MIRNA_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 March 31, 2016 

 

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 May 10, 2016 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 Sheet as of March 31, 2016 and December 31, 2015 

 

 

Condensed Statement of Operations and Comprehensive Loss for the three months ended March 31, 2016 and 2015 

 

 

Condensed Statements of Cash Flows for the three months ended March 31, 2016 and 2015

 

 

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 

22 

 

 

Item 4. Controls and Procedures 

22 

 

 

PART II—OTHER INFORMATION 

23 

 

 

Item 1. Legal Proceedings 

23 

 

 

Item 1A. Risk Factors 

23 

 

 

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

70 

 

 

Item 3. Defaults Upon Senior Securities 

70 

 

 

Item 4. Mine Safety Disclosures 

70 

 

 

Item 5. Other Information 

70 

 

 

Item 6. Exhibits 

70 

 

 

SIGNATURES 

71 

 

 

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PART I—FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements

Mirna Therapeutics, Inc.

Condensed Balance Sheets

 

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2016

 

2015

 

Assets

 

 

(unaudited)

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,875

 

$

89,713

 

Marketable securities

 

 

27,713

 

 

 —

 

Grant reimbursement and other receivables

 

 

168

 

 

36

 

Prepaid expenses and other current assets

 

 

853

 

 

793

 

Total current assets

 

 

81,609

 

 

90,542

 

Property and equipment, net

 

 

516

 

 

375

 

Total assets

 

$

82,125

 

$

90,917

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,239

 

$

3,687

 

Accrued expenses

 

 

1,985

 

 

2,214

 

Total liabilities

 

 

3,224

 

 

5,901

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized at March 31, 2016 and December 31, 2015; 0 shares outstanding at March  31, 2016 and December 31, 2015

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; 250,000,000 shares authorized at  March 31, 2016 and December 31, 2015;  20,830,555 shares issued and outstanding at March 31, 2016 and December 31, 2015

 

 

21

 

 

21

 

Additional paid in capital

 

 

161,965

 

 

161,518

 

Accumulated other comprehensive income

 

 

9

 

 

 —

 

Accumulated deficit

 

 

(83,094)

 

 

(76,523)

 

Total stockholders’ equity

 

 

78,901

 

 

85,016

 

Total liabilities and stockholders’ equity

 

$

82,125

 

$

90,917

 

 

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

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Mirna Therapeutics, Inc.

Condensed Statements of Operations and Comprehensive Loss (Unaudited)

 

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

    

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

$

4,523

 

$

3,402

 

General and administrative

 

 

2,130

 

 

877

 

Total operating expenses

 

 

6,653

 

 

4,279

 

Other income:

 

 

 

 

 

 

 

Interest income

 

 

82

 

 

 

Total other income

 

 

82

 

 

 —

 

Net loss

 

$

(6,571)

 

$

(4,279)

 

Less: Accretion and dividends on convertible preferred stock

 

 

 —

 

 

(1,118)

 

Net loss attributable to common stockholders

 

$

(6,571)

 

$

(5,397)

 

Other comprehensive income:

 

 

 

 

 

 

 

    Unrealized gain on available for sale securities, net of tax

 

 

9

 

 

 

Total Other Comprehensive (Loss)

 

 

(6,562)

 

 

 

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

 

$

(0.32)

 

$

(60.99)

 

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

 

 

20,830,555

 

 

88,484

 

 

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

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Mirna Therapeutics, Inc. 

Condensed Statements of Cash Flows (Unaudited) 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

    

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(6,571)

 

$

(4,279)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19

 

 

12

 

Stock-based compensation

 

 

447

 

 

134

 

Net amortization of premium/ discounts on marketable securities

 

 

19

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Grant reimbursement and other receivables

 

 

(132)

 

 

(26)

 

Prepaid expenses and other current assets

 

 

(60)

 

 

16

 

Deferred financing costs

 

 

 —

 

 

92

 

Accounts payable

 

 

(2,448)

 

 

199

 

Accrued expenses

 

 

(247)

 

 

(698)

 

Net cash used in operating activities

 

 

(8,973)

 

 

(4,550)

 

Investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(27,722)

 

 

 —

 

Purchase of property and equipment

 

 

(143)

 

 

(5)

 

Net cash used in investing activities

 

 

(27,865)

 

 

(5)

 

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 —

 

 

35,346

 

Proceeds from the exercise of stock options

 

 

 —

 

 

20

 

Cash provided by financing activities

 

 

 —

 

 

35,366

 

Net increase (decrease) in cash and cash equivalents

 

 

(36,838)

 

 

30,811

 

Cash and cash equivalents at beginning of period

 

 

89,713

 

 

9,319

 

Cash and cash equivalents at end of period

 

$

52,875

 

$

40,130

 

 

 

 

 

 

 

 

 

 

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

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Mirna Therapeutics, Inc. 

 

Notes to Condensed 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 and marketable securities of $80.6 million at March 31, 2016 will enable the Company to maintain its current and planned operations for the foreseeable future.

 

Basis of presentation

 

The accompanying interim condensed financial statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015, and the related interim information contained within the notes to the financial statements, are unaudited. The unaudited interim condensed 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 financial statements contain all adjustments which include only normal recurring adjustments necessary to state fairly the Company’s financial position as of March 31, 2016, and the results of its operations and cash flows for the three months ended March 31, 2016 and 2015. Such adjustments are of a normal and recurring nature. The interim financial data as of March 31, 2016 is not necessarily indicative of the results to be expected for the year ending December 31, 2016, or for any future period. 

 

The accompanying condensed 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, 2015 included in the Company’s Form 10-K, most recently filed with the Securities and Exchange Commission on March 30, 2016.

 

 

 

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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.

 

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, development of intellectual property, 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.

 

Clinical Trial and Pre-Clinical Study Accruals

 

The Company estimates pre-clinical study and clinical trial expenses pursuant to contracts with research institutions and contract research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. These estimates are based on the level of service performed and the underlying agreement. Further, the Company accrues expenses related to clinical trials based on the level of patient enrollment and other activities according to the related agreements. The Company monitors patient enrollment levels and other activities to the extent reasonably possible and adjusts estimates accordingly.

 

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.

 

Fair value measurements

 

The Company records money market funds at fair value. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

 

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·

Level 1 – Unadjusted prices in active markets for identical assets or liabilities.

·

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

·

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

 

The carrying amounts reflected in the balance sheets for cash, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at March 31, 2016 and December 31, 2015, due to their short‑term nature.

 

There have been no changes to the valuation methods for the three months ended March 31, 2016 and 2015. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 during the three months ended March 31, 2016 or 2015.

 

Marketable Securities

The Company classifies marketable securities with a remaining maturity when purchased of greater than three months as available-for-sale. Marketable securities with a remaining maturity date greater than one year are classified as non-current. Available-for-sale securities are maintained by an investment manager and may consist of U.S. Treasury securities and government agency securities and corporate debt securities. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income (expense).

If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, mark the investment to market through a charge to the Company’s statement of operations and comprehensive loss.

 

Comprehensive loss

 

Comprehensive loss is composed of net loss and other comprehensive income or loss. Other comprehensive income consists of unrealized gains on marketable securities.

 

Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (FASB)  issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting ("ASU 2016-09") as part of the FASB simplification initiative. The new standard provides for changes to accounting for stock compensation including 1) excess tax benefits and tax deficiencies related to share based payment awards will be recognized as income tax expense in the reporting period in which they occur; 2) excess tax benefits will be classified as an operating activity in the statement of cash flow; 3) the option to elect to estimate forfeitures or account for them when they occur; and 4) increase tax withholding requirements threshold to qualify for equity classification. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-09 will have on the unaudited condensed financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or

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an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For leases with a term of twelve months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing activities. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases and amounts previously recognized in accordance with the business combinations guidance for leases. We are currently evaluating our expected adoption method and the impact of this new standard on the unaudited condensed financial statements.

 

3. Marketable Securities

 

The following table summarizes the available-for-sale securities held at March 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amortized Cost

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

  

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

$

19,046

 

$

6

 

$

 —

 

$

19,052

 

Corporate debt securities

 

 

8,658

 

 

3

 

 

 —

 

 

8,661

 

Total available-for-sale securities

 

$

27,704

 

$

9

 

$

 —

 

$

27,713

 

 

The Company did not have available for sale securities at December 31, 2015. No available- for- sale securities held as of March 31, 2016 had remaining maturities greater than one year.

 

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4. Fair Value Measurements

 

The following table sets forth the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

prices in

 

 

other

 

 

Significant

 

 

 

 

Total

 

 

active

 

 

observable

 

 

unobservable

 

 

 

 

 

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

46,118

 

$

46,118

 

$

 —

 

$

 —

 

US government agency securities and treasuries

 

 

6,757

 

 

 —

 

 

6,757

 

 

 —

 

Total cash and cash equivalents

 

 

52,875

 

 

46,118

 

 

6,757

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

19,052

 

 

 —

 

 

19,052

 

 

 —

 

Corporate debt securities

 

 

8,661

 

 

 —

 

 

8,661

 

 

 —

 

Total marketable securities

 

 

27,713

 

 

 —

 

 

27,713

 

 

 —

 

Total assets

 

$

80,588

 

$

46,118

 

$

34,470

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

 

89,713

 

 

89,713

 

 

 —

 

 

 —

 

Total Assets

 

$

89,713

 

$

89,713

 

$

 —

 

$

 —

 

 

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. As of March 31, 2016 and December 31, 2015, cash and cash equivalents are comprised of money market accounts and U.S. government agency securities.

 

Marketable securities

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At March 31, 2016 and December 31, 2015, the balance in the Company’s accumulated other comprehensive income was composed solely of activity related to the Company’s available-for-sale marketable securities. There were no realized gains or losses recognized on the sale or maturity of available-for-sale securities during the three months ended March 31, 2016, and, as a result, the Company did not reclassify any amounts of accumulated other comprehensive income for the same period.

 

There were not available for sale securities held by the Company in an unrealized loss position at March 31, 2016. The Company has the intent and ability to hold such securities until recovery. The Company determined that there was no material changes in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with an other- than- temporary impairment as of March 31, 2016 and December 31, 2015.

 

 

 

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5. Property and Equipment

 

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

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Machinery, computers and equipment

 

$

847

 

$

687

 

Leasehold improvements

 

 

18

 

 

18

 

Accumulated depreciation

 

 

(349)

 

 

(330)

 

 

 

$

516

 

$

375

 

 

Depreciation expense was approximately $19,000 and $12,000 for the three months ended March 31, 2016 and 2015, respectively.

 

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:

 

·

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.

 

·

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 March 31, 2016 and December 31, 2015, no cash dividends have been declared.

 

Offerings

 

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. The 2015 award was 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 the 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 $16.6 million. 

 

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.

 

 

7. Stock Option Plans

 

2008 Long Term Incentive Plan

 

During 2008, 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 330,582 stock options and stock purchase rights may be granted. In December 2013, the total amount available for grant under the 2008 Plan was

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increased by 224,200 to 554,782. In March 2014, the Company’s board of directors approved an increase of 115,153 shares available for grant pursuant to the 2008 Plan to 669,935. In March 2015, the total amount of available to grant under the 2008 Plan was increased in conjunction with the Company’s offering of Series D preferred stock by 391,650 shares to 1,061,585. 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.

 

2015 Equity Incentive Plan

 

In August 2015, the Company’s board of directors approved the 2015 Equity Incentive Award 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 800,478 options outstanding in the 2008 Plan at March 31, 2016 may be transferred to the 2015 Plan if awards thereunder terminate, expire or lapse for any reason without the delivery of shares to the holder thereof. Under the 2015 Plan, 1,671,800 shares of the Company’s common stock were initially authorized and reserved for issuance. In March 2016, the Company’s board of directors approved an increase of 1,041,527 shares available for grant pursuant to the 2015 Plan. Accordingly, a total of 3,513,805 shares have been authorized and reserved for issuance under the 2015 Plan at March 31, 2016.

 

2015 Employee Stock Purchase Plan

 

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 March 31, 2016. Shares available for future purchase under the ESPP were 375,485 at March 31, 2016.

 

Stock Option Activity

 

The Company’s stock option activity for the three months ended March 31, 2016 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

    

 

 

 

 

 

 

 

Average

 

WeightedAverage

 

 

 

 

Number

 

Exercise

 

Contractual

 

 

 

 

of Shares

 

Price

 

Life (years)

 

 

Outstanding at December 31, 2015

 

1,529,459

 

 

6.29

 

9.00

 

 

Granted

 

386,250

 

 

4.37

 

 

 

 

Exercised

 

 —

 

 

 —

 

 

 

 

Forfeited/canceled

 

 —

 

 

 —

 

 

 

 

Outstanding at March 31, 2016

 

1,915,709

 

$

5.90

 

8.99

 

 

Options exercisable at March 31, 2016

 

420,417

 

$

4.77

 

7.52

 

 

 

 

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Stock Compensation Expense

 

Total stock- based compensation expense for the three months ended March 31, 2016 was allocated as follows in the statements of comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

 

2016

 

    

2015

 

 

 

 

 

 

 

 

 

Research and development expense

 

$

171

 

$

32

 

General and administrative expense

 

 

276

 

 

102

 

    Total stock based compensation

 

$

447

 

$

134

 

 

 

As of March 31, 2016 there was approximately $5.9 million of unrecognized compensation cost related to the stock options granted under the 2015 Plan, which is expected to be amortized over a weighted average period of 3.2 years. There were no restricted stock units or stock appreciation rights granted under the 2015 Plan as of March 31, 2016.

 

8. Income Taxes

 

The Company recorded no provision for income taxes as of March 31, 2016 due to reported net losses since inception.

 

During the three months ended March 31, 2016 and 2015, 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 $94,000 and $98,000 for the three months ended March 31, 2016 and 2015, respectively.

 

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 $22,200 for the first three months of 2016. Both the lease and the shared service agreements expire on August 31, 2016.

 

 

 

10. License agreements

 

Rosetta Genomics Ltd. 

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In December 2015, the Company entered into a Patent License Agreement (the “License Agreement”) with Rosetta Genomics Ltd. (“Rosetta”), licensing to the Company certain patents owned or controlled by Rosetta as specified in the License Agreement. Under the License Agreement, Rosetta has granted the Company a non-assignable, non- transferable, worldwide license for certain patents in connection with the development and commercialization of products that relate to the tumor suppressor microRNA MIR-34 (“Products”). This license is exclusive with respect to Products that relate to MRX34, the Company’s lead product candidate, and non-exclusive for products that are not related.  

 

Under the License Agreement, the Company paid Rosetta an up-front, non- refundable payment of $1.6 million, which was recorded as an expense within research and development in 2015 and subsequently paid in January 2016. The Company is obligated to pay low single- digit royalties on net sales of Products, as well as royalties on sublicense revenues. Certain development and regulatory milestone payments totaling $3 million may also be payable in connection with specified types of Products, upon the achievement of certain development and/ or regulatory milestone events. 

 

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 cumulatively paid Marina approximately $2.1 million through December 31, 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 $4.0 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

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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 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.

 

11. Commitments and Contingencies

 

Shared Services Agreement

 

Pursuant to a shared services agreement and sublease with Asuragen (see Note 9), the Company has remaining commitments for payments through August 2016 under the shares services agreement and sublease of $197,510 and $37,000, respectively.

 

 

12. 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

 

 

 

March 31, 

 

 

    

2016

    

2015

    

 

 

 

 

 

 

 

 

Net loss

 

$

(6,571)

 

$

(4,279)

 

Accretion of convertible preferred stock to redemption value

 

 

 —

 

 

(422)

 

Accrued dividends on convertible preferred stock

 

 

 —

 

 

(696)

 

Net loss attributable to common stockholders—basic and diluted

 

 

(6,571)

 

 

(5,397)

 

Weighted-average number of common shares—basic and diluted

 

 

20,830,555

 

 

88,484

 

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

 

$

(0.32)

 

$

(60.99)

 

 

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.

 

 

 

 

 

 

 

 

 

March 31, 

 

 

    

2016

    

2015

    

 

 

 

 

 

 

Convertible preferred stock

 

 —

 

9,472,340

 

Stock options

 

1,915,709

 

556,935

 

 

 

1,915,709

 

10,029,275

 

 

 

As the Company incurred a net loss for the three months ended March 31, 2016 there is no income allocation required under the two‑class method or dilution attributed to weighted‑average shares outstanding in the computation of diluted loss per share attributable to common stockholders.

 

 

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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 financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2015, filed with the U.S. Securities and Exchange Commission (SEC) on March 30, 2016.

 

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 increase this tumor suppressor activity and aid appropriate anti- tumor immune response.

 

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 plan to initiate, in the second half of 2016, an additional Phase 1b translational medicine trial to deepen our insights into the mechanism of action of miR-34 in melanoma patients and to define biomarkers that would aid in furthering the development of MRX34. We expect MRX34 to begin Phase 2 by the end of 2016. We are planning trials that will include patients with advanced malignant melanoma and patients with advanced renal cell carcinoma (RCC).

 

We believe that microRNA mimics may 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. For the next wave of cancer therapies to produce a measurable improvement over current approaches, we believe it will need to yield drugs that can disrupt multiple oncogenic and immuno‑oncology pathways. We believe the microRNA field represents a highly promising area for the development of these drugs.

 

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 placements of convertible preferred stock, federal and state government grants and offerings of our common stock. From our inception through March 31, 2016, we have raised an aggregate of approximately $167.3 million to fund our operations, of which approximately $89.9 million was from the issuance of preferred stock for cash and assets, $48.7 million from a public offering of our common stock, $16.8 million from a private placement of our common stock and $11.9 million was from federal and state grants.

 

Since our inception, we have incurred significant operating losses. Our net loss was $6.6 million for the three months ended March 31, 2016. At March 31, 2016, we had an accumulated deficit of $83.1 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.

 

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;

 

·

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.

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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.

 

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.

 

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

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to stock based compensation and clinical trial and pre-clinical study accruals. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. During the three months ended March 31, 2016, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 30, 2016.

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Results of Operations

 

Comparison of three months ended March 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

Dollar

 

 

 

 

    

2016

    

2015

    

Change

    

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Statement of operations data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, before grant reimbursement

 

$

4,563

 

$

3,475

 

$

1,088

 

31.3

%

Less grant reimbursement

 

 

(40)

 

 

(73)

 

 

33

 

(45.2)

%

Research and development

 

 

4,523

 

 

3,402

 

 

1,121

 

33.0

%

General and administrative

 

 

2,130

 

 

877

 

 

1,253

 

142.9

%

Interest (income)

 

 

(82)

 

 

 —

 

 

(82)

 

100.0

%

Net loss

 

$

6,571

 

$

4,279

 

$

2,292

 

53.6

%

 

Research and Development Expenses

 

Research and development expenses were $4.5 million for the three months ended March 31, 2016 which was an increase of $1.1 million, or 33%, compared to research and development expenses of approximately $3.4 million for the three months ended March 31, 2015.

 

Research and development spending, prior to the offset of grant reimbursements, was $4.6 million for the three months ended March 31, 2016, which was an increase of approximately $1.1 million, or 31%, compared to research and development spending, prior to the offset of grant reimbursements, of $3.5 million for the three months ended March 31, 2016. The increase in the three months ended March 31, 2016 was primarily due to the following:

 

·

Approximately $733,000 of increased employee compensation and benefits expense, of which $594,000 related to increased payroll and benefits expense and $139,000 related to stock-based compensation expense.

·

Approximately $285,000 of increased clinical trial costs related to our Phase 1 clinical trial, including administrative and testing costs, additional investigator sites and additional drug costs related to the advanced trial activity, as well as increased intellectual property and licensing costs.

 

Research and development spending was partially offset by approximately $40,000 of grant reimbursements for the three months ended March 31, 2016, compared to reimbursement of approximately $73,000 for the same period in 2015. The decrease is primarily due to two grants expiring in August 2015.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $2.1 million for the three months ended March 31, 2016, which was an increase of approximately $1.3 million or 143%, compared to general and administrative expenses of $877,000 for the three months ended March 31, 2015. The increase in the three months ended March 31, 2016 was primarily due to the following:

 

·

Approximately $518,000 for increased employee compensation and benefits expense, of which $345,000 related to increased payroll and benefits expense, and $173,000 related to stock based compensation expense.

 

·

Approximately $466,000 for additional costs associated with operating as a publicly traded company, including higher legal, audit, insurance and administrative costs.

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Liquidity and Capital Resources

 

Liquidity and Capital Expenditures

 

 Since inception, our operations have been financed primarily through proceeds of $167.3 million to fund our operations, of which approximately $89.9 million was from the issuance of preferred stock for cash and assets, $48.7 million from a public offering of our common stock, $16.8 million from a private placement of our common stock and $11.9 million was from federal and state grants. At March 31, 2016, we had $52.9 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.

 

We believe that our existing cash and cash equivalents as of March 31, 2016, 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;

 

·

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 any possible future defense of our intellectual property or decisions to acquire additional intellectual property;

 

·

the costs of developing and maintaining our intellectual property portfolio;

 

·

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.

 

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The following table shows a summary of our cash flows for the three months ended March 31, 2016 and 2015.

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

(8,973)

 

$

(4,550)

 

Investing activities

 

 

(27,865)

 

 

(5)

 

Financing activities

 

 

 —

 

 

35,366

 

Net increase (decrease)

 

$

(36,838)

 

$

30,811

 

 

Operating Activities

 

Net cash used in operating activities was $9.0 million and $4.6 million for the three months ended March 31, 2016 and 2015, respectively. The increase in overall spending for operating activities of approximately $4.4 million was due to increased headcount and personnel expenses, increased spending for clinical trials and intellectual property related expenses.

 

Investing Activities

 

Net cash used in investing activities for the periods presented relates primarily to the purchase of marketable securities during the three months ended March 31, 2016. We invested $27.7 million in US government agency and treasury securities and corporate debt securities with maturities of less than 180 days using surplus proceeds received in connection with the IPO and concurrent private placement in October 2015. For the three months ended March 31, 2016 and 2015 total amounts spent on the purchase of fixed assets were approximately $143,000 and $5,000, respectively

 

Financing Activities

 

Net cash provided by financing activities was approximately $35.4 million for the three months ended March 31, 2015, which was attributable to the initial closing of our offering of Series D convertible preferred stock. There were no financing activities during the three months ended March 31, 2016.

 

Contractual Obligations and Commitments

 

During the three months ended March 31, 2016, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission on March 30, 2016.

 

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

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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 March 31, 2016, we had cash and cash equivalents and marketable securities of $52.9 million and $27.7 million, respectively, consisting of interest‑bearing money market funds, U.S. treasury securities, U.S. government agency securities, and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short‑term maturities of our cash equivalents and marketable securities, as well as 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 and cash equivalents and marketable securities.

 

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 March 31, 2016. 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 March 31, 2016, 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.

 

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 loss for the three months ended March 31, 2016 was $6.6 million. Since inception, we have incurred net losses leading to an accumulated deficit of approximately $83.1 million as of March 31, 2016.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we expand our clinical development plan for MRX34 as a monotherapy, pursue development of MRX34 as a combination therapy, 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 many 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 expand our clinical development plan for MRX34 as a monotherapy, pursue development of MRX34 as a combination therapy, conduct research and development of other product candidates and pursue marketing approval for MRX34 in the future. 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 March 31, 2016, we had working capital of $78.2 million and cash and cash equivalents of $52.9 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 March 31, 2016 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 further 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, private placements of preferred stock, and offerings of common 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 might apply for government and private contracts and grants in the future, we cannot assure

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you that we will be successful in obtaining additional grants or contracts 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 advanced stage solid cancers. We have also included in the Phase 1 clinical trial 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 further 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 MRX34 Phase 1 clinical trial and the initiation of several Phase 2 studies, 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 to complete enrollment in the Phase 1 clinical trial and to initiate enrollment in a Phase 1b translational medicine study and the Phase 2 clinical trials for our lead product candidate, MRX34, 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

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the labeling that we believe is necessary or desirable for the successful commercialization of MRX34. Any delay in 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 that is expected to complete enrollment and planned Phase 1b translational medicine study and Phase 2 clinical trials that are expected to initiate enrollment by the end of 2016, we may experience delays in these trials 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 continue developing or commercialize our product candidates could be adversely affected.

 

Our clinical trials, including our Phase 1 clinical trial for MRX34, the planned initiation of a Phase 1b translational medicine study and several Phase 2 studies, 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

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liver function. There is a risk that our current and future product candidates may induce similar adverse events, or require 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 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

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inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted 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 and Phase 2 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‑party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost‑effective manner.

 

Although we believe that appropriate alternative sources of supply exist for each of our current product candidates, the number of third‑party suppliers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. New suppliers of any drug would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing such ingredients. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuring non‑infringement of third‑ party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs which may be passed on to us.

 

The failure of third‑party manufacturers or suppliers to perform adequately or the termination of our arrangements with any of them may negatively and adversely affect our business.

 

Reliance on third‑party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

 

·

the inability to meet any product specifications and quality requirements consistently;

 

·

a delay or inability to procure or expand sufficient manufacturing capacity;

 

·

capacity related to the scale‑up of manufacturing;

 

·

manufacturing and product quality issues related to scale‑up of manufacturing;

 

·

costs and validation of new equipment and facilities required for scale‑up;

 

·

a failure to comply with cGMP and similar foreign standards;

 

·

operations of our third‑party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier;

 

·

carrier disruptions or increased costs that are beyond our control;

 

·

the failure of third parties involved in the transportation, storage and distribution of our products, including the failure to deliver products under specified storage conditions and in a timely manner; and

 

·

the possibility that our contract manufacturer, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

 

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Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.

 

We may not be able to develop or identify a technology that can effectively deliver our miR‑34 mimic or any other of our microRNA‑based product candidates to the intended diseased cells or tissues, and any failure in such delivery technology could adversely affect and delay the development of MRX34 and our other product candidates.

 

In connection with our Phase 1 clinical trial of MRX34, we have used a SMARTICLES liposomal formulation to facilitate delivery to tumors. SMARTICLES has demonstrated successful tumor delivery of our miR‑34 mimic in multiple mouse models of liver cancer, but we cannot be certain that the SMARTICLES technology will be capable of delivering adequate levels of our miR‑34 mimic to tumors in patients to produce a therapeutic response. While we are continuing to evaluate the use of SMARTICLES in different indications, and additional delivery technologies that might enable us to target specific cancer cells with our product candidates, we cannot be certain whether we will be successful in developing such alternative delivery mechanisms. Our failure to effectively deliver any of our product candidates to the intended diseased cells or tissues could adversely affect and delay the development of our product candidates.

 

We currently have no sales and marketing staff or distribution organization. If we are unable to develop a sales and marketing and distribution capability on our own or through third parties, we will not be successful in commercializing our future products.

 

We currently have no sales, marketing or distribution capabilities or experience. To achieve commercial success for any approved product candidate, we must either develop a sales, marketing and distribution organization or outsource these functions to third parties. If we rely on third parties for marketing and distributing our approved products, any revenue we receive will depend upon the efforts of third parties, which may not be successful and are only partially within our control and our product revenue may be lower than if we directly marketed or sold our products. If we are unable to enter into arrangements with third parties to sell, market and distribute product candidates for which we have received regulatory approval on acceptable terms or at all, we will need to market these products ourselves. This is likely to be expensive and logistically difficult, as it would require us to build our own sales, marketing and distribution capacity. We have no experience in this area, and if such efforts were necessary, we may not be able to successfully commercialize our future products. If we are not successful in commercializing our future products, either on our own or through third parties, any future product revenue will be materially and adversely affected.

 

We may attempt to form collaborations in the future with respect to our product candidates, but we may not be able to do so, which may cause us to alter our development and commercialization plans.

 

We may attempt to form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties with respect to our programs that we believe will complement or augment our existing business. For example, we may attempt to find a strategic partner for the development and/or commercialization of MRX34. We may face significant competition in seeking appropriate strategic partners, and the negotiation process to secure appropriate terms is time‑consuming and complex. We may not be successful in our efforts to establish such a strategic partnership for any product candidates and programs on terms that are acceptable to us, or at all. This may be because our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, our research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, and/or third parties may not view our product candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.

 

Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize our product candidates could delay the development or commercialization of our product candidates, which may reduce their competitiveness even if they reach the market. Absent a collaboration partner, we would need to undertake development and/or commercialization activities at our own expense. If we elect to fund and undertake development and/or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which

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may not be available to us on acceptable terms or at all. If we are unable to do so, we may not be able to develop our product candidates or bring them to market and our business may be materially and adversely affected.

 

We may be unable to realize the potential benefits of any collaboration.

 

Even if we are successful in entering into a collaboration with respect to the development and/or commercialization of one or more product candidates, there is no guarantee that the collaboration will be successful. Collaborations may pose a number of risks, including:

 

·

collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject to the collaboration;

 

·

collaborators may not perform their obligations as expected;

 

·

any such collaboration may significantly limit our share of potential future profits from the associated program, and may require us to relinquish potentially valuable rights to our current product candidates, potential products or proprietary technologies or grant licenses on terms that are not favorable to us;

 

·

collaborators may cease to devote resources to the development or commercialization of our product candidates if the collaborators view our product candidates as competitive with their own products or product candidates;

 

·

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of product candidates, and might result in legal proceedings, which would be time‑ consuming, distracting and expensive;

 

·

collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration;

 

·

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

 

·

the collaborations may not result in us achieving revenues to justify such transactions; and

 

·

collaborations may be terminated and, if terminated, may result in a need for us to raise additional capital to pursue further development or commercialization of the applicable product candidate.

 

As a result, a collaboration may not result in the successful development or commercialization of our product candidates.

 

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.

 

During the course of our development of our product candidates, we have been funded in significant part through federal and state grants, including but not limited to the substantial funding we have received from the Texas Emerging Technology Fund and the Cancer Prevention and Research Institute of Texas, or CPRIT. In addition to the funding we have received to date, we have applied and intend to continue to apply for federal and state grants to receive additional funding in the future. Contracts and grants funded by the U.S. government, state governments and their related agencies, including our contracts with the State of Texas pertaining to funds we have already received, include

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provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

 

·

require repayment of all or a portion of the grant proceeds, in certain cases with interest, in the event we violate certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas, failure to achieve certain milestones or to comply with terms relating to use of grant proceeds, or failure to comply with certain laws;

 

·

terminate agreements, in whole or in part, for any reason or no reason;

 

·

reduce or modify the government’s obligations under such agreements without the consent of the other party;

 

·

claim rights, including intellectual property rights, in products and data developed under such agreements;

 

·

audit contract‑related costs and fees, including allocated indirect costs;

 

·

suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

 

·

impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

 

·

impose qualifications for the engagement of manufacturers, suppliers and other contractors as well as other criteria for reimbursements;

 

·

suspend or debar the contractor or grantee from doing future business with the government;

 

·

control and potentially prohibit the export of products;

 

·

pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and

 

·

limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal‑year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.

 

In addition to those powers set forth above, the government funding we may receive could also impose requirements to make payments based upon sales of our products in the future. For example, under the terms of our 2010 award from CPRIT, we are required to pay 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. See “Business—Key Partnerships and Licenses” for a description of this CPRIT agreement, which includes a description of our obligations to make royalty payments.

 

We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third‑party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty‑free use of technologies that are developed under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property we license now or in the future.

 

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In addition, government contracts and grants normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

·

specialized accounting systems unique to government contracts and grants;

 

·

mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

 

·

public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research program; and

 

·

mandatory socioeconomic compliance requirements, including labor standards, non‑discrimination and affirmative action programs and environmental compliance requirements.

 

If we fail to maintain compliance with any such requirements that may apply to us now or in the future, we may be subject to potential liability and to termination of our contracts.

 

Our business involves the use of hazardous materials and we and our third‑ party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how we do business.

 

Our third‑party manufacturers’ activities and our own activities involve the controlled storage, use and disposal of hazardous materials, including the components of our pharmaceutical product candidates, test samples and reagents, biological materials and other hazardous compounds. We and our manufacturers are subject to federal, state, local and foreign laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials. We currently carry no insurance specifically covering environmental claims relating to the use of hazardous materials. Although we believe that our safety procedures for handling and disposing of these materials and waste products comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, state or federal or other applicable authorities may curtail our use of these materials and/or interrupt our business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines. If such unexpected costs are substantial, this could significantly harm our financial condition and results of operations.

 

Risks Related to Administrative, Organizational and Commercial Operations and Growth

 

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

 

As of March 31, 2016, we had 33 employees. We may need to expand our managerial, operational, financial and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize MRX34 or other product candidates. Our management and personnel, systems and facilities currently in place are likely not adequate to support this future growth. Also, our management may need to divert a disproportionate amount of its attention away from our day‑to‑day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure and give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. Our need to effectively execute our business strategy requires that we:

 

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manage our Phase 1 clinical trial, which is being conducted at multiple trial sites, as well as manage any other clinical trials in the future;

 

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manage our internal development efforts effectively while carrying out our contractual obligations to licensors, contractors, government agencies, any future collaborators and other third parties;