Ovid Therapeutics Inc. — Form 10-Q Summary
Business context and reporting period
Ovid is a clinical-stage biopharmaceutical company focused on medicines for rare neurological disorders. The filing covers the quarter and six months ended June 30, 2017, with comparative periods ended June 30, 2016. Ovid had no commercial revenue and no approved drugs. Its lead programs were OV101 for Angelman syndrome and OV935, developed with Takeda, for rare epileptic encephalopathies.
Ovid completed its initial public offering on May 10, 2017, issuing 5.0 million shares at $15.00 per share. It also effected a one-for-2.15 reverse stock split on May 1, 2017.
Key financial metrics
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $6.1 million | $1.8 million | $37.4 million | $2.9 million |
| General and administrative expense | $4.2 million | $3.6 million | $7.2 million | $6.2 million |
| Total operating expenses | $10.3 million | $5.4 million | $44.6 million | $9.1 million |
| Net loss | $10.2 million | $5.4 million | $44.5 million | $9.1 million |
| Basic and diluted loss per share | $0.57 | $0.55 | $3.18 | $0.92 |
Because the company had no revenue, gross margin and operating margin are not meaningful. The six-month 2017 net loss included a $25.9 million noncash research and development charge related to the issuance of Series B-1 preferred stock to Takeda.
- Cash and cash equivalents: $106.1 million at June 30, 2017, compared with $51.9 million at December 31, 2016.
- Operating cash flow: $13.1 million used in the first six months of 2017, compared with $7.5 million used in the prior-year period.
- Investing cash flow: $0.08 million used in the first six months of 2017.
- Financing cash flow: $67.4 million provided, primarily from IPO proceeds.
- Working capital: approximately $100.2 million at June 30, 2017.
- Accumulated deficit: $80.4 million at June 30, 2017.
- Debt: the filing does not report outstanding debt; liabilities were primarily accounts payable and accrued expenses totaling $7.1 million.
Material changes versus the prior comparable period
- Six-month research and development expense increased by $34.5 million, primarily because of the $25.9 million noncash Takeda collaboration charge and higher OV101 and OV935 development costs.
- Six-month net loss increased by $35.4 million, from $9.1 million to $44.5 million.
- Quarterly research and development expense increased by $4.3 million, reflecting clinical development activity, Takeda collaboration costs and increased research personnel.
- General and administrative expense increased by $1.0 million for the six-month period, primarily due to higher payroll and payroll-related costs.
- Cash increased by $54.2 million, mainly because of the IPO, despite increased operating cash use.
- All preferred stock converted into common stock upon completion of the IPO. Common shares outstanding increased to 24,601,936 at June 30, 2017.
Guidance, outlook, risks and unusual items
Management expects substantial increases in operating expenses and continued net losses for at least the next several years as clinical development, personnel, public-company compliance and potential business development activities expand. Management believes existing cash and cash equivalents will fund current operating plans through at least the next 12 months, but additional capital will eventually be required. No specific earnings or revenue guidance was provided.
- OV101 was in a Phase 2 trial in adults with Angelman syndrome and a Phase 1 trial in adolescents with Angelman syndrome or Fragile X syndrome.
- Patient recruitment began in June 2017 for a Phase 1b/2a OV935 trial in adults with rare epileptic encephalopathies.
- The Takeda collaboration requires equal sharing of certain development and commercialization costs. Potential future obligations include issuance of common stock equal to the lesser of 8% of outstanding capital stock or $50.0 million upon a specified Phase 3 enrollment milestone, plus approximately $35.0 million of potential global commercial and regulatory milestone payments.
- Noncancellable clinical and preclinical commitments totaled approximately $420,000 at June 30, 2017, with approximately $82,558 paid and the balance expected within the next fiscal year.
- On July 25, 2017, Ovid Technologies, Inc. filed trademark opposition and cancellation proceedings involving Ovid’s trademarks. The proceedings provide no monetary or injunctive remedy according to the filing.
- Key risks include clinical-trial failure or delay, uncertain regulatory endpoints for rare disorders, adverse events, reliance on Takeda and third-party manufacturers and research organizations, intellectual-property disputes, limited patient populations, future financing needs and potential dilution.
- Management stated that disclosure controls and procedures were effective as of June 30, 2017. Because Ovid was an emerging growth company, management was not yet required to assess internal control over financial reporting under the applicable transition rules.
Investor verification checklist
- Verify clinical enrollment, safety findings and efficacy signals for OV101 and OV935, including trial timelines and regulatory interactions.
- Reconcile the $44.5 million six-month net loss with the $25.9 million noncash Takeda charge and underlying cash burn.
- Assess whether the $106.1 million cash balance remains sufficient as clinical spending increases and identify the timing and terms of any future financing.
- Review Takeda milestone, equity issuance, termination and cost-sharing provisions, including potential dilution of up to 8% of outstanding capital stock.
- Monitor the trademark proceedings and the company’s broader patent and licensing rights for OV101 and OV935.
- Confirm clinical-trial commitments, third-party manufacturing capacity and any changes to the company’s stated cash runway.