AVENUE THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
($ in thousands, except share and per share
amounts)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,448
|
|
|
$
|
2,671
|
|
Deferred financing costs
|
|
|
61
|
|
|
|
1,702
|
|
Prepaid expenses and other current assets
|
|
|
254
|
|
|
|
152
|
|
Total Assets
|
|
$
|
29,763
|
|
|
$
|
4,525
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
9,326
|
|
|
$
|
4,669
|
|
Accounts payable and accrued expenses - related party
|
|
|
86
|
|
|
|
487
|
|
Total current liabilities
|
|
|
9,412
|
|
|
|
5,156
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
9,412
|
|
|
|
5,156
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred Stock ($0.0001 par value), 2,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Class A Preferred Stock, 250,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
Common Stock ($0.0001 par value), 50,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Common shares; 16,557,122 and 10,667,714 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
2
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
73,827
|
|
|
|
41,577
|
|
Accumulated deficit
|
|
|
(53,478
|
)
|
|
|
(42,209
|
)
|
Total Stockholders' Equity (Deficit)
|
|
|
20,351
|
|
|
|
(631
|
)
|
Total Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
29,763
|
|
|
$
|
4,525
|
|
The accompanying notes are an integral part
of these condensed financial statements.
AVENUE THERAPEUTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
($ in thousands, except share and per share
amounts)
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
10,241
|
|
|
$
|
9,439
|
|
General and administrative
|
|
|
1,119
|
|
|
|
986
|
|
Loss from operations
|
|
|
(11,360
|
)
|
|
|
(10,425
|
)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(91
|
)
|
|
|
(48
|
)
|
Net Loss
|
|
$
|
(11,269
|
)
|
|
$
|
(10,377
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share outstanding, basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(1.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
13,742,649
|
|
|
|
10,099,331
|
|
The accompanying notes are an integral part
of these condensed financial statements.
AVENUE THERAPEUTICS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’
EQUITY
($ in thousands, except share amounts)
(Unaudited)
|
|
Class A
Preferred
Shares
|
|
|
Common
Shares
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
(deficit)
|
|
Balance at December 31, 2018
|
|
|
250,000
|
|
|
$
|
-
|
|
|
|
10,667,714
|
|
|
$
|
1
|
|
|
$
|
41,577
|
|
|
$
|
(42,209
|
)
|
|
$
|
(631
|
)
|
Share based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
751
|
|
|
|
-
|
|
|
|
751
|
|
Issuance of common shares, net of costs
|
|
|
-
|
|
|
|
-
|
|
|
|
5,833,333
|
|
|
|
1
|
|
|
|
31,499
|
|
|
|
-
|
|
|
|
31,500
|
|
Cashless exercise of warrants under the NSC Note
|
|
|
-
|
|
|
|
-
|
|
|
|
56,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,269
|
)
|
|
|
(11,269
|
)
|
Balance at March 31, 2019
|
|
|
250,000
|
|
|
$
|
-
|
|
|
|
16,557,122
|
|
|
$
|
2
|
|
|
$
|
73,827
|
|
|
$
|
(53,478
|
)
|
|
$
|
20,351
|
|
|
|
Class A
Preferred
Shares
|
|
|
Common
Shares
|
|
|
Common Shares
Issuable
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at December 31, 2017
|
|
|
250,000
|
|
|
$
|
-
|
|
|
|
10,265,083
|
|
|
$
|
1
|
|
|
|
273,837
|
|
|
$
|
1,103
|
|
|
$
|
38,937
|
|
|
$
|
(20,661
|
)
|
|
$
|
19,380
|
|
Issuance of common shares - Founders Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
273,837
|
|
|
|
-
|
|
|
|
(273,837
|
)
|
|
|
(1,103
|
)
|
|
|
1,103
|
|
|
|
-
|
|
|
|
-
|
|
Exercise of warrants under the NSC Note
|
|
|
-
|
|
|
|
-
|
|
|
|
13,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
|
|
|
350
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,377
|
)
|
|
|
(10,377
|
)
|
Balance at March 31, 2018
|
|
|
250,000
|
|
|
$
|
-
|
|
|
|
10,552,045
|
|
|
$
|
1
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
40,390
|
|
|
$
|
(31,038
|
)
|
|
$
|
9,353
|
|
The accompanying notes are an integral part
of these condensed financial statements.
AVENUE THERAPEUTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
|
|
For the Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,269
|
)
|
|
$
|
(10,377
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
751
|
|
|
|
350
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(102
|
)
|
|
|
78
|
|
Accounts payable and accrued expenses
|
|
|
5,453
|
|
|
|
3,016
|
|
Accounts payable and accrued expenses - related party
|
|
|
(401
|
)
|
|
|
114
|
|
Net cash used in operating activities
|
|
|
(5,568
|
)
|
|
|
(6,819
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Maturity of Short-term investments (certificates of deposits)
|
|
|
-
|
|
|
|
10,000
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
35,000
|
|
|
|
-
|
|
Offering costs
|
|
|
(2,655
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
32,345
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
26,777
|
|
|
|
3,181
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,671
|
|
|
|
11,782
|
|
Cash and cash equivalents, end of period
|
|
$
|
29,448
|
|
|
$
|
14,963
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Unpaid offering costs
|
|
$
|
12
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these condensed financial statements.
AVENUE THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
Note 1 - Organization, Plan of Business Operations
Avenue Therapeutics, Inc.
(the “Company” or “Avenue”) was incorporated in Delaware on February 9, 2015, as a wholly owned subsidiary
of Fortress Biotech, Inc. (“Fortress”), to develop and market pharmaceutical products for the acute care setting in
the United States. The Company is focused on developing its product candidate, an intravenous (“IV”) formulation of
tramadol HCI (“IV Tramadol”), for moderate to moderately severe post-operative pain.
Stock Purchase and Merger Agreement
On November 12, 2018, the Company and InvaGen
Pharmaceuticals Inc. (“InvaGen”), entered into definitive agreements with two closing stages for a proposed acquisition
of the Company for a total aggregate consideration of $215.0 million. The Stock Purchase and Merger Agreement (the “SPMA”)
was approved by a majority of the Company’s stockholders, including a majority of its non-affiliated stockholders, at its
special shareholder meeting on February 6, 2019. On February 8, 2019, InvaGen acquired 5,833,333 shares of the Company’s
common stock at $6.00 per share (the “Stock Purchase Transaction”) for net proceeds of $31.5 million after deducting
commission fees and other offering costs, representing a 33.3% stake in the Company’s capital stock on a fully diluted basis.
At the second stage closing, InvaGen will
acquire the remaining shares of Avenue’s common stock, pursuant to a reverse triangular merger with Avenue remaining as the
surviving entity, for up to $180.0 million in the aggregate (the “Merger Transaction”). The second stage closing is
subject to the satisfaction of certain closing conditions, including conditions pertaining to U.S. Food and Drug Administration
approval, labeling, scheduling and the absence of any Risk Evaluation and Mitigation Strategy or similar restrictions in effect
with respect to IV Tramadol, as well as the expiration of any waiting period applicable to the acquisition under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Subject to the terms and conditions described
in the SPMA, InvaGen may also provide interim financing to the Company in an amount of up to $7.0 million during the time period
between the Stock Purchase Transaction (which occurred on February 8, 2019) and the Merger Transaction. Any amounts drawn on the
interim financing will be deducted from the aggregate consideration payable to the Company’s stockholders by virtue of the
Merger Transaction. There have been no amounts drawn upon this interim financing as of March 31, 2019.
Liquidity and Capital Resources
The Company has incurred substantial operating
losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes
on its product development plan and may never become profitable. As of March 31, 2019, the Company had an accumulated deficit of
$53.5 million. The Company believes that its cash and cash equivalents as of March 31, 2019, as well as its ability for
interim financing of $7.0 million from InvaGen, will enable the Company to continue to fund operations in the normal course of
business for more than a twelve-month period from the date of filing this Quarterly Report on Form 10-Q.
Note 2 — Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited
interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S GAAP for complete financial
statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include
only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain
information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted. These unaudited interim condensed financial statement results are not necessarily
indicative of results to be expected for the full fiscal year or any future period.
Therefore, these unaudited
interim condensed financial statements should be read in conjunction with the Company's audited financial statements and notes
thereto for the year ended December 31, 2018, which were included in the Company’s Form 10-K, and filed with the U.S. Securities
and Exchange Commission (“SEC”) on March 12, 2019. The results of operations for any interim periods are not necessarily
indicative of the results that may be expected for the entire fiscal year or any other interim period.
The Company has no subsidiaries.
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 unaudited condensed financial
statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
AVENUE THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
Summary of Significant Accounting Policies
There have been no material
changes to the Company’s significant accounting policies as described in Note 2 in its audited financial statements for
the year ended December 31, 2018 included in the Company’s Form 10-K.
Net loss per Share
Loss per share is computed by dividing net loss
by the weighted-average number of common shares outstanding, excluding unvested restricted stock and stock options, during the
period. Since dividends are declared paid and set aside among the holders of shares of common stock and Class A common stock pro-rata
on an as-if-converted basis, the two-class method of computing net loss per share is not required.
The following table sets forth the common shares
that could potentially dilute basic income per share in the future that were not included in the computation of diluted income
(loss) per share because to do so would have been anti-dilutive for the periods presented:
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Restricted stock units/awards
|
|
|
1,065,317
|
|
|
|
714,999
|
|
Preferred shares
|
|
|
250,000
|
|
|
|
250,000
|
|
Options
|
|
|
-
|
|
|
|
20,000
|
|
Total potential dilutive effect
|
|
|
1,315,317
|
|
|
|
984,999
|
|
Recently Adopted Accounting Standards
In June 2018, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standard Updated (“ASU”) No. 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting
(“ASU 2018-07”), which simplifies the accounting for share-based payments granted to nonemployees for goods and
services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based
payments granted to employees. The changes take effect for public companies for fiscal years starting after December 15, 2018,
including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted,
but no earlier than an entity’s adoption date of Topic 606. The Company adopted ASU 2018-07 in the first quarter of 2019
and its adoption did not have a material impact on the Company’s unaudited condensed financial statements.
Note 3 — Related Party Agreements
Management Services Agreement with Fortress
Effective as of February
17, 2015, Fortress entered into a Management Services Agreement (the “MSA”) with Avenue to provide advisory and consulting
services to Avenue for a period of five (5) years. Services provided under the MSA may include, without limitation, (i) advice
and assistance concerning any and all aspects of Avenue’s operations, clinical trials, financial planning and strategic transactions
and financings and (ii) conducting relations on behalf of Avenue with accountants, attorneys, financial advisors and other professionals
(collectively, the “Services”). Avenue is obligated to utilize clinical research services, medical education, communication
and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided
those services are offered at market prices. However, Avenue is not obligated to take or act upon any advice rendered from Fortress
and Fortress shall not be liable for any of Avenue’s actions or inactions based upon their advice. Fortress and its affiliates,
including all members of Avenue’s Board of Directors, have been contractually exempt from fiduciary duties to Avenue relating
to corporate opportunities. In consideration for the Services, Avenue will pay Fortress an annual consulting fee of $0.5 million
(the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each
calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar
year in which Avenue has net assets in excess of $100.0 million at the beginning of the calendar year. Concurrently with the execution
and delivery of the SPMA, the Company, InvaGen and Fortress entered into a Waiver Agreement, pursuant to which, among other things,
Fortress irrevocably waived its right to receive dividends of the Company’s common shares under the terms of the Class A
Preferred Stock and any fees, payments, reimbursements or other distributions under the MSA, until the termination of certain rights
of InvaGen, pursuant to the Stockholders Agreement. For the three months ended March 31, 2019 and 2018, the Company had expenses
related to the MSA of $0 and approximately $0.1 million, respectively.
AVENUE THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
Note
4 — Accounts Payable and Accrued Expenses
Accounts payable, accrued expenses
and other liabilities consisted of the following (in thousands):
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts payable
|
|
$
|
7,259
|
|
|
$
|
3,089
|
|
Accrued employee compensation
|
|
|
130
|
|
|
|
463
|
|
Accrued contracted services and other
|
|
|
1,937
|
|
|
|
1,117
|
|
Accounts payable and accrued expenses
|
|
$
|
9,326
|
|
|
$
|
4,669
|
|
Note 5 — Stockholders’
Equity
Stock Purchase Transaction
On February 8, 2019, InvaGen
acquired 5,833,333 shares of the Company’s common stock at $6.00 per share for net proceeds of $31.5 million after deducting
commission fees and other offering costs, representing a 33.3% stake in the Company’s capital stock on a fully diluted basis.
Equity Incentive Plan
The Company has in effect
the 2015 Incentive Plan (“2015 Incentive Plan”). The 2015 Incentive Plan was adopted in January 2015 by our stockholders.
Under the 2015 Incentive Plan, the compensation committee of the Company’s board of directors is authorized to grant stock-based
awards to directors, officers, employees and consultants. The plan authorizes grants to issue up to 2,000,000 shares of authorized
but unissued common stock and expires 10 years from adoption and limits the term of each option to no more than 10 years from the
date of grant.
Restricted Stock Units and Restricted
Stock Awards
The following table summarizes
restricted stock unit and award activity for the three months ended March 31, 2019:
|
|
Number of Units
and Awards
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Unvested balance at December 31, 2018
|
|
|
1,104,643
|
|
|
$
|
4.45
|
|
Granted
|
|
|
50,000
|
|
|
$
|
5.75
|
|
Vested
|
|
|
(89,326
|
)
|
|
$
|
5.75
|
|
Unvested balance at March 31, 2019
|
|
|
1,065,317
|
|
|
$
|
4.41
|
|
For the three months ended
March 31, 2019 and 2018, stock-based compensation expenses associated with the amortization of restricted stock units and restricted
stock awards for employees and non-employees were approximately $0.8 million and $0.4 million, respectively.
At March 31, 2019, the
Company had unrecognized stock-based compensation expense related to restricted stock units and restricted stock awards of $2.3
million, which is expected to be recognized over the remaining weighted-average vesting period of 1.7 years.
AVENUE THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
Stock Options
The following table summarizes
stock option award activity for the three months ended March 31, 2019:
|
|
Stock Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Life
(in years)
|
|
Outstanding, December 31, 2018
|
|
|
20,000
|
|
|
$
|
6.29
|
|
|
|
3.63
|
|
Cancelled/forfeited
|
|
|
(20,000
|
)
|
|
|
6.29
|
|
|
|
-
|
|
Outstanding, March 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Stock Warrants
The following
table summarizes the warrant activity for the three months ended March 31, 2019:
|
|
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
Aggregate
Intrinsic Value (in thousands)
|
|
Outstanding, December 31, 2018
|
|
|
102,597
|
|
|
$
|
0.0976
|
|
|
$
|
544
|
|
Exercised
|
|
|
(56,075
|
)
|
|
$
|
0.0001
|
|
|
|
-
|
|
Outstanding, March 31, 2019
|
|
|
46,522
|
|
|
$
|
0.2151
|
|
|
$
|
211
|
|
|
Item 2.
|
Financial Information.
|
Management’s Discussion and Analysis
of the Results of Operations
Forward-Looking Statements
The following discussion
and analysis of our financial condition and results of operations should be read together with our unaudited financial statements
and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial
statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for
the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 12, 2019. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result
of many factors, such as those set forth in Item 1.A. “Risk Factors” of our Annual Report on Form 10-K and this
Quarterly Report on Form 10-Q and any updates to those risk factors contained in our subsequent periodic and current reports filed
with the Securities and Exchange Commission, our actual results may differ materially from those anticipated in these forward-looking
statements.
Overview
We are a specialty pharmaceutical
company that seeks to acquire, license, develop and commercialize products principally for use in the acute/intensive care hospital
setting. Our current product candidate is intravenous (IV) Tramadol, for the treatment of moderate to moderately severe post-operative
pain. In 2016, we completed a pharmacokinetic (PK) study for IV Tramadol in healthy volunteers as well as an end of phase 2 (EOP2)
meeting with the U.S. Food and Drug Administration (FDA). In the third quarter of 2017, we initiated a Phase 3 development program
of IV Tramadol for the management of post-operative pain. Under the terms of certain agreements described herein, we have an exclusive
license to develop and commercialize IV Tramadol in the United States. To date, we have not received approval for the sale of our
product candidate in any market and, therefore, have not generated any sales revenue from our product candidates.
On June 26, 2017, we completed
an initial public offering (IPO) of our common stock, resulting in net proceeds of approximately $34.2 million after deducting
underwriting discounts, and other offering costs.
We have used the proceeds
from our IPO to initiate our first Phase 3 trial of IV Tramadol in patients with moderate-to-severe pain following bunionectomy,
which had its first patient dosed in September 2017. In May 2018, we announced the study met its primary endpoint and all key secondary
endpoints.
Further, in December 2018,
we initiated the second Phase 3 trial in patients with moderate-to-severe pain following abdominoplasty upon successful completion
of the bunionectomy study. Based on the enrollment pace of similar studies, we anticipate that we will have topline data from this
second Phase 3 trial by the end of the second quarter in 2019.
In December 2017, we initiated
an open-label safety study, which was completed during the second quarter of 2019. The results showed that IV Tramadol is well-tolerated
with a side effect profile consistent with known pharmacology.
If the abdominoplasty
study meets its primary endpoint, we plan to submit a new drug application, or an NDA, for IV Tramadol to treat moderate to moderately
severe postoperative pain pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (FDCA) by the end of 2019.
On November 12, 2018,
we entered into a Stock Purchase and Merger Agreement (SPMA) with InvaGen Pharmaceuticals Inc. (InvaGen), Madison Pharmaceuticals
Inc. (Merger Sub), and Fortress Biotech, Inc. (Fortress), pursuant to which InvaGen agreed to purchase, for $35 million, common
shares representing 33.3% of the fully diluted capitalization of the Company (the Stock Purchase Transaction) and subsequently
acquire the remaining issued and outstanding capital stock of the Company for $180 million, subject to certain reductions, in a
reverse subsidiary merger transaction (the Merger Transaction). Pursuant to the terms and subject to the conditions set forth in
the SPMA, InvaGen will, at second closing, hold 100% of the issued and outstanding equity interests of the Company. Consummation
of the Merger Transaction is conditioned, among other things, upon FDA approval of IV Tramadol, its labeling and scheduling and
the absence of any Risk Evaluation and Mitigation Strategy restrictions in effect with respect to IV Tramadol, as well as the expiration
of any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The aggregate consideration
to be paid by InvaGen under the SPMA is $215 million in cash, subject to certain potential reductions, which InvaGen intends to
have sufficient immediately available funds to pay. In addition, we are subject to certain lock-up restrictions and agreed not
to (subject to customary exceptions), during the period commencing at the signing of the SPMA until the Merger Transaction, issue,
buy, sell, or otherwise subject to a security interest, pledge, hypothecation, mortgage or lien, any securities of the Company.
The SPMA was approved by a majority of our
stockholders, including a majority of our non-affiliated stockholders, at our special shareholder meeting on February 6, 2019.
On February 8, 2019, the Company and InvaGen consummated the Stock Purchase Transaction whereby InvaGen acquired 5,833,333 shares
of our common stock at $6.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in our capital
stock on a fully diluted basis.
Our net loss for the three months ended March
31, 2019 and 2018 was approximately $11.3 million and $10.4 million, respectively. As of March 31, 2019, we had an accumulated
deficit of approximately $53.5 million. Substantially all our net losses resulted from costs incurred in connection with our research
and development program of IV Tramadol and from general and administrative costs associated with our operations.
We expect to continue to incur increased research
and development costs and increased general and administration related costs and incur operating losses for at least the next several
years as we develop and seek regulatory approval for IV Tramadol in the U.S.
We may need to obtain
additional capital through the sale of debt or equity financings or other arrangements to fund our operations and research and
development activity; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if
at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences
compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to
pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations
would need to be scaled back or discontinued.
We are a majority controlled
subsidiary of Fortress. For related party transactions, see Note 3.
Avenue Therapeutics, Inc.
was incorporated in Delaware on February 9, 2015. Our executive offices are located at 2 Gansevoort Street, 9th Floor, New York,
NY 10014. Our telephone number is (781) 652-4500, and our email address is info@avenuetx.com.
Critical Accounting Policies and Use of Estimates
Our discussion and analysis
of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure
of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known
trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting
policies are described in more detail in the notes to our financial statements.
Results of Operations
General
At March 31, 2019, we
had an accumulated deficit of $53.5 million, primarily as a result of expenditures for licenses acquired, for research and development
and for general and administrative purposes. While we may in the future generate revenue from a variety of sources, including license
fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our
product candidate is in early stages of development and may never be successfully developed or commercialized. Accordingly, we
expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we
will ever generate significant revenues.
Comparison of the Three Months Ended
March 31, 2019 and 2018
|
|
For The Three Months Ended
|
|
|
Change
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
($ in thousands)
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
10,241
|
|
|
$
|
9,439
|
|
|
$
|
802
|
|
|
|
8
|
%
|
General and administrative
|
|
|
1,119
|
|
|
|
986
|
|
|
|
133
|
|
|
|
13
|
%
|
Loss from operations
|
|
|
(11,360
|
)
|
|
|
(10,425
|
)
|
|
|
(935
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(91
|
)
|
|
|
(48
|
)
|
|
|
(43
|
)
|
|
|
90
|
%
|
Net Loss
|
|
$
|
(11,269
|
)
|
|
$
|
(10,377
|
)
|
|
$
|
(892
|
)
|
|
|
9
|
%
|
Research and Development Expenses
Research and development
expenses primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based
compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments
made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials,
consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings, laboratory
costs and other supplies.
For the three months ended
March 31, 2019 and 2018, research and development expenses were $10.2 million and $9.4 million, respectively. The increase of $0.8
million is primarily due to increases: of $8.8 million associated with the advancement of our abdominoplasty study, $0.3 million
in personnel costs and $0.2 million in consulting costs associated our New Drug Application (NDA) preparation. These increases
were partially offset by decreases of $5.2 million associated with the completion of our bunionectomy study and $3.3 million associated
with the completion of our safety study.
We expect our research
and development activities to increase as we develop our existing product candidate, reflecting increasing costs associated with
the following:
|
·
|
employee-related expenses;
|
|
·
|
license fees and milestone payments related to in-licensed product and technology;
|
|
·
|
expenses incurred under agreements with contract research organizations, investigative sites and
consultants that conduct our clinical trials;
|
|
·
|
the cost of acquiring and manufacturing clinical trial materials; and
|
|
·
|
costs associated with non-clinical activities, and regulatory approvals.
|
General and Administrative Expenses
General and administrative
expenses consist principally of professional fees for legal and consulting services, market research, personnel-related costs,
public reporting company related costs, and other general operating expenses not otherwise included in research and development
expenses.
For the three months ended
March 31, 2019 and 2018, general and administrative expenses were $1.1 million and $1.0 million, respectively. General and administrative
expenses increased by $0.1 million primarily due to an increase in non-cash stock compensation of $0.4 million partially offset
by decreases in: investor relations spending of $0.1 million, market research costs of $0.1 million and $0.1 million in other general
and administrative costs.
We anticipate general
and administrative expenses will increase in future periods, reflecting continued and increasing costs associated with:
|
·
|
support of our expanded research and development activities;
|
|
·
|
market research and other marketing related activities;
|
|
·
|
employee-related expenses; and
|
|
·
|
increased professional fees and other costs associated with the regulatory requirements and increased
compliance associated with being a public reporting company
|
Interest Income
Interest income was $91,000 and $48,000 for
the three months ended March 31, 2019 and 2018, respectively. The increase in interest income was from the interest on our cash
equivalents derived from our share issuance to InvaGen.
Liquidity and Capital Resources
We have incurred substantial
operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future and
may never become profitable. As of March 31, 2019, we had an accumulated deficit of $53.5 million.
We have used the funds
from our IPO and from the InvaGen share purchase to finance our operations and will continue to use the funds primarily for general
corporate purposes, which may include financing our growth and developing our product candidate. We currently anticipate that our
cash and cash equivalent balances at March 31, 2019 in addition to the SPMA with InvaGen which provides interim financing of up
to $7.0 million up until the second stage closing, are sufficient to fund our anticipated operating cash requirements for approximately
the next 12 months. If we cannot generate significant cash from our operations, we intend to obtain any additional funding we require
through strategic relationships, public or private equity or debt financings, grants or other arrangements.
Recently Adopted and Issued Accounting Pronouncements
See Footnote 2.
Cash Flows for the Three Months Ended March 31, 2019 and 2018
|
|
For The Three Months Ended
|
|
|
|
March 31,
|
|
($ in thousands)
|
|
2019
|
|
|
2018
|
|
Total cash (used in)/provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(5,568
|
)
|
|
$
|
(6,819
|
)
|
Investing activities
|
|
|
-
|
|
|
|
10,000
|
|
Financing activities
|
|
|
32,345
|
|
|
|
-
|
|
Net increase in cash
|
|
$
|
26,777
|
|
|
$
|
3,181
|
|
Operating Activities
Net cash used in operating
activities was $5.6 million for the three months ended March 31, 2019, primarily comprised of our $11.3 million net loss partially
offset by $0.7 million in share based compensation and increases in operating assets and liabilities of $5.0 million.
Net cash used in operating
activities was $6.8 million for the three months ended March 31, 2018, primarily comprised of our $10.4 million net loss, partially
offset by increases of: $3.2 million in operating assets and liabilities and $0.4 million in share based compensation.
Investing Activities
Net cash provided by investing
activities for the three months ended March 31, 2019 and 2018 was $0 and $10.0 million, respectively. Our $10.0 million short-term
investments consisting of certificates of deposits matured during the three months ended March 31, 2018.
Financing Activities
Net cash provided by financing
activities for the three months ended March 31, 2019 and 2018 was $32.3 million and $0, respectively. The source of the net cash
provided in the 2019 period was related to our issuance of shares to InvaGen in connection with the SPMA.
Contractual Obligations and Commitments
There have been no material
changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and
Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Off-Balance Sheet Arrangements
We are not party to any
off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.