Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial
condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements
and the related notes thereto and other financial information included elsewhere in this report. For additional context with which
to understand our financial condition and results of operations, see the management’s discussion and analysis included in
our Form 10-K, filed with the SEC on March 13, 2020 as well as the financial statements and related notes contained therein.
As
used in the discussion below, “we,” “our,” and “us” refers to Lipocine.
Forward-Looking Statements
This section and other parts of this report
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical
or current fact. Forward-looking statements may refer to such matters as products, product benefits, pre-clinical and clinical
development timelines, clinical and regulatory expectations and plans, expected responses to regulatory actions, anticipated financial
performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market
performance, expected research and development and other expenses, future expectations for liquidity and capital resources needs
and similar matters. Such words as “may”, “will”, “expect”, “continue”, “estimate”,
“project”, and “intend” and similar terms and expressions are intended to identify forward looking statements.
Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed
in Part II, Item 1A (Risk Factors) of our Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 7, 2020,
in Part II, Item 1A (Risk Factors) of our Form 10-Q for the quarter ended June 30, 2020 filed with the SEC on August 6, 2020,
in Item 1A (Risk Factors) of this Form 10-Q, or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the SEC
on March 13, 2020. Except as required by applicable law, we assume no obligation to revise or update any forward-looking statements
for any reason.
Overview of Our Business
We are a clinical-stage biopharmaceutical
company focused on applying our oral drug delivery technology for the development of pharmaceutical products focusing on metabolic
and endocrine disorders. Our proprietary delivery technologies are designed to improve patient compliance and safety through orally
available treatment options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs.
We have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic (“PK”) characteristics
and facilitate lower dosing requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal
interactions that limit bioavailability.
Our most advanced product candidate, TLANDO™,
is an oral testosterone replacement therapy (“TRT”). On November 8, 2019 we received a Complete Response Letter ("CRL")
from the United States Food and Drug Administration ("FDA") regarding our New Drug Application ("NDA") filed
in May 2019 for TLANDO as a TRT in adult males for conditions associated with a deficiency of endogenous testosterone, also known
as hypogonadism. A CRL is a communication from the FDA that informs companies that an application cannot be approved in its present
form. The CRL identified one deficiency stating the efficacy trial did not meet the three secondary endpoints for maximal testosterone
concentrations (“Cmax”). The CRL did not identify any specific issues relating to chemistry, manufacturing and controls
(“CMC”) of TLANDO. We had our Post Action meeting with the FDA in January 2020 and discussed a potential path forward
for the approval of TLANDO. Based on the Post Action meeting and written feedback, the FDA indicated our approach to addressing
the deficiency through the reanalysis of existing data in accordance with FDA feedback appears to be a reasonable path forward.
The FDA requested that the information generated by the reanalysis be submitted as part of an NDA resubmission with a six-month
Prescription Drug User Fee Act (“PDUFA”) clock. We resubmitted the NDA on February 28, 2020 and it was assigned a
PDUFA date of August 28, 2020. However, on August 28, 2020 the FDA informed us that it needed additional time to complete its
review of the NDA. On November 5, 2020, the FDA informed us that it is working towards taking action on the TLANDO NDA on or about
the week of November 30, 2020. However, the Company cannot assure that the FDA will act in that time frame. The FDA has not asked
for any additional data and we have provided the FDA with all information requested to date.
Additional pipeline candidates include
LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU for the treatment of non-cirrhotic non-alcoholic steatohepatitis
(“NASH”), TLANDO XR, a next generation oral TRT product with the potential for once daily dosing which has completed
Phase 2 testing, LPCN 1148, an oral prodrug of bioidentical testosterone for the treatment of cirrhosis, and LPCN 1107, potentially
the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth, which has completed
an End-of-Phase 2 meeting with the FDA.
LPCN 1144 is currently being tested
in the LiFT (“Liver Fat intervention with oral Testosterone”) Phase 2 clinical study, a paired-biopsy study
in confirmed pre-cirrhotic NASH subjects. Study enrollment has been completed and top-line primary endpoint results are expected
in January 2021. Additionally, LPCN 1144 recently completed a Proof-Of-Concept (“POC”) liver imaging clinical study
which demonstrated substantial liver fat reductions in hypogonadal males at risk of developing NASH as assessed using magnetic
resonance imaging, proton density fat fraction (“MRI-PDFF”) technique.
22
To date, we
have funded our operations primarily through the sale of equity securities, debt and convertible debt and through up-front
payments, research funding and royalty and milestone payments from our license and collaboration arrangements. We have not
generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we
obtain regulatory approval of TLANDO or other products and (ii), if such approval is obtained,
we are able to successfully commercialize such products.
We have incurred losses in most years since
our inception. As of September 30, 2020, we had an accumulated deficit of $168 million. Income and losses fluctuate year to year,
primarily depending on the nature and timing of research and development occurring on our product candidates. Our net loss was
$16.5 million for the nine months ended September 30, 2020 and $9.7 million for the nine months ended September 30, 2019. Substantially
all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our
research activities and general and administrative costs, including on-going litigation activities, associated with our operations.
We expect to continue to incur significant
expenses and operating losses for the foreseeable future as we:
• conduct any other pre or post-approval clinical studies required in support of TLANDO;
• perform pre-commercialization and commercialization activities in support of TLANDO;
• conduct further development of our other product candidates, including LPCN 1144;
• continue our research efforts;
• research new products or new uses for our existing products;
• maintain, expand and protect our intellectual property portfolio; and
• provide general and administrative support for our operations, including on-going litigation.
To fund future long-term operations, including
the potential commercialization of TLANDO or other products, we will need to raise additional capital. The amount and timing of
future funding requirements will depend on many factors, including capital market conditions, regulatory requirements and outcomes
related to TLANDO, regulatory requirements related to our other product development programs, the timing and results of our ongoing
development efforts, the potential expansion of our current development programs, potential new development programs, our ability
to license our products to third parties, the pursuit of various potential commercial activities and strategies associated with
our development programs and related general and administrative support. We anticipate that we will seek to fund our operations
through public or private equity or debt financings or other sources, such as potential license, partnering and collaboration agreements.
We cannot be certain that anticipated additional financing will be available to us on favorable terms, in amounts sufficient to
fund our operations (including the commercialization of TLANDO if we receive FDA approval), or at all. Although we have previously
been successful in obtaining financing through public and private equity securities offerings and our license and collaboration
agreements, there can be no assurance that we will be able to do so in the future.
Our Product Candidates
Our current portfolio includes
our most advanced product candidate, TLANDO, an oral testosterone replacement therapy product candidate, that is currently under
review by the FDA. Additionally, we are in the process of establishing our pipeline of other clinical candidates including LPCN
1144, an oral androgen therapy for the treatment of non-cirrhotic NASH, , TLANDO XR, a next-generation potential once daily oral
testosterone replacement therapy, LPCN 1148, an androgen therapy for the treatment of cirrhosis, and LPCN 1107, an oral therapy
for the prevention of preterm birth.
Our Development Pipeline
TLANDO: An Oral Product Candidate for Testosterone Replacement
Therapy
Our most advanced product, TLANDO, is
an oral formulation of the chemical, TU, which is an eleven-carbon side chain attached to T. TU is an ester prodrug of T. An
ester is chemically formed by bonding an acid and an alcohol. Upon the cleavage, or breaking, of the ester bond, T is formed.
TU has been approved for use outside the United States for many years for delivery via intra-muscular injection and in oral
dosage form and recently TU has received regulatory approval in the United States for delivery via intra-muscular injection.
We are using our proprietary technology to facilitate steady gastrointestinal solubilization and absorption of TU. Proof of
concept was initially established in 2006, and subsequently TLANDO was licensed in 2009 to Solvay Pharmaceuticals, Inc. which
was then acquired by Abbott Products, Inc. ("Abbott"). Following a portfolio review associated with the spin-off of
AbbVie by Abbott in 2011, the rights to TLANDO were reacquired by us. All obligations under the prior license agreement have
been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1
million in the first two calendar years following product launch, after which period there is not a cap on royalties and no
maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%.
23
NDA PDUFA Outcome
On November 8, 2019 we received
a CRL from the FDA regarding our NDA filed in May 2019 for TLANDO as a TRT in adult males for conditions associated with a deficiency
of endogenous testosterone, also known as hypogonadism. The CRL identified one deficiency stating the efficacy trial did not meet
the three Cmax secondary endpoints. The CRL does not identify any specific issues relating to CMC of TLANDO. We had a Post Action
meeting with the FDA in January 2020 and discussed a potential path forward for the approval of TLANDO. Based on the Post Action
meeting and written feedback, the FDA indicated our approach to addressing the deficiency through the reanalysis of existing data
in accordance with FDA feedback appears to be a reasonable path forward. The FDA requested that the information generated by the
reanalysis be submitted as part of an NDA resubmission with a six-month PDUFA clock. We resubmitted the NDA on February 28, 2020
and it was assigned a PDUFA date of August 28, 2020. However, on August 28, 2020 the FDA informed us that it needed additional
time to complete its review of the NDA. On November 5, 2020, the FDA informed us that it is working towards taking action on the
TLANDO NDA on or about the week of November 30, 2020. However, the Company cannot assure that the FDA will act in that time frame.
The FDA has not asked for any additional data and we have provided the FDA with all information requested to date. Previously,
we have received two other CRL’s from the FDA on TLANDO NDA submissions. The first CRL was received on June 28, 2016 and
the second CRL was received on May 8, 2018. We are exploring the possibility of licensing TLANDO to a third party should it receive
approval, although no licensing agreement has been entered into by us yet. We are unable to estimate whether or when we will be
able to out-license TLANDO, should it be approved. Additionally, the timing of the potential commercial launch of TLANDO should
it receive approval, is uncertain. The timing of any commercial launch of TLANDO is contingent upon numerous factors including
FDA approval, the availability of commercial launch supplies, the impact of COVID-19, our financial resources and our ability to
license TLANDO to a third party or build out a commercial sales and marketing team/organization.
Results from the ABPM Study
The ABPM Study was an open label,
single arm study that enrolled 144 male hypogonadal subjects undergoing four months of treatment with TLANDO, 225 mg BID dosing,
with 24-hour blood pressure measurements taken at baseline and at the end of the study. There were 138 subjects who received at
least one dose of study drug and 126 subjects completed the study. There were 118 subjects enrolled in the ABPM Study with evaluable
weighted average 24-hour ABPM data at both baseline and at the end of the study.
Subjects receiving treatment in the ABPM Study had the following baseline parameters:
Baseline Parameters
Mean (SD)
Age (years)
53.8 (10.2)
BMI (kg/m2)
33.1 (5.8)
24h SBP (mm Hg)
127 (16)
24h DBP (mm Hg)
79 (6)
SD = Standard Deviation, BMI = Body Mass
Index, SBP = Systolic Blood Pressure, DBP = Diastolic Blood Pressure
Additionally, among the subjects enrolled
in the ABPM Study, 48% of the subjects were hypertensive and 24% of subjects were type 2 diabetic.
Top-line results from the ABPM Study are as follows:
Parameter
Mean Change, mm Hg (95% CI)
24-hour SBP
3.82 (1.69, 5.96)
24-hour DBP
1.20 (0.31, 2.08)
CI = Confidence Interval, SBP = Systolic
Blood Pressure, DBP = Diastolic Blood Pressure
Of the subjects (n=25) with baseline
24-hour average systolic blood pressure (“SBP”) greater than 140 mm Hg, 32% of the subjects were less than or equal
to 140 mm Hg at the end of study. Additionally, of the subjects (n=93) with baseline 24-hour average SBP of less than or equal
to 140 mm Hg, 9.7% of the subjects were greater than 140 mm Hg at the end of study.
24
Results from the Definitive Phlebotomy Study
The definitive phlebotomy study
was designed based on the FDA’s protocol recommendations and conducted in response to a deficiency cited in the TLANDO CRL
by the FDA to confirm the reliability of TLANDO Phase 3 study results and to assess the impact of any material deviation from instructions
on sample collection/processing times by clinical sites.
The definitive phlebotomy
study measured testosterone concentrations in blood samples collected in plain serum separation tubes (“SST”) at three-hour
and five-hour time points (N=24) post dose and processed within 30 minutes of sample collection under the tube manufacturer’s
recommended conditions and consistent with Phase 3 instructions. The definitive phlebotomy study enrolled 12 hypogonadal male subjects
and dosed subjects with a single oral 225 mg TU dose of TLANDO. The testosterone measurements in SST were compared against the
FDA’s recommended time zero control (processed immediately) measurement of testosterone concentrations in blood samples in
plasma tubes with EDTA (“PT”) to assess ex vivo conversion, if any.
The top-line results
of the definitive phlebotomy study demonstrated that the overall (N=24) mean percentage difference and the associated percentage
standard deviation post dose of testosterone concentrations measured between SST samples and PT samples are -1.0% and 9.2%, respectively.
Results from DV and DF Studies
The DV and
DF studies were both an open-label, fixed dose (no titration), single treatment clinical study of oral TRT in hypogonadal males
with low testosterone (T) (< 300 ng/dL) that assessed TLANDO in hypogonadal males on a fixed daily dose of 450 mg divided into
two equal doses (“BID”) in the DV study and into three equal doses (“TID”) in the DF study. In total, 95
and 100 subjects were enrolled into DV and DF studies, respectively, with 94 and 98 subjects completing the DV and DF studies,
respectively.
25
We believe the results from the
DV study confirm the validity of a fixed dose approach without the need for dose titration to orally administering TLANDO although
there is no guarantee of FDA approval of TLANDO. The DV study is considered our pivotal efficacy clinical study. TLANDO successfully
met the FDA primary efficacy guidelines in the DV study safety statistical analysis set (“SS”) where 80% of the subjects
achieved average testosterone levels (“Cavg”) within the normal range with a lower bound confidence interval (“CI”)
of 72%. The DF study restored 70% of the subjects’ average testosterone levels within the normal range (Cavg) confirming
that twice daily (“BID”) dosing is the appropriate dosing regimen for TLANDO and was the basis for resubmission. The
safety set is defined as any subject that was randomized into the study and took at least one dose (N=95 subjects in the DV study
and N=100 in the DF study). A baseline carried forward approach was used to account for missing data as a result of subject discontinuation.
The primary efficacy endpoint
is the percentage of subjects with Cavg within the normal range, which is defined as 300-1080 ng/dL. The FDA guidelines for primary
efficacy success is that at least 75% of the subjects on active treatment achieve a testosterone Cavg within the normal range;
and the lower bound of the 95% CI must be greater than or equal to 65%.
The adverse
event profile of TLANDO in both the DV and DF studies was consistent with the previously conducted 52-week Phase 3 Study of Androgen
Replacement (“SOAR”) clinical trial. All drug related adverse events (“AEs”) were either mild or moderate
in intensity and none were severe. To date, the safety database of TLANDO includes ~591 subjects demonstrating a profile consistent
with other TRT products.
The secondary
endpoints assessed the maximum total testosterone concentration (“Cmax”) post dosing using predetermined limits developed
by the FDA for transdermals. The FDA guidelines for secondary efficacy success is that at least 85% of the subjects achieve Cmax
less than 1500 ng/dL; no greater than 5% of the subjects have Cmax between 1800 ng/dl and 2500 ng/dL; and zero percent of the
subjects have Cmax greater than 2500 ng/dL. Consistent with the definition of Cmax and the pharmacokinetic profile of multiple
times a day dosing, two pre-specified analyses were performed, Cmax per dose and Cmax per day.
In the DV study SS Cmax per dose
analysis, the percentage of subjects with Cmax less than 1500 ng/dL and between 1800 ng/dL and 2500 ng/dL were 85% and 7%, respectively.
Deviations from the predetermined limits in the DV study were observed in the Cmax per day dose analysis for these thresholds.
As such, this efficacy trial did not meet the three Cmax per day secondary endpoints. Only one subject, who was a major protocol
violator, exceeded the 2500 ng/dL limit independent of per dose or per day dose analyses. Through reanalysis of Cmax data in the
DV study, we resubmitted the NDA to the FDA on February 28, 2020 and have a PDUFA date of August 28, 2020. However, on August
28, 2020 the FDA informed us that it needed additional time to complete its review of the NDA. On November 5, 2020, the FDA informed
us that it is working towards taking action on the TLANDO NDA on or about the week of November 30, 2020. However, the Company
cannot assure that the FDA will act in that time frame.
The DF study SS met all Cmax thresholds in per dose
and per day dose analyses.
Prior to conducting the DV study
and the DF study, we completed our SOAR pivotal Phase 3 clinical study evaluating efficacy and 52-week safety of TLANDO. The SOAR
study is considered our pivotal safety clinical study for the NDA resubmission.
Results from SOAR
SOAR was a randomized, open-label, parallel-group,
active-controlled, Phase 3 clinical study of TLANDO in hypogonadal males with low testosterone (< 300 ng/dL). In total, 315
subjects at 40 active sites were assigned, such that 210 were randomized to TLANDO and 105 were randomized to the active control,
AndroGel 1.62%®, for 52 weeks of treatment. The active control is included for safety assessment. TLANDO subjects were started
at 225 mg TU (equivalent to ~ 142 mg of T) twice daily (“BID”) with a standard meal and then dose titrated, if needed,
based on average T levels during the day, Cavg, and peak serumT levels, Cmax, up to 300 mg TU BID or down to 150 mg TU BID based
on serum testosterone measured at weeks 3 and 7 based on PK profile with multiple blood samples drawn at each time period. The
mean age of the subjects in the trial was ~53 years with ~91% of the patients < 65 years of age. The discontinuation rate for
TLANDO was 38% compared to 32% for AndroGel 1.62%.
Primary statistical analysis was
conducted using the Efficacy Population Set ("EPS"). The EPS is defined as subjects randomized into the study with at
least one PK profile and no significant protocol deviations and includes imputed missing data by last observation carried forward,
N=151. Further analysis was performed using the full analysis set ("FAS") (any subject randomized into the study with
at least one post-baseline efficacy variable response, N=193) and the SS (any subject that was randomized into the study and took
at least one dose, N=210).
26
Safety
The safety component of the SOAR
trial was completed the last week of April 2015. The safety extension phase was designed to assess safety based on information
such as metabolites, biomarkers, laboratory values, serious adverse events SAEs and AEs, with subjects on their stable dose regimen
in both the treatment arm and the active control arm. TLANDO treatment was well tolerated in there were no hepatic, cardiac or
drug related SAEs.
TLANDO safety highlights include:
· TLANDO was well tolerated during 52 weeks of dosing;
· Overall AE profile for TLANDO was comparable to the
active control;
· Cardiac AE profiles were
consistent between treatment groups and none of the observed cardiac AEs occurred in
greater than 1.0% of the subjects in the TLANDO arm and none were classified as severe;
and
· All observed adverse drug
reactions (“ADRs”) were classified as mild or moderate in severity and no
serious ADRs occurred during the 52-week treatment period.
Food Effect Study
We also completed our labeling
"food effect" study in May 2015. Results from the labeling "food effect" study indicate that bioavailability
of testosterone from TLANDO is not affected by changes in meal fat content. The results demonstrate comparable testosterone levels
between the standard fat meal (similar to the meal instruction provided in the Phase 3 clinical study) and both the low and high
fat meals. The labeling “food effect” study was conducted per the FDA requirement and we submitted preliminary results
from this study to the FDA in the second quarter of 2015 prior to submitting the NDA.
Other Safety Requirements
Based on our meetings with
the FDA, we do not expect to be required to conduct a heart attack and stroke risk study prior to the potential approval of TLANDO.
We may, however, be required to conduct a heart attack and stroke risk study on our own or with a consortium of sponsors that
have an approved TRT product subsequent to the potential approval of TLANDO.
Recent Competition Update
On March 27, 2019, Clarus Therapeutics,
Inc.’s (“Clarus”) product JATENZO®, an oral testosterone undecanoate product, was approved by the FDA and
also received three years of data exclusivity. It is unclear how Jatenzo’s three years of data exclusivity will impact the
potential full approvability of TLANDO. The potential exists that, as a result of Clarus’ data exclusivity, the approval
of TLANDO by the FDA, if received, could be delayed until March 27, 2022. On February 10, 2020, Clarus announced that JATENZO®
has been launched and is commercially available.
LPCN 1144: An Oral Prodrug of Bioidentical Testosterone
Product Candidate for the Treatment of NASH
We are currently evaluating LPCN
1144, an oral prodrug of bioidentical testosterone comprised of TU, for the treatment of non-cirrhotic NASH. NASH is a more advanced
state of non-alcoholic fatty liver disease (“NAFLD”) and can progress to a cirrhotic liver and eventually hepatocellular
carcinoma or liver cancer. Twenty to thirty percent of the U.S. population is estimated to suffer from NAFLD and fifteen to twenty
percent of this group progress to NASH, which is a substantially large population that lacks effective therapy. Currently, there
are no FDA approved treatments for NASH. Approximately 50% of NASH patients are in adult males and the number of NASH cases is
projected to increase 63% from 16.5 million cases in 2015 to 27.0 million cases in 2030. NAFLD/NASH is becoming more common due
to its strong correlation with obesity and metabolic syndrome, including components of metabolic syndrome such as diabetes, cardiovascular
disease and high blood pressure. In men, especially with comorbidities associated with NAFLD/NASH, testosterone deficiency has
been associated with an increased accumulation of visceral adipose tissue and insulin resistance, which could be factors contributing
to NAFLD/NASH.
27
History of Liver Disease
The liver is the largest internal
organ in the human body and its proper function is indispensable for many critical metabolic functions, including the regulation
of lipid and sugar metabolism, the production of important proteins, including those involved in blood clotting, and purification
of blood. There are over 100 described diseases of the liver, and because of its many functions, these can be highly debilitating
and life-threatening unless effectively treated. Liver diseases can result from injury to the liver caused by a variety of insults,
including hepatitis C virus (HCV), hepatitis B virus (HBV), obesity, chronic excessive alcohol use or autoimmune diseases. Regardless
of the underlying cause of the disease, there are important similarities in the disease progression including increased inflammatory
activity and excessive liver cell apoptosis, which if unresolved leads to fibrosis. Fibrosis, if allowed to progress, will lead
to cirrhosis, or excessive scarring of the liver, and eventually reduced liver function. Some patients with liver cirrhosis have
a partially functioning liver and may appear asymptomatic for long periods of time, which is referred to as decompensated liver
disease. Decompensated liver disease is when the liver is unable to perform its normal functions. Many people with active liver
disease remain undiagnosed largely because liver disease patients are often asymptomatic for many years.
Markers of Liver Cell Death
Alanine aminotransferase (“ALT”)
is an enzyme that is produced in liver cells and is naturally found in the blood of healthy individuals. In liver disease, liver
cells are damaged and as a consequence, ALT is released into the blood, increasing ALT levels above the normal range. Physicians
routinely test blood levels of ALT to monitor the health of a patient's liver. ALT level is a clinically important biochemical
marker of the severity of liver inflammation and ongoing liver disease. Elevated levels of ALT represent general markers of liver
cell death and inflammation without regard to any specific mechanism. Aspartate aminotransferase (“AST”) is a second
enzyme found in the blood that is produced in the liver and routinely measured by physicians along with ALT. As with ALT, AST
is often elevated in liver disease and, like ALT, is considered an overall marker of liver inflammation.
Relationship between Hypogonadism and NAFLD
Preclinical and clinical studies
in the NAFLD/NASH literature have shown the prevalence of testosterone deficiency across the NAFLD/NASH histological spectrum
wherein low testosterone was independently associated with NAFLD/NASH with an inverse relationship between testosterone and NAFLD/NASH
symptom severity. A recent National Institute of Diabetes and Digestive and Kidney Diseases (“NIDDK”) report suggests
that 75% of biopsy confirmed NASH subjects have less than 372 ng/dL of total testosterone and that the degree of fibrosis severity
is inversely related to free testosterone levels; thus, providing a good rationale for testing LPCN 1144 in adult NASH patients
regardless of their hypogonadal status. Recently, we received clearance from the FDA to clinically investigate LPCN 1144 in an
expanded target population of adult male NASH patients. Specifically, the FDA waived the limitation of only testing LPCN 1144
in NASH subjects with total testosterone levels below 300 ng/dL (threshold for hypogonadism).
Post hoc analyses of our existing
clinical trials in subjects with comorbidities typically associated with NASH comorbidities indicate that testosterone therapy
significantly and consistently reduced elevated levels of key serum biomarkers (liver function enzymes and serum triglyceride)
generally associated with NAFLD/NASH.
Current Status
We have completed a 16-week POC liver imaging
clinical study to assess liver fat changes in hypogonadal men at risk of developing NASH using MRI-PDFF technique. Treatment results
from the POC liver imaging study demonstrated that 48% of the treated NAFLD subjects, defined as baseline liver fat of at least
5%, had NAFLD resolution, defined as liver fat <5% post treatment. Additionally, 100% of the subjects experiencing NAFLD resolution
had at least a 35% relative liver fat reduction from baseline with a relative mean liver fat reduction of 55% in this group. Further
results from the POC liver fat clinical study after 16 weeks of treatment are as follows:
Baseline Liver Fat %
Mean
Liver Fat % at
Relative
Reductions at EOS
Responder
Rate** at
Category,
n
Baseline
Mean
%
Median
%
EOS,
%
At
least 10%, n=8
20.5
40
39
75
At least 8%, n=10
18.3
42
42
80
At least 5%, n=21
12.1
33
41
71
**Based on subjects who experienced at least a 30% reduction
in liver fat from baseline.
28
We have also investigated the pharmacological
effect of LPCN 1144 in a validated, non-genomic, multiple arm, 12-week high fat diet (“HFD”)-induced, rabbit animal
model of NASH and hepatic fibrosis. NASH, induced by the HFD, lowered circulating T and free T levels. The results from this pre-clinical
model demonstrate that LPCN 1144 treatment restores circulating T and free T levels. Additionally, the histological and biomarker
results suggest LPCN 1144 decreases liver inflammation, ballooning, fibrosis, and visceral fat that were all increased due to
the HFD, while normalizing insulin sensitivity, prostate and seminal vesicle weight.
Additionally, we have initiated the LiFT
(“Liver Fat intervention with oral Testosterone”) Phase 2 clinical study, a paired-biopsy study in confirmed pre-cirrhotic
NASH subjects with the first subject being dosed in the third quarter of 2019. The formulations being studied in the Phase 2 clinical
trial are differentiated from TLANDO. The LiFT Phase 2 clinical study is a prospective, multi-center, randomized, double-blind,
placebo-controlled multiple-arm study in biopsy-confirmed hypogonadal or eugonadal male NASH subjects with grade F2/F3 fibrosis
and a NAFLD Activity Score (“NAS”) ≥ 4 with a 36-week treatment period. The LiFT clinical study has completed
enrollment of 56 biopsy confirmed NASH male subjects, randomized into one of three arms (two test arms and one placebo arm) with
a 1:1:1 randomization ratio. We currently expect top-line liver fat reduction data in January 2021 as measured by MRI-PDFF at
12 weeks, followed by 36-week biopsy data which is expected in mid-2021. Due to COVID-19, we believe that subject drop-out rates
and the number of subjects that ultimately complete the clinical study could be negatively impacted.
TLANDO XR: A Next-Generation Long-Acting Oral Product
Candidate for TRT
TLANDO XR is a next-generation,
novel ester prodrug of testosterone which uses the Lip’ral technology to enhance solubility and improve systemic absorption.
We completed a Phase 2b dose finding study in hypogonadal men in the third quarter of 2016. The primary objectives of the Phase
2b clinical study were to determine the starting Phase 3 dose of TLANDO XR along with safety and tolerability of TLANDO XR and
its metabolites following oral administration of single and multiple doses in hypogonadal men. The Phase 2b clinical trial was
a randomized, open label, two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups. Each of
the 12 subjects in a group received treatment for 14 days. Results of the Phase 2b study suggest that the primary objectives were
met, including identifying the dose expected to be tested in a Phase 3 study. Good dose-response relationship was observed over
the tested dose range in the Phase 2b study. Additionally, the target Phase 3 dose met primary and secondary end points. Overall,
TLANDO XR was well tolerated with no drug-related severe or serious adverse events reported in the Phase 2b study.
Additionally in October 2014,
we completed a Phase 2a proof-of-concept study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple
dose study enrolled 12 males. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with
TLANDO XR in hypogonadal men and a good dose response. Additionally, the study confirmed that steady state is achieved by day
14 with consistent inter-day performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during
the 28-day dosing period on multi-dose exposure. Overall, TLANDO XR was well tolerated with no serious AE’s reported.
We have also completed a preclinical toxicology study
with TLANDO XR in dogs.
In February 2018 we had a meeting
with the FDA to discuss these pre-clinical results and to discuss the Phase 3 clinical study and path forward for TLANDO XR. Based
on the results of the FDA meeting and additional pre-clinical trials conducted after the FDA meeting, we have designed a Phase
3 protocol for TLANDO XR and have solicited FDA feedback. Based on initial FDA feedback, we expect the Phase 3 clinical trial
design to follow the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“ICH”)
guidelines and will include a three-month efficacy treatment period and a one-year safety component for up to 100 subjects. We
continue to refine the Phase 3 protocol and plan to request FDA approval of the protocol once it is finalized. Additionally, the
FDA previously requested that a food effect study be completed, and that ABPM be included as part of the Phase 3 clinical study.
Based on our capital resources and the clinical status of our product candidates, we plan to primarily focus our efforts in 2020
on TLANDO and LPCN 1144. We do not anticipate the initiation of a Phase 3 study with TLANDO XR to occur in 2020 unless and until
additional capital is secured or the product candidate is out-licensed. We are exploring the possibility of licensing TLANDO XR
to a third party, although no licensing agreement has been entered into by the Company.
29
LPCN 1148: An Oral Prodrug of Bioidentical Testosterone
Product Candidate for the Treatment of Cirrhosis
Cirrhosis is an end stage NAFLD for which there is no FDA approved
drug treatment. Liver cirrhosis is estimated to affect in excess of 600,000 Americans, with men affected at twice the rate of
women, and results in approximately 45,000 deaths every year. Due to a lack of available organs, only a third of waitlisted patients
are getting liver transplants, and patients that do receive a transplant are increasingly being described as frail. Low testosterone
affects up to 90% of cirrhotic men, and is a predictor of mortality and increased adverse events including ascites, hepatic encephalopathy,
and clinically significant portal hypertension.
We are currently formulating plans
to conduct a proof-of-concept study in male cirrhotic subjects through consultations with the FDA and key opinion leaders to evaluate
the therapeutic potential of LPCN 1148 for the treatment of cirrhotic subjects. On May 5, 2020 the FDA accepted our Investigational
New Drug application ("IND") to initiate a Phase 2 proof-of-concept study to evaluate the therapeutic potential of LPCN
1148 for the treatment of liver cirrhosis in adult male cirrhotic patients. The planned Phase 2 clinical study is a prospective,
multi-center, randomized, placebo-controlled 52-week study in male cirrhotic patients that are on the liver transplant list. Based
on our capital resources and the clinical status of our product candidates, we plan to primarily focus our efforts in 2020 on
TLANDO and LPCN 1144. We do not anticipate the initiation of a Phase 2 study with LPCN 1148 in 2020 unless and until additional
capital is secured or the product candidate is out-licensed. We are exploring the possibility of licensing LPCN 1148 to a third
party, although no licensing agreement has been entered into by the Company
LPCN 1107: An Oral Product Candidate for the Prevention
of Preterm Birth
We believe
LPCN 1107 has the potential to become the first oral hydroxyprogesterone caproate (“HPC”) product indicated for the
reduction of risk of preterm birth (delivery less than 37 weeks) (“PTB”) in women with singleton pregnancy who have
a history of singleton spontaneous PTB. Prevention of PTB is a significant unmet need as approximately 11.7% of all U.S. pregnancies
result in PTB, a leading cause of neonatal mortality and morbidity.
We have completed a multi-dose PK dose
selection study in pregnant women. The objective of the multi-dose PK selection study was to assess HPC blood levels in order
to identify the appropriate LPCN 1107 Phase 3 dose. The multi-dose PK dose selection study was an open-label, four-period, four-treatment,
randomized, single and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the injectable intramuscular
("IM") HPC (Makena®). The study enrolled 12 healthy pregnant women (average age of 27 years) with a gestational
age of approximately 16 to 19 weeks. Subjects received three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID)
in a randomized, crossover manner during the first three treatment periods and then received five weekly injections of HPC during
the fourth treatment period. During each of the LPCN 1107 treatment periods, subjects received a single dose of LPCN 1107 on Day
1 followed by twice daily administration from Day 2 to Day 8. Following completion of the three LPCN 1107 treatment periods and
a washout period, all subjects received five weekly injections of HPC. Results from this study demonstrated that average steady
state HPC levels (Cavg0-24) were comparable or higher for all three LPCN 1107 doses than for injectable HPC. Additionally, HPC
levels as a function of daily dose were linear for the three LPCN 1107 doses. Also, unlike the injectable HPC, steady state exposure
was achieved for all three LPCN 1107 doses within seven days. We have also completed a proof-of-concept Phase 1b clinical study
of LPCN 1107 in healthy pregnant women in January 2015 and a proof-of-concept Phase 1a clinical study of LPCN 1107 in healthy
non-pregnant women in May 2014. These studies were designed to determine the PK and bioavailability of LPCN 1107 relative to an
IM HPC, as well as safety and tolerability.
A traditional pharmacokinetics/pharmacodynamics
(“PK/PD”) based Phase 2 clinical study in the intended patient population is not expected to occur prior to entering
into Phase 3. Therefore, based on the results of our multi-dose PK study we had an End-of-Phase 2 meeting and subsequent guidance
meetings with the FDA to define a Phase 3 development plan for LPCN 1107. However, these discussions will need to be updated based
on recent developments with AMAG Pharmaceuticals’ (“AMAG”) Makena. We plan to resume our interactions with the
FDA to discuss Phase 3 clinical trial design and better understand next steps to advance LPCN 1107. Additionally, a Phase 3 study
will not occur until the results from a planned food-effect study with LPCN 1107 are reviewed by the FDA, though manufacturing
scale-up work for LPCN 1107 has been completed.
Based on our capital resources and the
clinical status of our product candidates, we plan to primarily focus our efforts in 2020 on TLANDO and LPCN 1144. We do not anticipate
the initiation of a Phase 3 study with LPCN 1107 to occur in 2020 unless and until additional capital is secured or the product
candidate is out-licensed. We are exploring the possibility of licensing LPCN 1107 to a third party, although no licensing agreement
has been entered into by the Company. No assurance can be given that any license agreement will be completed, or, if an agreement
is completed, that such an agreement would be on acceptable terms.
30
The FDA has granted
orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for
various development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user
fee when we file our NDA.
Recent Competition Update
On October 5, 2020, the FDA’s Center for Drug Evaluation
and Research (“CDER”) proposed that Makena be withdrawn from the market because the PROLONG trial failed to verify
the clinical benefit of Makena and concluded that the available evidence does not show Makena is effective for its approved use.
CDER issued a notice of opportunity for a hearing (“NOOH”)
to AMAG, the application holder of Makena. The FDA also sent the NOOH to the application holders for the approved generics to
Makena for an opportunity to comment. The process that follows will depend, in part, on these companies’ decisions. AMAG
could voluntarily agree to let the FDA withdraw approval of Makena and waive the opportunity for a hearing or it may request a
public hearing. The FDA Commissioner would decide whether to grant a hearing, if requested by AMAG, would conduct the hearing
and ultimately decide on whether to allow Makena to be marketed or withdraw approval. The process is expected to take months and
during this time, Makena and the approved generics of Makena will remain on the market until the FDA makes a final decision about
these products.
Currently, Makena and the approved generics of Makena are the
only products approved for the prevention of recurrent preterm birth.
The FDA also indicated that it intends to hold a meeting with
experts in obstetrics, neonatal care, and clinical trial design to discuss how to facilitate development of effective and safe
therapies to treat preterm birth.
Financial Operations Overview
Revenue
To date, we have not generated any revenues
from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to
date have been generated substantially from license fees, royalty and milestone payments and research support from our licensees.
Since our inception through September 30, 2020, we have generated $28.1 million in revenue under our various license and collaboration
arrangements and from government grants. We may never generate revenues from TLANDO or any of our other clinical or preclinical
development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these
product candidates.
Research and Development Expenses
Research and development expenses consist
primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers
such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development,
clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses
associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as
those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research
and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred.
Since our inception, we have spent approximately $118.4 million in research and development expenses through September 30, 2020.
As a result of the CRL we received from
the FDA on TLANDO’s NDA, we are uncertain as to whether we will incur additional research and developments costs for TLANDO.
On January 16, 2020, we met with the FDA in a Post Action Meeting to review our CRL, and based on these discussions, we do not
expect to conduct any additional clinical trials with TLANDO for TRT. However, any further expenditures, if needed, are subject
to numerous uncertainties regarding timing and cost to completion.
We expect to continue to incur significant
costs as we develop our other product candidates, including the ongoing LiFT Phase 2 clinical study with LPCN 1144.
In general, the cost of clinical trials
may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others:
• the number of sites included in the trials;
• the length of time required to enroll suitable subjects;
31
• the duration of subject follow-ups;
• the length of time required to collect, analyze and
report trial results;
• the cost, timing and outcome of regulatory review; and
• potential changes by the FDA in clinical trial and NDA
filing requirements for testosterone replacement therapies.
We have also incurred significant manufacturing
costs to prepare launch supplies for TLANDO and additional expenditures will be required to prepare for a commercial launch of
TLANDO, should it be approved. However, future expenditures are subject to numerous uncertainties regarding timing and cost to
completion, including, among others:
• the timing and outcome of regulatory filings and FDA
reviews and actions for TLANDO;
• our dependence on third-party manufacturers for the
production of satisfactory finished product for registration and launch should regulatory
approval be obtained;
• the potential for future license or co-promote arrangements
for TLANDO, when such arrangements will be secured, if at all, and to what degree such
arrangements would affect our future plans and capital requirements; and
• the effect on our product development activities of
actions taken by the FDA or other regulatory authorities.
A change of outcome for any of these variables
with respect to the development of TLANDO and our other product development candidates could mean a substantial change in the
costs and timing associated with these efforts, will require us to raise additional capital, and may require us to reduce operations.
Given the stage of clinical development
and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process,
we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1144, TLANDO XR, LPCN 1148,
LPCN 1107 and other product candidates. Clinical development timelines, the probability of success and development costs
can differ materially from expectations and results from our clinical trials may not be favorable. If we are successful in
progressing LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 or other product candidates into later stage development, we will require
additional capital. The amount and timing of our future research and development expenses for these product candidates will depend
on the preclinical and clinical success of both our current development activities and potential development of new product candidates,
as well as ongoing assessments of the commercial potential of such activities.
Summary of Research and Development Expense
We are conducting on-going clinical and
regulatory activities with most of our product candidates. Additionally, we incur costs for our other research programs. The following
table summarizes our research and development expenses:
Three
Months Ended September 30,
Nine
Months Ended September 30,
2020
2019
2020
2019
External service provider costs:
TLANDO
$ 471,874
$ 193,826
$ 679,351
$ 2,350,409
LPCN 1144
1,223,863
943,865
4,284,302
1,354,800
TLANDO XR
-
600
71,898
118,242
LPCN 1107
1,500
15,715
3,860
55,175
Total external service provider costs
1,697,237
1,154,006
5,039,411
3,878,626
Internal personnel costs
561,461
400,999
1,736,167
1,305,822
Other research and development costs
229,163
158,412
493,021
442,935
Total research and development
$ 2,487,861
$ 1,713,417
$ 7,268,599
$ 5,627,383
We expect research and development expenses
to increase in the future as we complete on-going clinical studies, including the LiFT Phase 2 clinical study with LPCN
1144, as we conduct future clinical studies, including when and if we conduct Phase 2 clinical studies with LPCN 1148 and Phase
3 clinical studies with TLANDO XR and LPCN 1107, and as we manufacture commercial supplies of TLANDO pre-approval. However, if
we are unable to raise additional capital, we may need to reduce research and development expenses in order to extend our ability
to continue as a going concern.
32
General and Administrative Expenses
General and administrative expenses consist
primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development,
marketing, sales and support functions. Other general and administrative expenses include rent and utilities, travel expenses,
professional fees for auditing, tax and legal services, litigation settlement and market research and market analytics.
General and administrative expenses also
include expenses for the cost of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending
intellectual property-related claims, including our on-going patent interference and patent infringement lawsuits against Clarus.
We expect that general and administrative
expenses will increase in the future as we incur additional legal fees in the on-going court cases with Clarus. Additional areas
that may see increases as we mature as a public company include legal and consulting fees, accounting and audit fees, director
fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business
and accounting systems, litigation costs, professional fees and other costs. If TLANDO is approved by the FDA, we expect we will
incur significant additional expenses relating to the commercialization of TLANDO, including, among other things, expenses relating
to building out sales and marketing teams, manufacturing expenses, expenses relating to licensing TLANDO to third parties, and
other expenses. However, if we are unable to raise additional capital, we may need to reduce general and administrative expenses
in order to extend our ability to continue as a going concern. If we are unable to raise additional capital, we may be unable to
effectively commercialize TLANDO after receiving FDA approval.
Other Expense (Income), Net
Other expense (income), net consists primarily
of interest income earned on our cash, cash equivalents and marketable investment securities and interest expense incurred on our
outstanding Loan and Security Agreement and losses (gains) on our warrant liability.
Results of Operations
Comparison of the Three Months Ended September 30, 2020
and 2019
The following table summarizes our results
of operations for the three months ended September 30, 2020 and 2019:
Three Months Ended September 30,
2020
2019
Variance
License revenue
$ -
$ (164,990 )
$ (164,990 )
Research and development expenses
2,487,861
1,713,417
774,444
General and administrative expenses
1,887,195
1,427,261
459,934
Interest and investment income
(5,614 )
(98,988 )
(93,374 )
Interest expense
84,293
183,500
(99,207 )
Gain on warrant liability
(140,477 )
-
(140,477 )
Revenue
We recognized no license revenue during
the three months ended September 30, 2020 compared to $165,000 of license revenue during the three months ended September 30, 2019.
License revenue in 2019 relates to royalty payments received from Spriaso, LLC (“Spriaso”) under a licensing agreement
in the cough and cold field.
Research and Development Expenses
The increase in research and development
expenses during the three months ended September 30, 2020 was primarily due to a $280,000 increase in contract research organization
and outside consulting and manufacturing costs related to the LPCN 1144 LiFT Phase 2 clinical study in NASH subjects, a
$278,000 increase in commercial manufacturing costs related to TLANDO, a $160,000 increase in personnel expense mainly due to stock
compensation expense on performance based RSU’s and increased bonus expense, as well as increases in other R&D expenses
of $56,000.
33
General and Administrative Expenses
The increase in general and administrative
expenses during the three months ended September 30, 2020 was primarily due to a $259,000 increase in legal costs associated with
the following activities: lawsuit filed against Clarus Therapeutics Inc. for patent infringement in April 2019, patent interference
cases filed against Clarus and the on-going class action lawsuit defense. In addition, there was a $240,000 increase in personnel
costs mainly due to stock compensation expense on performance based RSU’s and increased bonus expense, and a $6,000 increase
in other general and administrative expenses. These increases were offset by a $28,000 decrease marketing expense and a $17,000
decrease in administrative travel expenses.
Interest and Investment Income
The decrease in interest and investment
income during the three months ended September 30, 2020 was due to lower interest rates and lower average balances of marketable
securities in 2020 compared to 2019.
Interest Expense
The decrease in interest expense during
the three months ended September 30, 2020 was due to a decrease in interest expense on our Loan and Security Agreement with SVB,
as a result of lower principal balances and lower interest rates in 2020 compared to 2019.
Gain on Warrant Liability
We recorded a $140,000 gain on warrant
liability during the three months ended September 30, 2020 related to the change in the fair value of outstanding common
stock warrants issued in the November 2019 Offering. We did not record a similar change during the three months ended
September 30, 2019 as there were no similar warrants outstanding during this period. The gain during the three months ended
September 30, 2020 was mainly attributable to an decrease in the value of warrants exercised during the period offset by an
increase in value of warrants outstanding as of September 30, 2020 as compared to June 30, 2020 due to an increase in our
stock price. There were 769,000 common stock warrants exercised during the three months ended September 30, 2020. The
warrants are classified as a liability due to a provision contained within the warrant agreement which allows the warrant
holder the option to elect to receive an amount of cash equal to the value of the warrants as determined in accordance with
the Black-Scholes option pricing model with certain defined assumptions upon a change of control. The warrant liability will
continue to fluctuate in the future based on inputs to the Black-Scholes model including our current stock price, the
remaining life of the warrants, the volatility of our stock price, the risk-free interest rate and the number of common stock
warrants outstanding.
Comparison of the Nine Months Ended September 30, 2020
and 2019
The following table summarizes our results
of operations for the nine months ended September 30, 2020 and 2019:
Nine months ended September 30,
2020
2019
Variance
License revenue
$ -
$ (164,990 )
$ (164,990 )
Research and development expenses
7,268,599
5,627,383
1,641,216
General and administrative expenses
5,925,991
3,989,645
1,936,346
Interest and investment income
(72,729 )
(348,833 )
(276,104 )
Interest expense
305,485
611,864
(306,379 )
Loss on warrant liability
3,025,997
-
3,025,997
Income tax expense
200
200
-
Revenue
We recognized no license revenue during
the nine months ended September 30, 2020 compared to $165,000 of license revenue during the nine months ended September 30, 2019.
License revenue in 2019 relates to royalty payments received from Spriaso, LLC (“Spriaso”) under a licensing agreement
in the cough and cold field.
Research and Development Expenses
The increase in research and development
expenses during the nine months ended September 30, 2020 was primarily due to a $2.9 million increase in contract research organization
and outside consulting and manufacturing costs related to the LPCN 1144 LiFT Phase 2 clinical study in NASH subjects, a
$430,000 increase in personnel expense mainly due to stock compensation expense on performance based RSU’s and increased
bonus expense, and a $50,000 increase in other research and development expenses. These increases were offset by a $1.7 million
decrease in costs incurred in conjunction with TLANDO with the completion of the ABPM study in the first half of 2019, a $51,000
decrease in contract manufacturing costs for LPCN 1107, and a $46,000 decrease in costs for TLANDO XR.
34
General and Administrative Expenses
The increase in general and administrative
expenses during the nine months ended September 30, 2020 was primarily due to a $1.9 million increase in legal costs associated
with the with the following activities: lawsuit filed against Clarus for patent infringement in April 2019, interference cases
filed against Clarus and the on-going class action lawsuit defense and a $228,000 increase in personnel costs mainly due to stock
compensation expense on performance based RSU’s and increased bonus expense. These increases were offset by a $77,000 decrease
in administrative travel expense, a $68,000 decrease in marketing expense and a $43,000 decrease in other general and administrative
expenses.
Interest and Investment Income
The decrease in interest and investment
income during the nine months ended September 30, 2020 was due to lower average balances of marketable securities and lower interest
rates in 2020 compared to 2019.
Interest Expense
The decrease in interest expense during
the nine months ended September 30, 2020 was due to a decrease in interest expense on our Loan and Security Agreement with SVB,
as a result of lower principal balances and lower interest rates in 2020 compared to 2019.
Loss on Warrant Liability
We recorded a $3.0 million loss on
warrant liability during the nine months ended September 30, 2020 related to the change in the fair value of outstanding
common stock warrants issued in the November 2019 Offering. We did not record a similar change during the nine months ended
September 30, 2019 as there were no similar warrants outstanding during this period. The loss in 2020 was mainly attributable
to an increase in the value of both warrants exercised during the period and warrants outstanding as of September 30, 2020 as
compared to December 31, 2019 due to an increase in our stock price. There were 10,895,970 common stock warrants exercised
during the nine months ended September 30, 2020. The warrants are classified as a liability due to a provision contained
within the warrant agreement which allows the warrant holder the option to elect to receive an amount of cash equal to the
value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined
assumptions upon a change of control. The warrant liability will continue to fluctuate in the future based on inputs to the
Black-Scholes model including our current stock price, the remaining life of the warrants, the volatility of our stock price,
the risk-free interest rate and the number of common stock warrants outstanding.
Liquidity and Capital Resources
Since our inception, our operations have
been primarily financed through sales of our equity securities, debt and payments received under our license and collaboration
arrangements. We have devoted our resources to funding research and development programs, including discovery research, preclinical
and clinical development activities. We have incurred operating losses in most years since our inception and we expect to continue
to incur operating losses into the foreseeable future as we evaluate our options related to TLANDO should it receive approval and
as we advance clinical development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and any other product candidate, including continued
research efforts.
As of September 30, 2020, we had $18.8
million of unrestricted cash, cash equivalents and marketable investment securities compared to $14.1 million at December 31,
2019. Additionally, as of September 30, 2020 and December 31, 2019 we had $5.0 million of restricted cash, which is required to
be maintained as cash collateral under the SVB Loan and Security Agreement until TLANDO is approved by the FDA.
On April 21, 2020, we entered
into a loan (the “Loan”) from Silicon Valley Bank (“SVB”) in the aggregate amount of $234,000, pursuant
to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March
27, 2020. The Loan, which was in the form of a note dated April 21, 2020 issued by us, matures on April 21, 2022 and bears interest
at a rate of 1.0% per annum, payable monthly commencing on November 21, 2020. The Loan may be prepaid by us at any time prior to
maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health
care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. We
intend to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven
if they are used for qualifying expenses as described in the CARES Act. We have submitted the application to have the PPP Loan
forgiven and are waiting for approval from the Small Business Administration.
35
On February 27, 2020, we completed a registered
direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933,
as amended (“February 2020 Offering”). The gross proceeds from the February 2020 Offering were approximately $6.0 million,
before deducting placement agent fees and other offering expenses of approximately $347,000. In the February 2020 Offering, the
Company sold 10,084,034 Class A Units, with each Class A Unit consisting of one share of common stock and a one-half of one common
warrant to purchase one share of common stock, at a price of $0.595 per Class A Unit. The common stock warrants were immediately
exercisable at an exercise price of $0.53 per share, subject to adjustment, and expire on February 27, 2025. By their terms, however,
the common stock warrants cannot be exercised at any time that the common stock warrant holder would beneficially own, after such
exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving
effect to such exercise.
As of September 30, 2020, 4,201,681 common
warrants to purchase an equivalent number of shares of our common stock from the February 2020 Offering have been exercised resulting
in proceeds to us of approximately $2.2 million.
On November 18, 2019, we completed a public
offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended
(“November 2019 Offering”). The gross proceeds from the November 2019 Offering were approximately $6.0 million, before
deducting placement agent fees and other offering expenses of $404,000. In the November 2019 Offering, the Company sold (i) 10,450,000
Class A Units, with each Class A Unit consisting of one share of common stock and a common warrant to purchase one share of common
stock, and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of common
stock and one common warrant to purchase one share of common stock, at a price of $0.50 per Class A Unit and $0.4999 per Class
B Unit. The pre-funded warrants, which were exercised for common stock in December 2019, were issued in lieu of common stock in
order to ensure the purchaser did not exceed certain beneficial ownership limitations. The pre-funded warrants were immediately
exercisable at an exercise price of $.0001 per share, subject to adjustment. Additionally, the common stock warrants were immediately
exercisable at an exercise price of $0.50 per share, subject to adjustment, and expire on November 17, 2024. By their terms, however,
neither the pre-funded warrants nor the common stock warrants can be exercised at any time that the pre-funded warrant holder or
the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder,
9.99%) of the shares of common stock then outstanding after giving effect to such exercise.
As of September 30, 2020, 10,895,970 common
warrants to purchase an equivalent number of shares of our common stock from the November 2019 Offering have been exercised resulting
in proceeds to us of approximately $5.4 million.
On January 5, 2018, we entered into the
Loan and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan
and Security Agreement bears interest at a rate equal to the Prime Rate, as reported in money rates section of The Wall Street
Journal or any successor publication representing the rate of interest per annum then in effect, plus one percent per annum, which
interest is payable monthly. Additionally on April 1, 2020, we and SVB entered into a Deferral Agreement. Under the Deferral Agreement,
principal repayments are deferred by six months and we are only required to make monthly interest payments during the deferral
period. The loan matures on June 1, 2022. Previously, we were only required to make monthly interest payments until December 31,
2018, following which we also made equal monthly payments of principal and interest until the signing of the Deferral Agreement.
We will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).
At our option, we may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest
and the Final Payment Charge). In connection with the Loan and Security Agreement, we granted to SVB a security interest in substantially
all of our assets now owned or hereafter acquired, excluding intellectual property and certain other assets. In addition, as TLANDO
was not approved by the FDA by May 31, 2018, we are required to maintain $5.0 million of cash collateral at SVB until such time
as TLANDO is approved by the FDA. While any amounts are outstanding under the Loan and Security Agreement, we are subject to a
number of affirmative and negative covenants, including covenants regarding dispositions of property, business combinations or
acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The credit
facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate
that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against
us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities,
including its cash. These events of default include, among other things, any failure by us to pay principal or interest due under
the credit facility, a breach of certain covenants under the credit facility, the Company’s insolvency, a material adverse
change, and one or more judgments against us in an amount greater than $100,000 individually or in the aggregate.
On March 6, 2017, we entered into the
Sales Agreement with Cantor pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate
offering price of up to $25.0 million through Cantor as our sales agent which was subsequently increased on August 21, 2020 to
$63.0 million. Cantor may sell our common stock by any method permitted by law deemed to be an “at the market offering”
as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Capital Market or any
other existing trade market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or
at prices related to prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts
consistent with its normal trading and sales practices and applicable law and regulations to sell these shares. We pay Cantor 3.0%
of the aggregate gross proceeds from each sale of shares under the Sales Agreement. We have also provided Cantor with customary
indemnification rights.
36
The shares of our common stock sold under
the Sales Agreement are sold and issued pursuant to our Registration Statement on Form S-3 (File No. 333-220942) (the “Form
S-3”), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and
one or more prospectus supplements.
We are not obligated to make any sales
of our common stock under the Sales Agreement. The offering of our common stock pursuant to the Sales Agreement will terminate
upon the termination of the Sales Agreement as permitted therein. We and Cantor may each terminate the Sales Agreement at any time
upon ten days’ prior notice.
As of September 30, 2020, we have sold
9,465,535 shares of our common stock resulting in net proceeds of approximately $23.2 million under the Sales Agreement which is
net of $872,000 in expenses consisting of commissions paid to Cantor in connection with these sales and other offering and accounting
costs.
We believe that our existing capital
resources, together with interest thereon, will be sufficient to meet our projected operating requirements through at least
September 30, 2021 which includes an on-going clinical study for LPCN 1144, compliance with regulatory requirements, and
on-going litigation activities. We have based this estimate on assumptions that may prove to be wrong, and we could utilize
our available capital resources sooner than we currently expect if additional activities are performed by us including
pre-commercial and commercial activities for TLANDO and new clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN
1107. While we believe we have sufficient liquidity and capital resources to fund our projected operating requirements
through at least September 30, 2021, we will need to raise additional capital at some point through the equity or debt
markets or through out-licensing activities, either before or after September 30, 2021, to support our operations, including,
if FDA approval is received, potential commercialization activities for TLANDO. If we are unsuccessful in raising additional
capital our ability to continue as a going concern will be limited. Further, our operating plan may change, and we may need
additional funds to meet operational needs and capital requirements for product development, regulatory compliance and
clinical trial activities sooner than planned. In addition, our capital resources may be consumed more rapidly if we pursue
additional clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107. Conversely, our capital resources could last
longer if we reduce expenses, reduce the number of activities currently contemplated under our operating plan or if we
terminate or suspend on-going clinical studies or intellectual property litigation , or if we
terminate or settle any on-going litigation activities.
.
We can raise capital pursuant to the Sales
Agreement in the ATM when not restricted due to terms of previous financings but may choose not to issue common stock if our market
price is too low to justify such sales in our discretion. There are numerous risks and uncertainties associated with the development
and, subject to approval by the FDA, commercialization of our product candidates. There are numerous risks and uncertainties impacting
our ability to enter into collaborations with third parties to participate in the development and potential commercialization of
our product candidates. We are unable to precisely estimate the amounts of increased capital outlays and operating expenditures
associated with our anticipated or unanticipated clinical studies and ongoing development and pre-commercialization efforts. All
of these factors affect our need for additional capital resources. To fund future operations, we will need to ultimately raise
additional capital and our requirements will depend on many factors, including the following:
· further clinical development requirements or other requirements of the FDA related to approval of TLANDO;
· the cost and timing of pre-commercialization and commercialization activities in support of TLANDO;
· the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities for
all of our product candidates, including LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107;
· the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products
that we may develop;
· the cost and timing of establishing sales, marketing and distribution capabilities, if any;
· the terms and timing of any collaborative, licensing and other arrangements that we may establish;
37
· the number and characteristics of product candidates that we pursue;
· the cost, timing and outcomes of regulatory approvals;
· the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;
· the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
· the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments
or agreements relating to any of these types of transactions; and
· the extent to which we grow significantly in the number of employees or the scope of our operations.
Funding may not be available to us on favorable
terms, or at all. Also, market conditions may prevent us from accessing the debt and equity capital markets, including sales of
our common stock through the ATM. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope
of or suspend one or more of our clinical studies, research and development programs or, if any of our product candidates receive
approval from the FDA, commercialization efforts. We may seek to raise any necessary additional capital through a combination of
public or private equity offerings, including the ATM, debt financings, collaborations, strategic alliances, licensing arrangements
and other marketing and distribution arrangements. These arrangements may not be available to us on favorable terms, or at all.
To the extent that we raise additional capital through marketing and distribution arrangements, other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future
revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we do raise
additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences, warrants or other terms that adversely affect our
stockholders’ rights or further complicate raising additional capital in the future. If we raise additional capital through
debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we are unable, for any reason, to raise needed capital,
we will have to reduce costs, delay research and development programs, liquidate assets, dispose of rights, commercialize products
or product candidates earlier than planned or on less favorable terms than desired or reduce or cease operations.
Sources and Uses of Cash
The following table provides a summary
of our cash flows for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
2020
2019
Cash used in operating activities
$ (11,619,069 )
$ (8,358,175 )
Cash provided by (used in) investing activities
(1,515,297 )
2,440,822
Cash provided by financing activities
16,344,029
4,504,322
Net Cash Used in Operating Activities
During the nine months ended September
30, 2020 and 2019, net cash used in operating activities was $11.6 million and $8.4 million, respectively.
Net cash used in operating activities
during the nine months September 30, 2020 and 2019 was primarily attributable to cash outlays to support ongoing operations, including
research and development expenses and general and administrative expenses. During 2020, we were performing activities related to
the LPCN 1144 LiFT Phase 2 paired biopsy clinical study and the submission of the TLANDO NDA. During 2019, we were performing
activities related to the ABPM study for TLANDO and the POC liver imaging study for LPCN 1144.
Net Cash Provided by Investing Activities
During the nine months ended September
30, 2020 and 2019, net cash used in investing activities was $1.5 million compared to net cash provided by of $2.4 million, respectively.
Net cash used in investing activities
during the nine months ended September 30, 2020 was primarily the result of purchasing marketable investment securities, net, of
$1.5 million. Net cash provided by investing activities during the nine months ended September 30, 2019 was primarily the result
of utilizing marketable investment securities, net, of $2.4 million to fund operations. There were no capital expenditures for
the nine months ended September 30, 2020 and 2019.
38
Net Cash Provided by Financing Activities
During the nine months ended September
30, 2020 and 2019 net cash provided by financing activities was $16.3 million and $4.5 million, respectively.
Net cash provided by financing activities
during the nine months ended September 30, 2020 was attributable to the net proceeds from the sale of 10,084,034 shares of common
stock pursuant to February 2020 Offering resulting in net proceeds of $5.7 million, to $7.7 million in proceeds from the exercise
of warrants, $3.9 million in proceeds from the sale of 2,830,000 shares of common stock pursuant to the ATM and $234,000 in loan
proceeds under the Payment Protection Program, offset by $1.1 million in debt principal repayments under the SVB Loan and Security
Agreement.
Net cash provided by financing activities
during the nine months ended September 30, 2019 was primarily attributable to the net proceeds from the sale of 3,276,286 shares
of common stock pursuant to the ATM resulting in net proceeds of $6.9 million, offset by $2.5 million in debt principal repayments
under the SVB Loan and Security Agreement.
Contractual Commitments and Contingencies
Long-Term Debt Obligations and Interest on Debt
On January 5, 2018, we entered into a Loan
and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant to
which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan and Security Agreement bears interest at a rate
equal to the Prime Rate plus one percent per annum, which interest is payable monthly. The loan matures on June 1, 2022 and we
are required to make equal monthly payments of principal and interest for the remaining term of the loan beginning on November
1, 2020 although there was a principal deferment period of six months beginning on April 1, 2020 due to COVID-19. We will also
be required to pay an additional final payment equal to $650,000 (the “Final Payment Charge”) at maturity.
On April 21, 2020, we were
granted a loan from SVB in the aggregate amount of $234,000, pursuant to the Paycheck Protection Program (the “PPP”)
under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP loan, which was in the form of a Note dated
April 21, 2020 issued by us, matures on April 21, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing
on November 21, 2020. The PPP loan may be prepaid by us at any time prior to maturity with no prepayment penalties. Funds from
the PPP loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,
and interest on other debt obligations incurred before February 15, 2020. We intend to use the entire loan amount for qualifying
expenses. Under the terms of the PPP, certain amounts of the PPP loan may be forgiven if they are used for qualifying expenses
as described in the CARES Act. We have submitted the application to have the PPP Loan forgiven and are waiting for approval from
the Small Business Administration.
Purchase Obligations
We enter into contracts and issue purchase
orders in the normal course of business with clinical research organizations for clinical trials and clinical and commercial supply
manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating
purposes. These contracts generally provide for termination on notice and are cancellable obligations.
Operating Leases
In August 2004, we entered into an agreement
to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters.
On February 24, 2020, we modified and extended the lease through February 28, 2021.
Critical Accounting Policies and Significant Judgments and
Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our financial statements which we have prepared in accordance
with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our estimates
are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no
significant and material changes in our critical accounting policies during the nine months ended September 30, 2020, as compared
to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical
Accounting Policies and Significant Judgments and Estimates” in our Form 10-K filed March 13, 2020.
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New Accounting Standards
Refer to Note 12, in “Notes to Unaudited
Condensed Consolidated Financial Statements” for a discussion of accounting standards not yet adopted.
Off-Balance Sheet Arrangements
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.