Ovid Therapeutics Inc. — Form 10-Q Summary
Business Context and Reporting Period
Ovid Therapeutics is a clinical-stage biopharmaceutical company developing medicines for rare neurological disorders. This unaudited Form 10-Q covers the three and nine months ended September 30, 2017. The company had no approved products and had generated no commercial revenue since inception.
- Lead programs: OV101 in Angelman syndrome and Fragile X syndrome, and OV935, developed with Takeda, for rare developmental and epileptic encephalopathies.
- OV101 Phase 2 enrollment continued in adults with Angelman syndrome; topline data were expected in 2018. An adolescent Phase 1 trial was expected to report results by year-end 2017.
- OV935 Phase 1b/2a enrollment continued, with data expected in 2018.
- The company completed its IPO on May 10, 2017, issuing 5.0 million shares at $15.00 per share.
Financial Performance and Liquidity
| Metric | Q3 2017 | Q3 2016 | Nine Months 2017 | Nine Months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $5.9 million | $2.7 million | $43.3 million | $5.6 million |
| General and administrative expense | $3.5 million | $3.1 million | $10.7 million | $9.4 million |
| Total operating expenses | $9.4 million | $5.8 million | $54.0 million | $14.9 million |
| Net loss | $9.4 million | $5.8 million | $53.8 million | $14.9 million |
| Net loss per share | $0.38 | $0.59 | $3.06 | $1.51 |
| Cash used in operating activities | Not provided | Not provided | $22.5 million | $12.1 million |
Because the company had no revenue, gross profit and operating margins were not meaningful. The nine-month 2017 net loss included a $25.9 million non-cash research and development charge for the Takeda collaboration and $5.0 million of stock-based compensation.
- Cash and cash equivalents were $96.0 million at September 30, 2017, compared with $51.9 million at December 31, 2016.
- Working capital was approximately $92.3 million; current liabilities were $4.6 million.
- The company reported no material debt or off-balance-sheet arrangements; the filing does not disclose a debt balance.
- Net IPO proceeds were $66.7 million. Management stated that existing cash was expected to fund current operating plans through at least the next 12 months.
- Accumulated deficit was $89.8 million at September 30, 2017.
Material Changes Versus the Prior Comparable Period
- Nine-month research and development expense increased by $37.7 million, primarily because of the $25.9 million non-cash Takeda collaboration charge and higher OV101 and OV935 development costs.
- Nine-month operating cash use increased by $10.4 million to $22.5 million as clinical development, payroll and staffing costs expanded.
- General and administrative expense increased by $1.3 million for the nine-month period, mainly from higher payroll and public-company costs, partly offset by lower legal and professional fees.
- Net loss increased by $39.0 million year over year, substantially reflecting the Takeda non-cash charge and increased development activity.
- Preferred stock was converted into common stock upon the IPO. Common shares outstanding increased to approximately 24.6 million from 9.8 million at December 31, 2016.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management expects substantial operating losses and increasing expenses for at least the next several years and does not expect near-term product revenue.
- Additional capital will likely be required through equity, debt, collaborations or licensing arrangements. Failure to obtain financing could delay, reduce or terminate development programs.
- Under the Takeda agreement, the company may owe future milestone payments, including approximately $35.0 million of remaining global commercial and regulatory milestones. Upon a specified Phase 3 enrollment milestone, it may also be required to issue Takeda securities equal to the lesser of 8% of outstanding capital stock or $50.0 million divided by the applicable share price.
- Under the Lundbeck agreement for OV101, potential development, regulatory and sales milestones total up to $181.0 million, in addition to tiered royalties on net sales.
- Adult enrollment in the OV101 Angelman syndrome Phase 2 trial was slower than expected, although management continued to expect 2018 data. Clinical endpoints for Angelman syndrome remain challenging and not fully established.
- Key risks include clinical-trial delays or failures, adverse events, regulatory non-approval, limited patient populations, dependence on Takeda and contract research organizations, third-party manufacturing reliance, intellectual-property challenges, and inability to raise capital on acceptable terms.
- A trademark opposition and cancellation matter involving Ovid Technologies, Inc. was under settlement negotiations. The company stated it was not involved in other legal matters arising in the normal course of business.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2017. Because of its emerging-growth-company status, management was not yet required to report on the effectiveness of internal control over financial reporting.
Important Facts for Investors to Verify
- Cash runway assumptions relative to the company’s increasing clinical-development spending and projected future financing needs.
- Timing, enrollment status and results of the OV101 and OV935 clinical trials, including the impact of slower OV101 adult enrollment.
- Terms, timing and potential dilution or cash requirements associated with Takeda milestone obligations.
- Potential Lundbeck milestone and royalty obligations for OV101.
- Whether clinical efficacy, safety, regulatory approval and commercial market adoption can be demonstrated for either drug candidate.
- Future stock-based compensation, share dilution and the effect of the IPO-related increase in shares outstanding.