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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number: 001-33185

 

MEDICINOVA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0927979

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4275 Executive Square, Suite 300

La Jolla, CA

 

92037

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 373-1500

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.001 par value

 

MNOV

 

The Nasdaq Stock Market LLC

(Title of each class)

 

(Trading symbol(s))

 

(Name of each exchange on which registered)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 9, 2022, the registrant had 49,046,246 shares of Common Stock ($0.001 par value) outstanding.

 

 


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q, in particular "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the information incorporated by reference herein contains “forward-looking statements”. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Considering the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

Inability to raise additional capital if needed;

 

Inability to generate revenues from product sales to continue business operations;

 

Inability to develop and commercialize our product candidates;

 

Failure or delay in completing clinical trials or obtaining Food and Drug Administration or foreign regulatory approval for our product candidates in a timely manner;

 

Unsuccessful clinical trials stemming from clinical trial designs, failure to enroll a sufficient number of patients, undesirable side effects and other safety concerns;

 

Inability to demonstrate sufficient efficacy of product candidates;

 

Reliance on the success of our MN-166 (ibudilast) and MN-001 (tipelukast) product candidates;

 

Delays in commencement or completion of clinical trials or suspension or termination of clinical trials;

 

Loss of our licensed rights to develop and commercialize a product candidate as a result of the termination of the underlying licensing agreement;

 

Competitors may develop products rendering our product candidates obsolete and noncompetitive;

 

The widespread outbreak of an illness or any other communicable disease, such as COVID-19, which has lead to key employees becoming ill for a period of time;

 

Inability to successfully attract partners and enter into collaborations on acceptable terms;

 

Dependence on third parties to conduct clinical trials and to manufacture product candidates;

 

Dependence on third parties to market and distribute products;

 

Our product candidates, if approved, may not gain market acceptance or obtain adequate coverage for third party reimbursement;

 

Disputes or other developments concerning our intellectual property rights;

 

Actual and anticipated fluctuations in our quarterly or annual operating results;

 

Price and volume fluctuations in the overall stock markets;

 

Litigation or public concern about the safety of our potential products;

 

International trade or foreign exchange restrictions, increased tariffs, foreign currency exchange;

 

High quality material for our products may become difficult to obtain or expensive;

 

Strict government regulations on our business;

 

Regulations governing the production or marketing of our product candidates;

 

Loss of, or inability to attract, key personnel; and

 

Economic, political, foreign exchange and other risks associated with international operations.

 

 

2


 

 

MEDICINOVA, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

4

 

 

 

ITEM 1.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

15

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

19

ITEM 4.

 

CONTROLS AND PROCEDURES

19

 

 

 

 

PART II. OTHER INFORMATION

20

 

 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

20

ITEM 1A.

 

RISK FACTORS

20

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

20

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

20

ITEM 4.

 

MINE SAFETY DISCLOSURES

20

ITEM 5.

 

OTHER INFORMATION

20

ITEM 6.

 

EXHIBITS

21

 

 

SIGNATURES

22

 

 

 

 

3


 

 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

 

 

December 31,

 

 

 

2022

 

 

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,233,268

 

 

 

 

$

71,430,954

 

Prepaid expenses and other current assets

 

 

723,736

 

 

 

 

 

577,992

 

Total current assets

 

 

65,957,004

 

 

 

 

 

72,008,946

 

Goodwill

 

 

9,600,240

 

 

 

 

 

9,600,240

 

In-process research and development

 

 

4,800,000

 

 

 

 

 

4,800,000

 

Property and equipment, net

 

 

50,472

 

 

 

 

 

57,565

 

Right-of-use asset

 

 

722,821

 

 

 

 

 

824,215

 

Other non-current assets

 

 

105,059

 

 

 

 

 

115,492

 

Total assets

 

$

81,235,596

 

 

 

 

$

87,406,458

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

642,634

 

 

 

 

$

402,740

 

Accrued liabilities and other current liabilities

 

 

3,014,421

 

 

 

 

 

2,298,203

 

Operating lease liability

 

 

183,616

 

 

 

 

 

131,965

 

Total current liabilities

 

 

3,840,671

 

 

 

 

 

2,832,908

 

Deferred tax liability

 

 

201,792

 

 

 

 

 

201,792

 

Other non-current liabilities

 

 

587,404

 

 

 

 

 

694,674

 

Total liabilities

 

 

4,629,867

 

 

 

 

 

3,729,374

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized at

   June 30, 2022 and December 31, 2021; 49,046,246 and 49,043,246

   shares issued and outstanding at June 30, 2022 and December

   31, 2021, respectively

 

 

49,046

 

 

 

 

 

49,043

 

Additional paid-in capital

 

 

477,151,484

 

 

 

 

 

476,788,012

 

Accumulated other comprehensive loss

 

 

(118,292

)

 

 

 

 

(98,877

)

Accumulated deficit

 

 

(400,476,509

)

 

 

 

 

(393,061,094

)

Total stockholders’ equity

 

 

76,605,729

 

 

 

 

 

83,677,084

 

Total liabilities and stockholders' equity

 

$

81,235,596

 

 

 

 

$

87,406,458

 

 

See accompanying notes.

 

4


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

 

 

2021

 

Revenues

 

$

 

 

$

 

 

$

 

 

 

 

$

4,000,000

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research, development and patents

 

 

2,564,969

 

 

 

2,527,123

 

 

 

4,676,965

 

 

 

 

 

4,672,397

 

General and administrative

 

 

1,524,966

 

 

 

1,782,390

 

 

 

2,822,982

 

 

 

 

 

3,838,645

 

Total operating expenses

 

 

4,089,935

 

 

 

4,309,513

 

 

 

7,499,947

 

 

 

 

 

8,511,042

 

Operating loss

 

 

(4,089,935

)

 

 

(4,309,513

)

 

 

(7,499,947

)

 

 

 

 

(4,511,042

)

Interest income

 

 

91,275

 

 

 

34,338

 

 

 

128,614

 

 

 

 

 

71,006

 

Other expense

 

 

(30,338

)

 

 

(8,966

)

 

 

(44,082

)

 

 

 

 

(31,904

)

Net loss applicable to common stockholders

 

$

(4,028,998

)

 

$

(4,284,141

)

 

$

(7,415,415

)

 

 

 

$

(4,471,940

)

Basic and diluted net loss per common share

 

$

(0.08

)

 

$

(0.09

)

 

$

(0.15

)

 

 

 

$

(0.09

)

Shares used to compute basic and diluted net loss per common share

 

 

49,045,587

 

 

 

48,798,417

 

 

 

49,044,423

 

 

 

 

 

48,170,351

 

Net loss applicable to common stockholders

 

$

(4,028,998

)

 

$

(4,284,141

)

 

$

(7,415,415

)

 

 

 

$

(4,471,940

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(11,980

)

 

 

1,363

 

 

 

(19,415

)

 

 

 

 

(5,458

)

Comprehensive loss

 

$

(4,040,978

)

 

$

(4,282,778

)

 

$

(7,434,830

)

 

 

 

$

(4,477,398

)

 

See accompanying notes.

 

5


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Six Months Ended June 30, 2022

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2021

 

 

49,043,246

 

 

$

49,043

 

 

$

476,788,012

 

 

$

(98,877

)

 

$

(393,061,094

)

 

$

83,677,084

 

Share-based compensation

 

 

 

 

 

 

81,053

 

 

 

 

 

 

 

81,053

 

Net loss

 

 

 

 

 

 

 

 

 

 

(3,386,417

)

 

 

(3,386,417

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

(7,435

)

 

 

 

 

(7,435

)

Balance at March 31, 2022

 

 

49,043,246

 

 

 

49,043

 

 

 

476,869,065

 

 

 

(106,312

)

 

 

(396,447,511

)

 

 

80,364,285

 

Share-based compensation

 

 

 

 

 

 

 

 

274,502

 

 

 

 

 

 

 

 

 

274,502

 

Issuance of common stock for option exercises

 

 

3,000

 

 

 

3

 

 

 

7,917

 

 

 

 

 

 

 

7,920

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,028,998

)

 

 

(4,028,998

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(11,980

)

 

 

 

 

 

(11,980

)

Balance at June 30, 2022

 

 

49,046,246

 

 

 

49,046

 

 

 

477,151,484

 

 

 

(118,292

)

 

 

(400,476,509

)

 

 

76,605,729

 

 

 

 

Six Months Ended June 30, 2021

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2020

 

 

45,024,560

 

 

$

45,025

 

 

$

454,296,536

 

 

$

(88,219

)

 

$

(382,926,842

)

 

$

71,326,500

 

Share-based compensation

 

 

 

 

 

 

1,139,636

 

 

 

 

 

 

 

1,139,636

 

Issuance of common stock for option

   exercises

 

 

86,250

 

 

 

86

 

 

 

212,089

 

 

 

 

 

 

 

 

 

212,175

 

Issuance of shares under an employee stock

   purchase plan (ESPP)

 

 

1,424

 

 

 

2

 

 

 

6,108

 

 

 

 

 

 

 

6,110

 

Issuance of common stock in a private

   placement transaction, net of issuance costs

 

 

3,656,307

 

 

 

3,656

 

 

 

19,877,992

 

 

 

 

 

 

 

 

 

19,881,648

 

Net loss

 

 

 

 

 

 

 

 

 

 

(187,799

)

 

 

(187,799

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

(6,821

)

 

 

 

 

(6,821

)

Balance at March 31, 2021

 

 

48,768,541

 

 

 

48,769

 

 

 

475,532,361

 

 

 

(95,040

)

 

 

(383,114,641

)

 

 

92,371,449

 

Share-based compensation

 

 

 

 

 

 

 

 

755,905

 

 

 

 

 

 

 

 

 

755,905

 

Issuance of common stock for option exercises

 

 

155,622

 

 

 

155

 

 

 

389,583

 

 

 

 

 

 

 

389,738

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,284,141

)

 

 

(4,284,141

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

1,363

 

 

 

 

 

1,363

 

Balance at June 30, 2021

 

 

48,924,163

 

 

 

48,924

 

 

 

476,677,849

 

 

 

(93,677

)

 

 

(387,398,782

)

 

 

89,234,314

 

 

See accompanying notes.

 

6


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2022

 

 

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,415,415

)

 

 

 

$

(4,471,940

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Non-cash stock-based compensation

 

 

355,555

 

 

 

 

 

1,895,541

 

Depreciation and amortization

 

 

8,917

 

 

 

 

 

12,607

 

Change in carrying amount of right-of-use asset

 

 

101,394

 

 

 

 

 

110,527

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(135,311

)

 

 

 

 

(439,615

)

Accounts payable, accrued liabilities and other liabilities

 

 

956,112

 

 

 

 

 

283,692

 

Operating lease liabilities

 

 

(55,620

)

 

 

 

 

(117,828

)

Net cash used in operating activities

 

 

(6,184,368

)

 

 

 

 

(2,727,016

)

Investing activities:

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

 

 

 

 

 

(25,794

)

Net cash used in investing activities

 

 

 

 

 

 

 

(25,794

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and exercise of common

   stock options

 

 

7,920

 

 

 

 

 

20,601,929

 

Common stock issuance costs

 

 

 

 

 

 

 

(118,368

)

Proceeds from issuance of equity awards under ESPP

 

 

 

 

 

 

 

6,110

 

Net cash provided by financing activities

 

 

7,920

 

 

 

 

 

20,489,671

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(21,238

)

 

 

 

 

18,639

 

Net change in cash and cash equivalents

 

 

(6,197,686

)

 

 

 

 

17,755,500

 

Cash and cash equivalents, beginning of period

 

 

71,430,954

 

 

 

 

 

60,036,763

 

Cash and cash equivalents, end of period

 

$

65,233,268

 

 

 

 

$

77,792,263

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

Right-of-use asset obtained in exchange for operating lease liability

 

$

 

 

 

 

$

176,416

 

 

See accompanying notes.

 

 

7


 

 

MEDICINOVA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1. Interim Financial Information

Organization and Business

MediciNova, Inc. (the “Company” or “MediciNova”) was incorporated in the state of Delaware in September 2000. The Company’s common stock is listed in both the United States and Japan and trades on the NASDAQ Global Market and the JASDAQ Market of the Tokyo Stock Exchange. The Company is a biopharmaceutical company focused on developing novel therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the United States market. The Company’s current strategy is to focus its development activities on MN-166 (ibudilast) for neurological and other disorders such as progressive multiple sclerosis (MS), amyotrophic lateral sclerosis (ALS), chemotherapy-induced peripheral neuropathy, degenerative cervical myelopathy, glioblastoma, substance dependence and addiction (e.g., methamphetamine dependence, opioid dependence, and alcohol dependence), and prevention of acute respiratory distress syndrome, and MN-001 (tipelukast) for fibrotic and other diseases such as nonalcoholic fatty liver disease (NAFLD), nonalcoholic steatohepatitis (NASH) and idiopathic pulmonary fibrosis (IPF). The Company’s pipeline also includes MN-221 (bedoradrine) for the treatment of acute exacerbation of asthma, and MN-029 (denibulin) for solid tumor cancers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.

Reclassification

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. The reduction in carrying amount of right-of-use asset was reclassified from the change in prepaid expenses and other assets, and the change in operating lease liabilities was reclassified from the change in accounts payable, accrued liabilities and other liabilities within operating activities in the statement of cash flows for the six months ended June 30, 2021. There was no change to total net cash used in operating activities. These reclassifications had no effect on previously reported results of operations, cash flows, or retained earnings.

Principles of Consolidation

The consolidated financial statements include the accounts of MediciNova, Inc. and its wholly owned subsidiaries, MediciNova Japan, Inc., MediciNova (Europe) Limited, MediciNova Europe GmbH and Avigen Inc. The financial statements of the Company’s foreign subsidiaries are measured using their local currency as the functional currency. The resulting translation adjustments are recorded as a component of other comprehensive income or loss. Intercompany transaction gains or losses at each period end are included as translation adjustments and recorded within other comprehensive income or loss. All intercompany transactions and balances are eliminated in consolidation.  

 

8


 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company operates in a single operating segment – the acquisition and development of small molecule therapeutics for the treatment of serious diseases with unmet medical needs.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and other highly liquid investments including money market accounts, with original maturities of three months or less from the date of purchase.

Research, Development and Patents

Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, facilities and depreciation, research and development supplies, licenses and outside services. Such research and development costs totaled $2.5 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $4.5 million and $4.4 million for the six months ended June 30, 2022 and 2021, respectively.

 

Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. The Company includes all external costs related to the filing of patents in Research, Development and Patents expenses. Such patent-related expenses totaled $0.1 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $0.2 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively.

Clinical Trial Accruals and Prepaid Expenses

Costs for preclinical studies, clinical studies and manufacturing activities are recognized as research and development expenses based on an evaluation of the progress by Company vendors towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided to the Company by such vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. The Company’s estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.

Leases

The Company determines if an arrangement is a lease at inception and if so, determines whether the lease qualifies as an operating or finance lease. The Company does not recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less and does not separate non-lease components from lease components. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate that the Company would expect to pay to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment.

Impact of COVID-19 on the Company’s Business

The pandemic caused by an outbreak of a new strain of coronavirus (“COVID-19” or “the pandemic”) has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect the Company’s business. Although the pandemic resulted in a decrease in the number of patient visits at certain of the Company’s clinical trial sites, the Company expects this effect to be temporary. The Company has seen an increase in the number of patient visits compared to earlier in the pandemic and the Company continues to enroll patients in clinical trials. Throughout the pandemic, the Company has continued with routine clinical trial activities including executing new clinical trial agreements, negotiating budgets, institutional review board (IRB) approvals, site training, and other activities related to the initiation of new clinical trial sites. In addition, following the outbreak of the pandemic, the Company designed and completed a clinical trial to evaluate MN-166 (ibudilast) for prevention of acute respiratory distress syndrome (ARDS) caused by COVID-19. Based on the Company’s current assessment, the Company does not expect a material negative impact on its clinical development plans, long-term development timeline or liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce.

 

9


 

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

 

 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The ASU introduced a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt securities, trade receivables and other receivables measured at amortized cost at the time the financial asset is originated or acquired. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. In November 2019, the FASB issued an amendment making this ASU effective for fiscal years beginning after December 15, 2022 for smaller reporting companies. The new standard will be effective for the Company on January 1, 2023 or at such earlier time where it is no longer a smaller reporting company. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded features that could be recognized separately from the host contract. Consequently, more convertible debt instruments will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. ASU 2020-06 also requires use of the if-converted method in the diluted earnings per share calculation for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years for smaller reporting companies, with early adoption permitted. The new standard will be effective for the Company on January 1, 2024 or at such earlier time where it is no longer a smaller reporting company. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

 

2. Revenue Recognition

Revenue Recognition Policy

Revenues historically have consisted mainly of research and development services performed under a contract with a customer. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations at a point in time or over time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and (4) the vendor has an enforceable right to payment for performance completed to date.

Kissei Pharmaceutical Co., Ltd

In October 2011, the Company entered into a collaboration agreement with Kissei Pharmaceutical Co., Ltd., (“Kissei”), to perform research and development services relating to MN-221 (bedoradrine) in exchange for a non-refundable upfront payment of $2.5 million. The Company assessed the services in accordance with the authoritative guidance and concluded that it met the definition of a collaborative arrangement per Accounting Standards Codification (“ASC”) 808, Collaborative Arrangements (“ASC 808”), which was outside the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Since ASC 808 did not provide recognition and measurement guidance for collaborative arrangements, the Company analogized to ASC 606 and concluded the two studies to be performed under the agreement represented two separate performance obligations. No services have been provided under the collaboration agreement subsequent to completion of the first study in 2013. In October 2021, the Company refunded $1.3 million of the prepayment. As of June 30, 2022, the Company and Kissei were working to mutually terminate the collaboration agreement and cancel the second study contemplated thereunder and the Company expects to finalize the termination agreement in 2022.

Genzyme Corporation

In December 2005, Avigen, Inc. and Genzyme Corporation (“Genzyme”) entered into an Assignment Agreement (the “Genzyme Agreement”) in which Genzyme acquired certain gene therapy intellectual property, programs and other related assets from

 

10


 

Avigen, Inc. in exchange for an initial $12.0 million payment. Avigen could also receive additional development milestone payments, sublicensing fees, and royalty payments based on the successful development of products by Genzyme utilizing technologies previously developed by Avigen. The Company subsequently acquired Avigen in December 2009 along with Avigen’s rights and obligations under the Genzyme Agreement. If Genzyme fails to diligently pursue the commercialization or marketing of products using the assigned technology, as specified in the Genzyme Agreement, some of the rights assigned could revert back to the Company at a future date.

The development milestones outlined in the Genzyme Agreement did not meet the definition of a substantive milestone obligation under authoritative guidance on revenue recognition for milestone payments, as Genzyme was responsible for the development of the products and there is no further substantive service effort required by the Company. In March 2021, the Company received notice that a gene therapy product based on AAV (adeno-associated virus) vector technology, which was covered under the Genzyme Agreement, achieved two clinical development milestones, triggering two milestone payments.  Accordingly, the Company recognized revenue of $4 million during the six months ended June 30, 2021.

3. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: 

Observable inputs such as quoted prices in active markets;

 

 

Level 2: 

Inputs are quoted prices for similar items in active markets or quoted prices for identical or similar items in markets that are not active near the measurement date; and

 

 

Level 3: 

Unobservable inputs due to little or no market data, which require the reporting entity to develop its own assumptions.

Cash equivalents, including money market accounts of $0.7 million measured at fair value as of June 30, 2022 and December 31, 2021, are classified within Level 1.

4. Commitments and Contingencies

Lease Commitments

The Company has operating leases primarily for real estate in the United States and Japan. The United States lease is for the Company’s headquarters in San Diego and has a term of five years ending January 31, 2027, with annual escalations. The Company’s lease in Tokyo, Japan has a term of two years ending May 2023 with an auto-renewal, two-year extension. The real estate operating leases are included in "Right-of-use asset” on the Company's balance sheet and represents the Company’s right to use the underlying assets for the lease term. The Company’s obligation to make lease payments are included in "Operating lease liability" and "Other non-current liabilities" on the Company's balance sheet.

 

11


 

Information related to the Company’s right-of-use assets and related lease liabilities are as follows:

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cash paid for operating lease liabilities

 

$

34,283

 

 

$

61,550

 

 

$

68,565

 

 

$

123,205

 

Operating lease costs

 

 

65,170

 

 

 

58,199

 

 

 

115,222

 

 

 

116,503

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Current operating lease liabilities

 

$

183,616

 

 

$

131,965

 

Non-current operating lease liabilities

 

 

587,404

 

 

 

694,674

 

Total operating lease liabilities

 

$

771,020

 

 

$

826,639

 

Weighted-average remaining lease term

 

 

4.25

 

 

 

4.54

 

Weighted-average discount rate

 

 

9.8

%

 

 

9.8

%

 

Maturities of operating lease liabilities as of June 30, 2022 were as follows:

 

 

 

 

 

 

2022

 

 

 

$

127,493

 

2023

 

 

 

 

214,299

 

2024

 

 

 

 

189,170

 

2025

 

 

 

 

197,586

 

2026

 

 

 

 

206,483

 

Thereafter

 

 

 

 

17,269

 

Total minimum payments

 

 

 

 

952,300

 

Less imputed interest

 

 

 

 

(181,280

)

Total lease liabilities

 

 

 

$

771,020

 

 

Product Liability

The Company’s business exposes it to liability risks from its potential drug products. A successful product liability claim or series of claims brought against the Company could result in the payment of significant amounts of money and divert management’s attention from running the business. The Company may not be able to maintain insurance on acceptable terms, or the insurance may not provide adequate protection in the case of a product liability claim. To the extent that product liability insurance, if available, does not cover potential claims, the Company would be required to self-insure the risks associated with such claims. The Company believes it carries reasonably adequate insurance for product liability.

License and Research Agreements

The Company has entered into in-licensing agreements with various pharmaceutical companies. Under the terms of these agreements, the Company has received licenses to research, know-how and technology claimed in specified patents or patent applications. Under these license agreements, the Company is generally required to make upfront payments and additional payments upon the achievement of milestones and/or royalties on future sales of products until the later of the expiration of the applicable patent or the applicable last date of market exclusivity after the first commercial sale, on a country-by-country basis.

No amounts have been expended under these agreements during the three and six months ended June 30, 2022 and 2021. For products currently in development, future potential milestone payments based on product development of MN-166 (ibudilast) and MN-001 (tipelukast) are $10 million as of June 30, 2022. For all other products, future potential milestone payments related to development milestones and commercialization milestones totaled $33.5 million as of June 30, 2022. There are no minimum royalties required under any of the license agreements. The Company is unable to estimate with certainty the timing on when these milestone payments will occur as these payments are dependent upon the progress of the Company’s product development programs.

Legal Proceedings

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not aware of any such proceedings or claims that it believes will have, individually or in aggregate, a material adverse effect on its business, financial condition or results of operations.

 

12


 

5. Stock-based Compensation

Stock Incentive Plans

In June 2013, the Company adopted the 2013 Equity Incentive Plan, or 2013 Plan, under which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries. The 2013 Plan is the successor to the Company’s Amended and Restated 2004 Stock Incentive Plan, or 2004 Plan. A total of 8,700,000 shares of common stock are reserved for issuance under the 2013 Plan. In addition, “returning shares” that may become available from time to time are added back to the plan. “Returning shares” are shares that are subject to outstanding awards granted under the 2004 Plan that expire or terminate prior to exercise or settlement, are forfeited because of the failure to vest, are repurchased, or are withheld to satisfy tax withholding or purchase price obligations in connection with such awards. Although the Company no longer grants equity awards under the 2004 Plan, all outstanding stock awards granted under the 2004 Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2004 Plan. As of June 30, 2022, 1,920,647 shares remain available for future grants under the 2013 Plan.

Certain of the employee stock options granted contain performance conditions, the vesting of which is based on a determination made by the compensation committee followed by an approval of the board of directors as to the achievement of certain corporate objectives at the end of the performance period. The grant date of such awards is the date on which the board of directors makes its determination. For periods preceding the grant date, the expense related to these awards is measured based on their fair value at each reporting date. The estimated fair value of the performance awards granted and the resulting expense is based upon a certain level of achievement of the corporate objectives and other assumptions in determining fair value. The amount of expense ultimately recognized upon the grant date at completion of the performance period could change from the estimate as a result of various factors, including the level of achievement of the corporate objectives, changes in the assumptions used in the Black-Scholes model in determining fair value or fluctuations in the Company’s stock price during the performance period.

Stock Options

Options granted under the 2013 Plan and the 2004 Plan have terms of ten years from the date of grant unless earlier terminated and generally vest over a one or four year period. The exercise price of all options granted through June 30, 2022 and in 2021, was equal to the fair market value of the Company’s common stock on the date of grant.

A summary of stock option activity and related information as of June 30, 2022 is as follows:

 

 

 

Number of

Option Shares

 

 

Weighted Average

Exercise Price

 

 

Outstanding at December 31, 2021

 

 

7,974,250

 

 

$

5.81

 

 

Granted

 

 

591,700

 

 

 

2.28

 

 

Exercised

 

 

(3,000

)

 

 

2.64

 

 

Cancelled

 

 

(549,030

)

 

 

5.88

 

 

Outstanding at June 30, 2022

 

 

8,013,920

 

 

$

5.55

 

 

Exercisable at June 30, 2022

 

 

7,389,050

 

 

$

5.81

 

 

 

Employee Stock Purchase Plan

Under the Company’s 2007 Employee Stock Purchase Plan (ESPP), 300,000 shares of common stock were originally reserved for issuance. In addition, the shares reserved automatically increase each year by a number equal to the lesser of: (i) 15,000 shares; (ii) 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such lesser amount as determined by the Board. The ESPP permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 15% of each employee’s compensation) at the lower of 85% of fair market value at the beginning of the offering period or the end of each six-month offering period. The ESPP is considered a compensatory plan and the Company records compensation expense included in the Company’s statement of operations.

For the six months ended June 30, 2021, the aggregate of 1,424 shares were issued under ESPP.