Ovid Therapeutics Inc. — Q2 2019 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 three and six months ended June 30, 2019, with comparative periods ended June 30, 2018. Ovid has not generated revenue since inception and remains dependent on equity financing, collaborations and licensing transactions.
Key programs included OV101 for Angelman syndrome and Fragile X syndrome, and OV935, developed with Takeda, for developmental and epileptic encephalopathies and related disorders. The company had 47 full-time employees as of June 30, 2019.
Financial condition and operating metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $9.1 million | $8.1 million | $18.5 million | $16.6 million |
| General and administrative expense | $4.2 million | $5.1 million | $8.9 million | $10.0 million |
| Total operating expenses | $13.3 million | $13.2 million | $27.4 million | $26.6 million |
| Net loss | $13.1 million | $12.9 million | $26.9 million | $26.1 million |
| Net loss per share | $0.34 | $0.53 | $0.78 | $1.06 |
Because the company had no revenue, gross and operating margins are not meaningful. The operating loss equaled total operating expenses. Interest income was $0.3 million in Q2 and $0.5 million year-to-date.
- Cash and cash equivalents were $47.4 million at June 30, 2019, compared with $36.5 million at December 31, 2018. Short-term investments declined from $5.0 million to zero.
- Working capital was approximately $44.4 million. Total assets were $54.9 million and total liabilities were $9.5 million.
- The company had no long-term debt or capital leases and reported no material non-cancelable purchase commitments.
- Net cash used in operating activities was $24.7 million for the first six months of 2019, compared with $24.5 million in the prior-year period.
- Investing activities provided $5.0 million, primarily from maturities of short-term investments. Financing activities provided $30.6 million.
- Stock-based compensation was $1.3 million in Q2 and $2.9 million year-to-date. Unrecognized stock-based compensation was approximately $7.8 million at June 30, 2019, including approximately $7.4 million related to employee options and $0.4 million related to nonemployee options.
Material changes versus the prior comparable period
- Q2 research and development expense increased $1.0 million, or approximately 12%, to $9.1 million, driven primarily by higher clinical development and preclinical costs for OV101 and OV935.
- Q2 general and administrative expense declined $0.9 million, or approximately 17%, mainly because of lower payroll and professional fees.
- Q2 net loss increased modestly by $0.1 million. Year-to-date net loss increased $0.7 million to $26.9 million.
- Loss per share improved to $0.34 in Q2 and $0.78 year-to-date, primarily because the February offering increased weighted-average shares outstanding.
- In February 2019, Ovid sold common stock and Series A convertible preferred stock for gross proceeds of $33.0 million and net proceeds of approximately $30.5 million.
- Accrued expenses increased to $7.1 million from $5.1 million at year-end, including higher clinical trial accruals.
- In May 2019, Ovid amended its Lundbeck license. The aggregate potential milestone obligation increased from $181.0 million to $189.0 million, while the first Phase 3 completion payment decreased from $10.0 million to $1.0 million. Royalty rates were also reduced under specified terms.
- In May 2019, Ovid settled the Catalyst dispute relating to the Northwestern license. Catalyst released Ovid from related claims, and Ovid retained its rights under the Northwestern agreement.
Guidance, outlook, risks and unusual items
- Management expected to enroll the first patient in the pivotal Phase 3 NEPTUNE trial of OV101 in pediatric Angelman syndrome during the third quarter of 2019. The trial was planned to enroll approximately 60 patients.
- The ELARA open-label extension study for OV101 continued enrollment. Management anticipated ROCKET data in the fourth quarter of 2019 or first quarter of 2020 and an interim ENDYMION analysis in the third quarter of 2019.
- In June 2019, the European Commission granted OV101 orphan drug designation for Angelman syndrome.
- Management expected operating expenses and losses to increase for the foreseeable future as clinical development, regulatory activities, intellectual-property activities, staffing and potential commercialization preparations expand.
- The filing states that existing cash was not expected to fund anticipated operations for the 12 months following the filing date. This raised substantial doubt about the company’s ability to continue as a going concern.
- Management planned to seek additional financing through equity or debt offerings, collaborations, strategic alliances or licensing transactions. Additional financing may be unavailable, cause dilution, impose restrictive terms or require the company to relinquish valuable rights.
- Potential contingent payments under license and collaboration agreements totaled up to approximately $279.3 million, including up to $189.0 million under the Lundbeck agreement, up to $5.3 million under the Northwestern agreement and approximately $85.0 million under the Takeda collaboration. The filing states that none of these potential payments were considered probable at June 30, 2019.
- Under the Takeda collaboration, a future Phase 3 enrollment milestone could require issuance of securities equal to the lesser of 8% of outstanding capital stock or $50.0 million divided by the applicable share price. Additional milestone payments of approximately $35.0 million may be payable in cash or shares, subject to specified conditions.
- Principal risks include clinical-trial failure or delay, regulatory nonapproval, limited patient populations, manufacturing and third-party dependence, intellectual-property challenges, collaboration termination, adverse events, competition and inability to obtain adequate reimbursement.
- Management stated that disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2019, with no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the company obtained sufficient financing after the filing to address the disclosed going-concern uncertainty and anticipated cash shortfall.
- Progress, enrollment, safety data and regulatory interactions for the NEPTUNE, ELARA, ROCKET, ELEKTRA, ARCADE and ENDYMION programs.
- Actual cash burn and remaining cash runway relative to the planned clinical-development schedule.
- Potential dilution and payment obligations arising from the Takeda collaboration, the Series A preferred stock and future equity financings.
- Milestone, royalty and other obligations under the amended Lundbeck license and other in-licensed programs.
- Whether OV101 or OV935 produces positive pivotal-trial results and ultimately receives regulatory approval; the filing provides no assurance of either outcome.