MILLENDO THERAPEUTICS You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited Interim Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 as filed with theSecurities and Exchange Commission ("SEC") onMarch 29, 2021 . In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Overview We are a biopharmaceutical company that was previously primarily focused on developing novel treatments for endocrine diseases where current therapies do not exist or are insufficient. The endocrine system is a collection of glands that secrete hormones into the blood stream to regulate a number of functions, including appetite, metabolism, growth, development and reproduction. Diseases of the endocrine system can cause multiple and varied symptoms, including appetite dysregulation, metabolic dysfunction, obesity, cardiovascular disease, menstrual irregularity, hirsutism, and infertility. We had been developing livoletide (AZP-531) as a potential treatment for Prader-Willi syndrome ("PWS"), a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger. As previously announced, we discontinued the development of livoletide as a potential treatment for PWS inApril 2020 , including the 9-month extension study and the initiation of the Phase 3 ZEPHYR trial. The decision to discontinue the PWS program was based on results from the Phase 2b ZEPHYR study, which showed that treatment with livoletide did not result in a statistically significant improvement in hyperphagia and food-related behaviors as measured by the Hyperphagia Questionnaire for Clinical Trials (HQ-CT) compared to placebo. We do not expect to incur future material expenses related to our livoletide program for the treatment of PWS. In an effort to streamline costs after discontinuing our PWS program, we eliminated employee positions representing approximately 30% of our prior headcount, which were completed in the second quarter of 2020. We also began evaluating corporate strategic plans to prioritize and allocate resources to our remaining product candidates at the time and any future pipeline assets. We had also been developing nevanimibe (ATR-101) as a potential treatment for patients with classic congenital adrenal hyperplasia ("CAH"), a rare, monogenic adrenal disease that requires lifelong treatment with exogenous cortisol, often at high doses. As we previously announced, we elected to cease investing in the development of nevanimibe as a potential treatment for CAH inJune 2020 . The decision to cease investment in the CAH program was based on the interim review of results from the Phase 2b clinical study and the changing competitive environment. Results from 10 subjects, nine from cohort 1 and one from cohort 2, with at least 12 weeks of treatment with nevanimibe in this open-label, continuous dose escalation study showed that one patient (10%) met the primary endpoint of achieving 17-hydroxyprogesterone (17-OHP) levels less than or equal to 2-times the upper limit of normal. Treatment under the amended protocol with dose titration starting at 500 mg BID improved tolerability of nevanimibe. We do not expect to incur future material expenses related to our nevanimibe program for the treatment of CAH as we are no longer developing this program. We had also been developing a selective neurokinin 3-receptor (NK3R) antagonist (MLE-301) as a potential treatment of vasomotor symptoms ("VMS"), commonly known as hot flashes and night sweats, in menopausal women. As we previously announced, inJanuary 2021 , we discontinued further investment in MLE-301 for the treatment of VMS based on an analysis of the pharmacokinetic and pharmacodynamic data from the single ascending dose portion of the Phase 1 study. Given our limited expected financing options, we began exploring an expanded range of strategic alternatives that included, but was not limited to, the potential sale or merger of the Company or our assets. InJanuary 2021 , as a result of our decision to discontinue our investment in MLE-301, our Board also approved a corporate restructuring plan (the "Plan") furthering our ongoing efforts to align our resources with our current strategy and operations. In connection with the Plan, we plan to reduce our workforce by up to 85%, and the majority of the reduction in personnel completed was byApril 15, 2021 . We initiated this reduction in force inJanuary 2021 and we have provided or will provide severance payments and continuation of group health insurance coverage for a specified period to the affected employees. We have also entered into retention arrangements with employees who are expected to remain with the Company. We estimate that we will incur costs of approximately$5.5 million for termination benefits and retention arrangements related to the Plan, of 18 -------------------------------------------------------------------------------- Table of Contents which approximately$4.2 million has been recorded in the first quarter of 2021. Substantially all termination benefits will be cash expenditures. In 2020, we undertook a strategic review process, which was intended to result in an actionable plan that leverages our assets, capital and capabilities to maximize stockholder value. Following an extensive process of evaluating strategic alternatives, including identifying and reviewing potential candidates for a strategic acquisition or other transaction, onMarch 29, 2021 , we entered into an Agreement and Plan of Merger (the "Merger Agreement"), withTempest Therapeutics, Inc. ("Tempest") under which the privately held Tempest will merge with a wholly owned subsidiary of Millendo (the "Merger"). If the Merger is completed, the business of Tempest will continue as the business of the combined company. We expect to devote significant time and resources to the completion of the Merger. However, there can be no assurances that such activities will result in the completion of the Merger. Further, the completion of the Merger may ultimately not deliver the anticipated benefits or enhance shareholder value. If the Merger is not completed, we will reconsider our strategic alternatives. We consider one of the following courses of action to be the most likely alternatives if the Merger is not completed: •Dissolve and liquidate our assets. If, for any reason, the Merger does not close, our Board may conclude that it is in the best interest of stockholders to dissolve the Company and liquidate our assets. In that event, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims. There would be no assurances as to the amount or timing of available cash remaining to distribute to stockholders after paying our obligations and setting aside funds for reserves.
•Pursue another strategic transaction. We may resume the process of evaluating a potential strategic transaction in order to attempt another strategic transaction like the Merger.
•Operate our business. Although less likely than the alternatives above, our Board may elect to seek new product candidates for development. Since inception, we have incurred significant operating losses and negative operating cash flows and there is no assurance that we will ever achieve or sustain profitability. Our net losses were$8.4 million and$12.0 million for the three months endedMarch 31, 2021 and 2020, respectively. As ofMarch 31, 2021 , we had an accumulated deficit of$253.4 million . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Merger Agreement After conducting a diligent and extensive process of evaluating strategic alternatives for the Company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the careful evaluation and consideration of proposals from interested parties, and following extensive negotiation with Tempest, onMarch 29, 2021 , we,Mars Merger Corp. ("Merger Sub"), a wholly owned subsidiary of the Company, and Tempest entered into the Merger Agreement. Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Tempest, with Tempest continuing as a wholly owned subsidiary of the Company and the surviving corporation of the Merger. Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each outstanding share of Tempest common stock (including shares of Tempest common stock issued upon conversion of Tempest preferred stock and shares of Tempest common stock issued in the financing transaction described below) will be converted into the right to receive a number of shares of Millendo common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Millendo common stock described below) calculated in accordance with the Merger Agreement (the "Exchange Ratio") and (b) each then outstanding Tempest stock option and warrant to purchase Tempest common stock will be assumed by Millendo, subject to adjustment as set forth in the Merger Agreement. Under the terms of the Merger Agreement, the Millendo board of directors may accelerate the vesting of any Millendo stock options that are outstanding as of immediately prior to the closing of the Merger. Under the Exchange Ratio formula in the Merger Agreement, upon the closing of the Merger, on a pro forma basis and based upon the number of shares of Millendo common stock expected to be issued in the Merger, pre-Merger Millendo shareholders will own approximately 18.5% of the combined company and pre-Merger Tempest stockholders will own approximately 81.5% of the combined company (assuming the financing transaction described below results in gross proceeds of approximately$30 million ). For purposes of calculating the Exchange Ratio, shares of Millendo common stock underlying Millendo stock options outstanding as of the immediately prior to the closing of the Merger with an exercise price per share of less than or equal to$5.00 (as adjusted for the reverse stock split described below) will be deemed to be outstanding and all shares of Tempest 19 -------------------------------------------------------------------------------- Table of Contents common stock underlying outstanding Tempest stock options, warrants and other derivative securities will be deemed to be outstanding. The Exchange Ratio will be adjusted to the extent that Millendo's net cash at closing is less than$15.3 million or greater than$18.7 million and based on the amount of the financing transaction described below, as further described in the Merger Agreement.
In connection with the Merger, Millendo will seek the approval of its
stockholders to (a) issue the shares of Millendo common stock issuable in
connection with the Merger under the rules of
Each of Millendo and Tempest has agreed to customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants relating to (1) using reasonable best efforts to obtain the requisite approval of its stockholders, (2) non-solicitation of alternative acquisition proposals, (3) the conduct of their respective businesses during the period between the date of signing the Merger Agreement and the closing of the Merger, (4) Millendo using reasonable best efforts to maintain the existing listing of the Millendo common stock on Nasdaq and Millendo causing the shares of Millendo common stock to be issued in connection with the Merger to be approved for listing on Nasdaq prior to the closing of the Merger, and (5) Millendo filing with theU.S. Securities and Exchange Commission (the "SEC") and causing to become effective a registration statement to register the shares of Millendo common stock to be issued in connection with the Merger (the "Registration Statement"). Consummation of the Merger is subject to certain closing conditions, including, among other things, the (1) approval by Millendo stockholders of the Millendo Voting Proposals, (2) approval by the Tempest stockholders of the adoption of the Merger Agreement, (3) Nasdaq's approval of the listing of the shares of Millendo common stock to be issued in connection with the Merger, (4) the effectiveness of the Registration Statement, and (5) the determination of Millendo's net cash in accordance with the Merger Agreement. Each party's obligation to consummate the Merger is also subject to other specified customary conditions, including the representations and warranties of the other party being true and correct as of the date of the Merger Agreement and as of the closing date of the Merger, generally subject to an overall material adverse effect qualification, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the date of the closing of the Merger. Millendo's obligation to consummate the Merger also is subject to the completion of at least$25.0 million of the financing transaction described below. The Merger Agreement contains certain termination rights of each of Millendo and Tempest, including, subject to compliance with the applicable terms of the Merger Agreement, the right of each party to terminate the Merger Agreement to enter into a definitive agreement for a superior proposal. Upon termination of the Merger Agreement under specified circumstances, Millendo may be required to pay Tempest a termination fee of$1.4 million or reimburse Tempest's expenses up to a maximum of$1.0 million and Tempest may be required to pay Millendo a termination fee of$2.8 million or reimburse Millendo's expenses up to a maximum of$1.0 million . Concurrently with the execution of the Merger Agreement, (i) certain executive officers, directors and stockholders of Tempest (solely in their respective capacities as Tempest stockholders) holding approximately 87% of the outstanding shares of Tempest capital stock have entered into support agreements with Millendo and Tempest to vote all of their shares of Tempest capital stock in favor of adoption of the Merger Agreement and against any alternative acquisition proposals (the "Tempest Support Agreements") and (ii) certain executive officers, directors and stockholders of Millendo (solely in their respective capacities as Millendo stockholders) holding approximately 16% of the outstanding shares of Millendo common stock have entered into support agreements with Millendo and Tempest to vote all of their shares of Millendo common stock in favor of the Millendo Voting Proposals and against any alternative acquisition proposals (the "Millendo Support Agreements", and together with the Tempest Support Agreements, the "Support Agreements"). Concurrently with the execution of the Merger Agreement, certain executive officers, directors and stockholders of Tempest have entered into lock-up agreements (the "Lock-Up Agreements") pursuant to which, subject to specified exceptions, they agreed not to transfer their shares of Millendo common stock for the 180-day period following the closing of the Merger. In addition, each of Millendo and Tempest is obligated under the Merger Agreement to use reasonable best efforts prior to the closing of the Merger to obtain a Lock-Up Agreement from any person who will serve as a director or officer of Millendo following completion of the Merger.
At the effective time of the Merger, the Board of Directors of Millendo is expected to consist of seven members, six of whom will be designated by Tempest and one of whom will be designated by Millendo.
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Concurrently with the execution and delivery of the Merger Agreement, certain
parties have entered into agreements with Tempest pursuant to which they have
agreed, subject to the terms and conditions of such agreements, to purchase
prior to the consummation of the Merger shares of Tempest common stock for an
aggregate purchase price of approximately $30 million . The consummation of the
transactions contemplated by such agreements is conditioned on the satisfaction
or waiver of the conditions set forth in the Merger Agreement. Shares of Tempest
common stock issued pursuant to this financing transaction will be converted
into shares of Millendo common stock in the Merger in accordance with the
Exchange Ratio.
At-the-Market Equity Distribution Agreement
In April 2019 , we entered into an "at-the-market" ("ATM") equity distribution
agreement with Citigroup Global Markets Inc. acting as sole agent with an
aggregate offering value of up to $50.0 million . Subject to the terms of the ATM
equity distribution agreement, we are able to determine, at our sole discretion,
the timing and number of shares to be sold under this ATM facility. In March
2020 , we amended and restated the equity distribution agreement to include SVB
Leerink LLC as an additional sales agent for the ATM. In March 2020 , we sold
719,400 shares of our common stock under our ATM equity distribution agreement
for net proceeds of approximately $5.5 million . We do not expect to sell
additional shares under this ATM facility.
Sales of our common stock pursuant to the ATM have been made pursuant to our
registration statement on Form S-3 (Registration Statement No. 333-230749),
which was declared effective by the Securities and Exchange Commission on April
18, 2019 .
COVID-19 Business Update
With the global impacts of the ongoing COVID-19 pandemic continuing in the first
quarter of 2021, we are maintaining the business continuity plans we established
and implemented in the first quarter of 2020, which are designed to address and
mitigate the impact of the COVID-19 pandemic on our employees, operations and
our business. While we are experiencing limited financial impacts from the
pandemic at this time, given the global economic slowdown, the overall
disruption of global healthcare systems and the other risks and uncertainties
associated with the pandemic, our business, financial condition, and results of
operations, could be materially adversely affected. We continue to closely
monitor the COVID-19 situation as we evolve our business continuity plans and
response strategy. In March 2020 , our global workforce transitioned to working
remotely. Throughout the first quarter of 2021, we continued our plan to allow
some employees to return to the office voluntarily, which was based on a phased
approach that is principles-based, flexible and local in design, with a focus on
employee safety and optimal work environment. Our current plans remain fluid as
federal, state and local guidelines, rules and regulations continue to evolve.
Components of Our Results of Operations
Research and development expense
Research and development expense consists primarily of costs incurred in
connection with the development of our product candidates. We expense research
and development costs as incurred. These expenses include:
•personnel expenses, including salaries, benefits and stock-based compensation
expense;
•costs of funding research performed by third-parties, including pursuant to
agreements with contract research organizations, ("CROs"), as well as
investigative sites and consultants that conduct our preclinical studies and
clinical trials;
•expenses incurred under agreements with contract manufacturing organizations
("CMOs"), including manufacturing scale-up expenses and the cost of acquiring
and manufacturing preclinical study and clinical trial materials;
•payments made under our third-party licensing agreements;
•consultant fees and expenses associated with outsourced professional scientific
development services;
•expenses for regulatory activities, including filing fees paid to regulatory
agencies; and
•allocated expenses for facility costs, including rent, utilities, depreciation
and maintenance.
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Milestone payment obligations incurred prior to regulatory approval of a product
candidate, which are accrued when the event requiring payment of the milestone
occurs are included in research and development expense.
We typically use our employee, consultant and infrastructure resources across
our development programs. We track certain outsourced development costs by
product candidate, but do not allocate all personnel costs or other internal
costs to specific product candidates.
The following table summarizes our research and development expenses by product
candidate, personnel expense and other expenses for the three months ended
March 31, 2021 and 2020, respectively:
Three Months Ended
March 31,
2021 2020
(dollars in thousands)
Livoletide expenses $ (45) $ 4,846
Nevanimibe expenses - 252
MLE-301 expenses 384 430
Personnel expenses 1,805 1,774
Other expenses 8 238
Total $ 2,152 $ 7,540
Our research and development costs related to livoletide and nevanimibe have
decreased significantly due to our decision to discontinue the livoletide and
nevanimibe programs based on results from the Phase 2b ZEPHYR study in PWS and
the Phase 2b clinical study in CAH, respectively. All costs, including estimated
program closeout costs associated with these programs, were primarily recognized
during the second quarter of 2020. Any revisions to estimated program closeout
costs have been recognized as of March 31, 2021 . Future expenses may be recorded
as a result of changes to these estimated costs as closeout activities continue.
Our research and development costs related to MLE-301 have decreased due to our
decision in January 2021 to discontinue the MLE-301 program based on the data
from the single ascending dose portion of the Phase 1 study. We do not expect to
incur material costs in the future related to the MLE-301 program.
If we decide to resume product candidate development, the successful development
of any future product candidates would be highly uncertain. We are also unable
to predict when, if ever, material net cash inflows would commence from sales of
any future product candidates that we may develop due to the numerous risks and
uncertainties associated with clinical development, including risks and
uncertainties related to:
•the ongoing COVID-19 pandemic, including the potential impact on various
aspects and stages of the clinical development process;
•the number of clinical sites included in the trials;
•the length of time required to enroll suitable patients;
•the number of patients that ultimately participate in the trials;
•the number of doses patients receive;
•the duration of patient follow-up and number of patient visits;
•the results of our clinical trials;
•the establishment of commercial manufacturing capabilities;
•the receipt of marketing approvals; and
•the commercialization of product candidates.
We may never succeed in obtaining regulatory approval for any future product
candidates we may develop.
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General and administrative expense
General and administrative expense consists primarily of personnel expenses,
including salaries, benefits and stock-based compensation expense, for employees
in executive, finance, accounting, business development, legal and human
resource functions. General and administrative expense also includes corporate
facility costs, including rent, utilities, depreciation and maintenance, not
otherwise included in research and development expense, as well as legal fees
related to intellectual property and corporate matters and fees for accounting,
recruiting and consulting services. Our general and administrative expenses
increased during the three months ended March 31, 2021 mainly due to termination
benefits incurred related to our corporate restructuring plan and increased
professional fees incurred due to the proposed Merger.
Interest expense (income), net
Interest expense (income) represents amounts earned on our cash, cash
equivalents, marketable securities and restricted cash balances.
Results of operations
Comparison of the three months ended March 31, 2021 and 2020
The following table summarizes our operating results for the periods indicated:
Three Months Ended
March 31,
2021 2020 Change
(dollars in thousands)
Operating expenses:
Research and development $ 2,152 $ 7,540 $ (5,388) (71.5) %
General and administrative 6,410 4,595 1,815 39.5
Loss from operations 8,562 12,135 (3,573) (29.4)
Other expenses (income):
Interest expense (income), net 1 (162) 163 (100.6)
Other (gain) / loss (174) 25 (199) (796.0)
Net loss $ (8,389) $ (11,998) $ 3,609 (30.1) %
Research and development expense
Research and development expense decreased by $5.4 million to $2.2 million for
the three months ended March 31, 2021 from $7.5 million for the three months
ended March 31, 2020 . The following table summarizes our research and
development expenses for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
2021 2020 Change
(dollars in thousands)
Preclinical and clinical development expense $ 339 $ 5,528 $ (5,189) (93.9) %
Compensation expense, other than stock-based
compensation 2,063 1,474 589 40.0
Stock-based compensation expense (258) 300 (558) (186.0)
Other expenses 8 238 (230) (96.6)
Total research and development expense $ 2,152 $ 7,540 $ (5,388) (71.5) %
The decrease in total research and development expense is attributable to:
•a
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•a $0.6 million increase in compensation expense, other than stock-based
compensation, primarily due to termination benefits incurred related to the
reduction in force initiated in the first quarter of 2021; and
•a $0.6 million decrease in stock-based compensation expenses primarily related
to the reduction in force initiated in the first quarter of 2021.
General and administrative expense
General and administrative expense increased by $1.8 million to $6.4 million for
the three months ended March 31, 2021 from $4.6 million for the three months
ended March 31, 2020 . The increase was primarily due to higher compensation and
professional fees offset by a decrease in stock-based compensation. The increase
in compensation of $1.6 million was a result of termination benefits incurred
related to the reduction in force initiated in the first quarter of 2021, as a
result of the discontinuance of our MLE-301 program. The increase in
professional fees of $0.4 million was a result of the proposed merger in the
first quarter of 2021. These increases were offset by a decrease of $0.1 million
in stock-based compensation as a result of the reduction in force completed in
the first quarter of 2021.
Interest expense (income), net
Interest expense (income), net decreased by $0.2 million to $1,000 interest
expense, net for the three months ended March 31, 2021 from interest income, net
of $0.2 million for the three months ended March 31, 2020 . The change was
primarily due to lower interest income received as a result of lower cash and
cash equivalent and marketable securities balances and lower interest rates.
Other (gain) / loss
Other (gain) / loss increased by $0.2 million to a gain of $0.2 million for the
three months ended March 31, 2021 from a loss of $25,000 for the three months
ended March 31, 2020 due to lower foreign currency losses as a result of
exchange rate fluctuations on transactions denominated in a currency other than
our functional currency.
Liquidity and Capital Resources
Cash flows
The following table sets forth the primary uses of cash and cash equivalents for
the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (11,835) $ (10,161)
Net cash provided by (used in) investing activities 8 (26)
Net cash provided by financing activities 22
5,589
Effect of foreign currency exchange rate changes on cash (6)
(37)
Net decrease in cash, cash equivalents and restricted cash
Operating activities During the three months endedMarch 31, 2021 , we used$11.8 million of cash to fund operating activities. During the three months endedMarch 31, 2021 , cash used in operating activities reflected our net loss of$8.4 million and a net change in operating assets and liabilities of$3.8 million , offset by non-cash charges of$0.4 million , principally related to stock-based compensation. During the three months endedMarch 31, 2020 , we used$10.2 million of cash to fund operating activities. During the three months endedMarch 31, 2020 , cash used in operating activities reflected our net loss of$12.0 million and a net change in operating assets and liabilities of$0.5 million , offset by non-cash charges of$1.4 million , principally related to stock-based compensation and the amortization of our right-of-use assets. 24 -------------------------------------------------------------------------------- Table of Contents Investing activities During the three months endedMarch 31, 2021 , we received proceeds of$8,000 related to the sale of equipment. During the three months endedMarch 31, 2020 , we paid$26,000 in purchases of property and equipment. Financing activities During the three months endedMarch 31, 2021 , we received$86,000 in proceeds from option exercises offset by the repayment of debt and principal on a finance lease. During the three months endedMarch 31, 2020 , we received proceeds of$5.7 million received from the issuance of common stock, net of issuance costs paid. These proceeds were offset by$0.2 million in the payment of financing costs. Funding requirements We expect our expenses to decrease as a result of our discontinuing the development of livoletide, nevanimibe and MLE-301 as compared to previous operations. However, we expect to continue to incur costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to liquidate our assets. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. InApril 2019 , we entered into an "at-the-market" ("ATM"), equity distribution agreement withCitigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to$50.0 million . Subject to the terms of the ATM equity distribution agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. InMarch 2020 , we amended and restated the equity distribution agreement to includeSVB Leerink LLC as an additional sales agent for the ATM. InMarch 2020 , we sold 719,400 shares of common stock under our ATM equity distribution agreement for net proceeds of approximately$5.5 million . We do not expect to sell additional shares under this ATM facility. As ofMarch 31, 2021 , we had cash, cash equivalents, marketable securities and restricted cash of$27.3 million , which we believe are sufficient to fund our planned operations through at least the next 12 months. Our future capital requirements will depend on the results of our ongoing strategic evaluation, including whether we complete the Merger with Tempest. If the Merger is not completed, we will reconsider our strategic alternatives which may include a dissolution of the company, pursuit of another strategic transaction or the continued operation of product development. In the event we resume product candidate development, our future capital requirements will depend on many factors, including: •the scope, progress, results and costs of preclinical studies and clinical trials; •the scope, prioritization and number of our research and development programs; •the costs, timing and outcome of regulatory review of our product candidates; •our ability to establish and maintain collaborations on favorable terms, if at all; •the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under collaboration agreements, if any; •the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; •the extent to which we acquire or in-license other product candidates and technologies; •the costs of securing manufacturing arrangements for commercial production; and •the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates. 25 -------------------------------------------------------------------------------- Table of Contents Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, any future product candidates, if approved, may not achieve commercial success. If we elect to resume product candidate development, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments During the three months endedMarch 31, 2021 , 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" in our Annual Report on Form 10-K. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofMarch 31, 2021 , as defined in Item 303(a)(4)(ii) of Regulation S-K. Critical Accounting Policies and Estimates Other than as described under Note 2 to our Unaudited Interim Consolidated Financial Statements, the Critical Accounting Policies included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed with theSEC onMarch 29, 2021 , have not materially changed. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, as ofMarch 31, 2021 . Based on the evaluation of our disclosure controls and procedures as ofMarch 31, 2021 , 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 internal control over financial reporting during the quarter endedMarch 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. Inherent Limitations on Effectiveness of Controls 26 -------------------------------------------------------------------------------- Table of Contents Our management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 27
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