Ovid Therapeutics Inc. — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Ovid is a development-stage biopharmaceutical company focused on medicines for rare neurological disorders. This quarterly report covers the three and nine months ended September 30, 2021. The company had no approved commercial products and no revenue from drug sales; its reported revenue came from licensing and collaboration transactions.
As of September 30, 2021, Ovid reported 45 full-time employees, 68.0 million common shares outstanding, and 1,250 Series A preferred shares convertible into 1.25 million common shares.
Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $0 | $6.9 million | $208.4 million | $6.9 million |
| Research and development expense | $4.9 million | $15.9 million | $28.8 million | $46.5 million |
| General and administrative expense | $6.8 million | $7.4 million | $29.0 million | $20.2 million |
| Total operating expenses | $11.7 million | $23.3 million | $57.8 million | $66.8 million |
| Net income (loss) | $(11.4) million | $(16.4) million | $148.8 million | $(59.0) million |
| Basic EPS | $(0.17) | $(0.28) | $2.15 | $(1.04) |
| Cash flow from operations | Not separately disclosed for quarter | Not separately disclosed for quarter | $130.6 million | $(37.1) million |
The nine-month operating margin was approximately 72%, and the net margin was approximately 71%; these margins were driven primarily by the nonrecurring $196.0 million Takeda upfront payment rather than product sales or recurring operations. Q3 2021 operating and net margins were negative because the company generated no revenue.
- Cash and cash equivalents were $201.8 million at September 30, 2021, compared with $72.0 million at December 31, 2020.
- Working capital was approximately $195.0 million, and accumulated deficit was $145.4 million.
- Total liabilities were $10.1 million, with no long-term debt or capital leases reported.
- Investing cash flow was $(1.7) million, primarily for a long-term equity investment. Financing cash flow was $0.8 million.
- The company had $250.0 million available under its shelf registration statement, including a $75.0 million at-the-market program; no shares had been sold under the ATM program as of September 30, 2021.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased by $201.5 million year over year, principally from the $196.0 million Takeda upfront payment and $12.4 million recognized under the Angelini agreement.
- Nine-month net income improved by $211.2 million, from a $59.0 million loss to $148.8 million of income, almost entirely because of the licensing transactions.
- Research and development expense declined by $17.7 million year over year, reflecting discontinuation of the OV101 clinical study in Angelman syndrome and Fragile X syndrome and termination of the Takeda collaboration for OV935.
- General and administrative expense increased by $8.8 million, primarily due to $6.6 million of higher legal and professional fees, including one-time costs related to the Takeda transaction.
- Angelini terminated its license agreement effective March 31, 2021. Ovid recognized $12.4 million of related revenue during the nine months and is not entitled to future milestone payments under that agreement.
- Under the March 2021 Takeda agreement, Takeda assumed responsibility for development and commercialization of soticlestat. Ovid recognized the $196.0 million upfront payment and remains eligible for up to $660.0 million of development, regulatory and sales milestones plus tiered royalties ranging from the low double-digits up to 20% if approved and commercialized.
- Cash from operations turned positive because of the Takeda transaction and related revenue recognition, rather than because of recurring operating profitability.
Outlook, Commentary, Risks and Unusual Items
- Management expects significant expenses and operating losses for at least the next several years and does not expect commercial drug-sale revenue unless and until a candidate receives regulatory approval and is commercialized.
- Management believes existing cash will fund current operating plans through at least the next 12 months from the filing date, but expects to require additional capital through equity, debt, collaborations, strategic alliances or licensing transactions.
- The company stated that all drug candidates under its control were in preclinical development and anticipated filing three IND applications over three years beginning in the first half of 2022.
- Key risks include failure of preclinical or clinical development, regulatory delays or rejection, limited patient populations, manufacturing dependence, intellectual-property challenges, reliance on CROs and other third parties, and inability to raise capital on acceptable terms.
- Future milestone and royalty revenue from soticlestat depends on Takeda’s continued development and commercialization efforts. Takeda has sole discretion over those activities and could delay, deprioritize or discontinue development.
- COVID-19 could disrupt preclinical studies, clinical development, regulatory interactions, third-party manufacturing, employee operations and access to capital. The company reported that it was operating normally under work-from-home arrangements but that its return-to-office plans remained fluid.
- The company reported no material legal proceedings, no material contractual obligations or commitments, and no off-balance-sheet arrangements. Potential Northwestern license milestones of up to $5.3 million were excluded because their timing and probability could not reasonably be estimated.
- Income taxes included a $1.7 million provision for the nine months, partly because statutory limitations restricted use of research credits and net operating losses against the Takeda-related taxable income.
- Disclosure controls and procedures were assessed as effective as of September 30, 2021, with no material changes in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Separate recurring operating performance from the $196.0 million one-time Takeda upfront payment and the $12.4 million Angelini-related revenue.
- Review Takeda’s development status for soticlestat, including the probability, timing and conditions of the potential $660.0 million milestone payments and future royalties.
- Assess the company’s projected cash burn after the transaction-related cash benefit and the timing of any future financing.
- Verify the status, timelines and funding requirements for the preclinical pipeline and the anticipated IND filings beginning in 2022.
- Evaluate dilution from 10.7 million outstanding options, 1.25 million shares issuable upon conversion of Series A preferred stock, and potential use of the $75.0 million ATM program.
- Monitor the effects of COVID-19, regulatory requirements, third-party manufacturing and CRO performance on development timelines and costs.