clsd-10q_20160930.htm

Table of Contents

 

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, 2016

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.)

 

1220 Old Alpharetta Road, Suite 300

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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

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 10, 2016, the registrant had 20,568,180 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

2

 

Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015

2

 

Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015

 

 

(unaudited)

3

 

Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

4

 

Notes to Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 6.

Exhibits

56

Signatures

57

Exhibit Index

58

 

 

1

 


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

CLEARSIDE BIOMEDICAL, INC.

Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

September 30,

2016

 

 

December 31,

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,876

 

 

$

20,283

 

Short-term investments

 

 

20,043

 

 

 

 

Prepaid expenses

 

 

662

 

 

 

159

 

Other current assets

 

 

73

 

 

 

40

 

Total current assets

 

 

57,654

 

 

 

20,482

 

Property and equipment, net

 

 

110

 

 

 

156

 

Deferred offering costs

 

 

 

 

 

410

 

Other assets

 

 

7

 

 

 

7

 

Total assets

 

$

57,771

 

 

$

21,055

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,347

 

 

$

1,469

 

Accrued liabilities

 

 

1,556

 

 

 

1,985

 

Current portion of long-term debt

 

 

 

 

 

1,733

 

Other current liabilities

 

 

25

 

 

 

9

 

Total current liabilities

 

 

2,928

 

 

 

5,196

 

Deferred revenue

 

 

165

 

 

 

700

 

Long-term debt

 

 

7,489

 

 

 

4,243

 

Other non-current liabilities

 

 

251

 

 

 

261

 

Total liabilities

 

 

10,833

 

 

 

10,400

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Convertible preferred stock:

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, no shares authorized, issued and outstanding at

   September 30, 2016; 5,198,826 shares authorized, issued and outstanding at December 31,

   2015; liquidation preference of $4,086 at December 31, 2015

 

 

 

 

 

4,086

 

Series A-1 preferred stock, $0.001 par value; no shares authorized, issued and outstanding at

   September 30, 2016; 4,373,481 shares authorized and 4,356,931 shares issued and

   outstanding at December 31, 2015; liquidation preference of $7,900 at December 31, 2015

 

 

 

 

 

7,900

 

Series B preferred stock, $0.001 par value, no shares authorized, issued and outstanding at

   September 30, 2016; 6,066,345 authorized and 6,009,202 shares issued and outstanding

   at December 31, 2015; liquidation preference of $16,212 at December 31, 2015

 

 

 

 

 

15,372

 

Series C preferred stock, $0.001 par value, no shares authorized, issued and outstanding at

   September 30, 2016; 5,274,679 shares authorized and 5,274,674 shares issued and

   outstanding at December 31, 2015; liquidation preference of $20,000 at December 31, 2015

 

 

 

 

 

19,956

 

Total convertible preferred stock

 

 

 

 

 

47,314

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized and no shares issued at

   September 30, 2016; no shares authorized or issued at December 31, 2015

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized and 20,545,752 shares

   issued and outstanding at September 30, 2016; 40,000,000 shares authorized and

   2,659,262 shares issued and outstanding at December 31, 2015

 

 

21

 

 

 

3

 

Additional paid-in capital

 

 

102,481

 

 

 

2,701

 

Accumulated deficit

 

 

(55,559

)

 

 

(39,363

)

Accumulated other comprehensive loss

 

 

(5

)

 

 

 

Total stockholders’ equity (deficit)

 

 

46,938

 

 

 

(36,659

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

57,771

 

 

$

21,055

 

 

See accompanying notes to the financial statements

2

 


Table of Contents

CLEARSIDE BIOMEDICAL, INC.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

License revenue

 

$

5

 

 

$

 

 

$

515

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,682

 

 

 

2,309

 

 

 

12,484

 

 

 

6,964

 

General and administrative

 

 

1,629

 

 

 

1,065

 

 

 

3,872

 

 

 

5,337

 

Total operating expenses

 

 

5,311

 

 

 

3,374

 

 

 

16,356

 

 

 

12,301

 

Loss from operations

 

 

(5,306

)

 

 

(3,374

)

 

 

(15,841

)

 

 

(12,301

)

Other income (expense)

 

 

(339

)

 

 

(101

)

 

 

(355

)

 

 

(168

)

Net loss

 

$

(5,645

)

 

$

(3,475

)

 

$

(16,196

)

 

$

(12,469

)

Net loss per share of common stock — basic and diluted

 

$

(0.28

)

 

$

(1.31

)

 

$

(1.54

)

 

$

(5.59

)

Weighted average shares outstanding — basic and diluted

 

 

20,493,377

 

 

 

2,651,877

 

 

 

10,502,459

 

 

 

2,231,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,645

)

 

$

(3,475

)

 

$

(16,196

)

 

$

(12,469

)

Unrealized loss on available-for-sale investments

 

 

(5

)

 

 

 

 

 

(5

)

 

 

 

Comprehensive loss

 

$

(5,650

)

 

$

(3,475

)

 

$

(16,201

)

 

$

(12,469

)

 

See accompanying notes to the financial statements.

 

 

3

 


Table of Contents

CLEARSIDE BIOMEDICAL, INC.

Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(16,196

)

 

$

(12,469

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

49

 

 

 

45

 

Share-based compensation expense

 

 

776

 

 

 

502

 

Non-cash interest expense

 

 

224

 

 

 

66

 

Accretion of debt discount

 

 

60

 

 

 

32

 

Change in fair value of warrant liability

 

 

16

 

 

 

(1

)

Amortization and accretion on available-for-sale investments, net

 

 

17

 

 

 

 

Loss on sale of fixed assets

 

 

 

 

 

15

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(536

)

 

 

(122

)

Other assets

 

 

426

 

 

 

1,764

 

Accounts payable and accrued liabilities

 

 

(567

)

 

 

(399

)

Deferred revenue

 

 

(515

)

 

 

500

 

Deferred rent

 

 

(7

)

 

 

(6

)

Net cash used in operating activities

 

 

(16,253

)

 

 

(10,073

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of available-for-sale investments

 

 

(20,065

)

 

 

 

Acquisition of property and equipment

 

 

(3

)

 

 

(8

)

Proceeds from the sale of fixed assets

 

 

 

 

 

4

 

Net cash used in investing activities

 

 

(20,068

)

 

 

(4

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

51,377

 

 

 

 

Proceeds from issuance of long-term debt

 

 

7,867

 

 

 

5,981

 

Principal payments made on long-term debt

 

 

(6,330

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

13

 

Net cash provided by financing activities

 

 

52,914

 

 

 

5,994

 

Net increase (decrease) in cash and cash equivalents

 

 

16,593

 

 

 

(4,083

)

Cash and cash equivalents, beginning of period

 

 

20,283

 

 

 

8,269

 

Cash and cash equivalents, end of period

 

$

36,876

 

 

$

4,186

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

 

 

Conversion of convertible preferred stock to common stock

 

$

48,198

 

 

$

 

Reclassification of deferred initial public offering costs

 

 

1,597

 

 

 

 

Issuance of warrant to purchase common stock

 

 

308

 

 

 

 

Issuance of warrant to purchase Series B preferred stock

 

 

 

 

 

164

 

Accretion of redeemable convertible preferred stock to redemption value

 

 

883

 

 

 

392

 

Unpaid initial public offering costs in accounts payable and accrued expenses

 

 

16

 

 

 

228

 

 

See accompanying notes to the financial statements.

 

 


4

 


Table of Contents

CLEARSIDE BIOMEDICAL, INC.

Notes to the Financial Statements

(unaudited)

 

 

1. The Company

 

Clearside Biomedical, Inc. (the “Company”) is a late-stage clinical biopharmaceutical company developing first-in-class drug therapies to treat blinding diseases of the eye. The Company’s current product candidates focus on treatments for diseases affecting the retina and choroid, especially diseases associated with macular edema, and are injected into the suprachoroidal space using its proprietary SCS Microinjector.  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 has no current source of revenue to sustain present activities, and does not expect to generate meaningful revenue until and unless the Company receives regulatory approval of and successfully commercializes its product candidates. 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

On June 1, 2016, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on June 7, 2016 and the Company sold 7,200,000 shares of common stock at a price to the public of $7.00 per share, for net proceeds of $45.3 million. On June 30, 2016, the underwriters of the IPO partially exercised their option to purchase additional shares, and on July 6, 2016, the Company sold 948,843 additional shares of common stock at a price to the public of $7.00 per share, for net proceeds of $6.1 million. The Company paid to the underwriters underwriting discounts and commissions of $4.0 million in connection with the IPO, including the underwriters’ exercise of their option to purchase additional shares. In addition, the Company incurred expenses of $1.6 million in connection with the IPO. Thus, the aggregate net offering proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses, were $51.4 million.

Prior to the IPO, the Company had funded its operations primarily through the sale of convertible preferred stock and the issuance of long-term debt, resulting in aggregate proceeds of approximately $53.9 million. Even with the completion of the IPO, the Company will continue to need to obtain additional financing to fund future operations, including completing the development and commercialization of its primary product candidates. The Company will need to expend substantial resources for research and development, including costs associated with the clinical testing of its product candidates. The Company will also need to obtain additional financing to conduct additional trials for the regulatory approval of its drug candidates if requested by regulatory bodies, and completing the development of any additional product candidates that might be acquired. If such products were to receive regulatory approval, the Company would need to prepare for the potential commercialization of its product candidates and fund the commercial launch of the products, if the Company decides to commercialize the products on its own. Moreover, the Company’s fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future.

The Company had cash, cash equivalents and short-term investments of $56.9 million as of September 30, 2016 and cumulative net cash flows used in operating activities of $49.4 million and cumulative net losses of $55.6 million through September 30, 2016. 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. Until the Company can generate a sufficient amount of revenue, the Company may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances and marketing or distribution arrangements. The Company has incurred losses and negative cash flows since inception and expects operating losses and negative cash flows to continue into the foreseeable future. However, the Company is able to control spending on development activities while still advancing clinical trials for key drug and candidates and expects that the cash on hand as of September 30, 2016 will be sufficient to fund its operations for at least the next 12 months from that date.

 


5

 


Table of Contents

 

2. Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Unaudited Interim Financial Information

The accompanying balance sheet as of September 30, 2016, statements of operations for the three and nine months ended September 30, 2016 and 2015 and statements of cash flows for the nine months ended September 30, 2016 and 2015 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2016 and its results of its operations for the three and nine months ended September 30, 2016 and 2015 and its cash flows for the nine months ended September 30, 2016 and 2015. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2016 and 2015 are unaudited. The results for the three and nine months ended September 30, 2016 are not indicative of results to be expected for the year ending December 31, 2016, 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 for the year ended December 31, 2015, which are included in the Company’s prospectus dated June 1, 2016, as filed pursuant to Rule 424(b) under the Securities and Exchange Act of 1933 filed, as amended, with the SEC.

Use of Estimates

The preparation of 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 the accounting for useful lives to calculate depreciation and amortization, accrued liabilities, share-based compensation expense and income tax valuation allowance. Actual results could differ from these estimates.

 

Reverse Stock Split

On May 11, 2016, the Company effected a 1-for-2.2 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios. The adjustment to the conversion ratio for the Series C convertible preferred stock also included an anti-dilution adjustment based on the initial public offering price of the Company’s common stock.

Research and Development Costs

Research and development costs are charged to expense as incurred and include, but are not limited to:

 

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 clinical and preclinical studies;

 

costs associated with preclinical and development activities;

 

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.

Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, 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 arrangements, which

6

 


Table of Contents

may differ from the patterns of costs incurred, and are reflected in the financial statements as prepaid or accrued expense, which are reported in accounts payable. No material adjustments to these estimates have been recorded in these financial statements.

Share-Based Compensation

Compensation cost related to share-based awards granted to employees is measured at grant date, based on the estimated fair value of the award. The Company estimates the fair value of stock options using a Black-Scholes option pricing model. Compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of restricted stock awards is determined based on the fair value of the Company’s common stock on the date of grant. Share-based compensation costs are expensed on a straight-line basis (net of estimated forfeitures) over the relevant vesting period. The fair value of awards granted to non-employees is re-measured each period until the related service is complete. All share-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying employees’ roles 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.

Short-Term Investments

Short-term investments are investments with original maturities of between 90 and 365 days when purchased and are comprised of corporate and government bonds and government agency securities. The Company classifies its short-term investments as available-for-sale securities. Short-term investments are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive income (loss) until realized. In addition, the Company evaluates the short-investments with unrealized losses to determine whether such losses are other-than-temporary.

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.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments. The update addresses eight specific cash flow matters with the objective of reducing diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows. The update is effective for annual periods beginning after December 15, 2017, and interim periods within the period. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public companies, the amendments in this standard are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The effects of this standard on the Company’s financial statements and related disclosures are not expected to be material.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. The Company is currently assessing the impact that adopting this new accounting standard will have on its financial statements and related disclosures.


7

 


Table of Contents

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for the Company for the annual period ending after December 15, 2016 and for annual and interim periods thereafter, with early adoption permitted. The Company does not expect this accounting standard to have an impact on its financial statements and related disclosures.

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09, companies will be required to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and modify guidance for multiple-element arrangements. In August 2015, the FASB issued ASU 2015-14, which deferred by one year the effective date of ASU 2014-09. The one year deferral of the effective date of this standard changes the effective date for the Company to January 1, 2018. Early adoption is permitted, but not before the original effective date. The Company is currently evaluating the effect this standard may have on its financial statements and related disclosures.

 

3. Property and Equipment, Net

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

 

 

 

Estimated

Useful Lives

(Years)

 

September 30,

2016

 

 

December 31,

2015

 

Furniture and fixtures

 

5

 

$

69

 

 

$

66

 

Machinery and equipment

 

5

 

 

121

 

 

 

121

 

Computer equipment

 

3

 

 

27

 

 

 

27

 

Leasehold improvements

 

Lesser of

useful life or

remaining

lease term

 

 

45

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

262

 

 

 

259

 

Less: Accumulated depreciation

 

 

 

 

(152

)

 

 

(103

)

 

 

 

 

$

110

 

 

$

156

 

 

4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued research and development

 

$

790

 

 

$

569

 

Accrued bonuses

 

 

478

 

 

 

530

 

Accrued professional fees

 

 

78

 

 

 

668

 

Accrued vacation

 

 

88

 

 

 

64

 

Accrued interest payable

 

 

5

 

 

 

15

 

Accrued expense

 

 

117

 

 

 

139

 

 

 

$

1,556

 

 

$

1,985

 

 

 

8

 


Table of Contents

5. Long-Term Debt

Loan and Security Agreements

In September 2016, the Company entered into an amended and restated loan and security agreement (the “loan agreement”) with Silicon Valley Bank (“SVB”), MidCap Funding XII Trust and MidCap Financial Trust (together, “MidCap” and collectively with SVB, the “Lenders”), which amended and restated in its entirety the Company’s prior loan and security agreement with SVB dated as of April 14, 2015 (the “original loan agreement”), under which the Company had borrowed $6.0 million in April and May 2015. The loan agreement provides for new term loans of up to $15.0 million, with a floating interest rate equal to 7% plus the greater of (i) the 30-day U.S. LIBOR, reported in the Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, or (ii) 0.50%. The interest rate on the original loan agreement was equal to the lender’s prime rate less 0.50 percent.

Under the terms of the new loan, an initial tranche of $8.0 million was advanced on September 28, 2016. The remaining $7.0 million will become available beginning on the later of (i) September 30, 2017 and (ii) the date on which the Lenders have received evidence, in form and substance reasonably satisfactory to them, that the Company has produced clinical trial data sufficient to file a New Drug Application, or NDA, for its drug candidate CLS-1001 for the treatment of uveitis. Once the draw period for the remaining $7.0 million has commenced, the Company may draw funds at its discretion until the earlier of (i) December 31, 2017 and (ii) the occurrence of an event of default under the loan agreement. The Company is required to pay accrued interest only through December 31, 2017 on the outstanding amount, followed by 30 equal payments of principal and accrued interest. The Company has the option to prepay the outstanding balance of the term loans in full, subject to a prepayment fee of (i) 3% of the original principal amount of the aggregate term loans for any prepayment prior to September 28, 2017 or (ii) 2% of the original principal amount of the aggregate term loans for any prepayment between September 28, 2017 and May 31, 2020.  A final payment of $0.5 million, or 6.50% of the aggregate borrowed amount, is due at maturity of the loan on June 1, 2020, or upon the prepayment of the facility or the acceleration of amounts due under the facility as a result of an event of default, and is being accreted in long-term debt over the life of the loan. Of the initial $8.0 million advanced on September 28, 2016, $5.3 million was used to repay all amounts outstanding under the original loan agreement. Closing costs incurred in the refinancing portion of the loan were recorded as expense while the financing costs for the new portion of the loan are recorded in long-term debt and being accreted over the life of the loan. Upon repayment of the original loan agreement, all remaining closing costs associated with the original loan agreement are being accreted to long-term debt over the life of the new loan.

The term loans under the loan agreement are secured by substantially all of the Company’s assets, except that the collateral does not include any of the Company’s intellectual property. However, pursuant to the terms of a negative pledge arrangement, the Company has agreed not to encumber any of its intellectual property.

Interest expense on the borrowings under the original loan agreement was $39,000 and $42,000 for the three months ended September 30, 2016 and 2015, respectively, and $129,000 and $72,000 for the nine months ended September 30, 2016 and 2015, respectively. Accretion of the scheduled final payment was $156,000 and $37,000 for the three months ended September 30, 2016 and 2015, respectively, and $224,000 and $64,000 for the nine months ended September 30, 2016 and 2015, respectively. Accretion of the deferred closing costs was $2,000 and $3,000 for the three months ended September 30, 2016 and 2015, respectively, and $7,000 and $5,000 for the nine months ended September 30, 2016 and 2015, respectively.

As of September 30, 2016, the scheduled payments for the loan agreement, including the scheduled final payment in 2020, were as follows (in thousands):

 

Year Ending December 31,

 

Principal

 

 

Interest and

Final Payment

 

 

Total

 

2016

 

$

 

 

$

158

 

 

$

158

 

2017

 

 

 

 

 

608

 

 

 

608

 

2018

 

 

3,200

 

 

 

476

 

 

 

3,676

 

2019

 

 

3,200

 

 

 

234

 

 

 

3,434

 

2020

 

 

1,600

 

 

 

545

 

 

 

2,145

 

 

 

$

8,000

 

 

$

2,021

 

 

$

10,021

 

 

 

6. Convertible Debt

9

 


Table of Contents

As of December 31, 2015, the Company had authorized an aggregate of 20,913,331 shares of Series A, A-1, B and C convertible preferred stock, par value $0.001 per share. Upon the closing of the Company’s IPO on June 1, 2016, all 20,839,633 shares of the Company’s convertible preferred stock that were issued and outstanding on that date were automatically converted into an aggregate of 9,614,159 shares of its common stock.

As of September 30, 2016, there were 10,000,000 shares of preferred stock authorized, none of which were issued and outstanding.

7. Common Stock

The Company’s amended and restated certificate of incorporation authorizes the Company to issue 100,000,000 shares of $0.001 par value common stock. As of September 30, 2016 and December 31, 2015, there were 20,545,752 and 2,659,262 shares of common stock outstanding, respectively, which excluded 6,478 shares of unvested restricted stock at December 31, 2015. There was no unvested restricted stock as of September 30, 2016.

 

8. Stock Purchase Warrants

Preferred Stock Warrants

During 2013, in connection with a loan agreement, the Company issued a warrant to the lender to purchase up to 16,550 shares of Series A-1 preferred stock at a price per share of $1.8132. The term of the warrant extended until 10 years from the grant date and the warrant was exercisable at any time during that 10-year period. This warrant was outstanding at December 31, 2015 and had a weighted average remaining life of 6.8 years and a fair value of $58,000. The warrant was automatically converted to a common stock warrant and was net exercised on June 6, 2016, resulting in the issuance of 3,236 shares of common stock.

In April 2015, in connection with another loan agreement, the Company issued a warrant to the lenders to purchase up to 57,143 shares of Series B preferred stock at a price per share of $3.50. The term of the warrant extends until 10 years from the grant date and the warrant is exercisable at any time during that 10-year period. The warrant was automatically converted into a warrant to purchase 25,974 shares of common stock at an exercise price of $7.70 upon the closing of the IPO. This warrant was outstanding at September 30, 2016 and December 31, 2015 and had a weighted average remaining life of 8.5 and 9.25 years, respectively. The fair value of the warrant was $0.3 million and $0.2 million at September 30, 2016 and December 31, 2015, respectively.

Common Stock Warrants

During 2014, in connection with the sale of convertible promissory notes in connection with a preferred stock financing, the Company issued warrants to the lenders to purchase up to an aggregate of 112,802 shares of common stock at a price per share of $0.02. These warrants were outstanding at December 31, 2015 and had a remaining life of 8.2 years. These warrants, which would have otherwise expired upon the closing of the IPO, were automatically net exercised for an aggregate of 112,441 shares of common stock upon the closing of the IPO.

In September 2016, in connection with the amended and restated loan and security agreement, the Company issued warrants to the lenders 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 have a weighted average remaining life of 10 years and a fair value of $0.3 million at September 30, 2016.

 

9. Share-Based Compensation

In January 2016, the Company’s board of directors adopted and approved the Clearside Biomedical, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) which became effective in connection with the IPO on June 1, 2016.  The 2016 Plan provides for the grant of share-based awards to employees, directors and consultants of the Company. The Company has reserved 1,818,182 shares of common stock for issuance under the 2016 Plan. The 2016 Plan provides for the grant of incentive stock options to employees, and for the grant of nonqualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the Company’s employees, directors, and non-employee third parties. The number of shares of common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 each year, for a period of ten years, from January 1, 2017 through January 1, 2026, by 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. At September 30, 2016, under the 2016 Plan, options to purchase 157,500 shares of the Company’s common stock were outstanding at a weighted average price of $6.64 per share and 1,660,682 shares remained available for future grant.

10

 


Table of Contents

As a result of the adoption of the 2016 Plan, no further grants may be made under the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the grant of share-based awards to employees, directors and consultants of the Company. At September 30, 2016, options to purchase 1,239,858 shares of the Company’s common stock were outstanding under the 2011 Plan at a weighted average exercise price of $2.35 per share.

Share-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation. 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. Options granted to non-employees are re-measured at each financial reporting period until required services are performed.

The Company has granted stock option awards to employees, directors and consultants. Share-based compensation expense for options granted is reflected in the statements of operations as follows (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

 

$

134

 

 

$

81

 

 

$

375

 

 

$

229

 

General and administrative

 

 

148

 

 

 

96

 

 

 

401

 

 

 

273

 

Total

 

$

282

 

 

$

177

 

 

$

776

 

 

$

502

 

 

The following table summarizes the activity related to stock options during the nine months ended September 30, 2016:

 

 

 

 

 

 

 

Weighted

 

 

 

Number of

 

 

Average

 

 

 

Shares

 

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

Options outstanding at January 1, 2016

 

 

1,261,638

 

 

$

2.41

 

Granted

 

 

174,736

 

 

 

6.79

 

Exercised

 

 

(1,326

)

 

 

0.40

 

Cancelled/Forfeited

 

 

(20,454

)

 

 

6.03

 

Options outstanding at September 30, 2016

 

 

1,414,594

 

 

 

2.90

 

 

 

 

 

 

 

 

 

 

Options exercisable at December 31, 2015

 

 

500,797

 

 

 

0.92

 

 

 

 

 

 

 

 

 

 

Options exercisable at September 30, 2016

 

 

686,439

 

 

 

1.22

 

 

As of September 30, 2016, the Company had $3.1 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 1.5 years.

10. Commitments and Contingencies

Lease Commitment Summary

The Company leases office space under non-cancelable operating leases which expire in March 2017. The operating leases have renewal options and rent escalation clauses.

Minimum lease payments were as follows at September 30, 2016 (in thousands):

 

2016

 

$

23

 

2017

 

 

23

 

Total minimum lease payments

 

$

46

 

 

Rent expense, net of sublease income, was $20,000 for three months ended September 30, 2016 and 2015, and $61,000 for the nine months ended September 30, 2016 and 2015.

11

 


Table of Contents

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.

 

11. License Agreements

In August 2014, the Company entered into a royalty-bearing license agreement with NovaMedica LLC (“NovaMedica”). Under this agreement, the Company granted to NovaMedica the right to use the Company’s intellectual property to develop and commercialize the intended products (the “Covered Products”) and to have the exclusive right to sell those products in Russia and specified adjacent territories involving the use of the corticosteroid triamcinolone acetonide as the sole active pharmaceutical ingredient for administration in the suprachoroidal space. In connection with this royalty-bearing license, NovaMedica made an upfront payment to the Company of $200,000. The Company is currently developing product candidates that when completed would be subject to this license giving NovaMedica the exclusive right to then sell the products in the specified geographic territories. In mid-December 2015, the Company received positive results from the Phase 2 clinical trial relating to the product candidate and determined, based on these results, that the intellectual property could become commercially feasible. Beginning in the first quarter ended March 31, 2016, the Company began recognizing the $200,000 to revenue over the period of time to complete clinical development and commercialization of the Covered Products and the beginning of the first set of patent expirations in 2027.  The Company recorded $5,000 and $15,000 of license revenue during the three and nine months ended September 30, 2016, respectively, for this license agreement. NovaMedica is jointly owned by Rusnano MedInvest LLC, or Rusnano MedInvest, and Domain Russia Investments Limited. RMI, which beneficially owns approximately 11% of the Company’s voting securities, is a wholly owned subsidiary of Rusnano MedInvest.

In April 2015, the Company entered into a license and collaboration agreement (the “Spark Agreement”) with Spark Therapeutics, Inc. (“Spark”) under which Spark could acquire the exclusive rights to license the Company’s microinjector technology and access to the suprachoroidal space within the eye for development and ultimate commercialization of Spark’s gene therapy treatments to be delivered via the microinjector. In conjunction with executing the Spark Agreement, Spark made an upfront, non-refundable payment to the Company of $500,000.

In February 2016, the initial study was completed and Spark elected not to extend the arrangement nor license the technology which terminated the agreement in accordance with the agreement terms. During the quarter ended March 31, 2016, the Company recorded as revenue the $500,000 upfront payment as the amount was non-refundable and the Company had no further obligations under this arrangement.

 

12. Collaborative Agreement

In January 2013, the Company entered into a collaborative research agreement with a stockholder, whereby the parties agreed to conduct feasibility studies for certain compounds. Each party to the collaborative research agreement will bear its own costs, except that certain costs incurred by the Company are limited to a defined maximum amount. The Company incurred research and development costs in relation to the collaborative research agreement of $24,000 for the three months ended September 30, 2015, and $85,000 and $124,000 for the nine months ended September 30, 2016 and 2015, respectively. No research and development costs were incurred in relation to the collaborative research agreement for the three months ended September 30, 2016.

 

13. Available-for Sale Securities

 

The following table summarizes the Company’s available-for-sale investments as of September 30, 2016:

 

 

 

September 30, 2016

 

 

 

Amortized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Loss

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government bonds and agency obligations

 

$

11,032

 

 

$

(3

)

 

$

11,029

 

Certificates of deposit

 

 

4,658

 

 

 

-

 

 

 

4,658

 

Corporate bonds

 

 

4,358

 

 

 

(2

)

 

 

4,356

 

Total available-for-sale investments

 

$

20,048

 

 

$

(5

)

 

$

20,043

 

12

 


Table of Contents

 

14. Fair Value Measurements

The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, on fair value measurements. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.

 

Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.

 

Level 2—Other inputs that are directly or indirectly observable in the marketplace.

 

Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s material financial instruments at September 30, 2016 and December 31, 2015 consisted primarily of cash and cash equivalents, short-term investments, long-term debt and stock purchase warrant liabilities. The fair value 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. The fair value of long-term debt approximates the carrying value due to variable interest rates that correspond to market rates. The Company has determined its short-term investments, comprised of certificates of deposit, corporate bonds and government bonds and agency obligations, to be Level 2 in the fair value hierarchy.  The fair value was determined using a market approach, based on prices and other relevant information generated by market transactions involving similar assets. The short-term investments consist of investments with original maturity dates from date of acquisition of 90 to 365 days and are classified as available-for-sale. The Company has determined its stock purchase warrants liability to be Level 3 in the fair value hierarchy.

There were no significant transfers between Levels 1, 2 and 3 during the nine months ended September 30, 2016 and the year ended December 31, 2015.

The following tables summarize the fair value of financial assets and liabilities that are measured at fair value and the classification by level of input within the fair value hierarchy (in thousands):

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Recorded

Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money markets

 

$

35,666

 

 

$

 

 

$

 

 

$

35,666

 

Certificates of deposit

 

 

5,868

 

 

 

 

 

 

 

 

 

5,868

 

Government bonds

 

 

2,499

 

 

 

 

 

 

 

 

 

2,499

 

Agency obligations

 

 

 

 

 

8,530

 

 

 

 

 

 

8,530

 

Corporate bonds

 

 

 

 

 

4,356

 

 

 

 

 

 

4,356

 

Total financial assets

 

$

44,033

 

 

$

12,886

 

 

$

 

 

$

56,919

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock purchase warrants

 

$

 

 

$

 

 

$

251

 

 

$

251

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Recorded

Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money markets (included in cash and cash equivalents)

 

$

20,076

 

 

$

 

 

$

 

 

$

20,076

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock purchase warrants

 

$

 

 

$

 

 

$

258

 

 

$

258

 

 

13

 


Table of Contents

Prior to the IPO, the Company estimated the fair value of its warrants to purchase preferred stock using an option pricing model that included three valuation scenarios, a non-IPO scenario and two IPO scenarios. Under the IPO scenarios, the Company calculated the value of the warrant based on a call option of the common share at IPO (assuming the underlying preferred stock would convert to common stock) given the time to exit and the term of the warrants stipulated in the contract. The Company then applied a discount for lack of marketability. Changes in the fair value of the stock purchase warrants were recorded in other income (expense), net in the statements of operations. Subsequent to the IPO, the Company used the Black-Scholes option pricing model to estimate the fair value of the remaining warrants. The estimates in the Black-Scholes option pricing model are based, in part, on assumptions, including but not limited to the volatility of comparable public companies, the expected life of the warrants, the risk-free interest rate and the fair value of the underlying warrants. The following table summarizes the changes in fair value of the Level 3 liability, stock purchase warrants (in thousands):

 

 

 

Level 3 Liabilities

 

 

 

Nine Months

Ended

September 30,

 

 

Year Ended

December 31,

 

 

 

2016

 

 

2015

 

Stock purchase warrants

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

258

 

 

$

42

 

Issuance of stock purchase warrants

 

 

 

 

 

164

 

Exercise of stock purchase warrants

 

 

(23

)

 

 

 

Net increase in fair value remeasurement

 

 

16

 

 

 

52

 

Balance at end of period

 

$

251

 

 

$

258

 

 

15. 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 include convertible preferred stock, stock options, unvested restricted stock 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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Convertible preferred stock

 

 

 

 

 

7,074,961

 

 

 

 

 

 

7,074,961

 

Outstanding stock options

 

 

1,414,594

 

 

 

1,030,025

 

 

 

1,414,594

 

 

 

1,030,025

 

Unvested restricted stock

 

 

 

 

 

10,030

 

 

 

 

 

 

10,030

 

Stock purchase warrants

 

 

55,770

 

 

 

146,298

 

 

 

55,770

 

 

 

146,298

 

 

 

 

1,470,364

 

 

 

8,261,314

 

 

 

1,470,364

 

 

 

8,261,314

 

 

 

 

 

14

 


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2015 appearing in our prospectus dated June 1, 2016 that was filed with the Securities and Exchange Commission.

Overview

We are a late-stage clinical biopharmaceutical company developing first-in-class drug therapies to treat blinding diseases of the eye. Our current product candidates focus on treatments for diseases affecting the retina and choroid, especially diseases associated with macular edema, and are injected into the suprachoroidal space, or SCS, using our proprietary SCS Microinjector. With the suprachoroidal injection procedure, our product candidates are more directly administered to the retina and choroid as compared to other ocular drug administration techniques such as intravitreal injections. We believe treatment of eye disease via suprachoroidal injection may provide a number of benefits, including lower frequency of necessary administration and faster onset of therapeutic effect. We hold the exclusive rights to develop and commercialize drugs for treatment via injection into the SCS. Our most advanced product candidates, CLS-1001 and CLS-1003, are based on commonly used ophthalmic drugs, which we believe will allow us to more efficiently and predictably pursue the regulatory approval of these product candidates under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act.

CLS-1001 consists of a suprachoroidal injection of Zuprata, our proprietary, preservative-free formulation of the corticosteroid triamcinolone acetonide, or TA, specifically designed to be administered suprachoroidally for the treatment of patients with noninfectious uveitis. For CLS-1001, we are in the process of enrolling patients in a pivotal Phase 3 clinical trial. We expect to enroll approximately 150 patients with macular edema associated with noninfectious uveitis in this trial and expect to report data in the second half of 2017. We believe, based on our end-of-Phase 2 review with the Food and Drug Administration, or FDA, in May 2015, that only one, Clearside-sponsored, Phase 3 clinical trial will be required to support the filing of a New Drug Application, or NDA, to the FDA. In the first quarter of 2016, we received data from a Phase 2 clinical trial in 22 patients with macular edema associated with non-infectious uveitis. Patients in this trial achieved a statistically significant (p=0.002) mean change from baseline in retinal thickness at two months, which was the primary endpoint of the trial, as well as statistically significant (p=0.0004) mean improvement from baseline in best corrected visual acuity, or BCVA, a secondary endpoint. At four and eight weeks following dosing, the average reduction in retinal thickness was 135 and 164 microns, respectively, and the average improvement in BCVA was 7.7 and 9.2 letters, respectively. In our previously completed Phase 1/2 clinical trial, we observed a range of improvements in BCVA of between one and five lines on a standard eye chart. At the end of week 12, the average improvement in BCVA exceeded two lines, which is considered meaningful in standard clinical practice. At the end of week 26, four of the eight patients in the trial had still not required additional treatment. For those four patients, the average improvement in BCVA was nearly three lines at week 26.

Under our CLS-1003 program for macular edema associated with retinal vein occlusion, or RVO, a sight-threatening disorder resulting from the blockage of a retinal vein, we are exploring a concomitant suprachoroidal injection of Zuprata and an intravitreal injection of Eylea, a corticosteroid and an anti-VEGF agent, respectively, to provide the potential benefits of improved visual acuity, reduced macular edema and reduced injection frequency. We have completed, and in April 2016 we announced preliminary results from, a Phase 2 clinical trial for CLS-1003 in 46 patients. In this trial, 23 patients in the active arm initially received a concomitant suprachoroidal injection of Zuprata and an intravitreal injection of Eylea and 23 patients in the control arm initially received only an intravitreal injection of Eylea. The objective of the trial was to determine whether patients receiving Zuprata together with Eylea could sustain this improved visual acuity over the three months of the clinical trial while requiring fewer additional Eylea treatments than patients receiving intravitreal Eylea alone. Patients in each arm were evaluated at months one, two and three after the initial treatment using pre-specified criteria to determine if they continued to experience macular edema or reductions in visual acuity and therefore required additional Eylea treatments. The primary objective of the trial was met, with patients in the active arm requiring an aggregate

15


Table of Contents

of 60% fewer additional Eylea treatments than patients in the control arm over three months, a result that was statistically significant (p=0.013). In addition, 18 of the 23 patients, or 78%, in the active arm of the trial did not require additional treatments during the three-month trial compared to 7 of the 23 patients, or 30%, in the control arm, a result that was also statistically significant (p=0.003). In the same Phase 2 trial, patients in the active arm experienced greater improvement in visual acuity than those in the control arm, with patients in the active arm experiencing mean BCVA improvements at months one, two and three of 16, 20 and 19 letters, respectively, compared to improvements of 11, 12 and 11 letters, respectively, in the control arm at the same time points. Based on feedback from a recent meeting with the FDA, we intend to commence a Phase 3 clinical program in the first half of 2017.

In our CLS-1002 program for the treatment of neovascular age-related macular degeneration, or wet AMD, we have selected a lead compound, axitinib, that has activity against both vascular endothelial growth factor receptors, or VEGFr, and platelet derived growth factor receptors, or PDGFr, to be administered by suprachoroidal injection, which we believe could be more effective than currently approved VEGF targeting treatments for wet AMD. We plan to develop a proprietary formulation of axitinib. We have scheduled a pre-IND meeting with the FDA prior to the end of 2016. Following this meeting and with consideration of the FDA’s comments and feedback, we will subsequently submit an IND application for a Phase 1/2 clinical trial in wet AMD.

We have expanded our programs to include focusing on treatment for another retinal vascular condition, diabetic macular edema, or DME. In our CLS-1004 program for DME, we are planning a multi-center, open-label Phase 1/2 clinical trial to evaluate the safety and efficacy of administering a combination of intravitreal aflibercept and suprachoroidal Zuprata, as well as suprachoroidal Zuprata monotherapy in patients with DME over a 6-month evaluation period.  We recently enrolled the first patient in this study.

If our product candidates are approved, we plan to commercialize them with a specialty team of 30 to 40 sales and medical marketing professionals to target the approximately 1,700 retinal specialists in the United States, and we may also pursue collaborations with third parties to commercialize any of our drugs approved for marketing outside the United States.

We have incurred net losses since our inception in May 2011. Our operations to date have been limited to organizing and staffing our company, raising capital, undertaking preclinical studies and other research and development initiatives and, beginning in 2013, conducting clinical trials of our most advanced drug candidates. To date, we have not generated any revenue, other than license revenue, and we have primarily financed our operations through our recent initial public offering, or IPO, private placement of our equity securities, issuance of convertible promissory notes and loan agreements. We have raised net cash proceeds of $51.4 million from the sale of common stock, $44.5 million from the sale of convertible preferred stock, $3.4 million from the sale of convertible promissory notes and $8.0 million from long-term loan agreements through September 30, 2016. As of September 30, 2016, we had an accumulated deficit of $55.6 million. We recorded net losses of $5.7 million and $3.5 million for the three months ended September 30, 2016 and 2015, respectively, and $16.2 million and $12.5 million for the nine months ended September 30, 2016 and 2015, respectively. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval and preparing for potential commercialization of our product candidates.

We expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate product revenue unless and until we successfully complete necessary development for, and obtain regulatory approval for one or more of our product candidates. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will increase substantially as we:

 

complete our ongoing Phase 3 clinical trial for CLS-1001;

 

initiate our planned Phase 3 clinical program for CLS-1003 and our planned Phase 1/2 clinical trials of CLS-1002 and CLS-1004, as well as future clinical trials for these programs, if necessary;

 

seek to discover, research and develop additional product candidates;

 

seek regulatory approvals for any product candidates that successfully complete clinical trials and other developmental efforts necessary to seek such approvals;

 

establish sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval;

 

maintain, expand and protect our intellectual property portfolio;

 

hire additional clinical, manufacturing and scientific personnel;

 

add operational, financial and management information systems and personnel, including personnel to support our  development and potential future commercialization efforts; and

16


Table of Contents

 

operate as a public company.

Components of Operating Results

Revenue

We have not generated any revenue from the sale of any drugs, and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our product candidates. The only revenue we have derived, consisting primarily of $0.5 million in the first quarter of 2016, has been from up-front payments in connection with out-licensing our proprietary microinjection technology for SCS drug administration to third-party strategic collaborators. In 2014, we executed a license agreement with NovaMedica LLC, or NovaMedica, and in 2015, we executed a license agreement with Spark Therapeutics, Inc., or Spark. In connection with these agreements, we received up-front payments of $200,000 from NovaMedica and $500,000 from Spark. We deferred recognizing these payments through 2015. In the first quarter of 2016, we began recognizing revenue related to the NovaMedica payment and we recognized the entire payment from Spark.

Research and Development

Since our inception, we have focused on our development programs. Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which 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, or CROs, as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies;

 

costs associated with preclinical activities and development activities;

 

costs associated with technology and intellectual property licenses;

 

costs for our research and development facility; and

 

depreciation expense for assets used in research and development activities.

We expense research and development costs to operations as incurred. The costs for some of our development activities, such as clinical trials, are recognized based on the terms of underlying agreements, as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and additional information provided to us by our vendors about their actual costs occurred.

Expenses related to activities, such as manufacturing and stability and toxicology studies, that are supportive of a product candidate itself, are classified as direct non-clinical costs. Expenses related to clinical trials and similar activities, including costs associated with CROs, are classified as direct clinical costs. Expenses related to activities that support more than one development program or activity, such as salaries, share-based compensation and depreciation, are not classified as direct clinical costs or non-clinical costs and are separately classified as unallocated.

For the three and nine months ended September 30, 2016, substantially all of our research and development expenses have been related to the non-clinical and clinical development of our product candidates. From inception through September 30, 2016, we have incurred $37.5 million in research and development expenses.

17


Table of Contents

The following table shows our research and development expenses by type of activity for the three and nine months ended September 30, 2016 and 2015 (in thousands).

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

CLS-1001:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct non-clinical

 

$

444

 

 

$

173

 

 

$

1,579

 

 

$

516

 

Direct clinical

 

 

1,062

 

 

 

53

 

 

 

3,747

 

 

 

1,135

 

Total

 

 

1,506

 

 

 

226

 

 

 

5,326

 

 

 

1,651

 

CLS-1002:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct non-clinical

 

 

898

 

 

 

257

 

 

 

2,507

 

 

 

968

 

Direct clinical

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

898

 

 

 

257

 

 

 

2,507

 

 

 

968

 

CLS-1003:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct non-clinical

 

 

 

 

 

 

 

 

1

 

 

 

2

 

Direct clinical

 

 

165

 

 

 

344

 

 

 

1,582

 

 

 

1,051

 

Total

 

 

165

 

 

 

344