Ovid Therapeutics Inc. — Form 10-Q Summary
Business context and reporting period
Ovid is a clinical-stage biopharmaceutical company developing medicines for rare neurological disorders. The filing covers the unaudited three months ended March 31, 2017, with comparison to the three months ended March 31, 2016. The company had no commercial revenue and was focused on clinical development, business development, licensing, and capital raising.
- OV101: Phase 2 trial in adults with Angelman syndrome and Phase 1 work in adolescents with Angelman syndrome or Fragile X syndrome.
- OV935: Licensed from Takeda in January 2017; a Phase 1b/2a trial in rare epileptic encephalopathies was expected to begin in 2017.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $31.3 million | $1.1 million | +$30.2 million |
| SG&A expense | $3.0 million | $2.6 million | +$0.4 million |
| Total operating expenses | $34.3 million | $3.7 million | +$30.5 million |
| Net loss | $34.2 million | $3.7 million | +$30.6 million loss |
| Basic and diluted loss per share | $3.48 | $0.37 | Higher loss per share |
| Net cash used in operating activities | $7.2 million | $3.8 million | +$3.3 million use |
- Gross operating margin and net margin are not meaningful because the company had no revenue.
- Cash and cash equivalents were $44.2 million at March 31, 2017, down from $51.9 million at December 31, 2016.
- Working capital was approximately $41.7 million; total assets were $47.2 million and total current liabilities were $4.9 million.
- The filing reports no debt obligations and no off-balance-sheet arrangements.
- Accumulated deficit was $70.1 million at March 31, 2017.
- Cash equivalents included approximately $43.7 million held in an interest-bearing money market account.
Material changes versus the prior comparable period
- Research and development expense increased primarily because of the January 2017 Takeda transaction and higher development activity.
- The company issued 1,781,996 Series B-1 preferred shares to Takeda with an ascribed fair value of $25.9 million. The amount was recorded as a non-cash research and development expense.
- Total collaboration-related research and development expense was $27.4 million, including the $25.9 million non-cash license-related charge.
- Operating cash use increased as clinical and research programs expanded and headcount grew.
- SG&A increased modestly, primarily from higher payroll and payroll-related costs.
- Transaction costs related to the planned IPO resulted in $0.5 million of financing cash outflow during the quarter.
Guidance, outlook, commentary, risks, and unusual items
- Management expected significant expenses and increasing operating losses for at least the next several years and did not expect revenue until one or more candidates received regulatory approval and were commercialized.
- Management believed cash at March 31, 2017, together with subsequent IPO proceeds, would fund current operating plans for at least the next 12 months.
- On May 10, 2017, after quarter-end, the company completed an IPO of 5.0 million shares at $15.00 per share, generating $75.0 million of gross proceeds and approximately $67.0 million of net proceeds. The company stated that none of the IPO proceeds had been used as of the filing date.
- The IPO caused all outstanding preferred stock to convert into 9,763,347 common shares. The company reported 24,601,936 common shares outstanding after the IPO.
- Potential Takeda 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 remaining commercial and regulatory milestone payments payable in cash or, subject to conditions, common stock.
- Under the Lundbeck agreement for OV101, potential development, regulatory, and sales milestones could total up to $181.0 million, in addition to tiered royalties on net sales.
- Key risks include failure or delay of clinical trials, uncertain efficacy and safety, difficulty enrolling rare-disease patients, regulatory uncertainty, reliance on Takeda and third-party manufacturers and clinical research organizations, intellectual-property challenges, competition, and the need for additional capital.
- The company had no material legal proceedings and disclosed approximately $286,900 of noncancellable preclinical commitments as of March 31, 2017.
Important facts for investors to verify
- Verify the post-quarter-end IPO proceeds, share conversion, reverse stock split, and resulting share count.
- Assess the sustainability of the company’s cash runway relative to the expected increase in clinical and research spending.
- Separate the $25.9 million non-cash Takeda license charge from recurring operating cash requirements.
- Review the timing, terms, and potential dilution or cash requirements associated with Takeda and Lundbeck milestones.
- Track clinical progress, enrollment, safety, efficacy endpoints, and regulatory feedback for OV101 and OV935.
- Confirm whether additional financing, partnering, or asset licensing will be required before the company can generate product revenue.