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 March 31, 2023

OR

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

Commission File Number: 001-37783

 

Clearside Biomedical, Inc.

 

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

45-2437375

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

900 North Point Parkway, Suite 200

Alpharetta, GA

30005

(Address of principal executive offices)

(Zip Code)

(678) 270-3631

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

CLSD

The Nasdaq Stock Market LLC

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 “large accelerated filer,” “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 May 10, 2023, the registrant had 61,666,130 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

Page

 

PART I - FINANCIAL INFORMATION

 


 

Item 1.

Financial Statements (unaudited)

 

Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

3

 

Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

4

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022

5

Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

6

Notes to the Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 6.

Exhibits

25

Signatures

26

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CLEARSIDE BIOMEDICAL, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

March 31,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,419

 

 

$

48,258

 

Prepaid expenses

 

 

762

 

 

 

704

 

Other current assets

 

 

386

 

 

 

439

 

Total current assets

 

 

42,567

 

 

 

49,401

 

Property and equipment, net

 

 

1,041

 

 

 

755

 

Operating lease right-of-use asset

 

 

1,057

 

 

 

1,117

 

Other assets

 

 

30

 

 

 

30

 

Total assets

 

$

44,695

 

 

$

51,303

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,594

 

 

$

1,050

 

Accrued liabilities

 

 

2,754

 

 

 

4,179

 

Current portion of operating lease liabilities

 

 

356

 

 

 

349

 

Deferred revenue

 

 

280

 

 

 

205

 

Total current liabilities

 

 

4,984

 

 

 

5,783

 

Liability related to the sales of future royalties, net

 

 

36,144

 

 

 

33,977

 

Operating lease liabilities

 

 

867

 

 

 

936

 

Total liabilities

 

 

41,995

 

 

 

40,696

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized and no
   shares issued at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at
  March 31, 2023 and December 31, 2022;
61,364,299 and
  
60,639,827 shares issued and outstanding at March 31, 2023
   and December 31, 2022, respectively

 

 

61

 

 

 

61

 

Additional paid-in capital

 

 

300,357

 

 

 

298,984

 

Accumulated deficit

 

 

(297,718

)

 

 

(288,438

)

Total stockholders’ equity

 

 

2,700

 

 

 

10,607

 

Total liabilities and stockholders’ equity

 

$

44,695

 

 

$

51,303

 

 

See accompanying notes to the consolidated financial statements

3


 

CLEARSIDE BIOMEDICAL, INC.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

License and other revenue

 

$

4

 

 

$

347

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

4,451

 

 

 

4,536

 

General and administrative

 

 

3,158

 

 

 

3,457

 

Total operating expenses

 

 

7,609

 

 

 

7,993

 

Loss from operations

 

 

(7,605

)

 

 

(7,646

)

Other income

 

 

492

 

 

 

2

 

Non-cash interest expense on liability
   related to the sales of future royalties

 

 

(2,167

)

 

 

 

Net loss

 

$

(9,280

)

 

$

(7,644

)

Net loss per share of common stock — basic and diluted

 

$

(0.15

)

 

$

(0.13

)

Weighted average shares outstanding — basic and diluted

 

 

61,169,486

 

 

 

60,064,209

 

See accompanying notes to the consolidated financial statements.

 

4


 

CLEARSIDE BIOMEDICAL, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Paid-In-Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

60,639,827

 

 

$

61

 

 

$

298,984

 

 

$

(288,438

)

 

$

10,607

 

Issuance of common shares under at-the-market
   sales agreement

 

 

214,128

 

 

 

 

 

 

295

 

 

 

 

 

 

295

 

Vesting and settlement of restricted stock units

 

 

471,390

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares under employee stock
   purchase plan

 

 

38,954

 

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,041

 

 

 

 

 

 

1,041

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,280

)

 

 

(9,280

)

Balance at March 31, 2023

 

 

61,364,299

 

 

$

61

 

 

$

300,357

 

 

$

(297,718

)

 

$

2,700

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Paid-In-Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31,2021

 

 

59,722,930

 

 

$

60

 

 

$

293,406

 

 

$

(255,491

)

 

$

37,975

 

Exercise of stock options

 

 

22,727

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Vesting and settlement of restricted stock units

 

 

375,331

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares under employee
   stock purchase plan

 

 

26,630

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,307

 

 

 

 

 

 

1,307

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,644

)

 

 

(7,644

)

Balance at March 31, 2022

 

 

60,147,618

 

 

$

60

 

 

$

294,778

 

 

$

(263,135

)

 

$

31,703

 

 

See accompanying notes to the consolidated financial statements.

 

5


 

CLEARSIDE BIOMEDICAL, INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(9,280

)

 

$

(7,644

)

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

 

 

 

 

 

 

Non-cash interest expense on liability related to the sales of
   future royalties, net of issuance costs accretion

 

 

2,167

 

 

 

 

Depreciation

 

 

15

 

 

 

46

 

Share-based compensation expense

 

 

1,041

 

 

 

1,307

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(165

)

 

 

10,689

 

Other assets and liabilities

 

 

(2

)

 

 

(39

)

Accounts payable and accrued liabilities

 

 

(1,067

)

 

 

(686

)

Deferred revenue

 

 

75

 

 

 

198

 

Net cash (used in) provided by operating activities

 

 

(7,216

)

 

 

3,871

 

Investing activities

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(115

)

 

 

 

Net cash used in investing activities

 

 

(115

)

 

 

 

Financing activities

 

 

 

 

 

 

Proceeds from at-the-market sales agreement, net of issuance costs

 

 

295

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

3

 

Proceeds from shares issued under employee stock purchase plan

 

 

37

 

 

 

62

 

Net cash provided by financing activities

 

 

332

 

 

 

65

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(6,999

)

 

 

3,936

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

48,418

 

 

 

30,696

 

Cash, cash equivalents and restricted cash, end of period

 

$

41,419

 

 

$

34,632

 

Supplemental disclosure

 

 

 

 

 

 

 Purchase of property and equipment included in accrued liabilities

 

 

186

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

March 31,

 

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

41,419

 

 

$

34,372

 

Restricted cash

 

 

 

 

 

260

 

Cash, cash equivalents and restricted cash at end of period

 

$

41,419

 

 

$

34,632

 

 

See accompanying notes to the consolidated financial statements.

 

6


 

CLEARSIDE BIOMEDICAL, INC.

Notes to the Consolidated Financial Statements

(unaudited)

 

 

1. The Company

Clearside Biomedical, Inc. (the “Company”) is a biopharmaceutical company focused on revolutionizing the delivery of therapies to the back of the eye through the suprachoroidal space (SCS®). Incorporated in the State of Delaware on May 26, 2011, the Company has its corporate headquarters in Alpharetta, Georgia.

The Company’s activities since inception have primarily consisted of developing product and technology rights, raising capital and performing research and development activities. The Company is subject to a number of risks and uncertainties similar to those of other life science companies at a similar stage of development, including, among others, the need to obtain adequate additional financing, successful development efforts including regulatory approval of products, compliance with government regulations, successful commercialization of potential products, protection of proprietary technology and dependence on key individuals.

Liquidity

The Company had cash and cash equivalents of $41.4 million as of March 31, 2023.

During the three months ended March 31, 2023, the Company sold 214,128 shares of its common stock for net proceeds of $0.3 million under its at-the-market agreement with Cowen and Company, LLC (the “ATM Agreement”). Subsequent to March 31, 2023, the Company sold an additional 301,831 shares of its common stock pursuant to the ATM Agreement for net proceeds of $0.4 million.

On August 8, 2022, the Company through its wholly-owned subsidiary Clearside Royalty LLC, a Delaware limited liability company (“Royalty Sub”), entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") with entities managed by HealthCare Royalty Management, LLC (“HCR”) pursuant to which it sold its rights to receive royalty and milestone payments due to the Company from XIPERE and certain SCS Microinjector license agreements subject to a cap which may be increased under certain circumstances. The Company received a payment of $32.1 million in September 2022, representing the $32.5 million to which the Company was entitled, net of certain of HCR's transaction-related expenses which the Company agreed to reimburse. There were additional issuance costs of $1.5 million related to the Purchase and Sale Agreement resulting in net proceeds of $30.6 million.

The Company has suffered recurring losses and negative cash flows from operations since inception and anticipates incurring additional losses until such time, if ever, that it can generate significant revenue. The Company has no current source of revenue to sustain present activities. The Company does not expect to generate other meaningful revenue until and unless the Company's licensees successfully commercialize XIPERE and the Company has fulfilled its obligations under the Purchase and Sale Agreement, its other licensees receive regulatory approval and successfully commercialize its product candidates, or the Company commercializes its product candidates either on its own or with a third party. In the absence of product or other revenues, the amount, timing, nature or source of which cannot be predicted, the Company’s losses will continue as it conducts its research and development activities.

The Company will continue to need to obtain additional financing to fund future operations, including completing the development, partnering and potential commercialization of its primary product candidates. The Company will need to obtain financing to complete the development and conduct clinical trials for the regulatory approval of its product candidates if requested by regulatory bodies. If such product candidates were to receive regulatory approval, the Company would need to obtain financing to prepare for the potential commercialization of its product candidates, if the Company decides to commercialize the products on its own.

Based on its cash and cash equivalents and its current plans and forecasted expenses, the Company expects that it will be able to fund its planned operating expenses and capital expenditure requirements beyond 12 months from the filing date of May 12, 2023. The Company has based this estimate on assumptions that may prove to be wrong, and it could exhaust its capital resources sooner than expected. Until the Company can generate sufficient revenue, the Company will need to finance future cash needs through public or private equity offerings, license agreements, debt financings or restructurings, collaborations, strategic alliances and marketing or distribution arrangements.

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company's consolidated financial statements include the results of the financial operations of Clearside Biomedical, Inc. and its wholly-owned subsidiary, Clearside Royalty, LLC. a Delaware limited liability company, which was formed for the purposes of the transactions contemplated by the Purchase and Sale Agreement describe in Note 5. All intercompany balances and transactions have been eliminated.

7


 

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position and results of operations for the interim periods presented. The results for the three months ended March 31, 2023 are not indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period. These unaudited financial statements should be read in conjunction with the audited financial statements and related footnotes, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, the accounting for useful lives to calculate depreciation and amortization, clinical trial expense accruals, share-based compensation expense and income tax valuation allowance. Actual results could differ from these estimates.

Revenue Recognition

The Company recognizes revenue from its contracts with customers under Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company’s primary revenue arrangements are license agreements which typically include upfront payments, regulatory and commercial milestone payments and royalties based on future product sales. The arrangements may also include payments for the Company’s SCS Microinjector devices as well as payments for assistance and oversight of the customer’s use of the Company’s technology. In determining the amount of revenue to be recognized under these agreements, the Company performs the following steps: (i) identifies the promised goods and services to be transferred in the contract, (ii) identifies the performance obligations, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligations and (v) recognizes revenue as the performance obligations are satisfied.

The Company receives payments from its customers based on billing schedules established in each contract. Upfront and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Research and Development Costs

Research and development costs are charged to expense as incurred and include:

employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;
expenses incurred under agreements with contract research organizations, contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;
costs associated with preclinical and clinical development activities;
costs associated with submitting regulatory approval applications for the Company’s product candidates;
costs associated with training physicians on the suprachoroidal injection procedure and educating and providing them with appropriate product candidate information;
costs associated with technology and intellectual property licenses;
costs for the Company’s research and development facility; and
depreciation expense for assets used in research and development activities.

8


 

Costs for certain development activities, such as clinical trial activities, are recognized based on an evaluation of the estimated total costs for the clinical trial, progress to completion of specific tasks using data such as patient enrollment, pass through expenses, clinical site activations, data from the clinical sites or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual contracts and any subsequent amendments, which may differ from the patterns of costs incurred, and are reflected in the financial statements as prepaid or accrued expense.

Share-Based Compensation

Compensation cost related to share-based awards granted to employees, directors and consultants is measured based on the estimated fair value of the award at the grant date. The Company estimates the fair value of stock options using a Black-Scholes option pricing model. The fair value of restricted stock units granted is measured based on the market value of the Company’s common stock on the date of grant. Share-based compensation costs are expensed on a straight-line basis over the relevant vesting period.

Compensation cost related to shares purchased through the Company’s employee stock purchase plan, which is considered compensatory, is based on the estimated fair value of the shares on the offering date, including consideration of the discount and the look back period. The Company estimates the fair value of the shares using a Black-Scholes option pricing model. Compensation expense is recognized over the six-month withholding period prior to the purchase date.

All share-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the recipient's underlying role within the Company.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with an original term of three months or less at the date of purchase.

Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits

The Company maintains its cash in bank deposits that at times may exceed federally insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant risks with respect to its cash balances.

Liability Related to the Sales of Future Royalties and Non-Cash Interest Expense

The Company recognizes a liability related to the sales of future royalties under ASC 470-10 Debt and ASC 835-30 Interest - Imputation of Interest. The initial funds received by the Company pursuant to the terms of the Purchase and Sale Agreement were recorded as a liability and will be accreted under the effective interest method up to the estimated amount of future royalties and milestone payments to be made under the Purchase and Sale Agreement. The issuance costs were recorded as a direct deduction to the carrying amount of the liability and will be amortized under the effective interest method over the estimated period the liability will be repaid. The Company estimated the total amount of future royalty revenue and milestone payments to be generated over the life of the Purchase and Sale Agreement, and a significant increase or decrease in these estimates could materially impact the liability balance and the related interest expense. If the timing of the receipt of royalty payments or milestones is materially different from the original estimates, the Company will prospectively adjust the effective interest and the related amortization of the liability and related issuance costs.

3. Property and Equipment, Net

Property and equipment, net consisted of the following (dollar amounts in thousands):

 

 

Estimated
Useful Lives
(Years)

 

March 31,
2023

 

 

December 31,
2022

 

Furniture and fixtures

 

5

 

$

249

 

 

$

249

 

Machinery and equipment

 

5

 

 

343

 

 

 

343

 

Computer equipment

 

3

 

 

20

 

 

 

13

 

Leasehold improvements

 

Lesser of
useful life
or
remaining
lease term

 

 

476

 

 

 

476

 

Work in process

 

 

 

 

821

 

 

 

527

 

Total property and equipment

 

 

 

 

1,909

 

 

 

1,608

 

Less: Accumulated depreciation

 

 

 

 

(868

)

 

 

(853

)

Property and equipment, net

 

 

 

$

1,041

 

 

$

755

 

 

9


 

 

4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Accrued research and development

 

$

1,757

 

 

$

1,817

 

Accrued employee costs

 

 

571

 

 

 

1,837

 

Accrued professional fees

 

 

233

 

 

 

49

 

Accrued expense

 

 

193

 

 

 

476

 

 

 

$

2,754

 

 

$

4,179

 

 

5. Royalty Purchase and Sale Agreement

On August 8, 2022 (the “Closing Date”), the Company, through Royalty Sub, entered into the Purchase and Sale Agreement with HCR, pursuant to which Royalty Sub sold to HCR certain of its rights to receive royalty and milestone payments payable to Royalty Sub under the Arctic Vision License Agreement, the Bausch License Agreement, that certain License Agreement, effective as of July 3, 2019, by and between the Company and Aura Biosciences, Inc. (the “Aura License Agreement”), that certain Option and License Agreement, dated as of August 29, 2019, by and between REGENXBIO Inc. and the Company (the “REGENXBIO License Agreement”) and any and all out-license agreements following the Closing Date for, or related to XIPERE or the SCS Microinjector technology (to be used in connection with compounds or products of any third parties) delivered, in whole or in part, by means of the SCS Microinjector technology), excluding, for the avoidance of doubt, any in-licensed or internally developed therapies following the Closing Date (collectively, the “Royalties”), in exchange for up to $65 million. In connection with this transaction, the Company assigned the Arctic Vision License Agreement, Bausch License Agreement, Aura License Agreement, REGENXBIO License Agreement, the Company's license agreement with Emory University and The Georgia Tech Research Corporation and related intellectual property rights to Royalty Sub.

Under the terms of the Purchase and Sale Agreement, Royalty Sub received an initial payment of $32.1 million, representing the $32.5 million to which the Company was entitled, net of certain of HCR's transaction-related expenses which the Company agreed to reimburse. There were additional issuance costs of $1.5 million related to the Purchase and Sale Agreement resulting in net proceeds of $30.6 million. An additional $12.5 million was deposited by HCR in an escrow account to be released to Royalty Sub upon attainment of a pre-specified XIPERE sales milestone achieved no later than March 31, 2024. The terms of the Purchase and Sale Agreement also provide for an additional $20 million milestone payment to Royalty Sub upon attainment of a second pre-specified sales milestone related to 2024 XIPERE sales (the "Second Milestone Event").

The Purchase and Sale Agreement will automatically expire, and the payment of Royalties from the Royalty Sub to HCR will cease, when HCR has received payments of the Royalties equal to 2.5 times the aggregate amount of payments made by HCR under the Agreement if the Second Milestone Event is achieved on or prior to December 31, 2024 (the “Initial Cap”). If the Second Milestone Event is not achieved on or prior to December 31, 2024, payment of Royalties from Royalty Sub to HCR will cease when HCR has received Royalties payments equal to 3.4 times the aggregate amount of payments under the Purchase and Sale Agreement (the “Alternative Cap”, and together with the Initial Cap, the “Cap Amount”). In the event of a change in control, acquiror will have the option to make a payment to HCR of the Cap Amount then in effect, less the aggregate amount of Royalty payments made by Royalty Sub to HCR under the Purchase and Sale Agreement as a one-time payment at which time, payment of Royalties to HCR will cease. Alternatively, in the event of a change in control, the acquiror will have the option to make an initial payment of 1.0 times the aggregate amount of payments made by HCR under the Purchase and Sale Agreement as of the date of such change in control, then in that event, payment of Royalties from Royalty Sub to HCR will cease when HCR has received total Royalties payments (including the initial payment) equal to the Alternative Cap. After the Purchase and Sale Agreement expires, all rights to receive the Royalties return to Royalty Sub.

Issuance costs pursuant to the Purchase and Sale Agreement consisting primarily of advisory and legal fees, totaled $1.9 million including the amount of HCR's transaction-related expenses that the Company reimbursed. The effective interest rate includes cash flow projections for future royalty and milestone payments, which are sensitive to certain assumptions, including market size, market penetration and sales price, that are forward looking and could be affected by future market conditions.

 

10


 

The following table summarizes the activity of the Purchase and Sale Agreement (in thousands):

 

Royalty purchase and sale agreement balance at December 31, 2022

 

$

33,977

 

Non-cash interest expense

 

 

2,167

 

Balance at March 31, 2023

 

$

36,144

 

 

 

 

 

Effective interest rate

 

 

26.5

%

 

6. Common Stock

The Company’s amended and restated certificate of incorporation authorizes the Company to issue 200,000,000 shares of $0.001 par value common stock. As of March 31, 2023 and December 31, 2022, there were 61,364,299 and 60,639,827 shares of common stock outstanding, respectively.

7. Stock Purchase Warrants

In September 2016, in connection with a loan agreement, the Company issued warrants to purchase up to 29,796 shares of common stock at a price per share of $10.74. The warrants expire in September 2026, or earlier upon the occurrence of specified mergers or acquisitions of the Company, and are immediately exercisable. The warrants were recorded in equity and had a weighted average remaining life of 3.5 years as of March 31, 2023.

8. Share-Based Compensation

Share-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation.

Stock Options

The Company has granted stock option awards to employees, directors and consultants from its 2011 Stock Incentive Plan (the “2011 Plan”) and its 2016 Equity Incentive Plan (the “2016 Plan”). The estimated fair value of options granted is determined as of the date of grant using the Black-Scholes option pricing model. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the awards.

Share-based compensation expense for options granted under the 2011 Plan and the 2016 Plan is reflected in the statements of operations as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

311

 

 

$

402

 

General and administrative

 

 

396

 

 

 

514

 

Total

 

$

707

 

 

$

916

 

 

The following table summarizes the activity related to stock options during the three months ended March 31, 2023:

 

 

 

 

 

 

Weighted

 

 

 

Number of

 

 

Average

 

 

 

Shares

 

 

Exercise Price

 

Options outstanding at December 31, 2022

 

 

6,915,330

 

 

$

3.58

 

Granted

 

 

2,340,750

 

 

 

1.48

 

Forfeited

 

 

(324,421

)

 

 

2.25

 

Options outstanding at March 31, 2023

 

 

8,931,659

 

 

 

3.08

 

 

 

 

 

 

 

 

Options exercisable at December 31, 2022

 

 

4,223,931

 

 

 

4.22

 

 

 

 

 

 

 

 

Options exercisable at March 31, 2023

 

 

4,745,519

 

 

 

4.03

 

 

11


 

As of March 31, 2023, the Company had $5.7 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.8 years.

Restricted Stock Units

The Company has granted restricted stock units (“RSUs”) to employees from the 2016 Plan. The shares underlying the RSU awards have vesting terms of four years from the date of grant subject to the employees’ continuous service and subject to accelerated vesting in specified circumstances. The fair value of the RSUs granted is measured based on the market value of the Company’s common stock on the date of grant and is recognized ratably over the requisite service period, which is generally the vesting period of the awards.

The total share-based compensation expense related to RSUs is reflected in the statements of operations as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

169

 

 

$

197

 

General and administrative

 

 

161

 

 

 

186

 

Total

 

$

330

 

 

$

383

 

 

The following table summarizes the activity related to RSUs during the three months ended March 31, 2023:

 

 

 

 

 

 

Weighted Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Non-vested RSUs outstanding at December 31, 2022

 

 

1,462,932

 

 

$

3.04

 

Vested

 

 

(471,390

)

 

 

3.09

 

Forfeited

 

 

(92,501

)

 

 

3.22

 

Non-vested RSUs outstanding at March 31, 2023

 

 

899,041

 

 

 

3.00

 

 

As of March 31, 2023, the Company had $2.4 million of unrecognized compensation expense related to the RSUs which is expected to be recognized over a weighted average period of 2.08 years.

Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (the “2016 ESPP”) became effective on June 1, 2016. The 2016 ESPP is considered a compensatory plan and the fair value of the discount and the look-back period are estimated using the Black-Scholes option pricing model and expense is recognized over the six-month withholding period prior to the purchase date.

The share-based compensation expense recognized for the 2016 ESPP is reflected in the statements of operations as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

3

 

 

$

5

 

General and administrative

 

 

1

 

 

 

3

 

Total

 

$

4

 

 

$

8

 

 

During the three months ended March 31, 2023, the Company issued 38,954 shares of common stock purchased under the 2016 ESPP.

9. Commitments and Contingencies

Lease Commitment Summary

In November 2022, the Company signed an amended office lease agreement to lease approximately 14,000 square feet of office space in Alpharetta, Georgia for its corporate headquarters. The amended office lease agreement is for a four year term with a renewal option for an additional 38 months. Rental payments are $30,747 per month subject to an increase of 3% per year. Rent expense under this lease is recognized on a straight-line basis over the term of the lease. In addition, the office lease agreement requires payment of the pro-rata share of the annual operating expenses associated with the premises.

12


 

The Company recognizes a right-of-use asset for the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments over the lease term. The renewal option is not included in the calculation of the right-of-use asset and the lease liabilities as the Company has not yet determined if the Alpharetta, Georgia lease will be renewed.

Equipment leases with an initial term of 12 months or less are not recorded with operating lease liabilities. The Company recognizes expense for these leases on a straight-line basis over the lease term. The equipment leases were deemed to be immaterial.

Contract Service Providers

In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development, clinical research and manufacturing. Substantially all of these contracts are on an as needed basis.

10. License and Other Agreements

Bausch + Lomb

On October 22, 2019, the Company entered into a License Agreement (as amended, the "Bausch License Agreement") with Bausch + Lomb (“Bausch”). Pursuant to the Bausch License Agreement, the Company has granted an exclusive license to Bausch to develop, manufacture, distribute, promote, market and commercialize XIPERE using the Company’s proprietary SCS Microinjector (the “Device”), as well as specified other steroids, corticosteroids and NSAIDs in combination with the Device (together with XIPERE, the “Products”), subject to specified exceptions, in the United States and Canada (the “Territory”) for the treatment of ophthalmology indications, including non-infectious uveitis.

Pursuant to the Bausch License Agreement, Bausch paid the Company an aggregate of $20.0 million in upfront and milestone payments. In addition, Bausch has agreed to pay up to an aggregate of $55.0 million in additional milestone payments upon the achievement of (i) specified regulatory approvals for specified additional indications of XIPERE and (ii) specified levels of annual net sales (as defined in the Bausch License Agreement). Further, during the applicable royalty term, the Company will also be entitled to receive tiered royalties at increasing percentages, from the high-teens to twenty percent, based on XIPERE achieving certain annual net sales thresholds in the Territory, in each case subject to reductions in specified circumstances; provided that the Company will not receive any royalties on the first $45.0 million of cumulative net sales of all products in the Territory. Bausch launched XIPERE in the United States in the first quarter of 2022. The Company's rights to these royalties and milestone payments have been sold pursuant to the terms and conditions of the Purchase and Sale Agreement described in Note 5 to the consolidated financial statements.

Arctic Vision (Hong Kong) Limited

On March 10, 2020, the Company entered into a License Agreement (the “Arctic License Agreement”) with Arctic Vision (Hong Kong) Limited (“Arctic Vision”). Pursuant to the Arctic License Agreement, the Company has granted an exclusive license to Arctic Vision to develop, distribute, promote, market and commercialize XIPERE, subject to specified exceptions, in China, Hong Kong, Macau, Taiwan and South Korea (the “Arctic Territory”). Under the terms of the Arctic License Agreement, neither party may commercialize XIPERE in the other party’s territory. Arctic Vision has agreed to use commercially reasonably efforts to pursue development and commercialization of XIPERE for indications associated with uveitis in the Arctic Territory. In addition, upon receipt of the Company’s consent, Arctic Vision will have the right, but not the obligation, to develop and commercialize XIPERE for additional indications in the Arctic Territory.

Pursuant to the Arctic License Agreement, Arctic Vision paid the Company an aggregate of $8.0 million in upfront and milestone payments. In addition, Arctic Vision has agreed to pay the Company up to $24.0 million in development and sales milestones. Further, during the applicable royalty term, the Company will also be entitled to receive tiered royalties of ten to twelve percent of net sales based on achieving certain annual net sales thresholds in the Territory, subject to customary reductions, payable on a product-by-product and country-by-country basis, commencing at launch in such country and lasting until the latest of (i) the date that all valid claims within the licensed patent rights covering XIPERE have expired, (ii) the date of the loss of marketing or regulatory exclusivity of XIPERE in a given country, or (iii) ten years from the first commercial sale of XIPERE in a given country. The Company's rights to these royalties and milestone payments have been sold pursuant to the terms and conditions of the Purchase and Sale Agreement described in Note 5 to the consolidated financial statements.

In August 2021, the Company entered into an amendment to the Arctic License Agreement to expand the territories covered by the license to include India and the ASEAN Countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). In September 2021, the Company entered into a second amendment to the Arctic Vision License Agreement to expand the Arctic Territory to include Australia and New Zealand. The Company received an aggregate of $3.0 million in consideration for the expansion of the Arctic Territory.

 

13


 

Other

The Company periodically enters into short-term agreements with other customers to evaluate the potential use of its proprietary SCS Microinjector with third-party product candidates for the treatment of various diseases. Funds received from these agreements are recognized as revenue over the term of the agreement.

11. Fair Value Measurements

The Company’s material financial instruments at March 31, 2023 and December 31, 2022 consisted primarily of cash and cash equivalents. The fair values of cash and cash equivalents, other current assets and accounts payable approximate their respective carrying values due to the short term nature of these instruments and are classified as Level 1 in the fair value hierarchy. The fair value of liability related to the sales of future royalties approximates the carrying value due to the short period of time that has elapsed from the origination date and the absence of any identifiable factors that would be reasonably expected to materially impact the fair value of the liability.

There were no transfers between Levels 1, 2 and 3 during the three months ended March 31, 2023 and the year ended December 31, 2022.

12. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration of the dilutive effect of potential common stock equivalents. Diluted net loss per share gives effect to all dilutive potential shares of common stock outstanding during this period. For all periods presented, the Company’s potential common stock equivalents, which included stock options, restricted stock units and stock purchase warrants, have been excluded from the computation of diluted net loss per share as their inclusion would have the effect of reducing the net loss per share. Therefore, the denominator used to calculate both basic and diluted net loss per share is the same in all periods presented. The Company’s potential common stock equivalents that have been excluded from the computation of diluted net loss per share for all periods presented because of their antidilutive effect consisted of the following:

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Outstanding stock options

 

 

8,931,659

 

 

 

7,050,541

 

Non-vested restricted stock units

 

 

899,041

 

 

 

1,590,476

 

Stock purchase warrants

 

 

29,796

 

 

 

29,796