary endpoint. PS is currently in Phase 3 clinical trials for presbyopia (age-related blurry near vision). On December 5, 2023, the Company received FDA
Agreement Under Special Protocol Assessment for LYNX-2, a Phase 3 Trial of PS for the treatment of decreased Visual Acuity under dim (mesopic) light conditions following keratorefractive surgery.
Reverse Merger with Rexahn
On June 17, 2020, Ocuphire, Rexahn
Pharmaceuticals, Inc. (“Rexahn”) and 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 merged 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 (“Nasdaq”) to “OCUP”.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting standards generally accepted in the United States of America (“GAAP”).
The Company does not have any subsidiaries or other entities that require consolidation for financial statement reporting purposes.
Liquidity
The accompanying 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
December 31, 2023, the Company had $50.5 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 twelve months from the date of issuance of these financial statements.
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 financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
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. Management follows approved policies established by its Board of Directors to reduce credit risk associated with the
Company’s cash deposit and investment accounts. Pursuant to these policies, the Company limits its exposure through the kind, quality and concentration of its investments. The Company’s cash and cash equivalents are held or managed by two
financial institutions in the United States. As of December 31, 2023, the Company had cash equivalents of $50.2 million that
were not eligible for coverage by Federal Deposit Insurance Corporation (“FDIC”). These balances are invested in funds whose assets consist almost entirely of securities issued by the U.S. Treasury or guaranteed by the U.S. government.
Short-term Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and records them 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 statements of comprehensive (loss) income. 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 December 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 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 (See Note 9 – License and Collaboration Agreements).
Accounts Receivable and Allowances for Credit Losses
The Company records a provision for credit losses, when
appropriate, based on historical experience, current conditions and reasonable supportable forecasts. In estimating the allowance for credit losses, the Company considers, among other factors, the estimate of credit losses over
the remaining expected life of the asset, primarily using historical experience and current 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 credit losses has been recorded during the periods presented.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation costs, for personnel in
functions not directly associated with research and development activities. Other significant costs include insurance coverage for directors and officers and other property and liability exposures, legal fees relating to intellectual property and
corporate matters, professional fees for accounting and tax services, other services provided by business consultants and legal settlements.
Research and Development
Research and development expenses consist of costs
incurred in performing research and development activities, including compensation, benefits and stock-based compensation costs for research and development employees and costs for consultants, costs associated with nonclinical studies and
clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of
overhead expenses. Research and development expenses include costs that are reimbursed under the Viatris License Agreement (See Note 9 – License and
Collaboration Agreements).
Financing costs
Financing costs consist of issuance costs
attributed to an equity line financing facility with Lincoln Park (See Note 8 – Stockholders’ Equity).
Interest Expense
Interest expenses were attributed to interest on principal related to a short-term loan during the period it was outstanding. The short-term loan was fully repaid in May 2022. Other Income (Expense), net
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. In addition, this line item includes payments made by the Company in connection with the Contingent Value Rights Agreement discussed further below with former Rexahn
shareholders.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) 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.
Derivative Liability
The Company evaluates all
features contained in financing agreements to determine if there are any embedded derivatives that require separation from the underlying agreement under ASC 815 – Derivatives and Hedging. An embedded
derivative that requires separation is accounted for as a separate liability from the host agreement. The separated embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a
separated embedded derivative at each reporting period in the statements of comprehensive (loss) income under the fair value change in derivative liability line item. The Company determined that certain features under an equity line financing
(See Note 8 — Stockholders’ Equity) collectively qualified as an embedded derivative. The derivative was accounted for separately from the underlying equity line financing agreement.
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 December 31, 2023 and
2022, the fair values of cash and cash equivalents, accounts receivable, contract assets and unbilled receivables, prepaid and other current assets, accounts payable, and 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
derivative liability associated with the equity line financing facility (See Note 8 – Stockholders’ Equity) was based on cash flow models discounted at current implied market rates representing expected returns by market participants for
similar instruments and are based on Level 3 inputs as well the Company’s underlying stock price and associated volatility, expected term of the financing and market interest rates. 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 years ended December 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 and derivative liabilities measured at fair value on a recurring basis using observable Level
1 and Level 3 inputs, as applicable, for the years ended December 31, 2023 and 2022 (in thousands):
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 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 earnings per share 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 financial statements.
In November 2023, the FASB issued ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements, primarily through disclosures of significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The guidance must be applied retrospectively to all prior periods presented. The Company is currently evaluating the impact of adoption of this guidance on its financial statements. In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years and should be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact of adoption of this guidance on its financial statements. |
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