UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2020
OR
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from to
Commission file
number: 001-37526
Zynerba
Pharmaceuticals, Inc.
(Exact name of
registrant as specified in its charter)
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Delaware
(State or other
jurisdiction of
incorporation or organization)
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26-0389433
(I.R.S. Employer
Identification Number)
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80 W.
Lancaster Avenue, Suite 300
Devon, PA (Address of principal executive
offices)
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19333
(Zip
Code)
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(484)
581-7505
(Registrant’s telephone number,
including area code)
Securities registered
pursuant to Section 12(b) of the Act:
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Title of each class:
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Trading
Symbol
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Name of each exchange on which registered:
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Common Stock, $0.001
par value per share
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ZYNE
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The Nasdaq Global
Market
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Indicate by check mark
whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
☒Yes ☐ No
Indicate by check mark
whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit 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, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
☐
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Accelerated
filer ☒
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Smaller reporting
company ☒
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Non-accelerated filer
☐
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Emerging growth company
☒
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If an emerging growth
company, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section
13(a) of the Exchange
Act.
☒
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes ☐ No ☒
As of May 7, 2020,
the registrant had 24,950,608 shares of Common Stock, $0.001 par
value per share, outstanding.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly
Report that are not statements of historical or current facts, such
as those under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” are
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements discuss our current expectations and projections
relating to our financial condition, results of operations, plans,
objectives, future performance and business. These statements may
be preceded by, followed by or include the words “aim,”
“anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“intend,” “outlook,” “plan,” “potential,” “project,” “projection,”
“seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can
have,” “likely,” the negatives thereof and other words and terms of
similar meaning.
Forward-looking statements are
inherently subject to risks, uncertainties and assumptions; they
are not guarantees of performance. You should not place undue
reliance on these statements. We have based these forward-looking
statements on our current expectations and projections about future
events. Although we believe that our assumptions made in connection
with the forward-looking statements are reasonable, we cannot
assure you that the assumptions and expectations will prove to be
correct.
You should understand that the
following important factors could affect our future results and
could cause those results or other outcomes to differ materially
from those expressed or implied in our forward-looking
statements:
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·
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our expectations,
projections and estimates regarding expenses, future revenue,
capital requirements, tax credits and timing and availability of
and the need for additional financing;
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·
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the results, cost and
timing of our preclinical studies and clinical trials, including
any delays to such clinical trials relating to enrollment or site
initiation, as well as the number of required trials for regulatory
approval and the criteria for success in such trials;
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·
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our dependence on third
parties in the conduct of our preclinical studies and clinical
trials;
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·
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legal and regulatory
developments in the United States and foreign countries, including
any actions or advice that may affect the design, initiation,
timing, continuation, progress or outcome of clinical trials or
result in the need for additional clinical trials;
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·
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the difficulties and
expenses associated with obtaining and maintaining regulatory
approval of our product candidates, and the indication and labeling
under any such approval;
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·
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our plans and ability
to develop and commercialize our product candidates;
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·
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the successful
development of our commercialization capabilities, including sales
and marketing capabilities, whether alone or with potential future
collaborators;
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·
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the size and growth of
the potential markets for our product candidates, the rate and
degree of market acceptance of our product candidates and our
ability to serve those markets;
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·
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the coverage and
reimbursement status for our product candidates from third-party
payors;
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·
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the success of
competing therapies and products that are or become
available;
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·
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our ability to limit
our exposure under product liability lawsuits, shareholder class
action lawsuits or other litigation;
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·
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our ability to obtain
and maintain intellectual property protection for our product
candidates;
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·
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legislative changes and
recently proposed changes regarding the healthcare system,
including changes and proposed changes to the Patient Protection
and Affordable Care Act;
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·
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our ability to obtain
and maintain third-party manufacturing for our product candidates
on commercially reasonable terms;
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·
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delays,
interruptions or failures in the
manufacture and supply of our product candidates;
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·
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the performance of third parties upon
which we depend, including third-party contract research
organizations, or CROs, contract manufacturing organizations, or
CMOs, contractor laboratories and independent
contractors;
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·
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our ability to recruit or retain key
scientific, commercial or management personnel or to retain our
executive officers;
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·
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the timing and outcome of current and
future legal proceedings;
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·
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our ability to maintain proper
functionality and security of our internal computer and information
systems and prevent or avoid cyberattacks, malicious intrusion, breakdown,
destruction, loss of data privacy or other significant
disruption;
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·
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the
extent to which health epidemics and other outbreaks of
communicable diseases, including the recent outbreak of a
novel strain of coronavirus, or COVID-19,
could disrupt our operations or materially and adversely affect our
business and financial conditions; and
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·
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the other risks,
uncertainties and factors discussed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, or our 2019
Annual Report, under the caption “Item 1A. Risk
Factors”.
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In light of these risks and
uncertainties, expected results or other anticipated events or
circumstances discussed in this Form 10-Q (including the exhibits
hereto) might not occur. We undertake no obligation, and
specifically decline any obligation, to publicly update or revise
any forward-looking statements, even if experience or future
developments make it clear that projected results expressed or
implied in such statements will not be realized, except as may be
required by law.
PART I – FINANCIAL
INFORMATION
Item 1. Consolidated
Financial Statements (Unaudited)
ZYNERBA
PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31,
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December 31,
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2020
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2019
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Assets
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Current assets:
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Cash and cash equivalents
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$
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60,638,853
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$
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70,063,242
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Incentive and tax receivables
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12,906,735
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14,613,969
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Prepaid expenses and other current assets
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1,474,930
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2,378,812
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Total current assets
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75,020,518
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87,056,023
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Property and equipment, net
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587,267
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362,724
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Incentive and tax receivables
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571,329
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—
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Right-of-use assets
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287,160
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345,849
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Total assets
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$
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76,466,274
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$
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87,764,596
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Liabilities and Stockholders' Equity
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Current liabilities:
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Accounts payable
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$
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3,328,339
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$
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4,740,981
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Accrued expenses
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6,676,988
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7,073,506
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Lease liabilities
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252,394
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243,677
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Total current liabilities
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10,257,721
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12,058,164
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Lease liabilities, long-term
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44,237
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109,689
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Total liabilities
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10,301,958
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12,167,853
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Stockholders' equity:
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; no
shares issued or outstanding
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—
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—
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Common stock, $0.001 par value; 200,000,000 shares
authorized; 23,572,391 shares issued and outstanding at
March 31, 2020 and 23,211,391 shares issued and outstanding at
December 31, 2019
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23,572
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23,211
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Additional paid-in capital
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229,314,197
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226,409,156
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Accumulated deficit
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(163,173,453)
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(150,835,624)
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Total stockholders' equity
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66,164,316
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75,596,743
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Total liabilities and stockholders' equity
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$
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76,466,274
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$
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87,764,596
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See accompanying notes to unaudited
consolidated financial statements.
ZYNERBA
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three months ended March 31,
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2020
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2019
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Operating expenses:
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Research and development
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$
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6,882,793
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$
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6,306,712
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General and administrative
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3,916,569
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3,159,657
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Total operating expenses
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10,799,362
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9,466,369
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Loss from operations
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(10,799,362)
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(9,466,369)
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Other income (expense):
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Interest income
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201,684
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350,951
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Foreign exchange loss
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(1,740,151)
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(31,599)
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Total other income
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(1,538,467)
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319,352
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Net loss
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$
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(12,337,829)
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$
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(9,147,017)
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Net loss per share basic and diluted
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$
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(0.53)
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$
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(0.47)
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Basic and diluted weighted average shares outstanding
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23,399,438
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19,452,088
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See accompanying notes
to unaudited consolidated financial statements.
ZYNERBA
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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Three months ended March 31, 2020
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Total
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Common stock
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Additional
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Accumulated
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stockholders'
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Shares
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Amount
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paid-in capital
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deficit
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equity
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Balance at December 31, 2019
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23,211,391
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$
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23,211
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$
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226,409,156
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$
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(150,835,624)
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$
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75,596,743
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Issuance of common stock, net of issuance costs
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356,000
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356
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1,581,694
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—
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1,582,050
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Issuance of restricted stock
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5,000
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5
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(5)
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—
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—
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Stock-based compensation expense
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—
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—
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1,323,352
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—
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1,323,352
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Net loss
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—
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—
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—
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(12,337,829)
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(12,337,829)
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Balance at March 31, 2020
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23,572,391 |
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$
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23,572 |
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$
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229,314,197 |
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$
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(163,173,453)
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$
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66,164,316
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Three months ended March 31, 2019
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Total
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Common stock
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Additional
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Accumulated
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stockholders'
|
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Shares
|
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Amount
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paid-in capital
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deficit
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equity
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Balance at December 31, 2018
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17,626,873
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$
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17,627
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$
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175,476,075
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$
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(117,892,041)
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$
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57,601,661
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Issuance of common stock, net of issuance costs
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3,439,523
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3,439
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18,076,359
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—
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18,079,798
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Issuance of restricted stock
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8,600
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9
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(9)
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—
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—
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Stock-based compensation expense
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—
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—
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1,496,292
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—
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1,496,292
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Net loss
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—
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—
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—
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(9,147,017)
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(9,147,017)
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Balance at March 31, 2019
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21,074,996
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$
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21,075
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$
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195,048,717
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$
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(127,039,058)
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$
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68,030,734
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See accompanying notes
to unaudited consolidated financial statements.
ZYNERBA
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three months ended March 31,
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2020
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2019
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Cash flows from operating activities:
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Net loss
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$
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(12,337,829)
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$
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(9,147,017)
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Adjustments to reconcile net loss to net cash used in operating
activities:
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Depreciation
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41,216
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29,256
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Stock-based compensation
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1,323,352
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1,496,292
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Changes in operating assets and liabilities:
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Incentive and tax receivables
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1,135,905
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(643,219)
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Prepaid expenses and other assets
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767,903
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1,222,686
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Right-of-use assets
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1,954
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(1,303)
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Accounts payable
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(1,535,807)
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(510,643)
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Accrued expenses
|
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(394,859)
|
|
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(1,965,896)
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Net cash used in operating activities
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(10,998,165)
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(9,519,844)
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Cash flows from investing activities:
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Purchases of property and equipment
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(138,209)
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(24,616)
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Net cash used in investing activities
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(138,209)
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(24,616)
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Cash flows from financing activities:
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Proceeds from the issuance of common stock
|
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1,816,471
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18,713,185
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Payment of financing fees and expenses
|
|
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(104,486)
|
|
|
(633,387)
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Net cash provided by financing activities
|
|
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1,711,985
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|
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18,079,798
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Net (decrease) increase in cash and cash equivalents
|
|
|
(9,424,389)
|
|
|
8,535,338
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Cash and cash equivalents at beginning of period
|
|
|
70,063,242
|
|
|
59,763,773
|
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Cash and cash equivalents at end of period
|
|
$
|
60,638,853
|
|
$
|
68,299,111
|
|
|
|
|
|
|
|
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Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
Deferred financing costs included in accounts payable and accrued
expenses at end of period
|
|
$
|
57,526
|
|
$
|
—
|
|
Property and equipment acquired but unpaid at end of
period
|
|
$
|
143,150
|
|
$
|
—
|
|
Reclassification of deferred rent liability to right-of-use assets
upon adoption of ASC 842
|
|
$
|
—
|
|
$
|
12,824
|
|
Right-of-use assets and lease liability recorded upon adoption of
ASC 842
|
|
$
|
—
|
|
$
|
325,683
|
|
See accompanying notes to unaudited
consolidated financial statements
Table of Contents
ZYNERBA
PHARMACEUTICALS, NC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1)
Nature of Business and Liquidity
Zynerba
Pharmaceuticals, Inc., together with its subsidiary, Zynerba
Pharmaceuticals Pty Ltd (“Zynerba”, the “Company”, “we”), is a
clinical stage specialty pharmaceutical company focused on the
development of pharmaceutically-produced transdermal cannabinoid
therapies for rare and near-rare neuropsychiatric disorders,
including Fragile X syndrome, autism spectrum disorder, 22q11.2
deletion syndrome, and a heterogeneous group of rare and ultra-rare
epilepsies known as developmental and epileptic encephalopathies.
The Company has
incurred losses and negative cash flows from operations since
inception and has an accumulated deficit of $163.2 million as
of March 31, 2020. The Company anticipates incurring
additional losses until such time, if ever, that it can generate
significant revenue from its product candidates currently in
development. The Company's primary source of liquidity has been the
issuance of equity securities.
In August 2019, the Company
entered into a Controlled Equity Offering Sales
AgreementSM
(the “2019 Sales Agreement”) with
Cantor Fitzgerald & Co., Canaccord Genuity, LLC, H.C.
Wainwright & Co. LLC and Ladenburg Thalmann & Co. Inc., as
sales agents (the “Agents”), pursuant to which the Company may
sell, from time to time, up to $75.0 million of its common stock.
In 2019, the Company sold and issued 13,381 shares of its common
stock in the open market at a weighted-average selling price of
$7.00, for gross and net proceeds of $0.1 million. From January 1,
2020 through May 4, 2020, the Company sold and issued
1,734,217 shares of its common stock in the open market at a
weighted average selling price of $4.32 per share, for gross
proceeds of $7.5 million and net proceeds, after deducting
commissions and offering expenses, of $7.1 million. From
January 1, 2020 through March 31, 2020, the Company sold and issued
356,000 shares of its common stock in the open market at a
weighted-average selling price of $5.10 per share, for gross
proceeds of $1.8 million and net proceeds, after deducting
commissions and offering expenses, of $1.6 million. The balance of
the shares were sold from April 1, 2020 through April 30,
2020.
In June 2017, the Company entered
into an Open Market Sales Agreement (the “2017 Sales Agreement”)
with Jefferies LLC, (“Jefferies”) pursuant to which the Company
sold $50.0 million of its common stock. In the first quarter of
2019, the Company sold and issued 3,439,523 shares of common stock
under the 2017 Sales Agreement with Jefferies in the open market at
a weighted average selling price of $5.44 per share, resulting in
gross proceeds of $18.7 million. Net proceeds received after
deducting commissions and offering expenses were $18.1 million. In
the second quarter of 2019, the Company sold and issued 2,082,031
shares of common stock under the 2017 Sales Agreement with
Jefferies in the open market at a weighted average selling price of
$13.50 per share, resulting in gross proceeds of $28.1 million. Net
proceeds received after deducting commissions and offering expenses
were $27.0 million. The last sale under the 2017 Sales Agreement
was made on May 16, 2019. From June 2017 through May 16, 2019, the
Company has cumulative gross proceeds of $50.0 million from shares
sold in the open market under the 2017 Sales Agreement, which was
terminated pursuant to its terms.
In July 2019, the Australian
government’s Department of Industry, Innovation and Science
(“AusIndustry”) responded to an Advance Overseas Finding (“AOF”)
application submitted by Zynerba that will allow certain research
and development expenses incurred with respect to the Company’s
product candidate Zygel™ outside of Australia to be eligible for
the Australian research and development tax incentive program. As a
result of this finding, the Company is eligible to receive a cash
refund from the Australian Taxation Office for the qualifying
research and development costs expended outside of Australia in
2018, 2019 and 2020. During the year ended December 31, 2019, the
Company recorded $8.3 million as an Incentive and Tax Receivable
and recorded a corresponding credit to research and development
expense for amounts expected to be received through the AOF for the
period January 1, 2018 through December 31, 2019. Although the AOF
approval extended into 2020, management believes that substantially
all qualifying amounts have been recorded as of December 31,
2019.
Management believes that current cash
and cash equivalents and the proceeds anticipated from the AOF are
sufficient to fund operations and capital requirements into the
second half of 2021. Substantial additional financings
will be needed by the Company to fund its operations, to complete
clinical development of and to commercially develop its product
candidates. Our ability to raise sufficient additional financing
depends on many factors beyond our control, including the current
volatility in the capital markets as a result of the COVID-19
pandemic. There is no assurance that such financing will be
available when needed or on acceptable terms.
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company is subject
to those risks associated with any clinical stage pharmaceutical
company that has substantial expenditures for research and
development. There can be no assurance that the Company's research
and development projects will be successful, that products
developed will obtain necessary regulatory approval, or that any
approved product will be commercially viable. In addition, the
Company operates in an environment of rapid technological change
and is largely dependent on the services of its employees and
consultants.
(2)
Summary of Significant Accounting Policies
a. Basis of
Presentation
The accompanying unaudited interim
consolidated financial statements of the Company have been prepared
in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. The
interim unaudited consolidated financial statements have been
prepared on the same basis as the consolidated financial statements
as of and for the year ended December 31, 2019 included in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019 (“2019 Annual Report”), filed with the Securities and
Exchange Commission (“SEC”). In the opinion of management, the
accompanying consolidated financial statements of the Company
include all normal and recurring adjustments (which consist
primarily of accruals, estimates and assumptions that impact the
consolidated financial statements) considered necessary to present
fairly the Company's financial position as of March 31, 2020
its results of operations and cash flows for the three months ended
March 31, 2020 and 2019. Operating results for any interim
period are not necessarily indicative of results for any future
interim period or for the entire year. The accompanying unaudited
interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Company’s 2019 Annual Report.
Certain prior period balances have
been reclassified to conform to the current year
presentation.
b. Use of
Estimates
The preparation of
consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements
and reported amounts of expenses during the reporting period.
Actual results could differ from such estimates.
c. Incentive and Tax
Receivables
The Company’s subsidiary, Zynerba
Pharmaceuticals Pty Ltd (the “Subsidiary”), is incorporated in
Australia. The Subsidiary is eligible to participate in an
Australian research and development tax incentive
program. As part of this program, the Subsidiary is
eligible to receive a cash refund from the Australian Taxation
Office for a percentage of the research and development costs
expended by the Subsidiary in Australia. The cash refund is
available to eligible companies with an annual aggregate revenue of
less than $20.0 million (Australian dollars) during the
reimbursable period. The Company’s estimate of the amount of cash
refund it expects to receive related to the Australian research and
development tax incentive program is included in “Incentive and tax
receivables” in the accompanying consolidated balance sheets. As of
March 31, 2020, the Company’s estimate of the amount of cash
refund it expects to receive in 2020 for 2019 and 2018
eligible spending as part of this incentive program was $5.3
million and was recorded as a current asset. The Company’s
estimate of the amount of cash refund it expects to receive in 2021
for 2020 eligible spending through March 31, 2020 was $0.6
million and was recorded as a non-current asset.
In July 2019, AusIndustry responded
to an AOF application submitted by Zynerba that will allow certain
research and development expenses incurred with respect to Zygel
outside of Australia to be eligible for the Australian research and
development tax incentive program. As a result of this finding, the
Company is eligible to receive a cash refund from the Australian
Taxation Office for the qualifying research and development costs
expended outside of Australia in 2018, 2019 and 2020. During the
year ended December 31, 2019, the Company recorded $8.3 million as
an incentive and tax receivable and recorded a corresponding credit
to research and development expense for amounts expected to be
received through the AOF for the period January 1, 2018 through
December 31, 2019. As of March 31, 2020, incentive
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
and tax receivables included $7.3
million related to the AOF. The reduction of $1.0 million was due
to unrealized foreign currency losses related to
the remeasurement of the Subsidiary’s assets and
liabilities.
In addition, the Subsidiary incurs
Goods and Services Tax (“GST”) on services provided by Australian
vendors. As an Australian entity, the Subsidiary is entitled to a
refund of the GST paid. The Company’s estimate of the amount of
cash refund it expects to receive related to GST incurred is
included in “Incentive and tax receivables” in the accompanying
consolidated balance sheets. As of March 31, 2020, incentive
and tax receivables included $0.3 million for refundable GST on
expenses incurred with Australian vendors during the three months
ended March 31, 2020.
Current incentive and tax
receivables consisted of the following as of
March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Research and development incentive (non-AOF) for the period 1/1/18
- 12/31/18
|
|
$
|
2,749,930
|
|
$
|
3,126,750
|
Research and development incentive (non-AOF) for the period 1/1/19
- 12/31/19
|
|
|
2,562,308
|
|
|
2,913,417
|
Research and development incentive (AOF) for the period 1/1/18 -
12/31/19
|
|
|
7,261,397
|
|
|
8,256,416
|
Goods and services tax
|
|
|
333,100
|
|
|
317,386
|
Total incentive and tax receivables - current assets
|
|
$
|
12,906,735
|
|
$
|
14,613,969
|
d. Research and
Development
Research and development costs are
expensed as incurred and are primarily comprised of external
research and development expenses incurred under arrangements with
third parties, such as contract research organizations, contract
manufacturing organizations, consultants and employee-related
expenses including salaries and benefits. At the end of each
reporting period, the Company compares the payments made to each
service provider to the estimated progress towards completion of
the related project. Factors that the Company considers in
preparing these estimates include the number of patients enrolled
in studies, milestones achieved and other criteria related to the
efforts of its vendors. These estimates will be subject to change
as additional information becomes available. Depending on the
timing of payments to vendors and estimated services provided, the
Company will record net prepaid or accrued expenses related to
these costs. Research and development expenses
are recorded net of expected refunds of eligible research and
development costs paid pursuant to the Australian research and
development tax incentive program and GST incurred on services
provided by Australian vendors. For the three months ended March 31, 2020
and 2019, the Company incurred research and development expenses of
$6.9 million and $6.3 million, respectively, which were net
of $0.6 million and $0.7 million, respectively, associated with the
Australian research and development tax incentive
program.
e. Net
Loss Per Share
Basic net loss per
share is determined using the weighted average number of shares of
common stock outstanding during each period. Diluted net income per
share includes the effect, if any, from the potential exercise or
conversion of securities, such as restricted stock and stock
options, which would result in the issuance of incremental shares
of common stock. Basic and dilutive computations of net loss per
share are the same in periods in which a net loss exists as the
dilutive effects of restricted stock and stock options would be
anti-dilutive.
The following
potentially dilutive securities outstanding as of March 31,
2020 and 2019 have been excluded from the computation of diluted
weighted average shares outstanding, as their effects on net loss
per share for the periods presented would be
anti-dilutive:
|
|
|
|
|
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
Stock options
|
|
4,704,196
|
|
3,846,712
|
|
Unvested restricted stock
|
|
11,800
|
|
11,600
|
|
|
|
4,715,996
|
|
3,858,312
|
|
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
f. Recently Adopted
Accounting Pronouncements
In 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic
842), Accounting Standards Codification 842 (“ASC 842”), which amends a number
of aspects of lease accounting and requires entities to recognize
right-of-use assets and lease liabilities on the balance sheet for
leases with lease terms of more than 12 months. ASC 842 became
effective on January 1, 2019. In July 2018, the FASB issued ASU No.
2018-11, Leases (Topic
842): Targeted Improvements (“ASU 2018-11”), which offered a
transition option to entities adopting ASC 842. Under ASU 2018-11,
entities could elect to apply ASC 842 using a
modified-retrospective adoption approach resulting in a cumulative
effect adjustment, if any, to retained earnings at the beginning of
the year in which the new lease standard is adopted, rather than
adjustments to the earliest comparative period presented in their
financial statements.
As of January 1, 2019,
the Company adopted ASC 842 using the modified-retrospective method
and recognized right-of-use assets and corresponding lease
liability of $325,683, which represented the present value of the
remaining lease payments of $350,507, discounted using the
Company’s incremental borrowing rate of 11.17%. In addition, the
Company eliminated its deferred rent liability and recorded an
adjustment to decrease its right-of-use assets by $12,824. The
adoption of the standard did not have an impact on the Company’s
consolidated statements of cash flows and had no impact on the
Company’s consolidated
statement of operations.
(3)
Fair Value Measurements
The Company measures certain assets
and liabilities at fair value in accordance with Accounting
Standards
Codification 820 (“ASC 820”),
Fair Value
Measurements and Disclosures.
ASC 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability (the exit price) in
an orderly transaction between market participants at the
measurement date. The guidance in ASC 820 outlines a valuation
framework and creates a fair value hierarchy that serves to
increase the consistency and comparability of fair value
measurements and the related disclosures. In determining fair
value, the Company maximizes the use of quoted prices and
observable inputs. Observable inputs are inputs that market
participants would use in pricing the asset or liability based on
market data obtained from independent sources. The fair value
hierarchy is broken down into three levels based on the source of
inputs as follows:
Level 1 — Valuations
based on unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2 — Valuations
based on observable inputs and quoted prices in active markets for
similar assets and liabilities.
Level 3 — Valuations
based on unobservable inputs and models that are supported by
little or no market activity.
In accordance with the
fair value hierarchy described above, the following table sets
forth the Company's financial assets measured at fair value on a
recurring basis as of March 31, 2020 and
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
|
|
|
|
Carrying amount
|
|
as of
March 31, 2020
|
|
|
|
as of March 31,
2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash equivalents (money
market accounts)
|
|
$
|
60,236,804
|
|
$
|
60,236,804
|
|
$
|
—
|
|
$
|
—
|
|
|
|
$
|
60,236,804
|
|
$
|
60,236,804
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
|
|
|
|
Carrying amount
|
|
as of
December 31, 2019
|
|
|
|
as of December 31,
2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash equivalents (money
market accounts)
|
|
$
|
69,686,350
|
|
$
|
69,686,350
|
|
$
|
—
|
|
$
|
—
|
|
|
|
$
|
69,686,350
|
|
$
|
69,686,350
|
|
$
|
—
|
|
$
|
—
|
|
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4)
Prepaid Expenses and Other Current Assets
Prepaid expenses and
other current assets consisted of the following as
of March 31, 2020 and December 31,
2019:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Prepaid development
expenses
|
|
$
|
569,393
|
|
$
|
957,814
|
|
Prepaid insurance
|
|
|
495,322
|
|
|
841,858
|
|
Deferred financing costs
|
|
|
57,527
|
|
|
193,505
|
|
Other current assets
|
|
|
352,688
|
|
|
385,635
|
|
Total prepaid expenses and other
current assets
|
|
$
|
1,474,930
|
|
$
|
2,378,812
|
|
(5)
Property and Equipment
Property and equipment
consisted of the following as of March 31, 2020 and
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
useful life
|
|
March 31,
|
|
December 31,
|
|
|
|
(in years)
|
|
2020
|
|
2019
|
|
Equipment
|
|
2-5
|
|
$
|
342,602
|
|
$
|
263,829
|
|
Computer equipment
|
|
3-5
|
|
|
30,319
|
|
|
30,319
|
|
Furniture and fixtures
|
|
3-5
|
|
|
311,355
|
|
|
311,355
|
|
Leasehold improvements
|
|
various
|
|
|
68,881
|
|
|
68,881
|
|
Construction in process
|
|
|
|
|
265,759
|
|
|
78,773
|
|
Total cost
|
|
|
|
|
1,018,916
|
|
|
753,157
|
|
Less accumulated depreciation
|
|
|
|
|
(431,649)
|
|
|
(390,433)
|
|
Property and equipment, net
|
|
|
|
$
|
587,267
|
|
$
|
362,724
|
|
Depreciation expense
was $41,216 and $29,256 for the three months ended March 31,
2020 and 2019, respectively.
(6)
Accrued Expenses
Accrued expenses
consisted of the following as of March 31, 2020 and
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Accrued compensation
|
|
$
|
897,674
|
|
$
|
2,340,533
|
|
Accrued research and development
|
|
|
5,330,543
|
|
|
4,343,322
|
|
Other
|
|
|
448,771
|
|
|
389,651
|
|
Total accrued expenses
|
|
$
|
6,676,988
|
|
$
|
7,073,506
|
|
(7)
Common Stock
In August 2019, the Company entered
into the 2019 Sales Agreement with the Agents pursuant to which the
Company may sell, from time to time, up to $75.0 million of its
common stock. In 2019, the Company has sold and issued 13,381
shares of its common stock in the open market at a weighted-average
selling price of $7.00, for gross and net proceeds of $0.1 million.
From January 1, 2020 through May 4, 2020, the Company sold and
issued 1,734,217 shares of its common stock in the open market at a
weighted-average selling price of $4.32 per share, for gross
proceeds of $7.5 million and net proceeds, after deducting
commissions and offering expenses, of $7.1 million. From January 1,
2020 through March 31, 2020, the Company sold and issued 356,000
shares of its common stock in the open market at a weighted-average
selling price of $5.10 per share, for gross proceeds of $1.8
million and net proceeds, after deducting commissions and offering
expenses, of $1.6 million. The balance of the shares were sold from
April 1, 2020 through April 30, 2020.
In the first quarter of 2019, the
Company sold and issued 3,439,523 shares of common stock under the
2017 Sales Agreement with Jefferies in the open market at a
weighted average selling price of $5.44 per share, resulting in
gross
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
proceeds of $18.7 million. Net
proceeds received after deducting commissions and offering expenses
were $18.1 million. In the second quarter of 2019, the Company sold
and issued 2,082,031 shares of common stock under the 2017 Sales
Agreement with Jefferies in the open market at a weighted average
selling price of $13.50 per share, resulting in gross proceeds of
$28.1 million. Net proceeds received after deducting commissions
and offering expenses were $27.0 million. The last sale under the
2017 Sales Agreement was made on May 16, 2019. From June 2017
through May 16, 2019, the Company has cumulative gross proceeds of
$50.0 million from shares sold in the open market under the 2017
Sales Agreement, which has terminated pursuant to its
terms.
(8)
Stock-Based Compensation
The Company maintains the Amended and
Restated 2014 Omnibus Incentive Compensation Plan, as amended (the
“2014 Plan”), which allows for the granting of incentive stock
options, nonqualified stock options, stock appreciation rights,
stock awards, stock units, performance units and other stock‑based
awards to employees, officers, non-employee directors, consultants,
and advisors. In addition, the 2014 Plan provides selected
executive employees with the opportunity to receive bonus awards
that are considered qualified performance‑based compensation.
The 2014 Plan is
subject to automatic annual increases in the number of shares
authorized for issuance under the 2014 Plan on the first trading
day of January each year equal to the lesser of 1.5 million shares
or 10% of the number of shares of common stock outstanding on the
last trading day of December of the preceding year. As of January
1, 2020, the number of shares of common stock that may be issued
under the 2014 Plan was automatically increased by 1.5 million
shares, increasing the number of shares of common stock available
for issuance under the 2014 Plan to 7,804,869 shares. As of
March 31, 2020, 2,547,297 shares were available for
future issuance under the 2014 Plan.
Options issued under the 2014 Plan
have a contractual life of 10 years and may be exercisable in
cash or as otherwise determined by the board of directors. The
Company has granted options to employees and non‑employee
directors. Stock options granted to employees primarily vest 25%
upon the first anniversary of the grant date and the balance of
unvested options vests in quarterly installments over the remaining
three years. Stock options granted annually to non-employee
directors vest on the earlier of the one-year anniversary of the
grant date, or the date of the Company’s next annual stockholders’
meeting that occurs after the grant date. The Company’s
non-employee director compensation policy enables directors to
receive stock options in lieu of quarterly cash payments. Any
option granted to the directors in lieu of cash compensation vests
in full on the grant date. The Company records forfeitures as they
occur.
During 2018, the Company granted
83,280 performance-based stock options to certain employees. These
performance options have a 10-year life and an exercise price equal
to the fair value of the Company’s stock at the grant date. During
2019, the Company granted 5,000 performance-based
restricted stock
awards. Vesting of the
performance-based options and restricted stock awards is dependent
on meeting certain performance conditions, which relate to the
Company’s research and development progress, which were established
by the Company’s board of directors. The Company’s board of
directors determines if the performance conditions have been met.
Stock-based compensation expense for these performance-based grants
are recorded when management estimates that the vesting of these
shares is probable based on the status of the Company’s research
and development programs and other relevant factors. For the three
months ended March 31, 2020, none of the
performance-based metrics were deemed probable of achievement. Any
change in these estimates will result in a cumulative adjustment in
the period in which the estimate is changed, so that as of the end
of a period, the cumulative compensation expense recognized for an
award or grant equals the amount that would be recognized on a
straight-line basis as if the current estimates had been utilized
since the beginning of the service period. As of March 31,
2020, the aggregate estimated grant date fair values of options and
restricted stock awards for which the satisfaction of the
related-performance conditions have not been deemed probable were
$663,484 and $24,850, respectively.
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For the three months
ended March 31, 2020 and 2019, the Company recorded
stock-based compensation expense related to its stock option grants
and restricted stock awards, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Grants
|
|
Restricted stock awards
|
|
Total
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
2019
|
Research and development
|
|
$
|
503,235
|
|
$
|
659,159
|
|
$
|
7,241
|
|
$
|
7,020
|
|
$
|
510,476
|
|
$
|
666,179
|
General and administrative
|
|
|
812,876
|
|
|
830,113
|
|
|
—
|
|
|
—
|
|
|
812,876
|
|
|
830,113
|
|
|
$
|
1,316,111
|
|
$
|
1,489,272
|
|
$
|
7,241
|
|
$
|
7,020
|
|
$
|
1,323,352
|
|
$
|
1,496,292
|
The following table summarizes the
stock option activity for the three months ended March 31,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
Number
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
of Shares
|
|
Price
|
|
Life (in Years)
|
|
Value
|
Outstanding as of December 31, 2019
|
|
3,988,716
|
|
$
|
10.83
|
|
|
|
|
|
Granted
|
|
750,480
|
|
|
5.08
|
|
|
|
|
|
Forfeited
|
|
(35,000)
|
|
|
12.06
|
|
|
|
|
|
Outstanding as of March 31, 2020
|
|
4,704,196
|
|
|
9.90
|
|
7.44
|
|
$
|
119,654
|
Exercisable as of March 31, 2020
|
|
2,658,973
|
|
|
11.50
|
|
6.32
|
|
$
|
30,116
|
Vested and expected to vest as of March 31, 2020
|
|
4,620,916
|
|
$
|
9.87
|
|
|
|
|
|
The weighted-average grant date fair
values of options granted during the three months ended
March 31, 2020 and 2019 was $3.60 and $2.63,
respectively.
The fair values of stock options
granted were calculated using the Black-Scholes option pricing
model with the following weighted-average assumptions:
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2020
|
|
2019
|
Weighted-average risk-free interest rate
|
|
1.39% |
|
2.54% |
Expected term of options (in years)
|
|
6.26 |
|
6.23 |
Expected stock price volatility
|
|
82.00% |
|
80.00% |
Expected dividend yield
|
|
0% |
|
0% |
As of March 31,
2020, excluding performance-based stock options that have not been
deemed probable, there was $8.7 million of unrecognized stock-based
compensation expense related to stock options, which is expected to
be recognized over a weighted-average period of 2.51
years.
The following table
summarizes the restricted stock award activity under the 2014 Plan
for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
Unvested as of December 31, 2019
|
|
8,600
|
|
$
|
4.42
|
Granted
|
|
5,000
|
|
|
5.70
|
Vested
|
|
(1,800)
|
|
|
3.65
|
Unvested as of March 31, 2020
|
|
11,800
|
|
$
|
5.08
|
As of March 31,
2020, excluding performance-based restricted stock awards that have
not been deemed probable, there was $28,243 of unrecognized
stock-based compensation expense related to unvested restricted
stock awards, which is expected to be recognized over a
weighted-average period of 0.81 years. The Company expects that all
11,800 of the unvested, non-performance based, restricted stock
awards will vest.
Table of Contents
ZYNERBA
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) Operating Lease Obligations
The Company adopted ASC 842
prospectively using the modified-retrospective method and elected
the package of transition practical expedients that does not
require reassessment of: (1) whether any existing or expired
contracts are or contain leases, (2) lease classification and (3)
initial direct costs. In addition, the Company has elected other
available practical expedients to not separate lease and nonlease
components, which consist principally of common area maintenance
charges, and to exclude leases with an initial term of 12 months or
less.
The Company leases its headquarters
where it occupies 10,877 square feet of office space. On November
11, 2019, the Company extended its original five-year lease for one
additional year until May 31, 2021. The Company’s lease contains
variable lease costs that do not depend on a rate or index and
consist primarily of common area maintenance, taxes, and insurance
charges. As the implicit rate was not readily determinable for the
Company’s lease, the Company used an estimated incremental
borrowing rate, or discount rate, to determine the initial present
value of the lease payments. The discount rate for the lease was
calculated using a synthetic credit rating model.
As of January 1, 2019, the Company
recognized a lease liability of $325,683 and a right-of-use asset
of $312,859, which was recorded net of a pre-existing deferred rent
liability of $12,824. As of November 11, 2019, the effective date
of the lease modification, the Company remeasured the lease
liability for the remaining portion of the lease and adjusted the
lease liability to $392,822 and right-of-use assets to $386,609,
which was recorded net of a deferred rent liability of $6,213. As
of March 31, 2020, the Company’s right-of-use asset, net of
amortization, was $287,160.
Other operating
lease information as of March 31, 2020:
|
|
|
|
Weighted-average remaining lease term - operating leases
|
|
1.2 |
years
|
Weighted-average discount rate - operating leases
|
|
6.6 |
%
|
The following is a
maturity analysis of the annual undiscounted cash flows of the
operating lease liabilities as of March 31, 2020 and
December 31, 2019:
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Year ended:
|
|
2020
|
|
2019
|
December 31, 2020
|
|
$
|
197,610
|
|
$
|
259,864
|
December 31, 2021
|
|
|
111,506
|
|
|
111,506
|
Total minimum lease payments
|
|
|
309,116
|
|
|
371,370
|
Less: imputed lease interest
|
|
|
(12,485)
|
|
|
(18,004)
|
Total lease liabilities
|
|
$
|
296,631
|
|
$
|
353,366
|
Lease expense
for the three months ended March 31, 2020 and 2019 was
comprised of the following:
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
Operating lease expense
|
|
$
|
64,209
|
|
$
|
59,591
|
Variable lease expense
|
|
|
14,674
|
|
|
14,674
|
Total lease expense
|
|
$
|
78,883
|
|
$
|
74,265
|
Cash payments
related to operating leases was $62,254 and $60,894 for the
three months ended March 31, 2020 and 2019,
respectively.
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following discussion and analysis of our financial
condition and results of operations together with our unaudited
interim consolidated financial statements and related notes
appearing elsewhere in this Quarterly Report and the audited
consolidated financial statements and notes thereto for the year
ended December 31, 2019 and the related Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, both of which are contained in our 2019 Annual
Report. The following discussion contains
forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results and the timing of certain events
could differ materially from those anticipated in these
forward-looking statements as a result of many
factors. We discuss factors that we believe could cause
or contribute to these differences below and elsewhere in this
Quarterly Report, including those set forth under “Cautionary Note
Regarding Forward-looking Statements” and “Risk Factors” in this
Quarterly Report and our 2019 Annual Report.
Overview
Company
Overview
We are the leader in
pharmaceutically-produced transdermal cannabinoid therapies for
rare and near-rare neuropsychiatric disorders. We are committed to
improving the lives of patients and their families living with
severe, chronic health conditions including Fragile X syndrome, or
FXS, autism spectrum disorder, or ASD, 22q11.2 deletion syndrome,
or 22q, and a heterogeneous group of rare and ultra-rare epilepsies
known as developmental and epileptic encephalopathies, or
DEE.
Cannabinoids are a
class of compounds derived from Cannabis
plants. The two primary
cannabinoids contained in Cannabis
are CBD and
Tetrahydrocannabinol, or THC. Clinical and preclinical data suggest
that CBD has positive effects on treating behavioral symptoms of
FXS, ASD, 22q and seizures in patients with epilepsy.
Zygel is the first and
only pharmaceutically-produced CBD formulated as a
permeation‑enhanced gel for transdermal delivery, and the
formulation is patent protected through 2030. Four additional patents
expiring in
2038 are directed to methods of use relating to Zygel, including
methods of treating FXS and
ASD.
In preclinical animal
studies, Zygel’s permeation enhancer increased delivery of CBD
through the layers of the skin and into the circulatory system.
These preclinical studies suggest increased bioavailability,
consistent plasma levels and the avoidance of first‑pass liver
metabolism of CBD when delivered transdermally. In addition,
an in vitro
study published
in Cannabis and
Cannabinoid Research in April 2016 demonstrated that CBD
is degraded to THC (the major psychoactive cannabinoid in
Cannabis)
in an acidic
environment such as the stomach. As a result, we believe such
degradation may lead to increased psychoactive effects if CBD is
delivered orally and may be avoided with the transdermal delivery
of Zygel, which maintains CBD in a neutral pH. Zygel, which is
being developed as a clear gel with once- or twice-daily
dosing, is targeting
treatment of behavioral symptoms of FXS, ASD and 22q and a
reduction in seizures in patients with DEE. We have been
granted orphan drug designation from United States Food and
Drug Administration, or FDA, for the use of CBD for the
treatment of FXS. In May 2019, we received Fast Track designation
from the FDA for treatment of behavioral symptoms associated with
FXS. The FDA’s Fast Track program is designed to facilitate the
development of drugs intended to treat serious conditions and fill
unmet medical needs, and can lead to expedited review by the FDA in order to get
new important drugs to the patient earlier.
As of March 2020, the
Zygel safety database across all clinical studies conducted by us
includes data from 623 volunteers and patients. Across these
clinical studies, Zygel has been well tolerated and consistent with
previously reported data.
In April 2018, we
initiated the exploratory Phase 2 BELIEVE 1 (Open Label Study to
Assess the Safety and Efficacy of Zygel Administered as a
Transdermal Gel to Children and Adolescents with Developmental and
Epileptic Encephalopathy) clinical trial, a six-month open label
multi-dose clinical trial designed to evaluate the efficacy and
safety of Zygel in children and adolescents (age three to 17 years)
with DEE as classified by the International League Against
Epilepsy, or ILAE (Scheffer et al.
2017). In September 2019, we
reported positive top-line results from the BELIEVE 1
trial.
In July 2018, we
initiated the pivotal CONNECT-FX (Clinical study of Cannabidiol
(CBD) in Children and Adolescents with Fragile X) clinical trial, a
multi-national randomized, double-blind, placebo-controlled,
14-week study that will assess the efficacy and safety of Zygel in
children and adolescents ages three through 17 years who have full
mutation of the FMR1 gene. In the first
quarter of 2020, we announced that 212 patients with FXS have been
enrolled at 21 clinical sites in the United States, Australia and
New Zealand and enrollment is now complete. We expect to report
top-line results late in the second quarter of 2020.
In March 2019, we
initiated the Phase 2 BRIGHT (An Open-Label Tolerability and
Efficacy Study of ZYN002 Administered as a Transdermal Gel to
Children and Adolescents with Autism Spectrum Disorder) clinical trial, a
14- week open label
clinical trial designed to assess the safety, tolerability and
efficacy of Zygel for the treatment of pediatric and adolescent
patients with ASD. We have enrolled 37 patients in the BRIGHT
clinical trial and enrollment is now complete. We expect to report
top line results from this study in the second quarter of
2020.
In May 2019, we
initiated the open-label Phase 2 INSPIRE (Assessing the Impact of
Zygel [Transdermal CBD Gel] on Pediatric Behavioral and Emotional
Symptoms of 22q11.2 Deletion Syndrome) clinical trial, a
14-week open label clinical trial designed to assess the safety,
tolerability and efficacy of Zygel for treatment of behavioral
symptoms of 22q. We expect to enroll approximately 20 male and
female patients (age six to 17 years). Top line results from this
study are expected in the third quarter of
2020.
Zygel
Clinical Development Timelines
The COVID-19 pandemic
continues to evolve and we are closely monitoring the situation,
including its potential impact on our clinical development plans
and timelines. In response to COVID-19, for our ongoing clinical
trials, we have implemented multiple measures consistent with the
FDA’s guidance on the conduct of clinical trials of medical
products during the COVID-19 pandemic, including remote site
monitoring and patient visits using telemedicine where needed,
direct to patient drug shipment from investigator sites, and local
community study related clinical laboratory collection. At
this time, we expect our timelines for delivery of top line results
from all of our ongoing trials will not be
adversely impacted.
Our key development
programs and expected timelines for the development of Zygel are
shown in the chart below:

We have never been profitable and
have incurred net losses since inception. Our net losses were $12.3
million and $9.1 million for the three months ended March 31,
2020 and 2019, respectively. As of March 31, 2020, our
accumulated
deficit was $163.2 million. We expect
to incur losses for the foreseeable future, and we expect these
losses to increase as we continue our development of, and seek
regulatory approvals for, our product candidates. Because of the
numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of
increased expenses or when, or if, we will be able to achieve or
maintain profitability.
Financial
Operations Overview
The following
discussion sets forth certain components of our consolidated
statements of operations as well as factors that impact those
items.
Research and
Development Expenses
Our research and
development expenses relating to our product candidates consisted
of the following:
|
·
|
|
expenses associated
with preclinical development and clinical trials;
|
|
·
|
|
personnel-related
expenses, such as salaries, benefits, travel and other related
expenses, including stock-based compensation;
|
|
·
|
|
payments to third‑party
CROs or CMOs, contractor laboratories and independent contractors;
and
|
|
·
|
|
depreciation,
maintenance and other facility-related expenses.
|
We expense all research
and development costs as incurred. Clinical development expenses
for our product candidates are a significant component of our
current research and development expenses. Generally speaking,
expenses associated with clinical trials will increase as our
clinical trials progress. Product candidates in later stage
clinical development generally have higher research and development
expenses than those in earlier stages of development, primarily due
to increased size and duration of the clinical trials. We track and
record information regarding external research and development
expenses for each grant, study or trial that we conduct. We use
third-party CROs, CMOs, contractor laboratories and independent
contractors in preclinical studies and clinical trials. We
recognize the expenses associated with third parties performing
these services for us in our preclinical studies and clinical
trials based on the percentage of each study completed at the end
of each reporting period.
Our Australian
subsidiary, Zynerba Pharmaceuticals Pty Ltd, or the Subsidiary, is
incorporated in Australia and is eligible to participate in an
Australian research and development tax incentive
program. As part of this program, the Subsidiary is
eligible to receive a cash refund from the Australian Taxation
Office for a percentage of the research and development costs
expended by the Subsidiary in Australia. In July 2019, the
Australian government’s Department of Industry, Innovation and
Science, or AusIndustry, responded to an Advance Overseas Finding,
or AOF, application submitted by Zynerba that will allow certain
research and development expenses incurred with respect to Zygel™
outside of Australia to be eligible for the Australian research and
development tax incentive program. As a result of this finding, we
are eligible to receive a cash refund from the Australian Taxation
Office for the qualifying research and development costs expended
outside of Australia in 2018, 2019 and 2020. During the year ended
December 31, 2019, we recorded an $8.3 million credit to
research and development expenses for amounts expected to be
received through the AOF for the period January 1, 2018 through
December 31, 2019. Although the AOF approval extends into
2020, management believes that substantially all qualifying amounts
have been recorded as of December 31, 2019.
For the three months
ended March 31, 2020 and 2019, we incurred research and
development expenses of $6.9 million and $6.3 million,
respectively, which were net of $0.6 million and $0.7 million,
respectively, associated with the Australian research and development tax
incentive program.
Excluding the reduction of research
and development expenses from the AOF, we expect research and
development expenses to increase in 2020 as compared to 2019 as we
continue to advance our clinical trials and prepare for a potential
New Drug Application, or NDA, filing for Zygel in FXS.
These expenditures are
subject to numerous uncertainties regarding timing and cost to
completion. Completion of our preclinical development and clinical
trials may take several years or more and the length of time
generally varies according to the type, complexity, novelty
and
intended use of a
product candidate. The cost of clinical trials may vary
significantly over the life of a project as a result of differences
arising during clinical development, including, among
others:
|
·
|
|
the number of sites
included in the clinical trials;
|
|
·
|
|
the length of time
required to enroll suitable patients;
|
|
·
|
|
the size of patient
populations participating in the clinical trials;
|
|
·
|
|
the duration of patient
follow-ups;
|
|
·
|
|
the development stage
of the product candidates; and
|
|
·
|
|
the efficacy and safety
profile of the product candidates.
|
Due to the early stages
of our research and development, we are unable to determine the
duration or completion costs of our development of
our product
candidates. As a
result of the difficulties of forecasting research and development
costs of our product
candidates as
well as the other uncertainties discussed above, we are unable to
determine when and to what extent we will generate revenue from the
commercialization and sale of an approved product
candidate.
General and
Administrative Expenses
General and
administrative expenses consist primarily of salaries, benefits and
other related costs, including stock-based compensation, for
personnel serving in our executive, finance, legal, human resource,
investor relations and commercial functions. Our general and
administrative expenses also include facility and related costs not
included in research and development expenses, professional fees
for legal services, including patent-related expenses, consulting,
tax and accounting services, insurance, market research and general
corporate expenses. We expect that our general and administrative
expenses will increase for the next several years as we increase
our headcount with the continued development and potential
commercialization of our product candidates.
Interest
Income
Interest income
primarily consists of interest earned on balances maintained in our
money market bank account.
Foreign Exchange
(Loss) Gain
Foreign exchange (loss)
gain relates to the effect of exchange rates on transactions
incurred by the Subsidiary.
Critical Accounting
Estimates
Our management’s discussion and
analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting
principles, or GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reported period. In accordance with GAAP, we base our
estimates on historical experience, known trends and events and
various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying amounts of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We define our critical accounting
policies as those that require us to make subjective estimates and
judgments about matters that are uncertain and are likely to have a
material impact on our financial condition and results of
operations as well as the specific manner in which we apply those
principles. Critical accounting estimates and the accounting
policies critical to the process of making significant judgments
and estimates in the preparation of our consolidated financial
statements are discussed in our 2019 Annual Report under Part II,
Item 7, “Critical Accounting Policies and Use of Estimates”. During
the three months ended March 31, 2020, there have been no
material changes to the critical accounting estimates or critical
accounting policies discussed in our 2019 Annual Report.
Results of
Operations
Comparison
of the Three Months Ended March 31, 2020
and 2019
Research and
Development Expenses
Research and
development expenses increased by $0.6 million, or 9%, to $6.9
million for the three months
ended March 31, 2020 from $6.3 million for the three months
ended March 31, 2019. The increase was primarily related
to increased clinical trial costs associated with our Zygel program
and an increase in employee-related costs; partially offset by
decreases in manufacturing costs related to our Zygel program and
stock-based compensation expense.
General and
Administrative Expenses
General and
administrative expenses increased by $0.7 million, or 24%, to $3.9
million for the three months ended March 31, 2020 from $3.2
million for the three months ended March 31, 2019. The
increase was primarily related to increases in directors and
officers liability insurance, pre-commercialization expense for our
product candidates and higher employee-related costs.
Other
Income (Expense)
During the three months
ended March 31, 2020 and 2019, we recognized $0.2 million and
$0.4 million, respectively, in interest income. The decrease in
interest income was primarily related to lower average interest
rates earned on our investments. During the three months ended
March 31, 2020 and 2019, we recognized foreign currency losses
of $1.7 million and $31,599, respectively. Foreign currency gains
and losses are due primarily to the remeasurement of the
Subsidiary’s assets and liabilities, which are denominated in the
local currency to the subsidiary’s functional currency, which is
the U.S. dollar.
Liquidity and
Capital Resources
Since our inception in
2007, we have devoted most of our cash resources to research and
development and general and administrative activities. We have
financed our operations primarily with the proceeds from the sale
of equity securities (most notably our initial public offering, our
follow-on public offerings and sales under our “at-the-market”
offering) and convertible promissory notes, state and federal
grants and research services.
To date, we have not generated any revenue from the sale of
products, and we do not anticipate generating any revenue from the
sales of products for the foreseeable future. We have incurred
losses and generated negative cash flows from operations since
inception. As of March 31, 2020, our principal sources of
liquidity were our cash and cash equivalents of
$60.6 million. Our working capital was
$64.8 million as of March 31, 2020.
Management
believes that current cash and cash equivalents and the proceeds
anticipated from the AOF are sufficient to fund operations and
capital requirements beyond the expected NDA submission and
potential regulatory approval of Zygel for the treatment of FXS and
into the second half of 2021. However, the economic effects of the
COVID-19 pandemic remain fluid and management will continue to
closely monitor the situation to ensure our cash and cash
equivalents will help us manage the impact of the COVID-19 pandemic
on our business and related liquidity needs. Substantial
additional financings will be needed to fund our operations and to
complete clinical development of and to commercially develop our
product candidates. There is no assurance that such financing will
be available when needed or on acceptable terms. Our ability to
access the capital markets or otherwise raise such capital may be
adversely impacted by potential worsening global economic
conditions and the recent disruptions to, and volatility in,
financial markets in the United States and worldwide resulting from
the ongoing COVID-19 pandemic.
Equity
Financings
In August 2019, we entered into a
Controlled Equity Offering Sales AgreementSM,
or the 2019 Sales Agreement, with Cantor Fitzgerald & Co.,
Canaccord Genuity, LLC, H.C. Wainwright & Co. LLC and Ladenburg
Thalmann & Co. Inc., as sales agents pursuant to which we may
sell, from time to time, up to $75.0 million of our common stock.
In 2019, we sold and issued 13,381 shares of our common stock in
the open market at a weighted-average selling price of $7.00,
for
gross and net proceeds of $0.1
million. From January 1, 2020 through May 4, 2020, we sold and
issued 1,734,217 shares of our common stock in the open market at a
weighted average selling price of $4.32 per share, for gross
proceeds of $7.5 million and net proceeds, after deducting
commissions and offering expenses, of $7.1 million. From January 1,
2020 through March 31, 2020, we sold and issued 356,000 shares of
our common stock in the open market at a weighted-average selling
price of $5.10 per share, for gross proceeds of $1.8 million and
net proceeds, after deducting commissions and offering expenses, of
$1.6 million. The balance of the shares were sold from April 1,
2020 through April 30, 2020.
In June 2017, we
entered into an Open Market Sales Agreement, or the 2017 Sales
Agreement, with Jefferies LLC, or Jefferies, pursuant to which we
sold $50.0 million of our common stock. In the first quarter of
2019, we sold and issued 3,439,523 shares of common stock under the
2017 Sales Agreement with Jefferies in the open market at a
weighted average selling price of $5.44 per share, resulting in
gross proceeds of $18.7 million. Net proceeds received after
deducting commissions and offering expenses were $18.1 million. In
the second quarter of 2019, we sold and issued 2,082,031 shares of
common stock under the 2017 Sales Agreement with Jefferies in the
open market at a weighted average selling price of $13.50 per
share, resulting in gross proceeds of $28.1 million. Net proceeds
received after deducting commissions and offering expenses were
$27.0 million. From June 2017 through May 16, 2019, we have
cumulative gross proceeds of $50.0 million from shares sold in the
open market under the 2017 Sales Agreement. The last sale
under the 2017 Sales Agreement was made on May 16, 2019, following
which the 2017 Sales Agreement terminated pursuant to its
terms.
Debt
We had no debt
outstanding as of March 31, 2020 or December 31,
2019.
Future Capital
Requirements
During the three months
ended March 31, 2020, net cash used in operating activities
was $11.0 million, and our accumulated deficit as of March 31,
2020 was $163.2 million. Our expectations regarding future
cash requirements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments
that we may make in the future. To the extent that we enter into
any of those types of transactions, we may need to raise
substantial additional capital.
We expect to continue
to incur substantial additional operating losses for at least the
next several years as we continue to develop our product candidates
and seek marketing approval and, subject to obtaining such
approval, the eventual commercialization of our product candidates.
If we obtain marketing approval for any of our product candidates,
we will incur significant sales, marketing and manufacturing
expenses. In addition, we expect to incur additional expenses to
add operational, financial and information systems and personnel,
including personnel to support our planned product
commercialization efforts. We also expect to continue to incur
significant costs to comply with corporate governance, internal
controls and similar requirements associated with operating as a
public reporting company.
Our future use of
operating cash and capital requirements will depend on many
forward-looking factors, including the following:
|
·
|
|
the initiation,
progress, timing, costs and results of preclinical studies and
clinical trials for our product candidates;
|
|
·
|
|
the clinical
development plans we establish for these product
candidates;
|
|
·
|
|
the number and
characteristics of product candidates that we may develop or
in-license;
|
|
·
|
|
the terms of any
collaboration agreements we may choose to execute;
|
|
·
|
|
the outcome, timing and
cost of meeting regulatory requirements established by the United
States Drug Enforcement Agency, the FDA, the European Medicines
Agency or other comparable foreign regulatory
authorities;
|
|
·
|
|
the cost of filing,
prosecuting, defending and enforcing our patent claims and other
intellectual property rights;
|
|
·
|
|
the cost of defending
intellectual property disputes, including patent infringement
actions brought by third parties against us;
|
|
·
|
|
costs and timing of the
implementation of commercial scale manufacturing
activities;
|
|
·
|
|
the cost of
establishing, or outsourcing, sales, marketing and distribution
capabilities for any product candidates for which we may receive
regulatory approval in regions where we choose to independently
commercialize our products; and
|
|
·
|
|
the extent to which
health epidemics and other outbreaks of communicable diseases,
including the recent outbreak of COVID-19, could disrupt
our operations or materially and adversely affect our business and
financial conditions.
|
To the extent that our
capital resources are insufficient to meet our future operating and
capital requirements, we will need to finance our cash needs
through public or private equity offerings, debt financings,
collaboration and licensing arrangements or other financing
alternatives. We have no committed external sources of funds.
Additional equity or debt financing or collaboration and licensing
arrangements may not be available on acceptable terms, if at
all.
If we raise additional
funds by issuing equity securities, our stockholders will
experience dilution.
Cash
Flows
The following table
summarizes our cash flows from operating, investing and financing
activities for the three months ended March 31, 2020 and
2019.
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Three Months Ended March 31,
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2020
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2019
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Statement of Cash Flows Data:
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Total net cash (used in) provided by:
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Operating activities
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$
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(10,998,165)
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$
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(9,519,844)
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Investing activities
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(138,209)
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(24,616)
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Financing activities
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1,711,985
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18,079,798
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Net (decrease) increase in cash and cash equivalents
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$
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(9,424,389)
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$
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8,535,338
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Operating
Activities
For the three months
ended March 31, 2020, cash used in operating activities was
$11.0 million compared to $9.5 million for the three months ended
March 31, 2019. The increase from the comparable 2019 period
was primarily the result of increased research and development
expenses related to clinical trial costs of our Zygel program and
increased general and administrative expenses; partially offset by
non-cash foreign currency losses, which are primarily due
to the remeasurement of the Subsidiary’s assets and liabilities,
which are denominated in the local currency to the subsidiary’s
functional currency, which is the U.S. dollar.
Excluding the cash anticipated to be
received from the July 2019 AOF application, we expect cash used in
operating activities to increase in 2020 as compared to 2019, as we
continue to advance our clinical trials and prepare for a potential
NDA filing and commercialization of Zygel in FXS.
Investing
Activities
For the three months
ended March 31, 2020 and 2019, cash used in investing
activities represented the cost of expenditures made for
manufacturing equipment.
Financing
Activities
Cash provided by
financing activities for the three months ended March 31, 2020
consisted of $1.7 million in net proceeds from sales of our shares
of common stock under the 2019 Sales Agreement. Cash
provided by financing activities for the three months ended
March 31, 2019 consisted primarily of $18.1 million in net
proceeds from sales of our shares of common stock under the 2017
Sales Agreement.
Contractual
Obligations
Our material
contractual obligations consist of commitments under operating
lease agreements and the related amounts of our obligations as of
December 31, 2019 were disclosed in “Contractual Obligations”
in Part II, Item 7 in our 2019 Annual Report. Since December 31,
2019, no material changes in our contractual obligations have
occurred.
Off-Balance Sheet
Arrangements
We do not have any
off-balance sheet arrangements, except for operating leases, or
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities.
Recent Accounting
Pronouncements
For descriptions
of recently issued accounting pronouncements, see “Note 2 – Summary
of Significant Accounting Policies – Recently Adopted Accounting
Pronouncements” of our Notes to Unaudited Consolidated Financial
Statements included above in Part I of this report.
JOBS
Act
We are an “emerging
growth company” as defined under the Jumpstart Our Business
Startups Act of 2012, or JOBS Act. The JOBS Act contains provisions
that, among other things, reduce certain reporting requirements for
an "emerging growth company." As an "emerging growth company," we
have elected not to take advantage of the extended transition
period afforded by the JOBS Act for the implementation of new or
revised accounting standards, and as a result, we will comply with
new or revised accounting standards on the relevant dates on which
adoption of such standards is required for non-emerging growth
companies. Section 107 of the JOBS Act provides that our
decision not to take advantage of the extended transition period is
irrevocable.
Subject to certain
conditions set forth in the JOBS Act, as an "emerging growth
company," we are not required to, among other things,
(i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to
Section 404, (ii) provide all of the compensation
disclosure that may be required of non-emerging growth public
companies under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, (iii) comply with any requirement that may be
adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor's
report providing additional information about the audit and the
financial statements (auditor discussion and analysis), and
(iv) disclose certain executive compensation-related items
such as the correlation between executive compensation and
performance and comparisons of the chief executive officer’s
compensation to median employee compensation. These
exemptions will apply until December 31, 2020 or until we no longer
meet the requirements for being an “emerging growth company,”
whichever occurs first.
We are also a “smaller
reporting company,” as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended. We would cease to be a smaller
reporting company if we have a public float in excess of $250
million, or have annual revenues in excess of $100 million and a
public float in excess of $700 million, determined on an annual
basis. Consequently, even after we no longer qualify as an emerging
growth company, we may still qualify as a “smaller reporting
company” which would allow us to take advantage of many of the same
exemptions from disclosure requirements including not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act and reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to
various market risks, which may result in potential losses arising
from adverse changes in market rates, such as interest rates and
foreign exchange rates. We do not enter into derivatives or other
financial instruments for trading or speculative purposes nor do we
engage in any hedging activities. As of March 31, 2020, we had
cash and cash equivalents of $60.6 million, consisting
primarily of cash and money market account balances. Because of the
short-term maturities of our cash and cash equivalents, we do not
believe that an immediate 10% increase in interest rates would have
any significant impact on the realized value of our investments.
Accordingly, we do not believe we are exposed to material market
risk with respect to our cash and cash equivalents.
We have engaged third
parties to manufacture our product candidates in Australia, Canada
and the United Kingdom and to conduct clinical trials for our
product candidates in the United States, Australia and New Zealand.
Manufacturing and research costs related to these operations are
paid for in a combination of U.S. dollars and local
currencies, limiting our foreign currency exchange rate risk,
however, our financial statements are reported in U.S. dollars and
changes in foreign currency exchange rates could significantly
affect our financial condition, results of operations, or cash
flows. If we conduct clinical trials and seek to manufacture a more
significant portion of our product candidates outside of the United
States in the future, we could incur significant foreign currency
exchange rate risk.
Item 4. Controls and
Procedures.
Evaluation of
Disclosure Controls and Procedures
Our management, with the
participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2020. The term “disclosure controls
and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended, or the Exchange
Act, means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms, promulgated by the
Securities and Exchange Commission. Management recognizes that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Based on the evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of
March 31, 2020, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure
controls and procedures were effective at the reasonable assurance
level.
Changes in Internal
Control Over Financial Reporting
There were no changes in our internal
control over financial reporting during the three months ended
March 31, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
PART II—OTHER
INFORMATION
Item 1. Legal
Proceedings.
On October 23, 2019, a putative class
action complaint was filed against the Company and certain of its
current officers in the United States District Court for the
Eastern District of Pennsylvania, with an amended complaint filed
on March 9, 2020. This action was purportedly brought on behalf of
a putative class of Zynerba investors who purchased the Company’s
publicly traded securities between March 11, 2019 and September 17,
2019. The Complaint alleges that Defendants made certain material
misstatements and omissions relating to product candidate Zygel
(“ZYN002”) in alleged violation of Section 10(b) of the Securities
Exchange Act of 1934 (“Exchange Act”), Rule 10b-5 promulgated
thereunder, and Section 20(a) of the Exchange
Act. Specifically, plaintiff claims that Defendants made
false statements or failed to disclose that: (i) Zygel was proving
unsafe and not well-tolerated in the BELIEVE 1 clinical trial; (ii)
that the foregoing created a foreseeable, heightened risk that
Zynerba would fail to secure the necessary regulatory approvals for
commercializing Zygel for the treatment of developmental and
epileptic encephalopathies in children and adolescents, and (iii)
as a result the Company’s public statements and public filings were
materially false and misleading to investors.
On April 23, 2020, the Company and
the individual defendants filed a motion to dismiss the complaint
with prejudice. On April 24, a stockholder derivative
complaint, captioned Philip Quartararo v. Armando Anido, et al.,
was filed against the Company, its current and former directors
(Armando Anido, John P. Butler, Warren D. Cooper, William J.
Federici, Thomas L. Harrison, Daniel L. Kisner, Kenneth I. Moch,
and Pamela Stephenson), and its chief financial officer, James E.
Fickenscher. The complaint generally alleges breach of
fiduciary duty, corporate waste and violations of Section 14 (a) of
the Securities Exchange Act of 1934 in connection with the
Company’s disclosures around the BELIEVE I clinical
trial.
We believe that the claims asserted
in these lawsuits are without merit, and we intend to defend these
actions vigorously. There is no assurance, however, that we will be
successful in the defense of these lawsuits, or any associated
appeals, or that insurance will be available or adequate to fund
any settlement or judgment or the litigation costs of these
actions. Moreover, we are unable to predict the outcome or
reasonably estimate a range of possible losses at this time. A
resolution of these lawsuits in a manner adverse to us, however,
could have a material effect on our financial position and results
of operations in the period in which a particular lawsuit is
resolved.
Item 1A. Risk
Factors.
You should carefully consider the
risk factors described in our 2019 Annual Report, under the caption
“Item 1A. “Risk Factors.” Except as set forth below, there
have been no material changes in our risk factors included in our
2019 Annual Report. The risks described in our 2019 Annual
Report are not the only risks facing our company. Additional risks
and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our
business, financial condition or future results.
The COVID-19
pandemic may materially and adversely affect our financial
results.
In December 2019, COVID-19 was
reported to have surfaced in Wuhan, China, and has since spread to
a number of other countries, including the United States. In March
2020, the World Health Organization characterized COVID-19 as a
pandemic. Through the three months ended March 31, 2020, the
COVID-19 pandemic did not have a significant impact on our
business. However, efforts to contain the spread of COVID-19 have
intensified. Every state in the United States is currently under a
federally declared state of emergency, and most have enacted travel
advisories and temporary closures of certain businesses, issued
quarantine orders and taken other restrictive measures in response
to the COVID-19 pandemic. Within the United States, our business
has been designated an essential business, which allows us to
continue operations at this time.
We need additional capital to fund
our operations and pay our future obligations; however, our ability
to access the capital markets or otherwise raise such capital is
unknown during the COVID-19 pandemic and there can be no assurance
that we will be able to obtain sufficient amounts of capital as and
when needed. Further, although the United States federal government
has responded to the COVID-19 pandemic with economic stimulus
programs, we cannot provide any assurance if these or any other
governmental responses or actions will provide any intended
economic benefits to us or will improve our access to additional
capital in the public or private markets. The impact of the
COVID-19 pandemic is fluid and continues to evolve, and therefore,
we cannot predict the extent to which our results of operations,
financial condition or liquidity will ultimately be impacted, and
we will continue to monitor the situation closely.
Our clinical
trial operations may be adversely affected by the COVID-19
pandemic.
The extent to which COVID-19 may
impact our clinical trial operations will depend on future
developments, which are highly uncertain and cannot be predicted
with confidence, such as the duration of the outbreak, the severity
of COVID-19, or the effectiveness of actions to contain and treat
for COVID-19. The continued spread of COVID-19 globally could
adversely impact our clinical trial operations, including our
manufacturing and supply chain and our ongoing and planned clinical
trials of Zygel which could face enrollment difficulties or other
delays if hospitals or other clinical trials sites are subject to
access restrictions or experience closures. In addition,
although we believe we are conducting our ongoing clinical trials
in accordance with the FDA’s guidance on the conduct of clinical
trials of medical products during the COVID-19 pandemic, there can
be no assurance the FDA will accept data from these clinical trials
as a basis for approving Zygel for any indication. If the FDA does
not accept any such data, it would likely result in the need for
additional clinical trials, which would be costly and time
consuming and delay aspects of our development plan.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
Recent Sales of
Unregistered Securities
None.
Purchase of Equity
Securities
We did not purchase any of our
registered equity securities during the period covered by this
Quarterly Report on Form 10-Q.
Item 3. Defaults
Upon Senior Securities.
None.
Item 4. Mine Safety
Disclosures.
Not applicable.
Item 5. Other
Information.
Not applicable.
Item 6.
Exhibits.
The following exhibits are being
filed herewith:
EXHIBIT
INDEX
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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ZYNERBA
PHARMACEUTICALS, INC.
|
|
|
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Date: May 11, 2020
|
By:
|
/s/ ARMANDO ANIDO
|
|
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Armando Anido
|
|
|
Chief Executive
Officer
|
|
|
(Principal
executive officer)
|
|
|
|
Date: May 11, 2020
|
By:
|
/s/ JAMES E. FICKENSCHER
|
|
|
James E. Fickenscher
|
|
|
Chief Financial
Officer
|
|
|
(Principal
financial and accounting officer)
|