10-Q
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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 SEPTEMBER 30, 2023

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 November 7, 2023, 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 would lead 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;

2


 

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.

3


 

MEDICINOVA, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

5

 

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5

ITEM 2.

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

16

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

21

ITEM 4.

CONTROLS AND PROCEDURES

21

 

PART II. OTHER INFORMATION

22

 

ITEM 1.

LEGAL PROCEEDINGS

22

ITEM 1A.

RISK FACTORS

22

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

22

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

22

ITEM 4.

MINE SAFETY DISCLOSURES

22

ITEM 5.

OTHER INFORMATION

22

ITEM 6.

EXHIBITS

23

 

SIGNATURES

24

 

4


 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,507,361

 

 

$

18,505,493

 

Accounts receivable

 

 

1,000,000

 

 

 

 

Prepaid expenses and other current assets

 

 

488,786

 

 

 

499,403

 

Investments

 

 

 

 

 

39,982,213

 

Total current assets

 

 

52,996,147

 

 

 

58,987,109

 

Goodwill

 

 

9,600,240

 

 

 

9,600,240

 

In-process research and development

 

 

4,800,000

 

 

 

4,800,000

 

Property and equipment, net

 

 

51,241

 

 

 

45,269

 

Right-of-use asset

 

 

617,866

 

 

 

629,495

 

Other non-current assets

 

 

71,067

 

 

 

92,792

 

Total assets

 

$

68,136,561

 

 

$

74,154,905

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

736,896

 

 

$

424,646

 

Accrued liabilities and other current liabilities

 

 

1,859,389

 

 

 

2,605,308

 

Operating lease liability

 

 

205,394

 

 

 

157,505

 

Total current liabilities

 

 

2,801,679

 

 

 

3,187,459

 

Deferred tax liability

 

 

201,792

 

 

 

201,792

 

Other non-current liabilities

 

 

463,838

 

 

 

523,619

 

Total liabilities

 

 

3,467,309

 

 

 

3,912,870

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized at
   September 30, 2023 and December 31, 2022;
49,046,246 and 49,046,246
   shares issued and outstanding at September 30, 2023 and December
   31, 2022, respectively

 

 

49,046

 

 

 

49,046

 

Additional paid-in capital

 

 

478,386,566

 

 

 

477,438,451

 

Accumulated other comprehensive loss

 

 

(123,752

)

 

 

(115,285

)

Accumulated deficit

 

 

(413,642,608

)

 

 

(407,130,177

)

Total stockholders’ equity

 

 

64,669,252

 

 

 

70,242,035

 

Total liabilities and stockholders' equity

 

$

68,136,561

 

 

$

74,154,905

 

 

See accompanying notes.

5


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

 

$

1,000,000

 

 

$

 

 

$

1,000,000

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research, development and patents

 

 

794,706

 

 

 

2,454,203

 

 

 

4,007,117

 

 

 

7,131,168

 

General and administrative

 

 

1,352,182

 

 

 

1,443,264

 

 

 

4,403,044

 

 

 

4,266,246

 

Total operating expenses

 

 

2,146,888

 

 

 

3,897,467

 

 

 

8,410,161

 

 

 

11,397,414

 

Operating loss

 

 

(1,146,888

)

 

 

(3,897,467

)

 

 

(7,410,161

)

 

 

(11,397,414

)

Interest income

 

 

437,934

 

 

 

253,755

 

 

 

1,398,400

 

 

 

382,369

 

Other expense

 

 

(14,153

)

 

 

(8,472

)

 

 

(500,670

)

 

 

(52,554

)

Net loss applicable to common stockholders

 

$

(723,107

)

 

$

(3,652,184

)

 

$

(6,512,431

)

 

$

(11,067,599

)

Basic and diluted net loss per common share

 

$

(0.01

)

 

$

(0.07

)

 

$

(0.13

)

 

$

(0.23

)

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

 

 

49,046,246

 

 

 

49,046,246

 

 

 

49,046,246

 

 

 

49,045,037

 

Net loss applicable to common stockholders

 

$

(723,107

)

 

$

(3,652,184

)

 

$

(6,512,431

)

 

$

(11,067,599

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,712

)

 

 

(5,972

)

 

 

(8,467

)

 

 

(25,387

)

Comprehensive loss

 

$

(725,819

)

 

$

(3,658,156

)

 

$

(6,520,898

)

 

$

(11,092,986

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

6


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Common stock

 

 

Additional
paid-in

 

 

Accumulated
other
comprehensive

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2022

 

 

49,046,246

 

 

$

49,046

 

 

$

477,438,451

 

 

$

(115,285

)

 

$

(407,130,177

)

 

$

70,242,035

 

Share-based compensation

 

 

 

 

 

 

403,263

 

 

 

 

 

 

 

403,263

 

Net loss

 

 

 

 

 

 

 

 

 

 

(2,917,504

)

 

 

(2,917,504

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

(1,542

)

 

 

 

 

(1,542

)

Balance at March 31, 2023

 

 

49,046,246

 

 

 

49,046

 

 

 

477,841,714

 

 

 

(116,827

)

 

 

(410,047,681

)

 

 

67,726,252

 

Share-based compensation

 

 

 

 

 

 

 

 

325,710

 

 

 

 

 

 

 

 

 

325,710

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,871,820

)

 

 

(2,871,820

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(4,213

)

 

 

 

 

 

(4,213

)

Balance at June 30, 2023

 

 

49,046,246

 

 

 

49,046

 

 

 

478,167,424

 

 

 

(121,040

)

 

 

(412,919,501

)

 

 

65,175,929

 

Share-based compensation

 

 

 

 

 

 

 

 

219,142

 

 

 

 

 

 

 

 

 

219,142

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723,107

)

 

 

(723,107

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(2,712

)

 

 

 

 

 

(2,712

)

Balance at September 30, 2023

 

 

49,046,246

 

 

$

49,046

 

 

$

478,386,566

 

 

$

(123,752

)

 

$

(413,642,608

)

 

$

64,669,252

 

 

 

 

Nine Months Ended September 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

 

Share-based compensation

 

 

 

 

 

 

 

 

158,298

 

 

 

 

 

 

 

 

 

158,298

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,652,184

)

 

 

(3,652,184

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(5,972

)

 

 

 

 

 

(5,972

)

Balance at September 30, 2022

 

 

49,046,246

 

 

$

49,046

 

 

$

477,309,782

 

 

$

(124,264

)

 

$

(404,128,693

)

 

$

73,105,871

 

 

See accompanying notes.

7


 

MEDICINOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(6,512,431

)

 

$

(11,067,599

)

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

 

 

 

 

 

 

Non-cash stock-based compensation

 

 

948,115

 

 

 

513,853

 

Depreciation and amortization

 

 

14,803

 

 

 

13,376

 

Loss on disposal of investments

 

 

102,513

 

 

 

 

Non-cash interest on investments

 

 

 

 

 

(21,849

)

Loss on disposal of property and equipment

 

 

371

 

 

 

 

Change in carrying amount of right-of-use asset

 

 

146,205

 

 

 

151,123

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,000,000

)

 

 

 

Prepaid expenses and other assets

 

 

(27,478

)

 

 

(49,947

)

Accounts payable, accrued liabilities and other liabilities

 

 

(457,675

)

 

 

1,660,250

 

Operating lease liabilities

 

 

(146,401

)

 

 

(103,726

)

Net cash used in operating activities

 

 

(6,931,978

)

 

 

(8,904,519

)

Investing activities:

 

 

 

 

 

 

Proceeds from disposal of investments

 

 

39,929,015

 

 

 

 

Purchases of investments

 

 

 

 

 

(10,000,000

)

Acquisitions of property and equipment

 

 

(21,321

)

 

 

 

Net cash provided by (used in) investing activities

 

 

39,907,694

 

 

 

(10,000,000

)

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock and exercise of common
   stock options

 

 

 

 

 

7,920

 

Net cash provided by financing activities

 

 

 

 

 

7,920

 

Effect of exchange rate changes on cash and cash equivalents

 

 

26,152

 

 

 

(27,092

)

Net change in cash and cash equivalents

 

 

33,001,868

 

 

 

(18,923,691

)

Cash and cash equivalents, beginning of period

 

 

18,505,493

 

 

 

71,430,954

 

Cash and cash equivalents, end of period

 

$

51,507,361

 

 

$

52,507,263

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

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

 

$

139,001

 

 

$

 

 

See accompanying notes.

 

8


 

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 Standard 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), prevention of acute respiratory distress syndrome, and Long COVID, and MN-001 (tipelukast) for fibrotic and other diseases such as nonalcoholic fatty liver disease (NAFLD) 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, 2022 included in the Company’s Amendment No. 1 to 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, 2022 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.

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.

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.

 

9


 

Accounts Receivable

Accounts receivable is recorded net of allowance for credit losses. There was no allowance for credit losses required as of September 30, 2023 (see Note 2). Accounts receivable balance as of January 1, 2022 was $0.

Investments

Investments purchased with an original maturity of greater than three months are classified as investments. Investments are stated at fair value and are classified as current or non-current based on the nature of the securities as well as their stated maturities.

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 $0.7 million and $2.4 million for the three months ended September 30, 2023 and 2022, respectively, and $3.7 million and $6.8 million for the nine months ended September 30, 2023 and 2022, 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 for the three months ended September 30, 2023 and 2022, respectively, and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively.

 

For transactions with a government where the Company receives government assistance in performing research and development activities and the accounting for a transaction is not specified within the scope of authoritative GAAP, the Company follows ASC 832, Government Assistance (Topic 832), applying a grant or contribution model by analogy to Subtopic 958-605, Not-for-Profit Entities-Revenue Recognition (“ASC 958-605”).

 

In 2021, the Company entered into an agreement with the Biomedical Advanced Research and Development Authority (BARDA), part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services, to develop MN-166 (ibudilast) as a potential medical countermeasure against chlorine gas-induced lung damage such as acute respiratory distress syndrome (ARDS) and acute lung injury (ALI). Under the agreement, BARDA agreed to provide federal funding for specified pre-clinical studies under Contract No. 75A50121C00022. The studies were completed in August 2023, and in September 2023, BARDA paid the Company $0.7 million to partially reimburse the costs of the studies. Contractual arrangements that are not considered an exchange of services are considered contributions under ASC 958-605, and the Company elected to recognize the funding of $0.7 million as an offset to research and development costs for the three and nine months ended September 30, 2023.

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.

10


 

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 was effective for the Company on January 1, 2023. There was no impact on the consolidated financial statements upon adoption of this standard on January 1, 2023.

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.

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 Avigen, Inc. in exchange for an upfront payment and potential 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 September 2023, 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 one clinical development milestone, triggering a milestone payment of $1.0 million. Accordingly, the Company recognized revenue and accounts receivable of $1.0 million as of and for the three and nine months ended September 30, 2023. The Company subsequently received payment of the $1.0 million in October 2023.

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;

 

 

11


 

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.

The carrying amount and approximate fair value of financial instruments as of September 30, 2023 and December 31, 2022, were as follows:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

 

Valuation Inputs

 Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Money market funds

 

$

772,195

 

 

$

772,195

 

 

$

704,882

 

 

$

704,882

 

 

Level 1

 Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Bank certificates of deposit

 

 

 

 

 

 

 

$

39,982,213

 

 

$

39,982,213

 

 

Level 2

Short-term investments consisting of bank certificates of deposit with an original purchased maturity greater than three months are classified as held-to-maturity and are stated at amortized cost, which approximates fair value due to the short-term maturities and market rates of interest of these instruments.

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 2025 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.

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

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Cash paid for operating lease liabilities

 

$

64,024

 

 

$

62,045

 

 

$

189,622

 

 

$

128,280

 

Operating lease costs

 

 

64,011

 

 

 

64,004

 

 

 

190,240

 

 

 

176,896

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Current operating lease liabilities

 

$

205,394

 

 

$

157,505

 

Non-current operating lease liabilities

 

 

463,838

 

 

 

523,619

 

Total operating lease liabilities

 

$

669,232

 

 

$

681,124

 

Weighted-average remaining lease term (in years)

 

 

3.06

 

 

 

3.90

 

Weighted-average discount rate

 

 

9.1

%

 

 

9.8

%

 

Maturities of operating lease liabilities as of September 30, 2023 were as follows:

 

 

 

 

 

2023 (remaining three months)

 

 

 

$

63,599

 

2024

 

 

 

 

261,420

 

2025

 

 

 

 

227,690

 

2026

 

 

 

 

206,483

 

2027

 

 

 

 

17,269

 

Thereafter

 

 

 

 

 

Total minimum payments

 

 

 

 

776,461

 

Less imputed interest

 

 

 

 

(107,229

)

Total lease liabilities

 

 

 

$

669,232

 

 

12


 

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 milestone payments have been made under these agreements during the three and nine months ended September 30, 2023 and 2022. 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 September 30, 2023. For all other products, future potential milestone payments related to development milestones and commercialization milestones totaled $16.5 million as of September 30, 2023. 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.

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 granted equity-based awards, including stock options, stock appreciation rights, restricted stock, and restricted stock units to individuals who were then employees, officers, non-employee directors or consultants of the Company or its subsidiaries. A total of 8,700,000 shares of common stock were reserved for issuance under the 2013 Plan. In addition, “returning shares” that may become available from time to time were added back to the plan. “Returning shares” included shares that were subject to outstanding awards granted under the Company's prior 2004 Equity Incentive Plan that expired or terminated prior to exercise or settlement, were forfeited because of the failure to vest, were repurchased, or were withheld to satisfy tax withholding or purchase price obligations in connection with such awards. Although the Company no longer grants equity awards under the 2013 Plan, all outstanding stock awards granted under the 2013 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 2013 Plan.

13


 

In June 2023, the Company adopted the 2023 Equity Incentive Plan, or 2023 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 2023 Plan is the successor to the 2013 Plan. A total of 8,700,000 shares of common stock are reserved for issuance under the 2023 Plan. The number of shares of common stock that may be issued under the 2023 Plan is equal to the sum of (a) shares subject to awards granted under the 2013 Plan that were outstanding upon expiration of the 2013 Plan and are subsequently forfeited, expire or lapse unexercised or unsettled and shares issued pursuant to awards granted under the 2013 Plan that were outstanding upon expiration of the 2013 Plan and are subsequently forfeited to or reacquired by the Company and (b) shares reserved under the 2013 Plan that were not issued or subject to outstanding awards under the 2013 Plan upon expiration of the 2013 Plan. While a maximum of 9,934,567 shares may become available for issuance under the 2023 Plan from the 2013 Plan, since this figure assumes that all awards outstanding under the 2013 Plan upon expiration of the 2013 Plan will be forfeited, the Company expects the actual number of shares added to the 2023 Plan to be less. In general, to the extent that awards under the 2023 Plan are forfeited, cancelled or expire for any reason before being exercised or settled in full, the shares subject to such awards will again become available for issuance under the 2023 Plan. If stock appreciation rights are exercised or restricted stock units are settled, then only the number of shares (if any) actually issued to the participant will reduce the number of shares available under the 2023 Plan. If restricted shares or shares issued upon exercise of options are reacquired by the Company pursuant to a forfeiture provision, repurchase right or for any other reason, then such shares shall again become available for issuance under the 2023 Plan. Shares withheld to pay the exercise price of options or satisfy tax withholding obligations related to an award shall again become available for issuance under the 2023 Plan. Further, to the extent an award is settled in cash rather than shares, the cash settlement shall not reduce the number of shares available for issuance under the 2023 Plan.

As of September 30, 2023, 1,629,818 shares remain available for future grants under the 2023 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. As of September 30, 2023, there were a total of 730,350 shares underlying performance options that were subject to vesting based on achievement of corporate objectives for 2023.

Stock Options

Options granted under the 2023 Plan and the 2013 Plan have terms of