Trevi Therapeutics, Inc. 10-Q

Item 1. Financial Statements. Trevi Therapeutics, Inc. Condensed Consolidated Balance Sheets (unaudited) (Amounts in thousands, except share and per share amounts) June 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 44,180 $ 57,313 Tax credit and other receivables 102 558 Prepaid expenses 2,061 1,681 Total current assets 46,343 59,552 Deferred offering costs 267 — Operating lease right-of-use asset 271 312 Security deposit 19 19 Property, equipment and leasehold improvements, net 109 118 Total assets $ 47,009 $ 60,001 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,160 $ 1,599 Accrued expenses 3,504 3,501 Operating lease liability - current portion 106 99 Total current liabilities 6,770 5,199 Operating lease liability - long term portion 202 257 Commitments and contingencies (Note 12) Stockholders’ equity (deficit): Common stock: $0.001 par value; 200,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; and 17,851,152 and 17,834,570 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively. 18 18 Preferred stock: $0.001 par value; 5,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares issued or outstanding at June 30, 2020 or December 31, 2019. — — Additional paid-in capital 170,095 168,746 Accumulated deficit (130,076 ) (114,219 ) Total stockholders’ equity 40,037 54,545 Total liabilities and stockholders’ equity $ 47,009 $ 60,001 See accompanying notes. 1 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Operations (unaudited) (Amounts in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 4,921 $ 5,528 $ 10,940 $ 8,866 General and administrative 2,492 1,889 5,112 3,363 Total operating expenses 7,413 7,417 16,052 12,229 Loss from operations (7,413 ) (7,417 ) (16,052 ) (12,229 ) Other income (expense): Change in fair value of obligation for loan success fee — (163 ) — (215 ) Interest income 14 229 171 287 Total other income (expense), net 14 66 171 72 Loss before income tax benefit (7,399 ) (7,351 ) (15,881 ) (12,157 ) Income tax benefit 15 5 24 9 Net loss $ (7,384 ) $ (7,346 ) $ (15,857 ) $ (12,148 ) Accretion of redeemable convertible preferred stock — 1,332 — 1,535 Dividends accrued on redeemable convertible preferred stock — (686 ) — (2,239 ) Adjusted net loss attributable to common stockholders $ (7,384 ) $ (6,700 ) $ (15,857 ) $ (12,852 ) Basic and diluted net loss per common share outstanding $ (0.41 ) $ (0.63 ) $ (0.89 ) $ (2.32 ) Weighted average common shares used in net loss per share attributable to common stockholders, basic and diluted 17,835,952 10,571,736 17,835,261 5,535,907 See accompanying notes. 2 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (Amounts in thousands, except share amounts) Series A Series B Series C Redeemable Redeemable Redeemable Total Convertible Convertible Convertible Additional Stockholders’ Preferred Stock Preferred Stock Preferred Stock Common Stock Paid- Accumulated Equity Shares Amount Shares Amount Shares Amount Shares Amount in Capital Deficit (Deficit) Balance at March 31, 2020 — $ — — $ — — $ — 17,834,570 $ 18 $ 169,476 $ (122,692 ) $ 46,802 Stock-based compensation — — — — — — — — 589 — 589 Issuance of common stock from exercise of stock options 15,185 — 27 27 Issuance of common stock from Employee Stock Purchase Plan 1,397 — 3 3 Net loss — — — — — — — — — (7,384 ) (7,384 ) Balance at June 30, 2020 — $ — — $ — — $ — 17,851,152 $ 18 $ 170,095 $ (130,076 ) $ 40,037 Balance at March 31, 2019 15,387,923 $ 21,169 22,608,695 $ 33,943 44,946,987 $ 73,039 446,494 $ 4 $ — $ (115,480 ) $ (115,476 ) Stock-based compensation — — — — — — — — 237 — 237 Issuance of common stock from exercise of stock options — — — — — — 6,842 — 14 — 14 Dividends accrued on redeemable convertible preferred stock 5,406,844 99 6,478,999 166 3,792,386 421 — — — (686 ) (686 ) Accretion (amortization) of premium (discount) on issuance of redeemable convertible preferred stock — (7 ) — 26 — — — — — (19 ) (19 ) Accretion of discount on investor rights/obligation — 70 — 98 — — — — (168 ) (168 ) Adjustment for excess (shortfall) of fair value over liquidation value of redeemable convertible preferred stock — (545 ) — (787 ) — (384 ) — — — 1,716 1,716 Accretion of issuance costs on redeemable convertible preferred stock — 6 — 3 — 188 — — (197 ) (197 ) Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering (20,794,767 ) (20,792 ) (29,087,694 ) (33,449 ) (48,739,373 ) (73,264 ) 10,381,234 7 105,634 21,863 127,504 Issuance of common stock upon completion of initial public offering, net of underwriting discounts and commissions and issuance costs — — — — — — 5,500,000 5 48,169 — 48,174 Issuance of common stock upon completion of private placement, net of private placement agent fees — — — — — — 1,500,000 2 13,948 — 13,950 Net loss — — — — — — — — — (7,346 ) (7,346 ) Balance at June 30, 2019 - $ - - $ - - $ - 17,834,570 $ 18 $ 168,002 $ (100,317 ) $ 67,703 See accompanying notes. 3 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (Amounts in thousands, except share amounts) Series A Series B Series C Redeemable Redeemable Redeemable Total Convertible Convertible Convertible Additional Stockholders’ Preferred Stock Preferred Stock Preferred Stock Common Stock Paid- Accumulated Equity Shares Amount Shares Amount Shares Amount Shares Amount in Capital Deficit (Deficit) Balance at December 31, 2019 — $ — — $ — — $ — 17,834,570 $ 18 $ 168,746 $ (114,219 ) $ 54,545 Stock-based compensation — — — — — — — — 1,319 — 1,319 Issuance of common stock from exercise of stock options — — — — — — 15,185 — 27 — 27 Issuance of common stock from Employee Stock Purchase Plan 1,397 — 3 — 3 Net loss — — — — — — — — — (15,857 ) (15,857 ) Balance at June 30, 2020 — $ — — $ — — $ — 17,851,152 $ 18 $ 170,095 $ (130,076 ) $ 40,037 Balance at December 31, 2018 15,387,923 $ 21,033 22,608,695 $ 33,686 38,097,672 $ 61,023 438,600 $ 4 $ — $ (109,498 ) $ (109,494 ) Stock-based compensation — — — — — — — — 383 — 383 Issuance of common stock from exercise of stock options — — — — — — 14,736 — 38 — 38 Issuance of Series C redeemable convertible preferred stock, net of issuance costs — — — — 6,849,315 11,059 — — — — — Dividends accrued on redeemable convertible preferred stock 5,406,844 326 6,478,999 551 3,792,386 1,362 — — — (2,239 ) (2,239 ) Accretion (amortization) of premium (discount) on issuance of redeemable convertible preferred stock — (7 ) — 31 — — — — — (24 ) (24 ) Accretion of discount on investor rights/obligation — 84 — 117 — — — — — (201 ) (201 ) Adjustment for excess (shortfall) of fair value over liquidation value of redeemable convertible preferred stock — (651 ) — (940 ) — (403 ) — — — 1,994 1,994 Accretion of issuance costs on redeemable convertible preferred stock — 7 — 4 — 223 — — — (234 ) (234 ) Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering (20,794,767 ) (20,792 ) (29,087,694 ) (33,449 ) (48,739,373 ) (73,264 ) 10,381,234 7 105,464 22,033 127,504 Issuance of common stock upon completion of initial public offering, net of underwriting discounts and commissions and issuance costs — — — — — — 5,500,000 5 48,169 — 48,174 Issuance of common stock upon completion of private placement, net of private placement agent fees — — — — — — 1,500,000 2 13,948 — 13,950 Net loss — — — — — — — — — (12,148 ) (12,148 ) Balance at June 30, 2019 — $ — — $ — — $ — 17,834,570 $ 18 $ 168,002 $ (100,317 ) $ 67,703 See accompanying notes. 4 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (Amounts in thousands) Six Months Ended June 30, 2020 2019 Operating activities Net loss $ (15,857 ) $ (12,148 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 21 19 Changes in fair value of obligation for loan success fee — 215 Stock-based compensation 1,319 383 Changes in operating assets and liabilities: Receivables 456 (67 ) Prepaid expenses (380 ) (1,532 ) Accounts payable 1,561 1,714 Accrued expenses and other expenses (229 ) 2,259 Net cash used in operating activities (13,109 ) (9,157 ) Investing activities Acquisitions of property, equipment and leasehold improvements (12 ) (9 ) Net cash used in investing activities (12 ) (9 ) Financing activities Payment of loan success fee — (675 ) Proceeds from exercises of stock options 27 38 Proceeds from the Employee Stock Purchase Plan 3 — Proceeds from sale of Series C redeemable convertible preferred stock, net of issuance costs — 9,963 Proceeds from issuance of common stock upon completion of initial public offering, net of underwriting commissions and discounts — 51,150 Payments of offering costs (42 ) (1,075 ) Proceeds from private placement, net of private placement agent fees 13,950 Net cash provided by financing activities (12 ) 73,351 Net cash increase (decrease) (13,133 ) 64,185 Cash and cash equivalents at beginning of period 57,313 7,202 Cash and cash equivalents at end of period $ 44,180 $ 71,387 Supplemental disclosure of non-cash financing activities Offering costs included in accounts payable and accrued expenses $ 225 $ 597 Accretion on redeemable convertible preferred stock $ — $ (1,535 ) Dividends accrued on redeemable convertible preferred stock $ — $ 2,239 See accompanying notes. 5 Trevi Therapeutics, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (in thousands, except share and per share data) 1. Nature of the Business Trevi Therapeutics, Inc. (“Trevi” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of Haduvio (nalbuphine ER) to treat serious neurologically mediated conditions. The Company is currently developing Haduvio for the treatment of chronic pruritus, chronic cough in patients with idiopathic pulmonary fibrosis (“IPF”), and levodopa-induced dyskinesia (“LID”) in patients with Parkinson’s disease. These conditions share a common pathophysiology that is mediated through opioid receptors in the central and peripheral nervous systems. Due to nalbuphine’s mechanism of action as a modulator of opioid receptors, the Company believes Haduvio has the potential to be effective in treating each of these conditions. Haduvio is an oral extended release formulation of nalbuphine. Nalbuphine is a mixed κ-opioid receptor agonist and μ-opioid receptor antagonist that has been approved and marketed as an injectable for pain indications for more than 20 years in the United States and Europe. The κ- and μ-opioid receptors are known to be critical mediators of itch, cough and certain movement disorders. Nalbuphine’s mechanism of action also mitigates the risk of abuse associated with μ-opioid agonists because it antagonizes, or blocks, the μ-opioid receptor. Nalbuphine is currently the only opioid approved for marketing that is not classified as a controlled substance in the United States and most of Europe. On April 22, 2019, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a one-for 9.5 reverse stock split of the Company’s common stock, which resulted in a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock. Accordingly, all share and per share amounts in the Condensed Consolidated Financial Statements have been retrospectively adjusted, where applicable, to reflect the effect of the reverse stock split and adjustments of the redeemable convertible preferred stock conversion for all periods presented. On May 9, 2019, the Company completed its initial public offering (“IPO”) and a concurrent private placement in which it issued and sold an aggregate of 7,000,000 shares of common stock at an offering price of $10.00 per share, for net proceeds of $62.1 million, after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million. The Company’s common stock began trading on The Nasdaq Global Market on May 7, 2019 under the ticker symbol “TRVI”. Upon the closing of the IPO, the Company’s outstanding redeemable convertible preferred stock, including the accrued dividends thereon, automatically converted into shares of the Company’s common stock. Upon such conversion of the redeemable convertible preferred stock, the Company reclassified the carrying values of the redeemable convertible preferred stock to common stock and additional paid-in capital. In June 2020, the Company entered into a sales agreement (the “ATM Sales Agreement”) with SVB Leerink LLC, under which the Company may issue and sell shares of its common stock, from time to time, having an aggregate offering price of up to $12.0 million. Sales of common stock under the ATM Sales Agreement may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The Company is not obligated to make any sales of its common stock under the ATM Sales Agreement. The Company had not sold any common stock pursuant to the ATM Sales Agreement as of June 30, 2020 (See Note 13). 6 The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has financed its operations primarily through private placements of its redeemable convertible preferred stock and convertible notes as well as borrowings under a term loan f acility, and most recently, with proceeds from the IPO and concurrent private placement completed in May 2019. The Company has incurred recurring losses since inception, including net losses attributable to the Company of $ 15.9 million for the six months ended June 30, 2020 and $ 26.1 million for the year ended December 31, 201 9 . In addition, as of June 30, 2020 , the Company had an accumulated deficit of $ 130.1 million. The Company expects to continue to generate operating losses for the foreseeable future . As of August 13 , 20 20 , the issuance date of these Condensed Consolidated Financial Statements, the Company expects that its cash and cash equivalents of $ 44.2 million as of June 30, 2020 , will be sufficient to fund its operating expenses and capital expe nditure requirements through at least 12 months from the date of issuance of these Condensed Consolidated Financial Statements. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2020 and 2019 included herein, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim information. Certain information and footnote disclosure typically prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying unaudited Condensed Consolidated Financial Statements and notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report on Form 10-K”). In the opinion of management, the unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair presentation of the Company’s interim financial statements presented. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year or any subsequent period. The accompanying Condensed Consolidated Financial Statements include the accounts of Trevi Therapeutics, Inc. and its wholly-owned subsidiary Trevi Therapeutics Limited. Intercompany balances and transactions have been eliminated. All amounts presented are in thousands of dollars, except share and per share amounts, unless noted otherwise. The Company has evaluated events occurring subsequent to June 30, 2020 for potential recognition or disclosure in the Condensed Consolidated Financial Statements and concluded there were no subsequent events that required recognition or disclosure other than those provided. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of the expenses during the reporting periods. Significant estimates and assumptions reflected in these Condensed Consolidated Financial Statements include, but are not limited to, the recognition of research and development (“R&D”) expenses and the valuation of redeemable convertible preferred stock, common stock and stock-based awards. On an ongoing basis, management evaluates its estimates in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Unaudited Interim Financial Information The accompanying interim Condensed Consolidated Balance Sheet as of June 30, 2020, the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2020 and 2019, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 are unaudited. The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the Company’s opinion, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of its financial position as of June 30, 2020, the results of its operations for the three and six months ended June 30, 2020 and 2019, and its cash flows for the six months ended June 30, 2020 and 2019. The results for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim period, or any future year or period. 7 Fair Value Measurements The Company’s financial instruments have consisted of cash and cash equivalents, tax credit and other receivables, accounts payable, accrued expenses and obligation for loan success fee (Note 6). Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. The carrying amounts of cash and cash equivalents, tax credit and other receivables, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions and are classified into the following fair value hierarchy: Level 1—Observable inputs—quoted prices in active markets for identical assets and liabilities. Level 2—Observable inputs other than the quoted prices in active markets for identical assets and liabilities—such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data. Level 3—Unobservable inputs—includes amounts derived from valuation models where one or more significant inputs are unobservable and require the company to develop relevant assumptions. There were no fair value financial assets or liabilities as of June 30, 2020. The following table represents a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs): Financial liabilities Beginning balance at January 1, 2019 (1) $ 1,556 Unrealized loss on Series C redeemable convertible preferred stock liability — Unrealized loss on obligation for loan success fee 215 Net settlements (2) (1,771 ) Ending balance at December 31, 2019 $ — (1) The balance at January 1, 2019 relates to the $460 obligation for the loan success fee and the $1,096 fair value of the Series C redeemable convertible preferred stock liability at the time of the third tranche of the Series C Preferred Stock financing in January 2019. ( 2 ) The net settlements for the year ended December 31, 2019 relate to the $1,096 fair value of the Series C redeemable convertible preferred stock liability at the time of the third tranche of the Series C Preferred Stock financing in January 2019 and the payment of the $675 obligation for the loan success fee in May 2019. Deferred Offering Costs The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed immediately as a charge to operating expenses. Deferred offering costs relating to the Company’s entry into the ATM Sales Agreement were $267 as of June 30, 2020. The Company’s IPO was completed in May 2019 and IPO costs incurred in 2019 were recorded as a reduction to stockholders’ equity (deficit). As a result, deferred offering costs were $0 as of December 31, 2019. 8 Basic and Diluted Net Income (Loss) per Common Share Basic and diluted net loss per common share outstanding is determined by dividing net loss, as adjusted for accretion and accrued dividends on redeemable convertible preferred stock, by the weighted average common shares outstanding during the period. For all periods presented, outstanding shares of Series A redeemable convertible preferred stock (“Series A Preferred Stock”), shares of Series B redeemable convertible preferred stock (“Series B Preferred Stock”), shares of Series C Preferred Stock, if any, and shares issuable upon exercise of stock options have been excluded from the calculation because their effects would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per share are the same for each of the periods presented. Recently Adopted Accounting Pronouncements There have been no new accounting pronouncements adopted during the six months ended June 30, 2020. Recently Issued Accounting Pronouncements There have been no new accounting pronouncements during the six months ended June 30, 2020, as compared to the recent accounting pronouncements described in Note 2 to the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Annual Report on Form 10-K, which could be expected to materially impact the Company’s unaudited Condensed Consolidated Financial Statements. 3. Prepaid Expenses Prepaid expenses consist of the following: As of June 30, 2020 As of December 31, 2019 Prepaid R&D payments $ 564 $ 1,113 Prepaid corporate insurance 1,348 491 Other 149 77 $ 2,061 $ 1,681 4. Leases Effective March 1, 2013, the Company entered into a lease for office space in New Haven, CT and commencing March 1, 2018, the Company entered into the First Amendment to the lease. The leased space approximates 5,600 square feet and the lease has a term of 60 months. The lease requires monthly payments ranging from approximately $10 to $11 through February 1, 2023 and provides for two designated months of free rent. The Company has the option to terminate the lease after 36 months by providing six months notice along with a payment to the landlord in an amount representing the unamortized cost of tenant improvements plus the unamortized broker’s commission, both of which had been paid by the landlord, and as defined in the agreement. Under ASC 842, the Company determines if an arrangement is a lease at its inception. If an operating lease has a term greater than one year, the lease is recognized in the balance sheet as a right-of-use asset and an operating lease liability at lease commencement. The Company elected the short-term lease practical expedient; therefore, if an operating lease has a term less than one year, the Company will not recognize the lease on its balance sheet. The operating right-of-use asset represents the Company’s right of use to an underlying asset for the term of the lease, and the operating liability represents the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are determined and recognized on the commencement date of the lease based on the present value of lease payments over the term of the lease. As the Company’s leases do not provide an implicit rate within the lease, the Company uses its incremental borrowing rate, which is updated periodically, based on information available at the commencement date of the lease to determine the present value of the lease payments. The incremental borrowing rate used on existing leases as of June 30, 2020 was 13.0%. The right-of-use asset also includes any lease payments related to initial direct costs and prepayments, and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company had no new leases during the six months ended June 30, 2020. 9 The Company’s operating leases consist of real estate and equipment , and have remaining terms ranging from approximately 6 months to 3 years. The Company has no financing leases. The following table summarizes the Company’s operating leases as presented on its C ondensed C onsolidated B alance S heet : As of June 30, 2020 As of December 31, 2019 Assets: Operating lease right-of-use asset $ 271 $ 312 Liabilities: Operating lease liabilities, current portion 106 99 Operating lease liabilities, long term portion 202 257 Total operating lease liabilities $ 308 $ 356 Future minimum lease payments under the operating leases are as follows as of June 30, 2020: As of June 30, 2020 2020 $ 58 2021 138 2022 131 2023 24 Total lease payments 351 Less: imputed discount rate (43 ) Carrying value of operating lease liabilities $ 308 Lease expense under operating leases, including leases of office equipment, was $31 for each of the three-month periods ended June 30, 2020 and 2019, and $62 for each of the six-month periods ended June 30, 2020 and 2019. Lease payments made in the three months ended June 30, 2020 and 2019 were $35 and $23, respectively, and $80 and $57 for the six months ended June 30, 2020 and 2019, respectively, with such amounts reflected in the Condensed Consolidated Statement of Cash Flows in operating activities. 5. Accrued Expenses Accrued expenses consist of the following: As of June 30, 2020 As of December 31, 2019 Accrued research projects $ 1,765 $ 2,084 Accrued professional fees 787 338 Accrued compensation and benefits 771 776 Other 181 303 $ 3,504 $ 3,501 6. Debt Term Loan On December 29, 2014, the Company entered into a loan and security agreement (the “Loan Agreement”) with Solar Capital, Ltd. (“Solar”) and Square 1 Bank (“Square 1”), together (the “Lenders”), which provided $15.0 million in debt financing (the “Term Loan”). On June 29, 2018, the maturity date of the Loan Agreement, the Company made its final payments of principal and interest due to the Lenders in connection with the Term Loan, as well as $450 in full payment of the final fee and $82 in full payment of the amendment fee. As a result, there were no outstanding borrowings under the Term Loan as of June 30, 2020 or December 31, 2019, and the Company’s obligations to the Lenders under the Loan Agreement were terminated. 10 Under the terms of the Loan Agreement, the Company was obligated to pay the Lenders a Success Fee (“Success Fee”) under a Success Fee Agreement (“Success Fee Agreement”) upon the first occurrence of an Exit Event, as defined. The Exit Event included, among other things, the completion of a public offering of common stock. The amount of the Success Fee was equal to 4.5% of th e $15.0 million Term Loan funded. The Success Fee Agreement was scheduled to terminate on the earlier to occur of (a) payment in full of the Success Fee pursuant to its terms, or (b) December 29, 2021. The completion of the IPO on May 9, 2019 (see Note 1) triggered the Success Fee payment obligation and the Company made payments to its Lenders totaling $675 in May 2019. Upon such payments, the Success Fee Agreement terminated . The Success Fee Agreement represented a free-standing financial instrument. Accordingly, the Company accounted for the Success Fee provision as a derivative under ASC 815, Derivatives and Hedging, and therefore recorded an obligation for the Success Fee at its fair value on the closing date of each advance under the Loan Agreement. Upon recording such obligations for the Success Fee, the Company also recorded an offsetting loan discount, which was accreted to interest expense in the Company’s Statements of Operations through the Term Loan’s maturity date. The Company adjusted these liabilities for the Success Fee to fair value at each reporting date they remained outstanding. As discussed above, the Success Fee was paid in May 2019; and therefore, the total fair value of the Success Fee liabilities was $0 at each of June 30, 2020 and December 31, 2019. The Company recorded non-cash charges in the amount of $0 and $163 for the three months ended June 30, 2020 and 2019, respectively, and $0 and $215 for the six months ended June 30, 2020 and 2019, respectively, representing the changes in the fair value of these liabilities since their last measurement date. The fair values of the obligation for the Success Fee were estimated utilizing a probability-weighted income approach, including variables for the timing of the Exit Event and other probability estimates. The non-cash charges are included in other income (expense) in the Company’s Condensed Consolidated Statements of Operations. 7. Common Stock As of June 30, 2020 and December 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 200,000,000 shares of common stock, respectively, with a par value of $0.001 per share. As of June 30, 2020 and December 31, 2019, the Company had reserved 3,665,800 shares and 2,778,812 shares of common stock, respectively, for the exercise of outstanding stock options and the number of shares of common stock remaining available for future stock-based awards under the Company’s 2012 Stock Incentive Plan, 2019 Stock Incentive Plan and 2019 Employee Stock Purchase Plan, as shown in the table below (Note 8): June 30, 2020 December 31, 2019 Shares of common stock reserved for future issuance under the 2012 Stock Incentive Plan 1,028,807 1,043,992 Shares of common stock reserved for future issuance under the 2019 Stock Incentive Plan 2,304,939 1,579,714 Shares of common stock reserved for future issuance under the 2019 Employee Stock Purchase Plan 332,054 155,106 3,665,800 2,778,812 8 . Stock-Based Awards In April 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the “2019 Plan”), which became effective on May 7, 2019. The 2019 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2019 Plan. The 2019 Plan is administered by the Company’s board of directors. As of June 30, 2020, awards may be made under the 2019 Plan for up to such number of shares of the Company’s common stock as is equal to the sum of i) 1,578,947 shares; plus ii) the number of shares (up to 1,157,894 shares) equal to the number of shares of the Company’s common stock subject to outstanding awards under the Company’s 2012 Stock Incentive Plan (the “2012 Plan”), as amended that expire, terminate or are otherwise cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus iii) an annual increase to be added on the first day of each fiscal year, beginning with 2020 and continuing through 2029, equal to the least of (a) 2,105,623 shares of common stock, (b) 4% of the number of outstanding shares of the Company’s common stock on such date, and (c) an amount determined by the Company’s board of directors. The number of shares reserved for issuance under the 2019 Plan increased, pursuant to the terms of the 2019 Plan, by an additional 713,383 shares, equal to 4% of the Company’s then-outstanding Common Stock, effective as of January 1, 2020. 11 The 2012 Plan was adopted by the Company’s board of directors and stockholders. The Company’s board of directors administers the 2012 Plan. The 2012 Plan provides for the issuance of stock-based awards to the Company’s employees, officers and directors, as well as consultants and advisors to the Company. Options granted under the 2019 Plan and the 2012 Plan have a maximum term of ten years. Options vest over four years based on varying vesting schedules including: 25% vesting on the first anniversary date of grant and the balance ratably over the next 36 months or vesting in equal monthly or quarterly installments over four ye ars. As of June 30, 2020 and December 31, 2019, respectively, options to purchase 1,230,225 shares and 631,234 shares of common stock were granted and outstanding, net of cancelations, under the 2019 Plan. As of June 30, 2020 and December 31, 2019, respectively, options to purchase 1,028,807 and 1,043,992 shares of common stock were granted and outstanding, net of cancelations, under the 2012 Plan. In April 2019, the Company’s board of directors adopted a resolution effective on May 7, 2019 that no further stock options or other equity-based awards may be granted under the 2012 Plan. During the six months ended June 30, 2019, stock options to purchase 667,102 shares of the Company’s common stock were granted. During the six months ended June 30, 2019, stock options were exercised for 14,736 shares of common stock. During the six months ended June 30, 2019, stock options to purchase 35,745 shares of the Company’s common stock were forfeited. During the six months ended June 30, 2019, stock options to purchase 5,592 shares of the Company’s common stock expired. A summary of the Company’s combined stock option activity for the 2019 Plan and the 2012 Plan for the six months ended June 30, 2020 is as follows: Number of Option Shares Weighted Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2019 1,675,226 $ 6.20 7.8 $ 864 Granted 610,833 $ 5.42 Forfeited (11,842 ) $ 10.00 Expired — $ — Exercised (15,185 ) $ 1.75 Outstanding as of June 30, 2020 2,259,032 $ 6.00 7.9 $ 3,762 Options exercisable as of June 30, 2020 959,796 $ 4.72 6.4 $ 2,577 Options unvested as of June 30, 2020 1,299,236 $ 6.94 9.0 $ 1,185 The following table summarizes the classifications of stock-based compensation expenses for the 2012 Plan and the 2019 Plan recognized in the Condensed Consolidated Statements of Operations: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development expense $ 84 $ 30 177 $ 52 General and administrative expense 505 207 $ 1,142 331 $ 589 $ 237 $ 1,319 $ 383 In April 2019, the Company’s board of directors adopted the 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which became effective on May 7, 2019. The 2019 ESPP is administered by the Company’s board of directors. During the six months ended June 30, 2020, 1,397 shares of common stock were issued and sold under the 2019 ESPP. The Company recognized $1 of stock-based compensation expense for the 2019 ESPP during the six months ended June 30, 2020. 12 As of June 30, 2020 , t he aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP is equal to the sum of i) 155,106 shares plus ii) an annual increase to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2020 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2029, equal to the least of (a) 526,315 shares of common stock, (b) 1% of the number of outstanding shares of the Company’s common stock on such date, and (c) an amount determined by the Company’s board of directors . The aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP increased, pursuant to the terms of the 2019 ESPP, by an additional 178,345 shares, equal to 1% of the Company’s then-outstanding common stock, effective as of January 1, 2020. All of the Company’s employees are eligible to participate in the 2019 ESPP, provided that: • such person is customarily employed by the Company for more than 20 hours a week and for more than five months in a calendar year; • such person has been employed by the Company for at least three months prior to enrolling in the 2019 ESPP; and • such person was an employee of the Company on the first day of the applicable offering period under the 2019 ESPP. 9. Income Taxes During the three and six months ended June 30, 2020 and 2019, the Company maintained a full valuation allowance on deferred tax assets. Therefore, the Company has not recorded a provision for income taxes. 1 0 . Net Loss per Share The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net loss $ (7,384 ) $ (7,346 ) $ (15,857 ) $ (12,148 ) Plus: Accretion of redeemable convertible preferred stock — 1,332 — 1,535 Plus: Dividends accrued on redeemable convertible preferred stock — (686 ) — (2,239 ) Adjusted net loss attributable to common stockholders $ (7,384 ) $ (6,700 ) $ (15,857 ) $ (12,852 ) Weighted average common shares used in net loss per share attributable to common stockholders, basic and diluted 17,835,952 10,571,736 17,835,261 5,535,907 Basic and diluted net loss per common share outstanding $ (0.41 ) $ (0.63 ) $ (0.89 ) $ (2.32 ) Accretion and dividends included in the table above were calculated through the IPO date. The Company’s potential dilutive securities, which include stock options and redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potential shares of common stock, presented based on shares outstanding as of June 30, 2020 and 2019, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: Shares as of June 30, 2020 2019 Outstanding stock options 2,259,032 1,688,177 2,259,032 1,688,177 13 1 1 . Collaborative and Licensing Agreements The Company enters into collaborative and licensing agreements with pharmaceutical companies to in-license, develop, manufacture and/or market products that fit within its business strategy. Endo Pharmaceuticals Inc. In May 2011, the Company entered into an agreement with Penwest Pharmaceuticals Co. (“Penwest”) (subsequently merged into its parent, Endo Pharmaceuticals Inc. (“Endo”)) for an exclusive worldwide sublicensable license under certain patent rights and know-how controlled by Penwest to develop and commercialize products incorporating nalbuphine hydrochloride in any formulation, including an extended release formulation such as Haduvio, in all fields and for any use. Under the license agreement, the Company paid Penwest a non-creditable, non-refundable upfront license fee of $25. The Company may also become obligated to make milestone payments to Endo of $250, which would become due upon the successful completion of the first Phase 3 clinical trial of a licensed product candidate, such as the PRISM trial, and $750, which would become due upon the marketing approval of a licensed product in the United States, and to pay mid-single-digit royalties based on net sales of the licensed products by the Company, its affiliates and sublicensees. In addition, the Company is obligated to pay Endo a low-to-mid double-digit percentage of certain income it receives from sublicensees, based on the date of the definitive agreement under which the sublicense was granted. The Company’s royalty obligation with respect to each licensed product in each country commences upon the first commercial sale of the product in that country and extends until the later of the expiration, unenforceability or invalidation of the last valid claim of any licensed patent or application covering the licensed product in the country or the expiration of 10 years after the first commercial sale of the licensed product in the country, which period is referred to as the royalty term. Upon the expiration of the royalty term for a product in a country, the Company is thereafter obligated to pay a low single-digit know-how and trademark royalty. Under the agreement, the Company has granted Endo a non-exclusive, royalty-free (except for pass-through payments to third parties), sublicensable license under its relevant patent rights, to use any improvement the Company makes to Endo’s controlled release technology, for any product other than the products under which it is licensed by Endo. Both the Company and Endo have the right to terminate the agreement if the other party materially breaches the agreement and fails to cure the breach within specified cure periods. Endo also has the right to terminate in the event the Company undergoes specified bankruptcy, insolvency or liquidation events, and the Company has the right to terminate the agreement at its convenience at any time on 180 days’ notice to Endo. Additionally, if the Company or any of the Company’s sublicensees challenge the validity or enforceability of any licensed patent rights covering a licensed product, and that challenge is not terminated within a specified period, the agreement will immediately terminate and all licenses granted under the agreement shall be revoked. Upon termination of the agreement, the Company must transfer to Endo all regulatory filings and approvals relating to the development, manufacture or commercialization of the licensed products and all trademarks, other than the Company’s corporate trademarks, then being used in connection with the licensed products. If the agreement is terminated under certain specified circumstances, the Company will be deemed to have granted Endo a perpetual, royalty-free (except for pass-through payments to third parties), worldwide, exclusive, sublicensable license, under any improvements the Company made to the licensed know-how, and any related patent rights the Company has, to manufacture and commercialize the licensed products. Exclusive License Agreement with Rutgers On November 6, 2018, the Company entered into an agreement with Rutgers, The State University of New Jersey (“Rutgers”) for an exclusive, worldwide, sublicensable license under certain patent rights controlled by Rutgers and for a non-exclusive, worldwide, sublicensable license under certain know-how controlled by Rutgers, in each case to develop and commercialize products incorporating nalbuphine for any human or animal use. Upon entering into the license agreement, the Company paid Rutgers a minimal upfront license issue fee, which was recorded as R&D expense in 2018 and agreed to pay Rutgers a minimal annual license fee. The Company may become obligated to make milestone payments to Rutgers in the aggregate of up to $331 based on the achievement of certain clinical, regulatory and sales milestones. The Company has also agreed to pay Rutgers a low single-digit percentage of certain income it receives from sublicensees and to pay tiered low single-digit royalties based on net sales of licensed products by the Company and its affiliates and sublicensees. 14 The Company’s royalty obligation with respect to each licensed product in each country commences on the date of the first commercial sale of the licensed product in that country following receipt of marketing approval and extends until the later of the date of expiration, unenforceability or invalidation of the last valid claim of any licensed patent or patent applicati on covering the licensed product in the country and 10 years after the first commercial sale of the first licensed product sold anywhere in the world, which period is referred to as the royalty term. Upon the expiration of the royalty term for a licensed p roduct in a country, the license granted to the Company under the agreement shall become perpetual, fully paid-up, irrevocable and royalty-free in such country. The royalty is subject to reduction in certain circumstances. Restructuring Agreement with MentiNova, LLC On November 6, 2018, concurrent with the signing of the agreement with Rutgers described above, the Company entered into a restructuring agreement with MentiNova, LLC (“MentiNova”) for the purchase of specified information and know-how, specified contractual rights and benefits, and all books and records of MentiNova related thereto (collectively, the “Acquired Assets”). Upon entering into the license agreement, the Company paid MentiNova an aggregate upfront payment of $119, which was recorded as R&D expense in 2018, subject to specified closing adjustments. The Company may become obligated to make milestone payments to MentiNova in the aggregate of up to $1,188 based on the achievement of certain clinical and regulatory milestones as well as tiered low single-digit royalties based on net sales of products containing nalbuphine as the sole active pharmaceutical ingredient that are developed by the Company using the Acquired Assets or the intellectual property licensed to the Company under the Rutgers agreement described above (the “Rutgers IP”) for indications that are within the scope of the Rutgers IP. The royalty is subject to reduction in certain circumstances. 1 2 . Commitments and Contingencies A significant portion of the Company’s development activities are outsourced to third parties under agreements, including with clinical research organizations, and contract manufacturers in connection with the production of clinical trial materials. These arrangements may require the Company to pay termination costs to the third parties for reimbursement of costs and expenses incurred in the event of the orderly termination of contractual services. The Company also has commitments under lease and licensing agreements (Note 4 and Note 11). 15 13. Subsequent Events At-the-Market Sales Agreement In June 2020, the Company entered into the ATM Sales Agreement, under which the Company may issue and sell shares of its common stock. The Company began making sales pursuant to the ATM Sales Agreement in July 2020, and as of August 13, 2020, the Company had issued and sold an aggregate of 385,823 shares of common stock for gross proceeds of $2.2 million, before deducting estimated commissions and fees of $0.1 million. (See Note 1) Loan and Security Agreement On August 13, 2020 (the “Effective Date”), the Company entered into a loan and security agreement (the “SVB Loan Agreement”) with Silicon Valley Bank, as lender (“SVB”), pursuant to which SVB has agreed to provide a term loan to the Company in the original principal amount of $14.0 million (the “SVB Term Loan”). The Company may use the proceeds from the SVB Term Loan for working capital and general corporate purposes. The SVB Term Loan bears interest at a floating rate per annum equal to the greater of (A) the prime rate plus 1.00% and (B) 4.25%. If SVB receives evidence satisfactory to it that the Company has (i) received positive data for the Phase 2b/3 clinical trial of Haduvio sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis, and (ii) raised sufficient financing to fund such Phase 3 clinical trial and the Company’s operations, the interest rate under the SVB Term Loan will be adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%. On the first business day of each month, the Company will be required to make monthly interest payments and commencing on March 1, 2022, the Company will be required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding obligations with respect to the SVB Term Loan are due and payable in full on February 1, 2024. The SVB Loan Agreement permits voluntary prepayment of all, but not less than all, of the SVB Term Loan, subject to a prepayment premium. Such prepayment premium would be 3.00% of the principal amount of the SVB Term Loan if prepaid prior to the first anniversary of the Effective Date, 2.00% of the principal amount of the SVB Term Loan if prepaid on or after the first anniversary of the Effective Date but prior to the second anniversary of the Effective Date, and 1.00% of the principal amount of the SVB Term Loan if prepaid on or after the second anniversary of the Effective Date but prior to February 1, 2024. Upon repayment in full of the SVB Term Loan, the Company will be required to pay a final payment fee equal to $1.2 million. The SVB Term Loan and related obligations under the SVB Loan Agreement are secured by substantially all of the Company’s properties, rights and assets, except for its intellectual property (which is subject to a negative pledge under the SVB Loan Agreement). If the Company fails to meet certain equity raise requirements under the SVB Loan Agreement, it will be required to deposit unrestricted and unencumbered cash equal to 100% of the principal amount of the SVB Term Loan then outstanding in a cash collateral account with SVB, which can be used by SVB to prepay the SVB Term Loan at any time. The SVB Loan Agreement contains customary representations, warranties, events of default and covenants. The occurrence and continuation of an event of default could cause interest to be charged at the rate that is otherwise applicable plus 5.00% (unless SVB elects to impose a smaller increase) and would provide SVB with the right to accelerate all obligations under the SVB Loan Agreement and exercise remedies against the Company and the collateral securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including foreclosure against assets securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including the Company’s cash. 16