mirn_Current_Folio_10Q

Table of Contents

 

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 September 30, 2015 

 

or 

 

 

 

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

 

Commission File Number: 001-37566

 


 

Mirna Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

26-1824804

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

2150 Woodward Street, Suite 100
Austin, TX (Address of principal executive offices)

 

78744

(Zip Code)

 

(512) 901-0900

(Registrant’s telephone number, including area code)

 


 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

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

 

As of November 12, 2015 there were 20,830,555 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 


 

Table of Contents

Mirna Therapeutics, Inc. 

TABLE OF CONTENTS

 

 

Page

PART I—FINANCIAL INFORMATION 

 

 

Item 1. Condensed Financial Statements 

 

 

Condensed Balance Sheets as of September 30, 2015 and December 31, 2014 

 

 

Condensed Statements of Operations for the three months and nine months ended September 30, 2015 and 2014 

 

 

Condensed Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 

 

 

Notes to Financial Statements 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

16 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

23 

 

 

Item 4. Controls and Procedures 

23 

 

 

PART II—OTHER INFORMATION 

25 

 

 

Item 1. Legal Proceedings 

25 

 

 

Item 1A. Risk Factors 

25 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

72 

 

 

Item 3. Defaults Upon Senior Securities 

73 

 

 

Item 4. Mine Safety Disclosures 

73 

 

 

Item 5. Other Information 

73 

 

 

Item 6. Exhibits 

74 

 

 

SIGNATURES 

76 

 

 

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PART I—FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements

 

 

Mirna Therapeutics, Inc.

 

 

Condensed Consolidated Balance Sheets

 

 

 

 

 

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,703

 

$

9,319

 

Grant reimbursement and other receivables

 

 

94

 

 

155

 

Prepaid expenses and other current assets

 

 

303

 

 

143

 

Total current assets

 

 

36,100

 

 

9,617

 

Property and equipment, net

 

 

266

 

 

116

 

Deferred offering costs

 

 

1,663

 

 

92

 

Other noncurrent assets

 

 

57

 

 

 

Total assets

 

$

38,086

 

$

9,825

 

Liabilities, Convertible Preferred Stock and Stockholders’ Deficit

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,236

 

$

871

 

Accrued expenses

 

 

2,749

 

 

1,628

 

Total liabilities

 

 

4,985

 

 

2,499

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value; 157,650,538 shares authorized at September 30, 2015 (unaudited); 84,000,783 shares authorized at December 31, 2014:

 

 

 

 

 

 

 

Series A: 3,192,083 shares designated; 212,754 shares issued and outstanding at September 30, 2015 (unaudited) and December 31, 2014; aggregate liquidation preference of $6.4 million at September 30, 2015 (unaudited) and December 31, 2014

 

 

6,384

 

 

6,384

 

Series B: 540,341 shares designated; 36,019 shares issued and outstanding at September 30, 2015 (unaudited) and December 31, 2014; aggregate liquidation preference of $1.5 million at September 30, 2015 (unaudited) and December 31, 2014

 

 

1,500

 

 

1,500

 

Series B- 1: 10,914,947 shares designated; 727,643 shares issued and outstanding at September 30, 2015 (unaudited) and December 31, 2014; aggregate liquidation preference of $7.5 million at September 30, 2015 (unaudited) and December 31, 2014

 

 

7,498

 

 

7,498

 

Series C: 69,353,712 shares designated; 4,623,523 shares issued and outstanding at September 30, 2015 (unaudited) and December 31, 2014; aggregate liquidation preference of $42.0 million at September 30, 2015 (unaudited) and $39.9 million at December 31, 2014

 

 

42,007

 

 

39,895

 

Series D: 73,649,755 shares designated; 4,559,675 shares issued and outstanding  September 30, 2015 (unaudited); No shares issued and outstanding at December 31, 2014; aggregate liquidation preference of $43.4 million at September 30, 2015 (unaudited)

 

 

43,446

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 175,100,000 shares authorized at  September 30, 2015 (unaudited); 95,000,000 shares authorized at December 31, 2014;  111,825 shares issued and outstanding at September 30, 2015 (unaudited); 83,325 shares issued and outstanding at December 31, 2014

 

 

 

 

 

Additional paid in capital

 

 

 

 

 

Accumulated deficit

 

 

(67,734)

 

 

(47,951)

 

Total stockholders’ deficit

 

 

(67,734)

 

 

(47,951)

 

Total liabilities, convertible preferred stock and stockholders’ deficit

 

$

38,086

 

$

9,825

 

 

The accompanying notes are an integral part of these condensed financial statements.

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Mirna Therapeutics, Inc.

Condensed Statements of Operations (Unaudited)

 

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,683

 

$

2,788

 

$

12,584

 

$

7,035

 

General and administrative

 

 

1,556

 

 

715

 

 

3,618

 

 

2,501

 

Write-off of offering costs

 

 

 

 

1,920

 

 

 

 

1,920

 

Total operating expenses

 

 

6,239

 

 

5,423

 

 

16,202

 

 

11,456

 

Other (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (income)

 

 

(8)

 

 

 

 

(8)

 

 

 

Total other (income)

 

 

(8)

 

 

 —

 

 

(8)

 

 

 —

 

Net loss

 

$

(6,231)

 

$

(5,423)

 

$

(16,194)

 

$

(11,456)

 

Less: Accretion and dividends on convertible preferred stock

 

 

(1,554)

 

 

(712)

 

 

(4,217)

 

 

(2,112)

 

Net loss attributable to common stockholders

 

$

(7,785)

 

$

(6,135)

 

$

(20,411)

 

$

(13,568)

 

Net loss per share attributable to common stockholders—basic and diluted

 

$

(82.16)

 

$

(73.73)

 

$

(222.70)

 

$

(303.72)

 

Common shares used to compute basic and diluted net loss per share attributable to common stockholders

 

 

94,753

 

 

83,204

 

 

91,650

 

 

44,672

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

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Mirna Therapeutics, Inc. 

Condensed Consolidated Statements of Cash Flows (Unaudited) 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(16,194)

 

$

(11,456)

 

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37

 

 

26

 

Stock-based compensation

 

 

561

 

 

287

 

Issuance of stock for services

 

 

 

 

4

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Grant reimbursement and other receivables

 

 

61

 

 

39

 

Prepaid expenses and other current assets

 

 

(160)

 

 

(116)

 

Deferred offering costs

 

 

 

 

170

 

Other noncurrent assets

 

 

(57)

 

 

17

 

Accounts payable

 

 

1,290

 

 

75

 

Accrued expenses

 

 

(57)

 

 

363

 

Net cash used in operating activities

 

 

(14,519)

 

 

(10,591)

 

Investing activities

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(187)

 

 

(30)

 

Net cash used in investing activities

 

 

(187)

 

 

(30)

 

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock

 

 

41,249

 

 

 

Proceeds from exercise of stock options

 

 

67

 

 

209

 

Payment of offering costs

 

 

(226)

 

 

 

Cash provided by financing activities

 

 

41,090

 

 

209

 

Net increase (decrease) in cash and cash equivalents

 

 

26,384

 

 

(10,412)

 

Cash and cash equivalents at beginning of period

 

 

9,319

 

 

23,182

 

Cash and cash equivalents at end of period

 

$

35,703

 

$

12,770

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

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Mirna Therapeutics, Inc. 

 

Notes to Condensed Consolidated Financial Statements (Unaudited) 

 

1. Nature of Business and Basis of Presentation

 

Nature of business

 

Mirna Therapeutics, Inc. (“Mirna” or “the Company”) is a clinical stage biopharmaceutical company developing a broad pipeline of microRNA‑based oncology therapeutics. The Company was incorporated in Delaware in December 2007 as a wholly‑owned subsidiary of Asuragen, Inc. (“Asuragen”) and was spun out to existing Asuragen stockholders in December 2009. The Company is located in Austin, Texas.

 

In October 2015, the Company sold 6,250,000 shares of common stock, $0.001 par value per share, in an underwritten public offering (the “IPO”) and 2,395,010 shares of common stock in a concurrent private placement, with both offerings at a price of $7.00 per share.  The underwriters of the IPO purchased an additional 704,962 shares of common stock pursuant to their option to purchase additional shares.  The Company’s aggregate net proceeds from the IPO were $43.7 million, after deducting the transaction offering costs and the underwriting discounts incurred. The Company also received net proceeds of $16.7 million after deducting the offering transaction costs from the concurrent private placement.

 

The Company continues to be subject to a number of risks common to companies in similar stages of development. Principal among these risks are the uncertainties of technological innovations, dependence on key individuals, development of the same or similar technological innovations by the Company’s competitors and protection of proprietary technology. The Company’s ability to fund its planned clinical operations, including completion of its planned trials, is expected to depend on the amount and timing of cash receipts from future collaboration or product sales and/or financing transactions. The Company believes that its cash and cash equivalents of $35.7 million at September 30, 2015, plus the proceeds from the IPO and concurrent private placement of common stock completed in October 2015 (see Note 14), will enable the Company to maintain its current and planned operations for the foreseeable future.

 

Basis of presentation

 

The accompanying interim condensed consolidated financial statements as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014, and the related interim information contained within the notes to the financial statements, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which include only normal recurring adjustments necessary to state fairly the Company’s financial position as of September 30, 2015, and the results of its operations and cash flows for the nine months ended September 30, 2015 and 2014. Such adjustments are of a normal and recurring nature. The interim financial data as of September 30, 2015 is not necessarily indicative of the results to be expected for the year ending December 31, 2015, or for any future period. The IPO and the concurrent private placement, which were completed in October 2015, are not reflected in these financial statements.

 

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2014 included in the Company’s Form S-1, as amended, most recently filed with the Securities and Exchange Commission on September 30, 2015, and the related prospectus filed with the Securities and Exchange Commission on October 1, 2015.

 

Recent accounting pronouncements

 

In June 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014‑10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810 Consolidation. These updates remove the definition of a development stage entity from the Master Glossary of the

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Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception‑to‑date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This standard is effective for annual reporting periods beginning after December 15, 2014. We have early adopted this standard in the presentation of our 2014 financial statements.

In August 2014 the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. For all entities, the ASU is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. 

 

2. Summary of Significant Accounting Policies

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company’s 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.

 

The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The board of directors determined the estimated fair value of the Company’s common stock based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector and the prices at which the Company sold shares of convertible preferred stock, the superior rights and preferences of securities senior to its common stock at the time and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company. 

 

The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the AICPA Practice Aid, to estimate the fair value of its common stock. The methodologies included the Option Pricing Method utilizing the Backsolve Method (a form of the market approach defined in the AICPA Practice Aid) and the Probability‑Weighted Expected Return Method based upon the probability of occurrence of certain future liquidity events such as an initial public offering or sale of the Company. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

 

Research and development costs

 

Research and development costs are expensed as incurred. Research and development costs include salaries and personnel‑related costs, consulting fees, fees paid for contract research services, the costs of laboratory equipment and facilities, license fees and other external costs. The Company accounts for government grants as a reduction of research and development expenses. Government grants are recorded at the time the related research and development costs have been incurred by the Company and, accordingly, become eligible for reimbursement. The Company accrues for government grants that have been earned but not yet received.

 

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

 

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Stock‑based compensation

 

The Company accounts for its stock‑based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock‑based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For stock options granted to employees and to members of the board of directors for their services on the board of directors, the Company estimates the grant date fair value of each option award using the Black‑Scholes option‑pricing model. The use of the Black‑Scholes option‑pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates and expected dividend yields of the common stock. For awards subject to service‑based vesting conditions, the Company recognizes stock‑based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period.

 

During the three and nine months ended September 30, 2015 and 2014, the Company recorded stock‑based compensation expense for employee stock options, which was allocated as follows in the statements of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2015

    

 

2014

    

 

2015

 

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

$

57

 

$

30

 

$

137

 

$

82

 

General and administrative expense

 

 

153

 

 

71

 

 

424

 

 

205

 

 

 

$

210

 

$

101

 

$

561

 

$

287

 

 

The fair value of each stock option award is estimated on the date of grant using the Black‑Scholes option‑pricing model. Expected volatility for the Company’s common stock was determined based on an average of the historical volatility of a peer group of similar companies. The Company has limited stock option exercise information. Accordingly, the expected term of stock options granted was calculated using the simplified method, which represents the average of the contractual term of the stock option and the weighted‑average vesting period of the stock option. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk‑free rate for periods within the expected life of the stock option is based upon the U.S. Treasury yield curve in effect at the time of grant.

 

Comprehensive loss

 

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non‑owner sources. The Company had no items of other comprehensive loss for the nine months ended September 30, 2015 and 2014.

 

Deferred offering costs

 

Deferred offering costs, which consist of direct incremental legal and professional accounting fees relating to preferred stock private placements and initial public offerings, are capitalized. The deferred offering costs are offset against the proceeds from the offering upon the consummation of the offering. In 2014, the Company’s initial public offering was delayed and the deferred offering costs for that offering in the amount of $1,920,000 were expensed.

 

Subsequent events

 

The Company considered events or transactions occurring after the balance sheet date but prior to the date the consolidated financial statements are available to be issued for potential recognition or disclosure in its consolidated financial statements. Subsequent events have been evaluated through the date the financial statements were issued.

 

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Convertible preferred stock

 

The Company initially records convertible preferred stock that may be redeemed at the option of the holder or based upon the occurrence of events not under the Company’s control outside of stockholders’ deficit at the value of the proceeds received, net of issuance costs. Subsequently, the Company adjusts the carrying value to the redemption value at each reporting period. In the absence of retained earnings, these accretion charges are recorded against additional paid‑in capital, if any, and then to accumulated deficit.

 

Net loss per share attributable to common stockholders

 

The Company uses the two‑class method to compute net loss per common share attributable to common stockholders because the Company has issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings of the Company. The two‑class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. Holders of the Company’s Series A, Series B, Series B‑1, Series C and Series D convertible preferred stock are entitled, on a pari passu basis, to receive dividends when, as and if declared by the board of directors, prior and in preference to any declaration or payment of any dividend on the common stock until such time as the total dividends paid on each share of Series C and Series D convertible preferred stock is equal to its cumulative dividends. The Series A, Series B and Series B‑1 convertible preferred stock would also be entitled to the dividend amount paid to common stockholders on an as‑if‑converted‑to‑common stock basis. As a result, all series of the Company’s convertible preferred stock are considered participating securities. All of the Company’s outstanding preferred stock was converted to commons stock in connection with the IPO in October 2015.

 

Under the two‑class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted‑average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed by using the weighted‑average number of shares of common stock outstanding. Due to net losses for the three and nine months ended September 30, 2015 and 2014, basic and diluted net loss per share attributable to common stockholders were the same, as the effect of all potentially dilutive securities would have been anti‑dilutive.

 

Reverse stock split

 

In September 2015, the stockholders approved a reverse stock split of the outstanding shares of the Company’s common stock,  Series A convertible preferred stock, Series B convertible preferred stock, Series B-1 convertible preferred stock, Series C convertible preferred stock and Series D convertible preferred stock in which every 15 shares were converted into one share of the related stock. No fractional shares were issued as a result of the reverse stock split. The par value for each class of stock remained at $0.001 per share. The effect of the reverse stock split has been recognized retroactively, in all share and price per share data presented in the financial statements and the notes to the financial statements.

 

3. Grants

 

Total government grants recognized as a reduction of research and development expenses during the three months ended September 30, 2015 and 2014 were $244,000, and $12,000, respectively. Total government grants recognized as a reduction of research and development expenses during the nine months ended September 30, 2015 and 2014 were $432,000 and $89,000, respectively.

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4. Property and Equipment

 

Property and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Machinery, computers and equipment

 

$

560

 

$

373

 

Leasehold improvements

 

 

18

 

 

18

 

Accumulated depreciation

 

 

(312)

 

 

(275)

 

 

 

$

266

 

$

116

 

 

Depreciation expense was approximately $12,000 and $9,000 for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense was approximately $37,000 and $26,000 for the nine months ended September 30, 2015 and 2014, respectively.

 

5. Convertible Preferred Stock

 

In March 2015 and April 2015, the Company issued 4,559,675 shares of the Company’s Series D convertible preferred stock (“Series D”) with gross proceeds of $41.8 million. All of the Company’s outstanding preferred stock was converted to common stock in connection with the IPO in October 2015.

 

6. Common Stock

 

The voting, dividend and liquidation rights of holders of shares of common stock are subject to and qualified by the rights, powers and preferences of the holders of shares of convertible preferred stock. The Company’s common stock has the following characteristics:

 

Voting

 

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.

 

Dividends

 

The holders of shares of common stock are entitled to receive dividends, if and when declared by the Company’s board of directors. Cash dividends may not be declared or paid to holders of common stock until paid on each series of outstanding convertible preferred stock in accordance with their respective terms. As of December 31, 2014 and September 30, 2015, no cash dividends have been declared or paid since the Company’s inception.

 

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Reserved for future issuance

 

The Company has reserved for future issuance the following number of shares of common stock as of December 31, 2014 and September 30, 2015:

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Conversion of Series A convertible preferred stock

 

212,754

 

212,754

 

Conversion of Series B convertible preferred stock

 

36,019

 

36,019

 

Conversion of Series B-1 convertible preferred stock

 

727,643

 

727,643

 

Conversion of Series C convertible preferred stock

 

4,623,523

 

4,623,523

 

Conversion of Series D convertible preferred stock

 

4,559,675

 

 

Options to purchase common stock

 

1,528,475

 

588,389

 

 

 

11,688,089

 

6,188,328

 

 

 

7. Stock Option Plans

 

The Company adopted the 2008 Long Term Incentive Plan, which allows for incentive stock options for its employees and nonqualified stock options (inclusive of restricted stock units and stock appreciation rights) (the “2008 Plan”) for employees and nonemployees under which an aggregate of 1,061,585 stock options and stock purchase rights may be granted. Options under the 2008 Plan have a maximum life of 10 years. Options vest at various intervals, as determined by the Company’s board of directors at the date of grant.

 

In August 2015, the Company’s board of directors approved the 2015 Equity Incentive Aware Plan, (the “2015 Plan”), which was effective in connection with the pricing of the IPO on September 30, 2015.  The 2015 Plan provides for the granting of a variety of stock‑based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalent awards, stock payment awards, performance awards and other stock‑based awards. The 2015 Plan is the successor to the 2008 Plan and the 800,494 options outstanding in the 2008 Plan at September 29, 2015 may be transferred to the 2015 Plan if awards terminate, expire or lapse for any reason without the delivery of shares to the holder.  Under the 2015 Plan, 1,671,800 shares of the Company’s common stock will be initially reserved for issuance, and will be added to the outstanding shares transferred from the 2008 Plan for a total of 2,472,294 authorized for grant under the 2015 Plan at September 30, 2015.

 

In August 2015, the Company’s board of directors approved the 2015 Employee Stock Purchase Plan (the “ESPP), which was effective in connection with the pricing of the IPO on September 30, 2015. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for set offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period.  There were no sales under the ESPP as of September 30, 2015. Shares available for future purchase under the ESPP were 167,180 at September 30, 2015.

 

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The Company’s stock option activity for the nine months ended September 30, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

    

 

 

 

 

 

 

Average

 

WeightedAverage

 

 

 

Number

 

Exercise

 

Contractual

 

 

 

of Shares

 

Price

 

Life (years)

 

Outstanding at December 31, 2014

 

500,911

 

 

4.95

 

8.52

 

Granted

 

1,056,082

 

 

6.81

 

 

 

Exercised

 

(28,500)

 

 

2.35

 

 

 

Forfeited/canceled

 

(18)

 

 

7.5

 

 

 

Outstanding at September 30, 2015

 

1,528,475

 

$

6.29

 

9.24

 

Options exercisable at December 31, 2014

 

162,343

 

$

2.85

 

7.75

 

Options exercisable at September 30, 2015

 

307,606

 

$

4.46

 

7.75

 

 

 

As of September 30, 2015 there was approximately $5,477,000 of unrecognized compensation cost related to the stock options granted under the 2015 Plan, which is expected to be amortized over the next 3.4 years. There were no restricted stock units or stock appreciation rights granted under the 2015 Plan as of September 30, 2015.

 

8. Income Taxes

 

The Company recorded no provision for income taxes as of September 30, 2015 due to reported net losses since inception.

 

During the nine months ended September 30, 2015 and 2014, the Company had no interest and penalties related to income taxes.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based upon the Company’s lack of earnings history. The Company files income tax returns in the U.S. federal and Texas jurisdictions. The statute of limitations for assessment by the Internal Revenue Service (“IRS”) is open for tax years ending December 31, 2014, 2013, 2012 and 2010, although carryforward attributes that were generated for tax years prior to 2011 may still be adjusted upon examination by the IRS if they either have been, or will be, used in a future period. The 2010 and subsequent tax years remain open and subject to examination by the State of Texas. There are currently no federal or state income tax audits in progress.

 

9. Shared Services Agreement with Asuragen

 

On November 3, 2009, the Company entered into an agreement with Asuragen under which Asuragen shares space with and provides services to the Company in support of the Company’s business. Such services have included human resources, finance and accounting, information technology, purchasing, shipping and receiving, equipment use, and various facility expenses. The Company pays Asuragen a monthly service fee for the services provided by Asuragen to the Company, which does not include direct charges incurred by Asuragen on behalf of the Company. The Company paid Asuragen approximately $100,000, and $134,000 for the three months ended September 30, 2015 and 2014, respectively, and approximately $295,000 and $394,000 for the nine months ended September 30, 2015 and 2014, respectively, for shared services.

 

On October 31, 2014, the Company entered into a sublease agreement with Asuragen for use of office, laboratory and shared space. Total rent expense was $67,000 for the first nine months of 2015. Both the lease and the shared service agreements expire on August 31, 2016, with the ability by either party to terminate with six months’ notice.

 

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10. Retirement Plan

 

The Company sponsors a defined contribution plan that provides all eligible employees an opportunity to accumulate funds for retirement. Employees who have completed 90 days of service and are at least 21 years of age may contribute to this plan, and these contributions are matched by the employer on a basis that is determined annually by the Company’s board of directors. The Company may also make profit sharing contributions to the plan. Employer contributions for the three months ended September 30, 2015 and 2014 were approximately $24,000 and $24,000, respectively, and approximately $86,000 and $67,000 for the nine months ended September 30, 2015 and 2014, respectively.

 

11. License agreements

 

Marina Biotech, Inc.

 

In December 2011, the Company entered into a licensing agreement with Marina, pursuant to which Marina granted to the Company a license to liposomal delivery technology, NOV340, known under the brand name “SMARTICLES,” to develop and commercialize drug products incorporating Marina’s delivery system exclusively in combination with the Company’s lead therapeutic product, MRX34. In December 2013, the license agreement was amended to include three additional specific mimics selected by the Company to use with SMARTICLES on an exclusive basis, and in May 2015, the license agreement was further amended to reduce the amount of a specific milestone payment and to provide for the prepayment of such milestone payment. In August 2015, the Company also entered into a side letter to the license agreement, under which it exercised its right to select an additional specific microRNA, in exchange for the payment of a specified selection fee payment.

 

The Company has paid Marina approximately $2.1 million through September 30, 2015 in up‑front and milestone payments and as consideration for the inclusion within the license of four additional microRNA compounds. As the Company progresses with respect to development and commercialization of its products, the Company will be required to make payments to Marina based upon the achievement of certain development and regulatory milestones, totaling up to $6 million in the aggregate for each licensed product. The Company has agreed to pay up to an additional $4 million per licensed product upon the achievement of certain regulatory milestones for a specified number of additional indications, leading to a maximum cap on all milestone payments of $10 million per product. The exception to this is for the Company’s lead therapeutic product, MRX34, where the aggregate of all remaining development and regulatory milestone payments due to Marina, including for all additional indications, is $4.1 million.

 

In addition to milestone payments, the Company will be required to pay low single digit royalties on net sales of licensed products other than MRX34, subject to customary reductions and offsets. As a result of the Company’s 2013 amendment to the agreement with Marina, the Company is no longer required to pay a royalty to Marina with respect to sales of the Company’s lead therapeutic product, MRX34. If the Company sublicenses its rights under the license from Marina, for each optioned microRNA compound covered by such sublicense the Company is required to pay a specified lump‑sum payment representing the remainder of the selection fee for the inclusion of such microRNA compound within the scope of the license agreement, as well as a portion of any revenue the Company receives from such sublicensees at a tiered percentage between the very low single digits and the mid‑teens, depending on the circumstances in which the sublicense is entered into.

 

Yale University

 

In 2006, Asuragen entered into an exclusive license agreement with Yale University (“Yale”) under certain patent rights relating to microRNAs arising from the laboratory of Dr. Frank Slack. This agreement was assigned to the Company by Asuragen in connection with the Company’s acquisition of certain assets, including patent rights, in 2009. In February 2014, the Company as successor‑in‑interest to Asuragen, amended and restated the exclusive license agreement. Some of the patent filings in the Company’s intellectual property portfolio that are licensed to the Company by Asuragen are also included in the patents licensed under the agreement with Yale. The Company will be required to pay royalties to Yale on net sales of licensed products that contain specified microRNAs, at a percentage ranging from the very low to the low single digits, subject to customary reductions and offsets. The Company will also be required to

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pay to Yale a portion of specified gross revenue that the Company receives from the Company’s sublicensees at a percentage in the mid‑single digits.

 

The Company will be required to make payments for achievement of certain development and regulatory milestones by products containing one specified microRNA and covered by the licensed patents, of up to $600,000 in the aggregate for each such product, subject to reduction in certain circumstances. In addition, the Company is required to pay an annual license maintenance fee and minimum annual royalties under certain circumstances.

 

12. Commitments and Contingencies

 

Shared Services Agreement

 

Pursuant to a shared services agreement and sublease with Asuragen (see Note 11), the Company has remaining commitments for payments for the last three months of 2015 and the first eight months of 2016 as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2015

    

2016

    

Total

 

Shared Services Agreement

 

$

97

 

$

287

 

$

384

 

Sublease Agreement

 

 

22

 

 

59

 

 

81

 

Shared Services Agreement

 

$

119

 

$

346

 

$

465

 

 

Legal Contingencies

 

The Company does not currently have any contingencies related to ongoing legal matters.

 

13. Net Loss Per Share Attributable to Common Stockholders

 

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands, except share and per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(6,231)

 

$

(5,423)

 

$

(16,194)

 

$

(11,456)

 

Accretion of convertible preferred stock to redemption value

 

 

 

 

 —

 

 

(448)

 

 

 

Accrued dividends on convertible preferred stock

 

 

(1,554)

 

 

(712)

 

 

(3,769)

 

 

(2,112)

 

Net loss attributable to common stockholders—basic and diluted

 

 

(7,785)

 

 

(6,135)

 

 

(20,411)

 

 

(13,568)

 

Weighted-average number of common shares—basic and diluted

 

 

94,753

 

 

83,204

 

 

91,650

 

 

44,672

 

Net loss per share attributable to common stockholders—basic and diluted

 

$

(82.16)

 

$

(73.73)

 

$

(222.70)

 

$

(303.72)

 

 

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The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if‑converted method, have been excluded from the computation of diluted weighted‑average common shares outstanding, because including them would have had an anti‑dilutive effect due to the losses reported.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock

 

10,159,614

 

5,599,939

 

10,159,614

 

5,599,939

 

Stock options

 

1,528,475

 

490,828

 

1,528,475

 

490,828

 

 

 

11,688,089

 

6,090,767

 

11,688,089

 

6,090,767

 

 

 

As the Company incurred a net loss for the three months and the nine months ended September 30, 2015, there is no income allocation required under the two‑class method or dilution attributed to pro forma weighted‑average shares outstanding in the computation of pro forma diluted loss per share attributable to common stockholders.

 

14. Subsequent Events

 

Private Placement Agreement with CPRIT

 

In September 2015, the Company entered into a new grant contract with Cancer Prevention and Research Institute of Texas (“CPRIT”) in connection with an award of approximately $16.8 million. This 2015 award has a three‑year term, subject to extension by mutual agreement by the Company and CPRIT. The 2015 award is in the form of an agreement by CPRIT to purchase $16.8 million of shares of common stock of the Company in a private placement concurrent with an initial public offering of the Company’s common stock. On October 5, 2015, CPRIT purchased 2,395,010 shares of the Company’s common stock at $7.00 per share.  Net proceeds from the private placement, after related transaction offering costs, were approximately $16.7 million. Pursuant to the grant contract, the Company will conduct preclinical and clinical development of certain combination therapy approaches for lung or liver cancer involving the Company’s lead product candidate, MRX34. If, at any time during the term of the grant contract and following the consummation of our initial public offering, the Company determines that the project provided for by the grant contract is no longer commercially feasible for it, then the Company and CPRIT are required to consult in order to reallocate the remaining unspent budget for the project to another oncology project in our product candidate pipeline.

 

Initial Public Offering

 

In October 2015, the Company issued 6.25 million shares of common stock in an underwritten public offering, with a price of $7.00 per share.  The underwriters purchased an additional 704,962 shares of common stock pursuant to their option to purchase additional shares.  The Company received aggregate net proceeds of approximately $43.7 million in the public offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company.

 

In conjunction with the IPO, the Company’s Series A, Series B, Series B‑1, Series C and Series D preferred stock was converted into an aggregate of 10,159,614 shares of the Company’s common stock. In connection with the consummation of the IPO in October 2015, the cumulative dividends on the Company’s Series C and Series D preferred stock, which totaled approximately $8.5 million, were paid in‑kind with a total of 1,209,128 shares of common stock issued to shareholders.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2014, included in our prospectus dated September 30, 2015, filed with the U.S. Securities and Exchange Commission (SEC) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Prospectus”).

 

Special note regarding forward-looking statements

 

This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Overview

 

We are a clinical‑stage biopharmaceutical company developing a broad pipeline of microRNA‑based oncology therapeutics. microRNAs are naturally occurring, short ribonucleic acid, or RNA, molecules, or oligonucleotides, that play a critical role in regulating key biological pathways. Misexpression of even a single microRNA can contribute to disease development and tumor suppressor microRNAs are commonly reduced in cancer. Our scientists and others at leading academic institutions have identified numerous tumor suppressor microRNAs that play key roles in preventing normal cells from becoming cancerous and facilitating proper cancer immunosurveillance. We are developing mimics of naturally occurring microRNAs that are designed to restore this tumor suppressor activity and aid appropriate tumor immune response. This approach is known as microRNA replacement therapy. Our lead product candidate, MRX34, a mimic of naturally occurring microRNA‑34 (miR‑34) encapsulated in a liposomal nanoparticle formulation, is the first microRNA mimic to enter clinical development and has demonstrated clinical proof of concept as a single agent in our ongoing Phase 1 clinical trial. We believe that microRNA mimics represent a new paradigm in cancer therapy and have the potential to create a new, important class of effective cancer drugs, that can potentially be used alone or in combination with other cancer therapeutics. We plan to develop MRX34 as a monotherapy and in combination with other therapeutic modalities, such as targeted therapies and immuno‑oncology agents.

 

We are developing a pipeline of tumor suppressor microRNA mimics. We believe that these mimics have the potential to become promising new oncology therapeutics due to their capacity to regulate many different oncogenes across multiple oncogenic pathways. We believe our technology is supported by a strong intellectual property position, which we continue to expand and strengthen. Our scientists have also discovered functions of microRNAs in numerous diseases other than cancer, which may provide us an opportunity to expand this novel technology into other therapeutic areas of unmet medical need. We believe these microRNAs represent future partnering or diversification opportunities.

 

We were incorporated in 2007 under the laws of Delaware and were maintained as a wholly‑owned subsidiary of our former parent company, Asuragen, Inc., or Asuragen, until the end of 2009, when we became an independent entity.

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Our operations have focused on developing our understanding of and capabilities in microRNA biology, identifying potential product candidates, undertaking preclinical studies, initiating and conducting a clinical trial, protecting and enhancing our intellectual property estate and providing general and administrative support for these activities. We have not generated any revenue from product sales and, to date, have funded our operations primarily through the private placement of convertible preferred stock, federal and state government grants and support from our former parent company, Asuragen. From our inception through September 30, 2015, we have raised an aggregate of approximately $101.9 million to fund our operations, of which approximately $89.9 million was from the issuance of preferred stock for cash and assets and approximately $12.0 million was from federal and state grants.

 

Since our inception, we have incurred significant operating losses. Our net loss was $15.8 million for the year ended December 31, 2014 and $16.2 million for the nine months ended September 30, 2015. At September 30, 2015, we had an accumulated deficit of $67.7 million. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase significantly as we conduct clinical trials for MRX34 and other product candidates; manufacture clinical trial materials; continue to discover, validate and develop additional novel product candidates; expand and protect our intellectual property portfolio; and hire additional development and scientific personnel.

 

First Nine Months of 2015 and Other Recent Highlights

 

On September 30, 2015, our registration statement on Form S-1 relating to our initial public offering (“IPO”) of common stock became effective. Our IPO closed on October 6, 2015 and we issued and sold 6,250,000 shares of our common stock at an initial price of $7.00 per share of common stock.  On October 9, 2015, we closed the offering of an additional 704,962 shares issued pursuant to the partial exercise by the underwriters of their over-allotment option. We received aggregate cash proceeds of approximately $43.7 million from our IPO, net of underwriting discounts and commissions and estimated offering costs payable by us.

 

On October 5, 2015, we issued 2,395,010 shares of common stock in a private placement at a price of $7.00 per share.  Net proceeds from the private placement were approximately $16.7 million, net of estimated offering costs payable by us.

 

 

Financial Operations Overview

 

Revenue

 

We have not generated any revenue from product sales or from collaborations. In the future, we may generate revenue from collaborations and licenses. Revenue may fluctuate from period to period, and the timing and extent of any future revenue will depend on our ability to advance our product candidates through the clinical trial process and to obtain regulatory approval and our ability, or our future partners’ ability, to commercialize our product candidates.

 

Research and Development Expenses

 

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include the following:

 

·

employee‑related expenses, including salaries, benefits, travel and stock‑based compensation;

 

·

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, consultants and our scientific advisory board;

 

·

lab supplies, and acquiring, developing and manufacturing preclinical study materials in accordance with Good Laboratory Practices;

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·

costs of clinical trials, including costs for management, investigator fees and related vendors that provide services for the clinical trials;

 

·

costs to manufacture the drug used in the clinical trials in accordance with Good Manufacturing Practices;

 

·

license and milestone fees;

 

·

development and prosecution of intellectual property; and

 

·

costs of facilities, depreciation and other expenses.

 

Research and development costs are expensed as incurred. In certain circumstances, we will make nonrefundable advance payments to purchase goods and services for future use pursuant to contractual arrangements. In those instances, we defer and recognize an expense in the period that we receive or consume the goods or services.

 

Our research and development expenses have been offset by proceeds derived from federal and state grants. These government grants, which have supplemented our research efforts on specific projects, generally provide for reimbursement of approved costs, as defined in the terms of the grant awards. The proceeds from these reimbursement grants are treated as a reduction to the associated expenses as the allowable expenses are incurred.

 

In August 2010, we received a $10.3 million commercialization award from the State of Texas through the Cancer Prevention and Research Institute of Texas, or CPRIT. The CPRIT grant was a three‑year award that was funded annually, and funding of the grant was completed in January 2014. At September 30, 2015, all proceeds from this grant had been recognized. We accounted for advances received for the award as deferred grant reimbursement. Under the terms of the award, we are required to pay to CPRIT a portion of our revenues from sales of certain products by us, or received from our licensees or sublicensees, at a percentage in the low single digits until the aggregate amount of such payments equals a specified multiple of the grant amount, and thereafter at a rate of less than one percent, subject to our right, under certain circumstances, to make a one‑time payment in a specified amount to CPRIT to buy out such payment obligations. In addition, in September 2015, we entered into a new grant contract with CPRIT in connection with an award of approximately $16.8 million in the form of a concurrent private placement of shares of our common stock at a price per share equal to the IPO price of $7.00.

 

At September 30, 2015, we had one National Institutes of Health, or NIH, grant ongoing with approximately $33,000 incurred and approximately $192,000 still to be incurred on the grant.

 

At any point in time, we typically have various early stage research and drug discovery projects ongoing. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early stage research and drug discovery programs on a project‑specific basis. However, we have spent and are currently spending the vast majority of our research and development resources on our lead product candidate, MRX34.

 

Most of our product development programs are at an early stage, and successful development of future product candidates from these programs is highly uncertain and may not result in approved products. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming, and we expect our research and development expenses to increase for the foreseeable future as we advance our research programs toward the clinic and initiate and continue clinical trials. The probability of success for each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each future product candidate, as well as ongoing assessments as to each future product candidate’s commercial potential. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We will need to raise additional capital and may seek strategic alliances in the future in order to advance the various products in the pipeline and other products that may be developed.

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General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and related benefits, including stock‑based compensation, related to our executive, finance and support functions. Other general and administrative expenses include allocated facility‑related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly‑traded company. These increases will likely include legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations.

 

Critical Accounting Policies and Estimates

 

This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, revenue recognition and stock‑based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed consolidated financial statements and in Note 2 to our audited financial statements contained in our Form S-1 (File No. 333-206544), as amended, and the related prospectus dated September 30, 2015. There have been no significant or material changes in our critical accounting policies during the three and nine months ended September 30, 2015, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates” in Form S-1 or the related prospectus.

 

Results of Operations

 

Comparison of three months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Dollar

 

 

 

 

    

2015

    

2014

    

Change

    

% Change

 

 

 

(in thousands)

 

Statement of operations data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, before grant reimbursement

 

$

4,927

 

$

2,800

 

$

2,127

 

76.0

%

Less grant reimbursement

 

 

(244)

 

 

(12)

 

 

(232)

 

1,933.3

%

Research and development

 

 

4,683

 

 

2,788

 

 

1,895

 

68.0

%

General and administrative

 

 

1,556

 

 

715

 

 

841

 

117.6

%

Write off of offering costs

 

 

 —

 

 

1,920

 

 

(1,920)

 

(100.0)

%

Interest (income)

 

 

(8)

 

 

 —

 

 

(8)

 

(100.0)

%

Net loss

 

$

6,231

 

$

5,423

 

$

808

 

14.9

%

 

Research and Development Expenses

 

Research and development expenses were $4.7 million for the three months ended September 30, 2015, which was an increase of $1.9 million, or 68%, compared to research and development expenses of approximately $2.8 million for the three months ended September 30, 2014.

 

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Research and development spending, prior to the offset of grant reimbursements, was $4.9 million for the three months ended September 30, 2015, which was an increase of approximately $2.1 million, or 76%, compared to research and development spending, prior to the offset of grant reimbursements, of $2.8 million for the three months ended September 30, 2014. The increase in the three months ended September 30, 2015 was primarily due to increased clinical trial costs related to our Phase 1 clinical trial, including a higher number of patients, additional investigator sites and additional drug costs related to the increased trial activity, and increased intellectual property and licensing costs.

 

Research and development spending was partially offset by approximately $244,000 of grant reimbursements for the three months ended September 30, 2015, compared to reimbursement of approximately $12,000 for the same period in 2014. The increase was due to a higher volume of work being performed on the research funded by the federal grants.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $1.6 million for the three months ended September 30, 2015, which was an increase of approximately $841,000, or 118%, compared to the same period in 2014. The overall expenses increased primarily due to increased personnel related expenses, higher outside professional costs, consulting and recruiting costs.

 

Write Off of Offering Costs

The Company deferred costs incurred for a planned initial public offering through August 2014, which included legal, audit, tax and other professional fees. The IPO was delayed and, as a result, the Company recorded a write-off of deferred offering costs of $1.9 million during the three months ended September 30, 2014. Deferred offering costs at September 30, 2015 were netted against the proceeds from the private placement and the IPO.

 

 

Comparison of nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Dollar

 

 

 

 

    

2015

    

2014

    

Change

    

% Change

 

 

 

(in thousands)

 

Statement of operations data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, before grant reimbursement

 

$

13,016

 

$

7,124

 

$

5,892

 

82.7

%

Less grant reimbursement

 

 

(432)

 

 

(89)

 

 

(343)

 

385.4

%

Research and development

 

 

12,584

 

 

7,035

 

 

5,549

 

78.9

%

General and administrative

 

 

3,618

 

 

2,501

 

 

1,117

 

44.7

%

Write off of offering expenses

 

 

 —

 

 

1,920

 

 

(1,920)

 

(100.0)

%

Interest (income)

 

 

(8)

 

 

 —

 

 

(8)

 

(100.0)

%

Net loss

 

$

16,194

 

$

11,456

 

$

4,738

 

41.4

%

 

Research and Development Expenses

 

Research and development expenses were $12.6 million for the nine months ended September 30, 2015, which was an increase of $5.5 million, or 79%, compared to research and development expenses of approximately $7.1 million for the nine months ended September 30, 2014.

 

Research and development spending, prior to the offset of grant reimbursements, was $13.0 million for the nine months ended September 30, 2015, which was an increase of approximately $5.9 million, or 83%, compared to research and development spending, prior to the offset of grant reimbursements, of $7.1 million for the nine months ended September 30, 2014. The increase in the first quarter of 2015 was primarily due to increased clinical trial costs related to our Phase 1 clinical trial, including a higher number of patients, additional investigator sites and additional drug costs

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related to the increased trial activity, increased headcount and related compensation expense, and increased intellectual property and licensing costs.

 

Research and development spending was partially offset by approximately $432,000 of grant reimbursements for the nine months ended September 30, 2015, compared to reimbursements of approximately $89,000 for the same period in 2014. The increase was due to a higher volume of work being performed on the research funded by the federal grants.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $3.6 million for the nine months ended September 30, 2015, which was an increase of approximately $1.1 million, or 45%, compared to the same period in 2014. The increase in general and administration expenses was primarily due to increases in headcount and additional consulting and professional costs related to the improving the Company’s systems and infrastructure. 

 

Write Off of Offering Expenses

The Company deferred costs incurred for a planned initial public offering through August 2014, which included legal, audit, tax and other professional fees. The IPO was delayed and, as a result, the Company recorded a write-off of deferred offering costs of $1.9 million during the nine months ended September 30, 2014.  

 

 

Liquidity and Capital Resources

 

Liquidity and Capital Expenditures

 

Since inception, at September 30, 2015, our operations have been financed primarily through proceeds of $101.9. million in financing activities, of which $89.9 million was from the sales of shares of our convertible preferred stock for cash and assets and $12.0 million from federal and state grants. At September 30, 2015, we had $35.7 million of cash and cash equivalents. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

 

On September 30, 2015, our Form S-1 (File No. 333-206544), as amended, relating to our IPO was declared effective by the Securities and Exchange Commission and on October 6, 2015 and on October 9, 2015, we issued an aggregate of 6,954,962 shares of common stock at an offering price of $7.00 per share.

 

In connection with a research grant awarded to us in September 2015, CPRIT agreed to purchase from us concurrently with our IPO in a private placement approximately $16.8 million of our common stock at a price per share equal to the IPO price of $7.00 per share. The concurrent private placement was completed on October 5, 2015, with the issuance of 2,935,010 shares of the Company’s common stock.

 

We believe that our existing cash and cash equivalents as of September 30, 2015, together with the estimated net proceeds from our IPO and the concurrent private placement, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward‑looking statement that involves risks and uncertainties, and actual results could vary materially.

 

Our future capital requirements are difficult to forecast and will depend on many factors, including:

 

·

the initiation, progress, timing and completion of preclinical studies and clinical trials for our lead product and potential product candidates;

 

·

the number and characteristics of product candidates that we pursue;

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·

the progress, costs and results of our clinical trials;

 

·

the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish;

 

·

the outcome, timing and cost of regulatory approvals;

 

·

delays that may be caused by changing regulatory requirements;

 

·

the costs and timing of hiring new employees to support our continued growth;

 

·

the costs and timing of procuring clinical supplies of our product candidates; and

 

·

the extent to which we acquire or invest in businesses, products or technologies.

 

The following table shows a summary of our cash flows for the nine months ended September 30, 2014 and 2015.

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2015

    

2014

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

(14,519)

 

$

(10,591)

 

Investing activities.

 

 

(187)

 

 

(30)

 

Financing activities

 

 

41,090

 

 

209

 

Net increase (decrease)

 

$

26,384

 

$

(10,412)

 

 

Operating Activities

 

Net cash used in operating activities was $14.5 million and $10.6 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in overall spending for operating activities of approximately $3.9 million was due to increased headcount and personnel expenses, increased spending for clinical trials and intellectual property related expenses and higher license fees in the first nine months of 2015.  The increase was partially offset by the one-time write-off of offering costs in August 2014.

 

Investing Activities

 

The net cash used in investing activities for the periods presented relates entirely to the purchases of property and equipment, primarily computer and lab equipment. For the nine months ended September 30, 2015 and 2014 total amounts spent on the purchase of fixed assets were approximately $187,000 and $30,000, respectively

 

Financing Activities

 

Net cash provided by financing activities was approximately $41.1 million for the nine months ended September 30, 2015, which was primarily due to the offering of our Series D convertible preferred stock. For the nine months ended September 30, 2014, approximately $209,000 of net cash provided by financing activities was due to the exercise of stock options.

 

Contractual Obligations and Commitments

 

During the nine months ended September 30, 2015, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and

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Results of Operations in the prospectus relating to our IPO filed with the Securities and Exchange Commission on October 1, 2015.

 

Off‑balance Sheet Arrangements

 

We did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

 

Segment Information

 

We have one primary business activity and operate as one reportable segment.

 

JOBS Act

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. At September 30, 2015, we had cash and cash equivalents of $35.7 million, consisting of interest‑bearing money market accounts and prime money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short‑term maturities of our cash equivalents and the low risk profile of our investments, we do not believe a change in interest rates would have a material effect on the fair market value of our cash equivalents.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosures controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2015, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

 

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Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II: OTHER INFORMATION

 

Item 1.             Legal Proceedings

 

We are not currently a party to any material legal proceedings. We may at times be involved in litigation and other legal claims in the ordinary course of business. When appropriate in management’s estimation, we may record reserves in our financial statements for pending litigation and other claims. 

 

Item 1A.          Risk Factors

 

Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this periodic report, including our financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before you invest in our common stock. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

Risk Factors

 

Risks Related to Our Limited Operating History, Financial Position and Capital Requirements

 

We have incurred significant losses since inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and if we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

 

We are a clinical‑stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have not generated any product revenues and we do not expect to generate any product revenues for the foreseeable future. We have incurred losses in each year since our founding in 2007 and we expect to continue to incur significant operating losses for the foreseeable future. The amount of future losses is uncertain. All of our product candidates are in development, and none has been approved for sale. We have devoted substantially all of our efforts to research and development, including our preclinical and nonclinical development activities, and expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To date, we have derived all of our funding from our collaboration with our former parent company, Asuragen, Inc., or Asuragen, private placements of preferred stock and government grants for research and development. Our net losses for the years ended December 31, 2014 was $15.8 million, and $16.2 million for the nine months ended September 30, 2015. Since inception, we have incurred net losses leading to an accumulated deficit of approximately $67.7 million as of September 30, 2015.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue our Phase 1 clinical trial of our lead product candidate, MRX34, pursue development of MRX34 for additional indications, conduct research and development of other product candidates and pursue marketing approval for MRX34 in the future. If we obtain marketing approval of MRX34, we also expect to incur significant sales, marketing, distribution and manufacturing expenses. Even after obtaining such marketing approval, our products may never gain sufficient market acceptance and adequate market share. If we fail to succeed in any of these activities or our product candidates fail to demonstrate safety and efficacy in clinical trials, do not gain regulatory approval or do not achieve significant market acceptance following regulatory approval and commercialization, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline. Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or whether we will become profitable.

 

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Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

We are a clinical‑stage biopharmaceutical company that was founded in 2007 and did not exist as a standalone company until 2009. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying and evaluating potential product candidates and delivery technologies, undertaking nonclinical studies, filing an Investigational New Drug, or IND, application with the U.S. Food and Drug Administration, or FDA, and conducting the Phase 1 clinical trial of our most advanced product candidate, MRX34. Except for MRX34, all of our product candidates are still in preclinical development. We have not yet demonstrated our ability to initiate clinical trials for product candidates other than MRX34, or successfully complete any clinical trials, including large‑scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale medicine, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes several years to develop one new product candidate from the time it is discovered to when it is available for treating patients. Consequently, any predictions about our future success or viability, or any evaluation of our business or prospects, may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

 

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate our product development, other operations or commercialization efforts.

 

Developing biopharmaceutical products, including conducting preclinical and nonclinical studies and clinical trials, is an expensive and highly uncertain process that takes years to complete. Our expenses will increase substantially as we continue our Phase 1 clinical trial of our lead product candidate, MRX34, pursue development of MRX34 for additional indications, and conduct research and development of our other product candidates. Additional clinical trials, including one or more late‑stage pivotal trials, will be required to obtain potential marketing approval for MRX34, and the costs of any future trials may be more expensive and time consuming than our current trial. If we obtain marketing approval of MRX34, we also expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses.

 

As of September 30, 2015, we had working capital of $31.1 million and cash and cash equivalents of $35.7 million. Based on our current operating plan, we believe that our available cash at such date are sufficient to fund our anticipated levels of operation for at least the next 12 months. Our future capital requirements for the period for which we expect our existing resources to support our operations may vary significantly from what we expect. For example, our expenses could increase beyond expectations if we are required by the FDA or comparable foreign regulatory agencies to perform studies and trials in addition to those that we currently anticipate. Our funds at September 30, 2015 will not be sufficient to obtain marketing approval for MRX34. As a result, we will be required to obtain additional financing in the future, which we may obtain through public or private equity offerings, debt financings, a credit facility, government grants and contracts and/or strategic collaborations. If we are required to secure additional capital, such additional fundraising efforts may divert our management from our day‑to‑day activities, which may adversely affect our ability to develop and commercialize future product candidates. Additional financing may not be available to us when we need it or it may not be available to us on favorable terms, if at all. If we are unable to obtain adequate financing or form favorable collaborations, when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials, research and development programs or our commercialization efforts, including with respect to MRX34.

 

Additionally, our future financing requirements will depend on many factors, some of which are beyond our control, including:

 

·

the demonstration of clinical proof‑of‑concept with our product candidates, including MRX34, in one or more cancer types or other indications;

 

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·

the rate of progress and cost of our clinical trials, preclinical and nonclinical studies and other discovery and research and development activities;

 

·

the successful outcome of one or more pivotal clinical trials demonstrating safety and efficacy of our product candidates, including MRX34;

 

·

the timing of, and costs involved in, seeking and obtaining FDA and other regulatory approvals;

 

·

the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, including litigation costs and the results of such litigation;

 

·

our ability to practice our technology without infringing the intellectual property rights of third parties;

 

·

our ability to enter into additional collaboration, licensing, government or other arrangements and the terms and timing of such arrangements;

 

·

the potential need to acquire, by acquisition or in‑licensing, other products or technologies; and

 

·

the emergence of competing technologies or other adverse market developments.

 

Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies. We currently have no understandings, commitments or agreements relating to any of these types of transactions.

 

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings, debt financings, credit facilities, government grants and contracts and/or strategic collaborations.

 

To raise capital, we may from time to time issue additional shares of common stock at a discount from the then‑current trading price of our common stock. As a result, our common stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. Whether or not we issue additional shares of common stock at a discount, any issuance of common stock will, and any issuance of other equity securities, securities convertible into equity securities or options, warrants or other rights to purchase common stock may, result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline. New investors could also gain rights, preferences and privileges senior to those of holders of our common stock, which could cause the price of our common stock to decline. Debt securities may also contain covenants that restrict our operational flexibility, impose liens or other restrictions on our assets, restrict our ability to incur additional debt, impose limitations on our ability to acquire, sell or license intellectual property or impose other operating restrictions that could adversely affect our business and could also cause the price of our common stock to decline.

 

Other than our collaboration with our former parent company, Asuragen, and private placements of preferred stock, the only external source of funds to date has been state and federal government grants for research and development. The grants have been, and any future government grants and contracts we may receive may be, subject to the risks and contingencies set forth below under the risk factor entitled “Reliance on government funding for our programs may add uncertainty to our research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit our ability to take certain actions, increase the costs of commercialization and production of product candidates developed under those programs and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition and results of operations.” Although we apply for government and private contracts and grants, we cannot assure you that we will be

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successful in obtaining additional grants or contracts in the future for MRX34 or any other product candidates or programs.

 

Risks Related to Product Development and Commercialization

 

The approach we are taking to discover and develop novel therapeutics using microRNA is unproven and may never lead to marketable products.

 

The scientific discoveries that form the basis for our efforts to discover and develop new drugs are relatively recent. To date, neither we nor any other company has received regulatory approval to market therapeutics utilizing microRNA. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Successful development of microRNA‑based products by us will require solving a number of issues, including providing suitable methods of stabilizing the microRNA material and delivering it into target cells in the human body. In addition, any compounds that we develop may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory and nonclinical studies, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. If we do not successfully develop and commercialize product candidates based upon our technological approach, we may not become profitable and the value of our common stock may decline.

 

Further, the FDA has relatively limited experience with microRNA‑based therapeutics. No regulatory authority has granted approval to any person or entity, including us, to market and commercialize microRNA therapeutics, which may increase the complexity, uncertainty and length of the regulatory approval process for our product candidates. If our microRNA technologies prove to be ineffective, unsafe or commercially unviable, our entire pipeline would have little, if any, value, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Further, our exclusive focus on microRNA technology for developing products as opposed to multiple, more proven technologies for drug development increases the risk associated with our business. If we are not successful in developing a product candidate using microRNA technology, we may not be able to identify and successfully implement an alternative product development strategy.

 

We are heavily dependent on the success of our lead product candidate, MRX34, which is in Phase 1 clinical development.

 

We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of MRX34. The clinical development of MRX34 began in April 2013 with a multi‑center Phase 1 clinical trial that is currently enrolling patients with unresectable primary liver cancer or solid cancers. We have also expanded the Phase 1 clinical trial with a separate cohort of patients with hematological malignancies, which may include patients with non‑Hodgkin’s lymphoma, acute myelogenous leukemia, acute and chronic lymphocytic leukemia, chronic myelogenous leukemia in accelerated or blast phase, multiple myeloma and myelodysplastic syndrome. The primary objectives of the Phase 1 clinical trial, including the hematological malignancy cohort, are to establish the maximum tolerated dose and an appropriate dose for Phase 2 clinical trials. The secondary objectives of the Phase 1 clinical trial are to assess the safety, tolerability and pharmacokinetic profile of MRX34 after intravenous dosing as well as to assess any biological and clinical activity.

 

Our prospects are substantially dependent on our ability to develop and commercialize MRX34. Our ability to timely develop and effectively commercialize MRX34 will depend on several factors, including the following:

 

·

successful completion of our Phase 1 clinical trial or other clinical trials, which will depend substantially upon the satisfactory performance of third‑party contractors;

 

·

successful demonstration of clinical proof‑of‑concept with MRX34 in one or more cancer types;

 

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·

successful outcome of one or more pivotal clinical trials required for regulatory approval demonstrating safety and efficacy of MRX34;

 

·

receipt of marketing approvals for MRX34 from the FDA and similar regulatory authorities outside the United States;

 

·

establishing commercial manufacturing capabilities, for example, by making arrangements with third‑party manufacturers;

 

·

successfully launching commercial sales of the product, whether alone or in collaboration with others;

 

·

acceptance of the product by patients, the medical community and third‑party payors;

 

·

establishing market share while competing with other therapies;

 

·

a continued acceptable safety and adverse event profile of the product following regulatory approval;

 

·

qualifying for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims covering the product; and

 

·

manufacturing, marketing, selling and using MRX34 and practicing our technology without infringing the proprietary rights of third parties, or successfully defending against claims alleging such infringement.

 

If we do not achieve one or more of these factors in a timely manner, or at all, we could experience significant delays or an inability to commercialize MRX34, which would materially and adversely affect our business, financial condition and results of operations.

 

We have not previously submitted a new drug application, or NDA, to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved. Successful development of MRX34 or other product candidates for additional indications will be subject to these same risks.

 

If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

 

Although a substantial amount of our efforts will focus on the Phase 1 clinical trial and potential approval of our lead product candidate, MRX34, a key element of our strategy is to discover, develop and potentially commercialize a portfolio of product candidates to treat cancer and other indications. We are seeking to do so through our internal research programs and are exploring, and intend to explore in the future, strategic partnerships for the development of new products. Other than MRX34, all of our other potential product candidates remain in the discovery and preclinical study stages. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

 

·

the research methodology used may not be successful in identifying potential product candidates;

 

·

competitors may develop alternatives that render our product candidates obsolete;

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·

product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

 

·

a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

·

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 

·

a product candidate may not be accepted as safe and effective by patients, the medical community or third‑party payors.

 

If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.

 

We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

 

Because we have limited financial and human resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or more profitable market opportunities. Our spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. We may also enter into strategic alliance agreements to develop and commercialize certain of our programs and potential product candidates in indications with potentially large commercial markets. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

 

The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our drug products under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of our drug products and adversely impact our ability to generate revenue, our business and our results of operations.

 

The development, research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive and evolving regulation by federal, state and local governmental authorities in the United States, principally the FDA, and by foreign regulatory authorities, which regulations differ from country to country. Neither we nor any future collaborator is permitted to market MRX34 or any other product candidate in the United States until we receive regulatory approval of an NDA from the FDA.

 

Obtaining regulatory approval of an NDA can be a lengthy, expensive and uncertain process. Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well‑controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all indications. The FDA may also require us to conduct additional studies or trials for our

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product candidates either prior to or post‑approval, such as additional drug‑drug interaction studies or safety or efficacy studies or trials, or it may object to elements of our clinical development program such as the number of subjects in our current clinical trials from the United States.

 

We expect enrollment in the Phase 1 clinical trial for our lead product candidate, MRX34, to be completed by the end of 2016, and our business currently depends substantially on the successful development, regulatory approval and commercialization of MRX34. We currently have no drug products approved for sale, and we may never obtain regulatory approval to commercialize MRX34.

 

The FDA or any foreign regulatory bodies can delay, limit or deny approval of MRX34 or require us to conduct additional nonclinical or clinical testing or abandon a program for many reasons, including:

 

·

the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical trials;

 

·

negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

 

·

serious and unexpected drug‑related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

 

·

our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that MRX34 is safe and effective for the proposed indication;

 

·

the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

 

·

our inability to demonstrate the clinical and other benefits of MRX34 outweigh any safety or other perceived risks;

 

·

the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

 

·

the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the specifications of MRX34;

 

·

the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third‑party manufacturers with which we contract; or

 

·

the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

 

Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market MRX34, which would significantly harm our business, financial condition, results of operations and prospects.

 

Even if we eventually complete clinical testing and receive approval of an NDA or foreign marketing application for MRX34, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials, and/or the implementation of a Risk Evaluation and Mitigation Strategy, or REMS, which may be required to ensure safe use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve MRX34 for a more limited indication or a narrower patient population than we originally requested, and the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of MRX34. Any delay in

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obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of MRX34 and would materially adversely impact our business and prospects.

 

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

 

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements with our CROs governing their committed activities, and the ability to audit their performance, we have limited influence over their actual performance. Failure or delay can occur at any time during the clinical trial process. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier nonclinical or clinical studies. These setbacks have been caused by, among other things, nonclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. The results of preclinical, nonclinical and early clinical studies of our product candidates may not be predictive of the results of later‑stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and initial clinical trials. Notwithstanding any potential promising results in earlier studies, we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

 

Although we have an ongoing Phase 1 clinical trial for MRX34 and expect to complete enrollment in the unresectable primary liver cancer, solid tumors and hematological malignancy cohort portions of the trial by the end of 2016, we may experience delays in our ongoing trial and we cannot be certain that the trial or any other future clinical trials for MRX34 or other product candidates will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure related to:

 

·

the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies;

 

·

obtaining regulatory approval to commence a trial;

 

·

reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

·

obtaining institutional review board, or IRB, or equivalent approval at each site;

 

·

recruiting suitable patients to participate in a trial;

 

·

having patients complete a trial or return for post‑treatment follow‑up;

 

·

clinical sites deviating from trial protocol or dropping out of a trial;

 

·

addressing patient safety concerns that arise during the course of a trial;

 

·

addressing any conflicts with new or existing laws or regulations;

 

·

adding a sufficient number of clinical trial sites; or

 

·

manufacturing sufficient quantities of product candidate for use in clinical trials.

 

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Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

 

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

 

Further, conducting clinical trials in foreign countries, as we currently do for MRX34, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

 

If we experience delays in the completion, or termination, of any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed or not realized at all. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

If we are required to suspend or discontinue clinical trials due to side effects or other safety risks, or if we are required to conduct studies on the long‑term effects associated with the use of MRX34 or other product candidates, our ability to commercialize our product candidates could be adversely affected.

 

Our clinical trials, including our Phase 1 clinical trial for MRX34, or other trials our strategic partners or CROs may conduct, may be suspended or terminated at any time for a number of safety‑related reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that our product candidates present an unacceptable safety risk to the clinical trial patients. In addition, IRBs or regulatory agencies may order the temporary discontinuation or termination of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, including if they present an unacceptable safety risk to patients. Administering any product candidate to humans may produce undesirable side effects. The existence of undesirable side effects resulting from our product candidates could cause us or regulatory authorities, such as the FDA, to interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory agencies denying further development or approval of our product candidates for any or all indications.

 

We have not conducted complete studies on the long‑term effects associated with the use of MRX34 or any other product candidate. Studies of these long‑term effects may be required for regulatory approval and such requirement would delay our introduction of MRX34 or other product candidates into the market. These studies could also be required at any time after regulatory approval of a product candidate. Absence of long‑term data may also limit the approved uses of a product, if any, to short‑term use. MRX34 or any other product candidate may prove to be unsafe for human use, which would materially harm our business.

 

Certain oligonucleotide therapeutics and liposomal drug delivery products have shown injection site reactions, infusion reactions and pro‑inflammatory effects and may also lead to impairment of organ function, including kidney or liver function. There is a risk that our current and future product candidates may induce similar adverse events, or require

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pre‑ or co‑administration of other drugs to minimize such effects, which pre‑ or co‑administration might adversely affect the benefits of our product or add additional side effects to the treatment regimens. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all indications. Drug‑related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may significantly harm our business, financial condition, results of operations and prospects significantly.

 

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

 

As with many pharmaceutical products and product candidates under development, MRX34 or our other potential product candidates may produce undesirable side effects or adverse reactions or events. In the event we or others identify undesirable side effects caused by one of our product candidates, any of the following adverse events could occur:

 

·

we may be required, or we may decide, to halt or delay further clinical development of our product candidates;

 

·

the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all indications; or

 

·

product‑related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

 

If MRX34 or our other potential product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

·

regulatory authorities may withdraw their approval of the product;

 

·

we may be required to recall a product or change the way such product is administered to patients;

 

·

additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;

 

·

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

 

·

we may be required to implement a REMS or create a Medication Guide outlining the risks of such side effects for distribution to patients;

 

·

we could be sued and held liable for harm caused to patients;

 

·

the product may become less competitive; and

 

·

our reputation may suffer.

 

Any of the foregoing events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and result in the loss of significant revenues to us, which would materially and adversely affect our results of operations and business.

 

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Our clinical drug development program may not uncover all possible adverse events that patients who take MRX34 or other product candidates may experience. The number of subjects exposed to MRX34 or other product candidates and the average exposure time in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.

 

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, we cannot be fully assured that rare and severe side effects of MRX34 or other product candidates will be uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients exposed to the drug. If such safety problems occur or are identified after MRX34 or another product candidate reaches the market, the FDA may require that we amend the labeling of the product or recall the product, or may even withdraw approval for the product.

 

We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use or misuse of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims. If we are unable to obtain adequate insurance or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage, a material liability claim could adversely affect our financial condition.

 

The use or misuse of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. Certain oligonucleotide therapeutics and liposomal drug delivery products have shown injection site reactions, infusion reactions, and pro‑inflammatory effects, and may also lead to organ dysfunction, including impairment of kidney or liver function. There is a risk that our future product candidates may induce similar adverse events. Patients with the diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre‑existing and potentially life‑threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time‑consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

 

Although we have product liability insurance that we feel is appropriate for our stage of development, which covers our clinical trials in the United States, for up to $1 million per occurrence, up to an aggregate limit of $5 million, our insurance may be insufficient to reimburse us for any expenses or losses we may suffer, and we will be required to increase our product liability insurance coverage for our advanced clinical trials that we plan to initiate. We have obtained an additional product liability insurance policy for our planned clinical trials in the Republic of Korea. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products. We do not know whether we will be able to continue to obtain product liability coverage and obtain expanded coverage if we require it, in sufficient amounts to protect us against losses due to liability, on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage. Where we have provided indemnities in favor of third parties under our agreements with them, there is also a risk that these third parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against us alleging that one of our product candidates or products causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted

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under state consumer protection acts. Any product liability claim brought against us, with or without merit, could result in:

 

·

withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;

 

·

the inability to commercialize, or if commercialized, decreased demand for, our product candidates;

 

·

if commercialized, product recalls, withdrawals or labeling, marketing or promotional restrictions or the need for product modification;

 

·

initiation of investigations by regulators;

 

·

loss of revenues;

 

·

substantial costs of litigation, including monetary awards to patients or other claimants;

 

·

liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves;

 

·

an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;

 

·

the diversion of management’s attention from our business; and

 

·

damage to our reputation and the reputation of our products and our technology.

 

Product liability claims may subject us to the foregoing and other risks, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Currently, our product candidates are expensive to produce and are expensive relative to presently‑marketed therapeutics targeting similar indications.

 

To date, our proposed product candidates have only been manufactured at a scale that is adequate to supply our research activities and early‑stage clinical trials. As with many companies conducting Phase 1 clinical trials or preclinical studies on product candidates, the current cost of each treatment is expensive relative to presently‑marketed therapeutics targeting similar indications. We cannot assure you that we will be able to scale the manufacturing of our products during future clinical trials or commercialization in order to achieve a treatment price that would allow for commercial acceptance. In the event our product candidates cannot be manufactured in sufficient commercial quantities at a competitive price, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

 

Even if a product candidate does obtain regulatory approval, that product candidate may never achieve market acceptance or commercial success.

 

Even if we obtain FDA or other regulatory approvals, and are able to launch MRX34 or any other product candidate commercially, the product candidate may not achieve market acceptance among physicians, patients, patient advocacy groups and third‑party payors and, ultimately, may not be commercially successful. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

 

·

the efficacy and safety of the product candidate as demonstrated in clinical trials;

 

·

the clinical indications for which the product candidate is approved;

 

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·

acceptance by physicians, patients, operators of treatment facilities and parties responsible for reimbursement of the product candidate as a safe and effective treatment;

 

·

the potential and perceived advantages of the product candidate, including the cost of treatment and benefits over alternative treatments;

 

·

the safety of the product candidate seen in a broader patient group, including use outside the approved indications;

 

·

the cost of treatment in relation to alternative treatments;

 

·

the availability of adequate reimbursement and pricing by third‑party payors and government authorities;

 

·

relative convenience and ease of administration;

 

·

the tolerance of the products by patients, including prevalence and severity of adverse side effects;

 

·

the availability of the product and the ability to meet market demand; and

 

·

the effectiveness of our sales and marketing efforts.

 

Any failure by MRX34 or any other product candidate that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our financial results.

 

Risks Related to Our Reliance on Third Parties

 

We rely on third parties to conduct some of our nonclinical and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates.

 

Although we conduct certain nonclinical studies, we currently do not have the ability to independently conduct nonclinical studies that comply with the regulatory requirements known as good laboratory practice, or GLP, requirements. We also do not currently have the ability to independently conduct any clinical trials. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards, commonly referred to as current good clinical practice, or GCP, requirements for conducting, monitoring, recording and reporting the results of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. We rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct GLP‑compliant nonclinical studies and GCP‑compliant clinical trials on our product candidates properly and on time. While we will have agreements governing their activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for execution of our GLP nonclinical studies and our GCP clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for restrictions imposed by our contracts with such third parties, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct our GLP‑compliant preclinical and nonclinical studies and GCP‑compliant clinical trials, we remain responsible for ensuring that each of our GLP preclinical and nonclinical studies and GCP clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

 

Many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If the third parties conducting our GLP preclinical or nonclinical studies or our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they

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obtain is compromised due to their failure to adhere to our clinical trial protocols or to GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible, and our nonclinical studies or clinical trials may need to be extended, delayed, terminated or repeated. As a result we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

 

We rely on a limited number of third‑party contract manufacturing organizations to manufacture and supply MRX34 and other product candidates for us. If our supplier or manufacturer fails to perform adequately or fulfill our needs, or if these agreements are terminated by the third parties, we may be required to incur significant costs and devote significant efforts to find new suppliers or manufacturers. We may also face delays in the development and commercialization of our product candidates.

 

We do not currently independently conduct manufacturing activities for our product candidates, including MRX34. We rely upon single source third‑party contract manufacturing organizations to manufacture and supply our product candidates. We currently have a relationship with two suppliers for clinical supply of the drug substance for our miR‑34 mimic. Polymun Scientific Immunbiologische Forschung GmbH, or Polymun, located in Austria, is the exclusive manufacturer of our MRX34 drug product. Further, we rely on our contract manufacturers to manage the supply chain for the raw materials used in the manufacture of the drug substance and drug product.

 

Any manufacturers of the drug substance and drug product for our product candidates must comply with current good manufacturing practice, or cGMP, requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our component materials may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We do not directly control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory agencies, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. The FDA or similar foreign regulatory agencies at any time may also implement new standards, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over a manufacturer’s compliance with these regulations and standards. However, a failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturer’s failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result. In addition, if the FDA or a comparable foreign regulatory agency does not approve our contract manufacturer’s facilities for the manufacture of our product candidates or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for, or market our product candidates, if approved. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of our product candidates or entail higher costs or impair our reputation.

 

The manufacture of pharmaceutical products in compliance with cGMP regulations requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, or shortages of qualified personnel. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to provide study materials in our nonclinical studies and clinical trials would be jeopardized. Any delay or interruption in the supply of nonclinical study or clinical trial materials could delay the completion of our nonclinical studies and clinical trials, increase the costs associated with maintaining our nonclinical study and clinical trial programs and, depending upon the period of delay, require us to conduct nonclinical studies, commence new trials at significant additional expense or terminate the studies and trials completely.

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We currently believe that our third party suppliers have the necessary expertise to produce our MRX34 drug substance and drug product in sufficient quantity and of acceptable quality to support our development program through at least Phase 3 clinical trials and possibly through commercialization of MRX34. However, our current agreements with our suppliers do not provide for the entire supply of the drug necessary for additional clinical trials or for full‑scale commercialization. In the event that we and our suppliers cannot agree to the terms and conditions for them to provide some or all of our clinical and commercial drug supply needs, or if our suppliers terminate their agreements with us in response to a breach by us or any other reason permitted under our agreements, we would not be able to manufacture the drug on a commercial scale until a qualified alternative supplier is identified, which could also delay the development of, and impair our ability to commercialize, our product candidates. Any supplier would be required to obtain regulatory approval of their manufacturing facilities, processes and quality systems before engaging in the commercial manufacture of a pharmaceutical product. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third