Opus Genetics, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of Ocuphire’s financial condition and results of operations together with Ocuphire’s financial statements and the related notes included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to Ocuphire’s plans and strategy for Ocuphire’s business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this annual report, Ocuphire’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview Ocuphire is a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of several eye disorders. Ocuphire’s pipeline currently includes two small molecule product candidates targeting front and back of the eye indications. Its lead product candidate, Nyxol® Eye Drops (“Nyxol”), is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. As a result, Nyxol can potentially be used for the treatment of multiple indications such as dim light or night vision disturbances (“NVD”), pharmacologically-induced mydriasis (which refers to the use of pharmacological agents to dilate the pupil for office-based eye exams) and presbyopia (a gradual, age-related loss of the eyes’ ability to focus on nearby objects). Ocuphire management believes this multiple indication potential represents a significant market opportunity. Nyxol has been studied across three Phase 1 and four Phase 2 trials totaling over 230 patients and has demonstrated promising clinical data for use in multiple ophthalmic indications. Ocuphire initiated a Phase 3 trial for the treatment of NVD in the fourth quarter of 2020, a Phase 3 trial for reversal of pharmacologically-induced mydriasis (“RM”) in the fourth quarter of 2020, and initiated a Phase 2 trial in combination with low dose pilocarpine for presbyopia, in the first quarter of 2021. Ocuphire expects top-line results to read out as early as the first quarter of 2021 and throughout the remainder of 2021, and, assuming successful and timely completion of further trials, anticipates submitting a new drug application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) in early 2023 under the 505(b)(2) pathway. Ocuphire’s second product candidate, APX3330, is a twice-a-day oral tablet designed to target multiple pathways relevant to retinal and choroidal (the vascular layer of the eye) vascular diseases such as diabetic retinopathy (“DR”) and diabetic macular edema (“DME”) which, if left untreated, can result in permanent visual acuity loss and eventual blindness. DR is a disease resulting from diabetes in which chronically elevated blood sugar levels cause progressive damage to blood vessels in the retina. DME is a severe form of DR which involves leakage of protein and fluid into the macula, the central portion of the retina, causing swelling and damage. Prior to Ocuphire’s in-licensing of the product candidate, APX3330 had been studied by third parties in six Phase 1 and five Phase 2 trials totaling over 440 patients for inflammatory and oncology indications, and had demonstrated promising evidence of tolerability, pharmacokinetics, durability, and target engagement. Ocuphire plans to initiate a Phase 2 trial for APX3330 in the first quarter of 2021 for the treatment of patients with DR, including moderately severe non-proliferative DR (“NPDR”) and mild proliferative DR (“PDR”), as well as patients with DME without loss of central vision. Ocuphire has also in-licensed APX2009 and APX2014, which are additional second-generation product candidates and analogs of APX3330. As part of its strategy, Ocuphire will continue to explore opportunities to acquire additional ophthalmic assets and to seek strategic partners for late-stage development, regulatory preparation and commercialization of drugs in key global markets. To date, Ocuphire’s primary activities have been conducting research and development activities, planning clinical trials, performing business and financial planning, recruiting personnel and raising capital. Ocuphire does not have any products approved for sale and has not generated any revenue. Ocuphire does not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve Nyxol or APX3330 and Ocuphire successfully commercializes its product candidates. Until such time, if ever, as Ocuphire can generate substantial product revenue, Ocuphire expects to finance its cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. Through December 31, 2020, Ocuphire has funded its operations primarily through its equity financing that totaled $21.15 million in gross proceeds in connection with the Merger with Rexahn, net cash at Rexahn, and through the issuance of convertible notes in private placements that totaled $8.5 million in gross proceeds. Ocuphire’s net losses were $24.6 million and $6.2 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, Ocuphire had an accumulated deficit of $32.7 million. Ocuphire anticipates that its expenses will increase substantially as it: 110 Table of Contents • continues clinical trials for Nyxol, APX3330 and for any other product candidate in its future pipeline; • continues preclinical studies for Nyxol, APX3330 and for any other product candidate in its future pipeline; • develops additional product candidates that it identifies, in-licenses or acquires; • seeks regulatory approvals for any product candidates that successfully complete clinical trials; • contracts to manufacture its product candidates; • establishes on its own or with partners, a sales, marketing and distribution infrastructure to commercialize any products for which Ocuphire may obtain regulatory approval; • maintains, expands and protects its intellectual property portfolio; • hires additional staff, including clinical, scientific, operational and financial personnel, to execute its business plan; • adds operational, financial and management information systems and personnel, including personnel to support its product development and potential future commercialization efforts; and • operates as a public company. Ocuphire’s net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of its preclinical studies, clinical trials and its expenditures on other research and development activities. Recent Developments Merger with Rexahn On November 5, 2020, Rexhan Pharmaceuticals, Inc., or Rexahn, now known as Ocuphire Pharma, Inc., completed its reverse merger or, the Merger, with what was then known as “Ocuphire Pharma, Inc.,” or Private Ocuphire, in accordance with the terms of the Agreement and Plan of Merger and Reorganization dated as of June 17, 2020, as amended on June 29, 2020. Rexahn’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on November 5, 2020 under the ticker symbol “REXN,” commenced trading on The Nasdaq Capital Market, under the ticker symbol “OCUP,” on November 6, 2020. Immediately following the Merger, Private Ocuphire became a wholly-owned subsidiary of Rexahn. Upon consummation of the Merger, Rexahn adopted the business plan of Private Ocuphire. Although Rexahn was the legal acquirer and issued shares of its common stock to affect the Merger with Ocuphire, Ocuphire was considered the accounting acquirer. In accordance with the accounting guidance under Accounting Standards Update (“ASU”) 2017-01, the Merger was accounted for as an asset acquisition. Accordingly, the assets and liabilities of Rexahn were recorded as of the Closing at the purchase price of the accounting acquirer, Ocuphire. Ocuphire allocated the total purchase price among the individual assets acquired on a fair value basis or carrying value as appropriate. A final determination of these estimated fair values were based on the actual net tangible assets of Rexahn existed as of the date of the completion of the transaction. As of the Closing , the net assets of Rexahn were recorded at their acquisition-date relative fair values in the consolidated financial statements of Ocuphire and the reported operating results prior to the Merger are those of Private Ocuphire. 111 Table of Contents Pre-Merger Financing Private Ocuphire and Rexahn entered into a securities purchase agreement with the Investors in a private placement transaction for an aggregate purchase price of $21.15 million inclusive of the commitment by five Private Ocuphire directors and one Rexahn director to purchase $300,000 (the “Pre-Merger Financing”). The securities purchase agreement was amended and restated on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, among other things, Private Ocuphire agreed and issued to the Investors shares of Private Ocuphire common stock immediately prior to the merger and Rexahn agreed to issue to the Investors warrants to purchase shares of Rexahn common stock on the earlier of (i) the tenth trading day following the consummation of the merger and (ii) the first trading day following receipt by Rexahn of an early delivery notice from an Investor at any time beginning on the fifth trading day following the consummation of the merger. An aggregate of 4,999,988 shares of common stock were issued in connection with the Pre-Merger Financing as of December 31, 2020. Ocuphire does not expect that its existing cash will be sufficient to fund its operating expenses and capital expenditure requirements for the next 12 months from the date of this Annual Report. As such, Ocuphire will need to raise additional capital to finance its operations, which cannot be assured. See “— Liquidity and Capital Resources .” COVID-19 On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, Ocuphire has experienced a few disruptions in its manufacturing, supply chain, research and development operations, regulatory process, and financial position. These disruptions include the acceleration of shipment of active pharmaceutical ingredient supply from overseas, the convening of an FDA EOP2 meeting via teleconference, and difficulties in obtaining more favorable financing terms. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact Ocuphire’s business and preclinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing in the U.S. and other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and other countries to contain and treat the disease. Although Ocuphire cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on Ocuphire’s results of future operations, financial position, and liquidity over the next 12 or more months. Financial Operations Overview Revenue To date, Ocuphire has not generated any revenue. Ocuphire does not expect to generate revenue unless or until it obtains regulatory approval of and commercializes Nyxol or APX3330. If Ocuphire fails to complete the development of Nyxol, APX3330, or any other product candidate it may pursue in the future, in a timely manner, or fails to obtain regulatory approval, Ocuphire’s ability to generate future revenue would be compromised. Operating Expenses Ocuphire’s operating expenses are classified into three categories: general and administrative, research and development and acquired in-process research and development. 112 Table of Contents General and Administrative General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation costs, for personnel in functions not directly associated with research and administrative activities. Other significant costs include insurance coverage for directors and officers and other property and liability exposures, legal fees relating to intellectual property and corporate matters, professional fees for accounting and tax services, and other services provided by business consultants. Ocuphire anticipates that its general and administrative expenses will significantly increase in the future to support its continued research and development activities and costs associated with operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services as well as other public-company related costs. Research and Development To date, Ocuphire’s research and development expenses have related primarily to the clinical stage development of Nyxol. Research and development expenses consist of costs incurred in performing research and development activities, including compensation and benefits for research and development employees and costs for consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of overhead expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. Ocuphire accrues for costs incurred as the services are being provided by monitoring the status of the study or project, and the invoices received from its external service providers. Ocuphire adjusts its accrual as actual costs become known. Research and development activities are central to Ocuphire’s business model. Ocuphire expects that Nyxol and APX3330 will have higher development costs during their later stages of clinical development, as compared to costs incurred during their earlier stages of development, primarily due to the increased size and duration of the later-stage clinical trials. Ocuphire expects its research and development expenses to significantly increase over the next several years. However, it is difficult for Ocuphire to determine with certainty the duration, costs and timing to complete its current or future preclinical programs and clinical trials of Nyxol, APX3330, and other product candidates. The duration, costs and timing of clinical trials and development of Nyxol, APX3330 and other product candidates will depend on a variety of factors that include, but are not limited to, the following: • per patient trial costs; • the number of patients that participate in the trials; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • the duration of patient follow-up; • the phase of development of the product candidate; • arrangements with contract research organizations and other service providers; and • the efficacy and safety profile of the product candidates. Acquired In-Process Research and Development Expenses 113 Table of Contents Ocuphire includes costs to acquire or in-license product candidates as acquired in-process research and development expenses. These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a “business” as defined under accounting standards generally accepted in the United States of America (U.S. GAAP) or provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are recognized. The costs associated with the Merger and the Apexian Sublicense Agreement were recorded as acquired in-process research and development expenses (“IPR&D”). Interest Expense Interest expense consists of interest costs related to both the issuance of the Series A Warrants (described further below) in connection with the Pre-Merger Financing and to the Ocuphire convertible notes. Interest expense attributed to the Series A Warrants was comprised of issuance costs and day-one interest at issuance reflecting the amount by which fair value of the Series A Warrants exceeded Pre-Merger Financing proceeds. Interest expenses in connection with the Ocuphire convertible notes was attributed to interest on principal and to amortization of debt discount while these instruments were outstanding. The Ocuphire convertible notes had an annual interest rate of 8%. Fair Value Change in Derivative and Warrant Liabilities The fair value change in derivative and warrant liabilities includes the change in the fair value of the warrant liabilities and the premium conversion derivatives during the period the warrant liabilities and premium conversion derivatives are outstanding. Gain on Note Extinguishment Gain on note extinguishment includes the gain associated with modifications made to the Ocuphire convertible notes that are accounted for as note extinguishments. Other Income (Expense) Income Other income includes interest income related to cash and cash equivalent investments and other income from reimbursements in connection with grants and other sources. Other expense includes non-operating transaction costs associated with potential asset acquisitions and can fluctuate from period to period. Provision for Income Taxes Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Currently, there is no provision for income taxes, as Ocuphire has incurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets as of December 31, 2020 and 2019. Results of Operations The following table summarizes Ocuphire’s operating results for the periods indicated (in thousands): 114 Table of Contents For the Year Ended December 31, 2020 2019 Change Operating expenses: General and administrative $ 2,818 $ 1,820 $ 998 Research and development 6,648 2,373 4,275 Acquired in‑process research and development 10,502 — 10,502 Total operating expenses 19,968 4,193 15,775 Loss from operations (19,968 ) (4,193 ) (15,775 ) Interest expense (6,847 ) (1,409 ) (5,438 ) Fair value change in derivative and warrant liabilities (1,486 ) (499 ) (987 ) Gain on note extinguishment 3,672 — 3,672 Other income (expense), net 9 (68 ) 77 Loss before income taxes (24,620 ) (6,169 ) (18,451 ) Provision for income taxes — — — Net loss $ (24,620 ) $ (6,169 ) $ (18,451 ) Comparison of Years Ended December 31, 2020 and 2019 General and Administrative General and administrative expenses for the year ended December 31, 2020 were $2.8 million compared to $1.8 million for the year ended December 31, 2019. The $1.0 increase was primarily attributable to an increase in stock-based compensation, professional services, insurance and legal costs associated with the reverse merger in the current period. General and administrative expenses included $0.7 million and $0.2 million in stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively. Research and Development Research and development expenses for the year ended December 31, 2020 were $6.6 million compared to $2.4 million for the year ended December 31, 2019. The $4.3 million increase was primarily attributable to clinical trials and manufacturing activities to support clinical advancement of Nyxol as well as regulatory and business development efforts. Research and development expenses also included $0.8 million and $0.1 million in stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively. Acquired In-Process Research and Development Expenses On January 21, 2020, Ocuphire entered into a sublicense agreement with Apexian for continued research and development and potential commercialization of its lead product, APX3330. Ocuphire issued 843,751 shares of its common stock to Apexian related to the Apexian Sublicense Agreement. The fair value of the common stock issued to Apexian was $2.1 million and was recorded as IPR&D expense during the year ended December 31, 2020. In addition, research and development projects of Rexahn which were in-process at the Merger date were expensed as IPR&D and amounted to $8.4 million. Current accounting standards require that the fair value of IPR&D with no alternative future use be charged to expense on the acquisition date. There were no IPR&D costs in the comparable prior year period. Interest Expense Interest expense for the year ended December 31, 2020 was $6.8 million (of which $6.1 million was non-cash) compared to $1.4 million for the year ended December 31, 2019 which was all non-cash. The $5.4 million increase was primarily due to the amount by which the fair value of the Series A Warrants issued in connection with the Pre-Merger Financing exceeded proceeds, or $4.7 million, given the Series A Warrants are classified as warrant liabilities. Cash financing costs attributed to the Series A warrants in the amount of approximately $0.7 million also increased interest cost year-over-year. Lastly, interest costs during 2020 and 2019 included interest on principal and amortization of debt discounts related to the Ocuphire convertible notes which amounted to $1.5 million and $1.4 million, respectively. 115 Table of Contents Fair Value Change in Derivative and Warrant Liabilities The fair value change in derivative and warrant liabilities was an expense of $1.5 million for the year ended December 31, 2020 compared to $0.5 million for the year ended December 31, 2019. The $1.0 million change was due primarily to the issuance of the Series A warrants in connection with the Pre-Merger Financing and to the fluctuations in Ocuphire’s common stock fair value and the number of potential shares of common stock issuable upon conversion of the underlying Ocuphire warrant liabilities and convertible notes that were outstanding during the relevant periods. Gain on Note Extinguishment Non-cash gain on note extinguishment for the year ended December 31, 2020 was $3.7 million as a result of both the Note Conversion Agreement (as defined and further described below) of $1.3 million and the conversion of the Ocuphire convertible notes in connection with the Merger. The Note Conversion Agreement was deemed to be a substantial modification to the Ocuphire convertible notes (as defined below), and as such, we recorded the modification as a note extinguishment. In addition, given that the Ocuphire convertible notes contained embedded derivatives, the conversion of the Ocuphire convertible notes into equity upon close of the Merger was also treated as a note extinguishment of $2.4 million. There were no modifications to the Ocuphire convertible notes in the comparable prior year that were accounted for as a note extinguishment. Other Income (Expense), net During the year ended December 31, 2020, Ocuphire had interest income related to cash deposits on hand received from its debt financings. In addition, Ocuphire received a grant from the U.S. Small Business Administration for economic relief stemming from the COVID-19 pandemic in the amount of $4,000 that was recorded as other income. During the year ended December 31, 2019, Ocuphire incurred $0.1 million in fees and expenses related to potential acquisition transactions, including legal and advisory fees, that were deemed to be non-operating in nature. No income was recorded during 2019. Liquidity and Capital Resources Capital Resources As of December 31, 2020, Ocuphire’s principal sources of liquidity consisted of cash and cash equivalents of $16.4 million. Ocuphire’s cash and cash equivalents are invested primarily in cash deposits at a large, long-standing financial institution. Ocuphire has not generated any revenue and anticipates that it will continue to incur losses for the foreseeable future. Future capital requirements depend on many factors, including: • continues clinical trials and preclinical studies for Nyxol, APX 3330 and for any other product candidate in its future pipeline; • develops additional product candidates that it identifies, in-licenses or acquires; • seeks regulatory approvals for any product candidates that successfully complete clinical trials; • contracts to manufacture its product candidates; • establishes on its own or with partners, a sales, marketing and distribution infrastructure to commercialize any products for which it may obtain regulatory approval; 116 Table of Contents • maintains, expands and protects its intellectual property portfolio; • hires additional staff, including clinical, scientific, operational and financial personnel, to execute its business plan; • adds operational, financial and management information systems and personnel, including personnel to support its product development and potential future commercialization efforts; and • operates as a public company. Historical Capital Resources Ocuphire’s primary source of cash to fund Ocuphire’s operations has been net proceeds from the Pre-Merger Financing in the amount of $19.4 million and the issuance of convertible notes subsequent to the Ocuphire’s incorporation in April 2018 in the amount of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire convertible notes. Pre-Merger Financing Securities Purchase Agreement On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by directors of Private Ocuphire and one director of Rexahn, upon closing of the Merger (the “Pre-Merger Financing”). Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold to the investors shares of Private Ocuphire common stock (the “Initial Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 1,249,996 shares (the “Converted Initial Shares”) of common stock, (ii) Ocuphire deposited into escrow, for the benefit of the Investors, additional shares of Private Ocuphire common stock (the “Additional Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 3,749,992 shares of common stock (the “Converted Additional Shares”), which Converted Additional Shares were delivered (or became deliverable) to the investors on November 19, 2020, and (iii) the Company agreed to issue to each investor on the tenth trading day following the consummation of the Merger (x) Series A Warrants representing the right to acquire shares of common stock equal to the sum of (A) the Converted Initial Shares purchased by the investor, (B) the Converted Additional Shares delivered or deliverable to the investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement and (C) the initial number of shares of common stock, if any, underlying the Series B Warrants issued to the Investor and (y) additional warrants to purchase shares of common stock. Series A Warrants The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein). The Series A Warrants provide that, until the second anniversary of the date on which all shares of common stock issued and issuable to the investors may be sold without restriction or limitation pursuant to Rule 144, if Ocuphire publicly announces, issues or sells, enters into a definitive, binding agreement pursuant to which Ocuphire is required to issue or sell or is deemed, pursuant to the provisions of the Series A Warrants, to have issued or sold, any shares of common stock for a price per share lower than the exercise price then in effect, subject to certain limited exceptions, then the exercise price of the Series A Warrants will be reduced to such lower price per share. Further, on each Reset Date (as defined below under Series B Warrants ) the Series A Warrants will be adjusted downward (but not increased) such that the exercise price thereof becomes 120% of the Reset Price (as defined below), and the number of shares underlying the Series A Warrants will be increased (but not decreased) to the quotient of (a) (i) the exercise price in effect prior to such Reset (as defined below under Series B Warrants) multiplied by (ii) the number of shares underlying the Series A Warrants prior to the Reset divided by (b) the resulting exercise price. In addition, the exercise price and the number of shares of Common Stock issuable upon exercise of the Series A Warrants will also be subject to adjustment in the event of any stock splits, dividends or distributions or other similar transactions. 117 Table of Contents Series B Warrants The Series B Warrants have an exercise price of $0.0001, were exercisable upon issuance and will expire on the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the investor’s Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. The Series B Warrants are initially exercisable for 665,836 shares of Common Stock in the aggregate (without giving effect to any limitation on exercise contained therein). Additionally, every ninth trading day up to and including the 45th trading day (each, a “Reset Date”) following (i) six months following the issuance date (the “Six Month Reset Date”) and (ii) if a Public Information Failure has occurred at any time following the Six Month Reset Date, the earlier to occur of (x) the date that such Public Information Failure is cured and no longer prevents the holder from selling all underlying securities pursuant to Rule 144 without restriction or limitation and (y) the earlier to occur of (I) the date all of the underlying securities may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) and (II) one year after the issuance date (each such date provided in the foregoing clauses (i), (ii) and (iii), an “End Reset Measuring Date”) (such 45 trading day period, the Reset Period and each such 45th trading day after an End Reset Measuring Date, an “End Reset Date”), the number of shares issuable upon exercise of each Investor’s Series B Warrants shall be increased (a “Reset”) to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the investor and (b) the number of Converted Additional Shares delivered or deliverable to the investor as of the Warrant Closing Date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor, by (b) the greater of (x) the arithmetic average of the five lowest dollar volume-weighted average prices of a share of Common Stock on Nasdaq during the applicable Reset Period immediately preceding the applicable Reset Date to date and (y) a floor price per share calculated based on a pre-money valuation (of the Combined Company, assuming for this purpose the pre-money issuance of the Converted Initial Shares and Converted Additional Shares) of $10 million. Ocuphire Convertible Notes From May 2018 through March 2020, Ocuphire issued convertible notes (the “Ocuphire convertible notes”) for aggregate gross proceeds of $8.5 million, inclusive of the promissory notes exchanged for Ocuphire convertible notes. The final closing of the Ocuphire convertible notes occurred on March 10, 2020. The Ocuphire convertible note had an interest an interest rate of 8% per annum. On November 4, 2020, all of Ocuphire’s outstanding notes were converted into 977,128 shares of Ocuphire common stock as adjusted for the Exchange Ratio in connection with the completion of the Merger. The original Convertible Note Purchase Agreement (the “Note Purchase Agreement”) was dated May 25, 2018. Under the original terms of the Note Purchase Agreement, the Ocuphire convertible notes were payable on demand on July 31, 2019 unless converted earlier pursuant to their terms. Such conversion would automatically occur if Ocuphire (i) completed an initial public offering (“IPO”), (ii) completed a change in control (“CIC”), (iii) completed a sale and issuance of its capital stock resulting in gross proceeds to Ocuphire of at least $5.0 million (“Qualified Financing”), or (iv) completed a reverse merger transaction (“Reverse Merger”), each a “Conversion Event”. Upon a Conversion Event, the Ocuphire convertible notes would have automatically converted into the following: • Qualified Financing or IPO: An amount of shares of Ocuphire common stock equal to 135% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the Qualified Financing or IPO. • CIC: An amount of shares of Ocuphire common stock equal to 200% of the Note Value divided by the per share price of Ocuphire common stock based on the valuation of such CIC. 118 Table of Contents • Reverse Merger: Either (i) shares of Ocuphire common stock issued in the Reverse Merger or (ii) equity securities of the Reverse Merger counterparty, in an amount equal to 135% of the Note Value divided by the per share price at which such shares were issued to either stockholders of Ocuphire or stockholders of the Reverse Merger counterparty. The Note Purchase Agreement was amended and restated on January 22, 2019 (the “Amended and Restated Mezz Note Purchase Agreement”). Under the Amended and Restated Mezz Note Purchase Agreement, the demand date of the Ocuphire convertible notes was extended to December 31, 2019 and the conversion provisions under the Ocuphire convertible notes were restated such that, upon a Conversion Event, the Ocuphire convertible notes would have automatically converted into the following: • IPO: An amount of shares of Ocuphire common stock equal to the greater of: (i) 150% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the IPO, and (ii) 100% of the Note Value divided by the per share price of $10.37. • CIC: An amount of shares of Ocuphire common stock equal to the greater of: (i) 200% of the Note Value divided by the per share price of Ocuphire common stock based on the valuation of such CIC, and (ii) 100% of the Note Value divided by the per share price of $10.37. • Qualified Financing : An amount of shares of Ocuphire common stock equal to 150% of the Note Value divided by the per share price of Ocuphire common stock issued to purchasers in the Qualified Financing. • Reverse Merger : Either shares of Ocuphire common stock issued in the Reverse Merger or equity securities of the Reverse Merger counterparty, in an amount equal to the greater of: (i) 150% of the Note Value divided by the per share price at which such shares were issued to either stockholders of Ocuphire or stockholders of the Reverse Merger counterparty, and (ii) 100% Note Value divided by the per share price of $10.37. The Amended and Restated Mezz Note Purchase Agreement was further amended on November 20, 2019 (the “First Amendment”). The terms under the First Amendment reflect the current terms in effect for the Ocuphire convertible notes as of the date of this proxy statement/prospectus/information statement, except as further amended by the Note Conversion Agreement (defined below). The First Amendment extended the demand date of the Ocuphire convertible notes from December 31, 2019 to September 30, 2020, and changed the basis of interest from a 360-day year, 30-day month basis to a 365-day year basis. In addition, the First Amendment increased the automatic conversion factor applied to the Note Value to 175% in the event of an IPO, Qualified Financing or Reverse Merger and removed the fixed conversion option provision of $10.37 per share in the event of an IPO, CIC or Reverse Merger. On June 8, 2020, holders of the Ocuphire convertible notes entered into the Note Conversion Agreement with Ocuphire (the “Note Conversion Agreement”). The Note Conversion Agreement provided that prior to the consummation of the merger, following the Rexahn special meeting, all of the Ocuphire convertible notes would automatically convert into an amount of shares of Ocuphire common stock equal to 175% of the Note Value divided by the Fully Diluted Shares. “Fully Diluted Shares” for this purpose means as of the Conversion Date the sum of the following: (1) all of the issued outstanding shares of Ocuphire common stock; and (2) the aggregate number of shares of Ocuphire common stock reserved for issuance under all outstanding options or other awards under equity incentive plans of Ocuphire in effect as of the date of conversion. The Note Conversion Agreement further provided that upon the issuance of shares of Ocuphire common stock in the conversion, each convertible note would be cancelled and extinguished without the need for surrender of such notes and all obligations of Ocuphire, including any obligations for payment of principal and interest on the convertible notes, would be unconditionally and irrevocably discharged. 119 Table of Contents Cash Flows The following table summarizes Ocuphire’s cash flows for the periods indicated (in thousands): For the Year Ended December 31, 2020 2019 Net cash used in operating activities $ (6,797 ) $ (3,593 ) Net cash provided by (used in) investing activities 539 (25 ) Net cash provided by financing activities 21,120 4,704 Net increase in cash and cash equivalents $ 14,862 $ 1,086 Cash Flow from Operating Activities For the year ended December 31, 2020, cash used in operating activities of $6.8 million was attributable to a net loss of $24.6 million, partially offset by $16.7 million in non-cash operating expenses and a net change of $1.1 million in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted of IPR&D in the amount $10.5 million, day-one interest attributed to the issuance of Series A Warrants in the amount of $4.7 million, stock-based compensation of $1.5 million, non-cash interest and discount amortization related to the Ocuphire convertible notes of $1.5 million, a fair value change in derivative and warrant liabilities in the amount of $1.5 million, a reclassification of issuance costs to financing activities in the amount of $0.7 million and depreciation expense of $8,000, offset by a non-cash gain on note extinguishment of $3.7 million. The change in operating assets and liabilities was primarily attributable to an overall net increase in Ocuphire’s accrued liabilities and accounts payable offset in part by an increase in prepaid expenses associated with the fluctuations of Ocuphire’s operating expenses and in connection with transaction costs attributed to the Merger. For the year ended December 31, 2019, cash used in operating activities of $3.6 million was attributable to a net loss of $6.2 million, partially offset by $2.2 million in non-cash expenses and a net change of $0.4 million in Ocuphire’s net operating assets and liabilities. The non-cash expenses consisted of stock-based compensation of $0.3 million, non-cash interest and discount amortization related to the Ocuphire convertible notes of $1.4 million, the fair value change in the premium conversion derivatives of $0.5 million and depreciation expense of $3,000. The change in operating assets and liabilities was primarily attributable to an overall net increase in Ocuphire’s accrued liabilities and by a decrease in prepaid expenses associated with the fluctuations of Ocuphire’s operating expenses. Cash Flow from Investing Activities During the year ended December 31, 2020, net cash provided by investing activities was $0.5 million. Investing activities during the period consisted of cash acquired, net of transaction costs paid in connection with the Merger. Net cash used during the year ended December 31, 2019 of $25,000 was related to the purchase of property and equipment. Cash Flow from Financing Activities Net cash provided by financing activities during the year ended December 31, 2020 was $21.1 million, consisting primarily of net proceeds as a result of the Pre-Merger Financing in the amount of approximately $19.4 million and from the issuance of the Ocuphire convertible notes in the amount of $2.2 million, offset in part by the cash settlement of Rexahn warrants post-Merger in the amount of $0.5 million. Net cash provided by financing activities during the year ended December 31, 2019 was $4.7 million, consisting of net proceeds from the issuance of the Ocuphire convertible notes. 120 Table of Contents Liquidity and Capital Resource Requirements Ocuphire has no current source of revenue to sustain its present activities, and Ocuphire does not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve Nyxol or APX3330 and it successfully commercializes its product candidates. Until such time, if ever, as Ocuphire can generate substantial product revenue, it expects to finance its cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. Ocuphire does not have any committed external source of funds. To the extent that Ocuphire raises additional capital through the sale of equity or convertible debt securities, the ownership interest of Ocuphire’s stockholders will be diluted, and the terms of these securities may include liquidation, warrants, or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting Ocuphire’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Ocuphire raises additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, Ocuphire may have to relinquish valuable rights to its technologies, future revenue streams or grant licenses on terms that may not be favorable to Ocuphire. If Ocuphire is unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, Ocuphire may be required to delay, limit, reduce or terminate its product development, future commercialization efforts, or grant rights to develop and market its product candidates that Ocuphire would otherwise prefer to develop and market itself. Future Capital Requirements Ocuphire’s independent registered public accounting firm included an explanatory paragraph in its report on Ocuphire’s financial statements as of and for the years ended December 31, 2020 and 2019, noting the existence of substantial doubt about its ability to continue as a going concern. This uncertainty arose from management’s review of Ocuphire’s results of operations and financial condition and its conclusion that, based on Ocuphire’s operating plans, Ocuphire did not have sufficient existing working capital to sustain operations through December 31, 2021. To continue to fund operations, Ocuphire will need to raise capital. Ocuphire may obtain additional financing in the future through the issuance of common stock, through other equity or debt financings or through collaborations or partnerships with other companies. Ocuphire may not be able to raise additional capital on terms acceptable to it, or at all, and any failure to raise capital as and when needed could compromise Ocuphire’s ability to execute on its business plan. The development of Nyxol and APX3330 is subject to numerous uncertainties, and Ocuphire has based these estimates on assumptions that may prove to be substantially different than what Ocuphire currently anticipates and could result in cash resources being used sooner than what Ocuphire currently expects. Additionally, the process of advancing early-stage product candidates and testing product candidates in clinical trials is costly, and the timing of progress in these clinical trials is uncertain. Ocuphire’s ability to successfully transition to profitability will be dependent upon achieving a level of product sales adequate to support its cost structure. Ocuphire cannot assure you that it will ever be profitable or generate positive cash flow from operating activities. Contractual Obligations and Commitments Facility Lease Ocuphire leases a facility under a non-cancellable operating lease that commenced on June 8, 2019 and expires on December 31, 2021, as amended, for a base rent in the amount of $3,000 per month. Additionally, Ocuphire is leasing 5,466 square feet of office space in Rockville, Maryland previously occupied by Rexahn for a base rent of approximately $13,000 per month. The Rockville, Maryland lease expires in June 2021. Apexian Sublicense Agreement On January 21, 2020, Ocuphire entered into the Apexian Sublicense Agreement, pursuant to which it obtained exclusive worldwide patent and other intellectual property rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which Ocuphire intends to develop as an oral tablet therapeutic to treat DR and diabetic macular edema, and potentially wAMD. In connection with the Apexian Sublicense Agreement, Ocuphire issued 843,751 shares of Private Ocuphire common stock to Apexian and certain of Apexian’s affiliates. The share issuance transaction was recorded in the amount of $2.1 million as IPR&D expense for the year ended December 31, 2020 based on the fair market value of the common shares issued since no processes or activities that would constitute a “business” were acquired and none of the rights and underlying assets acquired had alternative future uses or reached a stage of technological feasibility. Ocuphire also reimbursed Apexian $0.4 million of Ref-1 Inhibitor program costs during 2020. 121 Table of Contents Ocuphire agreed to make one-time milestone payments under the Apexian Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11 million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales milestone payments are payable once, upon the first achievement of such milestone. Lastly, Ocuphire also agreed to make royalty payments equal to a single-digit percentage of its net sales of products covered by the patents under the Apexian Sublicense Agreement. None of the milestone or royalty payments were triggered as of the date of this proxy statement/prospectus/information statement. Other Commitments In the course of normal operations, Ocuphire entered into cancellable purchase commitments with its suppliers for various key research, clinical and manufacturing services. The purchase commitments covered by these arrangements are subject to change based on Ocuphire’s research and development efforts. Critical Accounting Policies and Estimates Ocuphire’s financial statements are prepared in accordance with U.S. GAAP. These accounting principles require Ocuphire to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. Ocuphire believes that the estimates and judgments upon which it relies are reasonably based upon information available to Ocuphire at the time that it makes these estimates and judgments. To the extent that there are material differences between these estimates and actual results, Ocuphire’s financial results will be affected. The accounting policies that reflect Ocuphire’s more significant estimates and judgments and which it believes are the most critical to aid in fully understanding and evaluating its reported financial results are described below. The following is not intended to be a comprehensive list of all of Ocuphire’s accounting policies or estimates. Ocuphire’s accounting policies are more fully described in Note 1 — Company Description and Summary of Significant Accounting Policies, in its financial statements included elsewhere in this annual report. Acquired In-Process Research and Development Expenses Ocuphire includes costs to acquire or in-license product candidates in acquired in-process research and development expenses. These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a “business” as defined under U.S. GAAP or provided that the product candidate has not achieved regulatory approval for marketing, and absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are recognized. Warrant Liabilities Following the Merger, Ocuphire issued the Series A Warrants in connection with the Pre-Merger Financing, and assumed Rexahn warrants issued prior to the Merger. Ocuphire accounts for these warrants as a liability at fair value as certain provisions precluded equity accounting treatment for these instruments. Additionally, issuance costs associated with the warrants classified as liabilities are expensed as incurred and reflected as interest expense in the accompanying consolidated statements of comprehensive loss. Ocuphire will continue to adjust the liabilities for changes in fair value until the earlier of the exercise, expiration, or until such time that cash settlement or indexation provisions are no longer in effect for the warrants. The change in fair value of the warrant liabilities will be recognized as a component of the fair value change in derivative and warrant liabilities line item in the consolidated statements of comprehensive loss. 122 Table of Contents Common Stock Valuation Prior to the close of the Merger, due to the absence of an active market for Private Ocuphire’s common stock, Ocuphire utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , to estimate the fair value of its common stock. The valuation methodology included estimates and assumptions that required the Company’s judgment. These estimates and assumptions included a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, and the likelihood of achieving a liquidity event, such as an initial public offering (IPO), reverse merger or sale. Significant changes to the key assumptions used in the valuations resulted in different fair values of common stock at each valuation date. For the valuation of equity awards granted in October 2020 and September 2020, Ocuphire used a contemporaneous third-party valuation of $8.76 and $7.89 per share, respectively. For the valuation of equity awards granted in April 2020 and June 2020, Ocuphire applied a straight-line calculation using the contemporaneous third-party valuations of $1.74 per share as of March 31, 2020 and $9.54 per share as of June 18, 2020 to determine the fair value of Private Ocuphire’s common stock. Using the benefit of hindsight, Ocuphire determined that the straight-line calculation would provide the most reasonable conclusion for the valuation of its common stock on these interim dates between valuations because Ocuphire did not identify any single event or series of events that occurred during this interim period that would have caused a material change in fair value. Based on this calculation, Ocuphire assessed the fair value of its common stock for awards granted in April 2020 and June 2020 at $2.33 and $8.65 per share, respectively. Premium Conversion Derivatives Ocuphire evaluates all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method. The separated embedded derivative is accounted for separately on a fair market value basis. Ocuphire records the fair value changes of a separated embedded derivative at each reporting period in the consolidated statements of comprehensive loss as a fair value change in derivative and warrant liabilities. Ocuphire determined that the redemption features under the Ocuphire convertible notes qualified as embedded derivatives and were separated from the debt host with regard to the Ocuphire convertible notes issued in May 2018 through March 2020. Stock-Based Compensation Ocuphire accounts for share‑based compensation in accordance with the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC 718), Compensation — Stock Compensation . Accordingly, compensation costs related to equity instruments granted are recognized at the grant‑date fair value. The Company records forfeitures when they occur. Share‑based compensation arrangements to non‑employees are accounted for in accordance with the applicable provisions of ASC 718. Off-Balance Sheet Arrangements Ocuphire did not have during the periods presented, and does not currently have, any off-balance sheet financing arrangements. In addition, Ocuphire did not have during the periods presented, and does not currently have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities. Recent Accounting Pronouncements 123 Table of Contents From time to time the FASB, or other standard-setting bodies, issue new accounting pronouncements. Where applicable, Ocuphire adopts these new standards according to the specified effective dates. Unless otherwise disclosed in the notes to the financial statements appearing in this annual report , Ocuphire believes that the impact of any recently issued standard(s) that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. See Note 1, “Company Description and Summary of Significant Accounting Policies,” in the notes to Ocuphire’s financial statements for a more in-depth discussion of recently issued accounting standard(s). ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA The information required by this item is included in this Annual Report beginning on page F-1 and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.