Ovid Therapeutics Inc. quarterly report, Q2 FY2018

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. The filing covers the quarter and six months ended June 30, 2018. The company has no commercial products, has generated no revenue, and has funded operations primarily through equity financing.

Key programs were OV101 for Angelman syndrome and Fragile X syndrome and OV935, developed with Takeda, for developmental and epileptic encephalopathies.

Financial Highlights

Metric	Three Months Ended June 30, 2018	Six Months Ended June 30, 2018
Revenue	$0	$0
Research and development expense	$8.1 million	$16.6 million
General and administrative expense	$5.1 million	$10.0 million
Total operating expenses	$13.2 million	$26.6 million
Net loss	$12.9 million	$26.1 million
Net loss per share	$0.53	$1.06
Operating cash flow	Not separately provided for the quarter	$(24.5) million

At June 30, 2018, cash and cash equivalents were $22.5 million and short-term investments were $40.1 million, for total cash, cash equivalents and short-term investments of $62.6 million. Working capital was approximately $57.7 million, accumulated deficit was $126.8 million, and current liabilities were $7.5 million. The filing reports no debt and no off-balance-sheet arrangements.

Cash used in investing activities was $40.2 million for the six months, primarily reflecting purchases of short-term investments. Financing activities provided $174 thousand, primarily from option exercises and the employee stock purchase plan. The company had 24.6 million common shares outstanding as of August 2, 2018.

Stock-based compensation expense was $1.8 million for the quarter and $3.6 million for the six months. Interest income was $275 thousand for the quarter and $522 thousand for the six months.

Material Changes Versus Prior Comparable Period

Second-quarter operating expenses increased $2.9 million, or approximately 28%, from $10.3 million to $13.2 million. Research and development expense increased $2.0 million, while general and administrative expense increased $0.9 million.
Second-quarter net loss increased from $10.2 million to $12.9 million, despite higher interest income.
Six-month operating expenses declined $17.9 million, from $44.6 million to $26.6 million, primarily because the prior-year period included a $25.9 million noncash research and development charge related to shares issued to Takeda for collaboration rights.
Six-month net loss improved from $44.5 million to $26.1 million, but operating cash use increased from $13.1 million to $24.5 million as clinical development and staffing costs increased.
Cash, cash equivalents and short-term investments declined from $87.1 million at December 31, 2017 to $62.6 million at June 30, 2018, partly because $40.1 million was transferred into short-term investments.
In June 2018, the company established a $50.0 million at-the-market equity offering program. No shares had been sold under the program as of June 30, 2018.

Guidance, Outlook, Commentary and Risks

Management expects continued significant expenses and increasing operating losses for at least the next several years. It believes existing cash, cash equivalents and short-term investments will fund current operating plans through at least 12 months from the filing date, but expects to require additional capital to fund broader development and potential commercialization activities.

The Phase 2 STARS trial of OV101 subsequently reported a favorable safety and tolerability result and a statistically significant improvement versus placebo on the physician-rated CGI-I endpoint in once-daily and combined dosing groups. Other prespecified behavior, sleep and gait subsets were not statistically significant; full analyses were ongoing.
Management intended to discuss the STARS results with regulators regarding a potential registrational pathway and planned an open-label extension study in the fourth quarter of 2018.
A Phase 2 ROCKET trial of OV101 in Fragile X syndrome began in July 2018, with data anticipated in 2019.
The OV935 Phase 1b/2a trial was fully enrolled, with data expected in the second half of 2018. Additional OV935 trials were planned or initiated in 2018.
The company may owe Lundbeck up to $181.0 million in development, regulatory and sales milestones for OV101, plus royalties on sales.
Under the Takeda collaboration, the company may owe approximately $35.0 million in additional commercial and regulatory milestones and may be required to issue shares equal to the lesser of 8% of outstanding capital stock or $50.0 million divided by the applicable share price upon specified Phase 3 enrollment events.
Catalyst asserted claims involving the Northwestern license and confidential disclosure agreement, including breach of contract, fraud and tortious interference. Ovid denied liability. The company stated that it could not predict the outcome or estimate any potential loss.
Principal risks include failure or delay in clinical trials, uncertain regulatory endpoints, adverse events, dependence on Takeda and third-party manufacturers and clinical research organizations, intellectual-property disputes, limited patient populations, competition, dilution from future financing, and the need for additional capital.

Important Facts for Investors to Verify

Whether the $62.6 million liquidity balance and projected cash runway remain adequate as clinical programs expand.
Current enrollment, results and regulatory status of OV101 and OV935 trials, including whether CGI-I can support a registrational strategy.
Potential dilution and cash obligations associated with the Takeda milestones and the $50.0 million ATM program.
The status and potential financial impact of the Catalyst/Northwestern intellectual-property dispute.
Changes in clinical development costs, stock-based compensation and quarterly cash burn.
Whether any program receives regulatory approval or generates revenue; as of the filing, none had done so.