Ovid Therapeutics Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 8, 2019. Ovid is a clinical-stage biopharmaceutical company developing medicines for rare neurological disorders. It has not generated revenue from commercial product sales since inception and remains dependent on equity financing, collaborations and licensing arrangements.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $11.6 million | $8.5 million | $30.1 million | $25.2 million |
| General and administrative expense | $5.2 million | $4.6 million | $14.1 million | $14.6 million |
| Total operating expenses | $16.8 million | $13.2 million | $44.1 million | $39.8 million |
| Net loss | $16.6 million | $13.0 million | $43.5 million | $39.1 million |
| Basic and diluted loss per share | $0.43 | $0.53 | $1.21 | $1.59 |
- Operating and net profit margins are not meaningful because the company has no revenue. The company expects continued losses for at least the next several years.
- Research and development expense increased $3.1 million, or approximately 36%, in Q3 and $4.9 million, or approximately 19%, for the nine-month period, primarily due to clinical development of OV101 and OV935-related collaboration activities.
- General and administrative expense increased $0.5 million in Q3 but declined $0.5 million year to date, reflecting changes in payroll, stock-based compensation, legal and professional fees, and office expenses.
- Cash and cash equivalents were $37.9 million at September 30, 2019, compared with $36.5 million at December 31, 2018. The company held no short-term investments at September 30, 2019, versus $5.0 million at year-end 2018.
- Operating cash outflow was $34.2 million for the nine months, compared with $34.6 million in the prior-year period. Investing activities provided $5.0 million, primarily from maturities of short-term investments, and financing activities provided $30.7 million, primarily from the February Offering.
- Working capital was approximately $28.8 million. The company had no long-term debt or capital leases and reported no material contractual obligations other than contingent license-related payments.
- Accumulated deficit was $196.2 million at September 30, 2019.
Material changes and capital activity
- In February 2019, Ovid raised $30.5 million of net proceeds through the sale of common stock and Series A convertible preferred stock.
- In September 2019, holders exchanged 1.262 million common shares for 1,262 shares of Series A convertible preferred stock. Each preferred share is generally convertible into 1,000 common shares, subject to ownership limitations.
- After quarter-end, on October 4, 2019, Ovid raised estimated net proceeds of $30.5 million through the sale of common stock and Series A preferred stock. On November 5, 2019, underwriters exercised their option for an additional $3.2 million of estimated net proceeds.
- Common shares outstanding increased to 37.5 million at September 30, 2019 from 24.7 million at December 31, 2018, before giving effect to the October and November offerings and potential preferred-stock conversions.
- Stock-based compensation was $1.2 million in Q3 and $4.1 million for the nine months, compared with $1.7 million and $5.3 million, respectively, in the prior-year periods.
- The company settled a dispute with Catalyst Pharmaceuticals in May 2019 and retained its rights under the Northwestern license agreement. No material legal proceedings were pending at the filing date.
Pipeline, outlook and contingencies
- OV101 (gaboxadol): The pivotal NEPTUNE Phase 3 trial in Angelman syndrome began in June 2019, with the first patient randomized in September. The trial is expected to enroll approximately 60 patients ages 4 to 12, with data expected by mid-2020. An open-label extension study, ELARA, was ongoing. Ovid also expected ROCKET Phase 2 Fragile X syndrome data in early 2020.
- OV935 (soticlestat): Ovid and Takeda continued Phase 2 studies in developmental and epileptic encephalopathies, including Dravet syndrome, Lennox-Gastaut syndrome, CDKL5 deficiency disorder and Dup15Q syndrome. Additional data were expected in 2020.
- Management stated that cash and cash equivalents at September 30, 2019, together with the October Offering proceeds, should fund current operating plans for at least 12 months from the filing date. The company nevertheless expects to require additional capital to fund later-stage development and potential commercialization.
- Potential contingent milestone payments under license and collaboration agreements totaled up to approximately $279.3 million, excluding royalties. These obligations were not considered probable at September 30, 2019. The Lundbeck agreement alone includes up to $189.0 million of development, regulatory and sales milestones; Northwestern obligations could reach $5.3 million; and Takeda has approximately $35.0 million of remaining potential global commercial and regulatory milestones, plus a potential issuance of equity equal to up to 8% of outstanding capital stock upon a specified Phase 3 enrollment milestone.
- Key risks include failure or delay of clinical trials, uncertain efficacy and safety, regulatory approval risk, limited patient populations, reliance on Takeda and third-party manufacturers and CROs, intellectual-property challenges, additional financing needs, dilution from equity issuance or preferred-stock conversion, and the possibility that the company may never achieve profitability.
Investor verification checklist
- Verify the post-quarter-end impact of the October Offering and November underwriter exercise on cash, shares outstanding and potential dilution.
- Track cash burn, operating cash flow and the timing of additional financing relative to the stated 12-month funding expectation.
- Verify NEPTUNE enrollment, timing and final results, including whether the trial supports regulatory submission for OV101.
- Monitor 2020 data from ROCKET and OV935 Phase 2 programs and distinguish preliminary results from final, audited clinical conclusions.
- Review the terms, timing and potential equity or cash settlement of Takeda, Lundbeck and Northwestern milestones and royalties.
- Assess whether the company can obtain regulatory approval, manufacture sufficient drug supply and establish reimbursement and commercialization capabilities.