Lipocine Inc. 10-Q

ITEM 1A. RISK FACTORS In addition to the other information set forth in this Report, consider the risk factors discussed in Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022, and the risk factors discussed in Item 1A of this Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be not material also may materially adversely affect the Company’s business, financial condition and or operating results. The following are the risk factors that have materially changed from our risk factors included in our Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022: Risks Relating to Our Business and Industry We will need to grow our Company, and we may encounter difficulties in managing this growth, which could disrupt our operations. As of March 31, 2022, we had 13 employees. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects. If our management is unable to effectively manage our future growth, our expenses may increase more than expected, our ability to generate revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. 47 Risks Related to Ownership of Our Common Stock The value of our warrants outstanding from the November 2019 Offering is subject to potentially material increases and decreases based on fluctuations in the price of our common stock. In November 2019, we completed a public offering of common stock and warrants to purchase common stock (the “November 2019 Offering”). Gross proceeds from the November 2019 Offering were approximately $6.0 million. 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 stock 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 a common stock and one common stock 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 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 and expire on November 17, 2024. We account for the common stock warrants as a derivative instrument, and changes in the fair value of the warrants are included under other income (expense) in the Company’s statements of operations for each reporting period. On March 31, 2022, the aggregate fair value of the warrant liability included in the Company’s consolidated balance sheet was $1.2 million. We use the Black-Scholes option pricing model to determine the fair value of the warrants. As a result, the option-pricing model requires the input of several assumptions, including the stock price volatility, share price and risk-free interest rate. Changes in these assumptions can materially affect the fair value estimate. While the liability may only result from a change of control at that point in time, we ultimately may incur amounts significantly different than the carrying value. Our management and directors will be able to exert influence over our affairs. As of March 31, 2022, our executive officers and directors beneficially owned approximately 4.7% of our common stock. These stockholders, if they act together, may be able to influence our management and affairs and all matters requiring stockholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might affect the market price of our common stock. The market price of our common stock has been volatile over the past year and may continue to be volatile. The market price and trading volume of our common stock has been volatile over the past year and it may continue to be volatile. Over the past year, our common stock has traded as low as $0.89 and as high as $1.85 per share. We cannot predict the price at which our common stock will trade in the future and it may decline. The price at which our common stock trades may fluctuate significantly and may be influenced by many factors, including our financial results; developments generally affecting our industry; general economic, industry and market conditions; the depth and liquidity of the market for our common stock; investor perceptions of our business; reports by industry analysts; announcements by other market participants, including, among others, investors, our competitors, and our customers; regulatory action affecting our business; and the impact of other “Risk Factors” discussed in our Annual Report. In addition, changes in the trading price of our common stock may be inconsistent with our operating results and outlook. The volatility of the market price of our common stock may adversely affect investors’ ability to purchase or sell shares of our common stock. 48 Risks Relating to Our Financial Position and Capital Requirements We have incurred significant operating losses in most years since our inception and anticipate that we will incur continued losses for the foreseeable future. We have focused a significant portion of our efforts on developing TLANDO and more recently on LPCN 1144, LPCN 1148 and LPCN 1154. We have funded our operations to date through sales of our equity securities, debt and payments received under our license and collaboration arrangements. We have incurred losses in most years since our inception. As of March 31, 2022, we had an accumulated deficit of $176.2 million. Substantially all of our operating losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. These losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect our research and development expenses to significantly increase in connection with clinical trials associated with LPCN 1148, LPCN 1111, LPCN 1144, LPCN 1107, and NAS if initiated. As a result, we expect to continue to incur significant operating losses for the foreseeable future as we evaluate further clinical development of LPCN 1148, LPCN 1111, LPCN 1144, LPCN 1107, NAS and our other programs and continued research efforts. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. We have limited shares available for issuance to raise capital to fund our operations and grant stock-based incentive awards to employees, directors, and consultants. If we are unable to increase the number of shares of common stock available for issuance, our business will be adversely affected. Currently, we have 100,000,000 authorized shares of common stock. As of March 31, 2022, we had 88,498,924 shares of common stock outstanding. After taking into account the 6,164,105 shares reserved for issuance upon the exercise of outstanding options and shares reserved for exercise of outstanding warrants as of March 31, 2022, we have a limited number of shares available for issuance. We expect, from time to time, to raise capital to fund the development of our pipeline and advance product candidates to stages that allow for approval and commercialization, including out licensing. Without sufficient shares available for issuance, our ability to raise capital through sales of equity is limited. If we are not able to increase the number of shares of common stock available for issuance, we will have limited shares available for issuance to raise capital to fund our operations, make grants of stock-based incentive awards, or take such other actions requiring available capital stock needed to operate our business. While we are seeking shareholder approval of an amendment to our Amended and Restated Certificate of Incorporation of the Company to increase the number of authorized shares of common stock, there is no guarantee that we will obtain such approval. An increase in the number of authorized shares is key to execute our long-term strategy as we expect, from time to time, to raise capital to fund the advancement of our product candidates to stages that allow for out licensing, allow us to remain independent and maintain business flexibility, and create value for our shareholders If we are unable to obtain shareholder approval of the proposed amendment, our ability to raise capital will be adversely affected. Further delays in securing, or the failure to secure, shareholder approval of an increase in authorized shares will prevent us from executing a capital raising transaction, which may have a material adverse effect on our liquidity and ability to operate our business. If we are unable to effectively raise capital, including the sale of capital stock or other equity securities, our business and financial condition will be adversely affected. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES None.