Ovid Therapeutics Inc. 2020 Q3 Form 10-Q Summary
Business Context and Reporting Period
Ovid Therapeutics Inc. is a late-stage clinical biopharmaceutical company focused on rare neurological disorders. The unaudited filing covers the three and nine months ended September 30, 2020, with comparisons to the corresponding 2019 periods.
The principal programs were OV101 (gaboxadol) for Angelman syndrome and Fragile X syndrome, and OV935 (soticlestat) for developmental and epileptic encephalopathies, including Dravet syndrome and Lennox-Gastaut syndrome. Ovid had no approved products and had never generated revenue from commercial drug sales.
Financial Highlights
| Metric | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 |
|---|---|---|---|---|
| License revenue | $6.9 million | $0 | $6.9 million | $0 |
| Research and development expense | $15.9 million | $11.6 million | $46.5 million | $30.1 million |
| General and administrative expense | $7.4 million | $5.2 million | $20.2 million | $14.1 million |
| Operating loss | $16.4 million | $16.8 million | $59.8 million | $44.1 million |
| Net loss | $16.4 million | $16.6 million | $59.0 million | $43.5 million |
| Net loss per share | $0.28 | $0.43 | $1.04 | $1.21 |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $37.1 million | $34.2 million |
The third-quarter net loss margin was approximately 238% of revenue, and the nine-month net loss margin was approximately 854%; these percentages are not representative of a commercial operating business because revenue consisted primarily of license-related activity rather than product sales.
Cash and cash equivalents were $86.9 million at September 30, 2020, compared with $41.9 million at December 31, 2019. Working capital was $72.4 million, and the accumulated deficit was $272.2 million. The company had no long-term debt or capital leases and reported no material non-cancelable purchase commitments.
Liquidity and Capital Resources
- Operating cash outflow was $37.1 million for the first nine months of 2020.
- Investing activities provided $34.7 million, primarily due to maturities of short-term investments.
- Financing activities provided $47.3 million, primarily from the August 2020 public offering.
- In August 2020, Ovid sold 6.25 million common shares for net proceeds of $46.7 million.
- Angelini paid a $20.0 million upfront fee under the OV101 license agreement; the company recognized $6.1 million as license revenue and approximately $0.8 million for progress on ongoing trials, with approximately $13.1 million deferred.
- Management disclosed conditions that could raise substantial doubt about the company’s ability to continue as a going concern, including the possible need for additional capital within the following 12 months. Management believed cost reductions and potential financing actions alleviated the doubt, but acknowledged those actions might not succeed.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $6.9 million in both the quarter and year-to-date period, driven by the Angelini license agreement.
- Third-quarter research and development expense increased $4.3 million, or approximately 37%, primarily due to higher clinical development, preclinical and payroll-related costs.
- Nine-month research and development expense increased $16.5 million, or approximately 55%, reflecting increased activity for OV101 and OV935.
- Third-quarter general and administrative expense increased $2.3 million, or approximately 44%, primarily due to higher payroll, legal, compliance, professional and pre-commercialization expenses.
- Nine-month general and administrative expense increased $6.1 million, or approximately 44%.
- Nine-month net loss increased $15.5 million, or approximately 36%, despite the new license revenue.
- Common shares outstanding increased to 63.4 million at September 30, 2020 from 54.7 million at December 31, 2019, primarily reflecting the August offering and other issuances.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Enrollment in the pivotal Phase 3 NEPTUNE trial of OV101 for Angelman syndrome was completed in the third quarter of 2020. Management expected to report topline data in the fourth quarter of 2020.
- NEPTUNE enrollment was expanded from approximately 60 to 90 participants following European regulatory feedback, including a requested responder analysis of the CGI-I-AS endpoint.
- COVID-19 caused clinical-site closures and delayed NEPTUNE enrollment. The company also identified potential risks to clinical operations, manufacturing, regulatory interactions and access to capital.
- Ovid and Takeda reported positive topline ELEKTRA results for OV935 in August 2020. Ovid reported a 27.8% median seizure-frequency reduction versus a 3.1% median increase for placebo during the maintenance period, with a placebo-adjusted reduction of 30.5% and p=0.0007. These were topline results and remain subject to verification.
- Ovid reported ARCADE and ENDYMION findings for OV935 in September 2020. The filing cautioned that open-label and preliminary results may not predict future controlled-trial outcomes.
- The Angelini agreement granted exclusive European Territory rights for OV101 and provided for up to $60.0 million of development and regulatory milestones, up to $162.5 million of sales milestones, and tiered royalties at double-digit percentages above the teens.
- Potential milestone obligations under licensing agreements with Lundbeck, Northwestern and Takeda totaled up to approximately $279.3 million, excluding royalties. The timing and probability of these payments were not considered estimable or probable at September 30, 2020.
- Under the Takeda collaboration, a future development milestone could require issuance of shares equal to the lesser of 8% of outstanding capital stock or $50.0 million divided by the applicable share price. Additional potential commercial and regulatory milestones totaled approximately $35.0 million and may be payable in cash or shares, subject to specified conditions.
- The company relied on third parties for manufacturing and clinical trial execution and had no approved products or commercial sales infrastructure.
Most Important Facts for Investors to Verify
- Whether NEPTUNE topline results were reported in the fourth quarter of 2020 and whether the results supported regulatory submissions for OV101.
- The final, audited data from the ELEKTRA and ARCADE/ENDYMION studies, including durability, safety findings and statistical methodology.
- Actual cash burn and liquidity runway after September 30, 2020, including whether additional capital was raised and on what terms.
- The status, timing and potential dilution associated with Takeda milestone obligations and any future share issuance.
- The amount and timing of deferred Angelini revenue recognition, future milestone payments and required trial or technology-transfer spending.
- Whether COVID-19 caused additional delays, cost increases, supply disruptions or regulatory changes after the filing date.
- The company’s ability to address the disclosed going-concern uncertainty without materially reducing development programs or relinquishing valuable rights.
- Future dilution from the 8.6 million outstanding stock options, convertible preferred stock equivalent to 5.5 million common shares, and additional equity financing.