Ovid Therapeutics Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Ovid is a development-stage biopharmaceutical company focused on medicines for epilepsies, seizure-related disorders and rare neurological conditions. This quarterly report covers the three months ended March 31, 2023, and was filed May 5, 2023. The company has no approved products and has not generated revenue from commercial drug sales.
Ovid reported 46 full-time employees as of March 31, 2023. Its principal development activities included the OV329 program, for which the FDA had cleared an IND and the company had initiated a Phase 1 trial in healthy volunteers. Takeda continues to develop soticlestat under the 2021 royalty, license and termination agreement.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $66,160 | $1.45 million | Down $1.38 million |
| Research and development expense | $6.61 million | $7.83 million | Down $1.22 million |
| General and administrative expense | $8.34 million | $9.88 million | Down $1.54 million |
| Loss from operations | $14.89 million | $16.27 million | Improved by $1.38 million |
| Other income, net | $1.54 million | $0.21 million | Increased by $1.33 million |
| Net loss | $13.36 million | $16.11 million | Improved by $2.75 million |
| Basic and diluted loss per share | $0.19 | $0.23 | Improved |
| Cash used in operating activities | $12.11 million | $20.09 million | Improved by $7.97 million |
Revenue consisted primarily of $66,160 of royalty revenue. The filing states that the company has generated no product-sales revenue. Operating expenses represented approximately 226 times reported revenue, and the operating and net margins were deeply negative; the filing does not present these margins explicitly.
Cash, cash equivalents and marketable securities totaled $117.7 million at March 31, 2023, compared with $129.0 million at December 31, 2022. Working capital was $112.8 million and accumulated deficit was $238.9 million. Total assets were $143.4 million and total liabilities were $22.4 million.
Ovid had no long-term debt. Lease liabilities totaled $16.5 million, including $0.8 million current and $15.7 million long term. The company has a 10-year headquarters lease with approximately $23.0 million of future minimum lease commitments and $1.9 million of restricted cash supporting a letter of credit.
Investing activities provided $30.2 million, primarily from sales or maturities of marketable securities, while financing activities provided $67,000 from option exercises and employee stock-plan purchases. Stock-based compensation expense was $1.92 million, compared with $1.32 million in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue declined 95% from $1.45 million to $66,000, principally because Q1 2022 included licensing-related revenue from the Healx and Marinus arrangements.
- Research and development expense decreased 16%, primarily because of lower payroll and related costs following the 2022 organizational restructuring, partly offset by higher preclinical and development costs for the OV329 Phase 1 trial.
- General and administrative expense decreased 16%, primarily due to lower legal, consulting and general office costs.
- Net loss narrowed by $2.75 million, and operating cash burn declined by $7.97 million.
- Cash, cash equivalents and marketable securities decreased by approximately $11.3 million from year-end 2022 despite positive investing cash flow, reflecting the company’s operating cash usage and investment repositioning.
- The company sold or matured $40.0 million of marketable securities and purchased $9.8 million of additional marketable securities during the quarter.
- Options outstanding increased to approximately 15.4 million, with a weighted-average exercise price of $3.86 per share, creating potential future dilution. An additional 1.25 million common shares are issuable upon conversion of Series A preferred stock.
Guidance, outlook, risks and unusual items
Management believes existing cash, cash equivalents and marketable securities are sufficient to fund current operating plans for at least 12 months from the filing date. Ovid nevertheless expects continuing losses and negative operating cash flow for at least the next several years and expects expenses to rise as it advances development programs, acquires or licenses additional candidates, protects intellectual property and builds operational capabilities.
Takeda reiterated that regulatory filings for the two pivotal Phase 3 soticlestat trials in Lennox-Gastaut syndrome and Dravet syndrome were expected in Takeda’s 2024 fiscal year. Ovid remains dependent on Takeda’s development and commercialization decisions for potential milestone and royalty revenue. Under the RLT Agreement, Ovid may receive up to $660 million in additional milestones and tiered royalties ranging from the low double digits to 20% if soticlestat is successfully developed and commercialized.
Ovid had an ATM program and shelf registration available for future financing, but no shares had been sold under the 2020 ATM agreement as of March 31, 2023. Future equity or debt financing could dilute stockholders or impose restrictive terms. The company also has potential contingent milestone obligations of up to $279.3 million under certain in-licensing agreements, principally AstraZeneca and Northwestern; none were recorded because timing, probability and amounts could not be reasonably estimated.
On April 30, 2023, after quarter-end, Ovid entered into an exclusive worldwide license, subject to specified territorial exclusions, for Graviton’s ROCK2 inhibitor library, including GV101, for rare CNS disorders. Ovid also purchased Graviton Series A preferred stock for $10 million and will fund development and commercialization costs. Potential royalties on net sales range from the mid to high teens.
Key risks include the company’s lack of approved products and product revenue, dependence on clinical and regulatory success, uncertain trial outcomes, reliance on third-party manufacturers and contract research organizations, intellectual-property risks, dependence on Takeda, need for future capital, potential dilution, inflation and interest-rate pressure, supply-chain and geopolitical disruptions, and data-security risks. The filing states that controls and procedures were effective as of March 31, 2023 and that no material legal proceedings were pending.
The filing contains an apparent inconsistency: the risk-factor discussion describes all current drug candidates as being in preclinical development, while the MD&A states that OV329 had entered a Phase 1 trial. Investors should verify the current development status directly against the latest clinical disclosures.
Most important facts for investors to verify
- Whether Takeda remains on schedule for the anticipated 2024 fiscal-year regulatory filings for soticlestat and whether trial results support potential milestones and royalties.
- Current enrollment, safety and timing for the OV329 Phase 1 trial and the status of other pipeline candidates.
- The expected cash runway after the $10 million Graviton investment and any changes to planned development spending.
- Whether Ovid will need to use its ATM or other financing sources before reaching profitability, and the resulting dilution risk.
- The terms, development obligations and economics of the Graviton license and equity purchase.
- The size and timing of contingent milestone, royalty and lease obligations not recognized on the balance sheet.
- The potential dilution from approximately 15.4 million outstanding options and 1.25 million convertible preferred shares.
- The accuracy and resolution of the filing’s inconsistent descriptions of the development stage of current drug candidates.