UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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 No.
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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| Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
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| Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of August 12, 2024 was
Outlook Therapeutics, Inc.
Table of Contents
In this report, unless otherwise stated or as the context otherwise requires, references to “Outlook Therapeutics,” “Outlook,” “the Company,” “we,” “us,” “our” and similar references refer to Outlook Therapeutics, Inc. and its consolidated subsidiaries. The Outlook logo, LYTENAVA and other trademarks or service marks of Outlook Therapeutics, Inc. appearing in this report are the property of Outlook Therapeutics, Inc. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “seek,” “should,” “will,” “would,” or the negative of these terms or similar expressions in this report.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” contained in our Annual Report on Form 10-K for the year ended September 30, 2023, filed with the Securities and Exchange Commission (“SEC”) on December 22, 2023, including, among other things, risks associated with:
| ● | the initiation, timing, progress and results of our clinical trials of our lead product candidate, ONS-5010; |
| ● | our reliance on our contract manufacturing organizations and other vendors; |
| ● | whether the results of our clinical trials will be sufficient to support domestic or global regulatory approvals; |
| ● | our ability to obtain and maintain regulatory approval for ONS-5010 in the United States and other markets; |
| ● | our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved, for commercial use; |
| ● | our ability to fund our working capital requirements, and our expectations regarding our current cash resources; |
| ● | the rate and degree of market acceptance of our current and future product candidates, including our commercialization strategy and manufacturing capabilities for ONS-5010; |
| ● | the implementation of our business model and strategic plans for our business and product candidates; |
| ● | developments or disputes concerning our intellectual property or other proprietary rights; |
| ● | our ability to maintain and establish collaborations or obtain additional funding; |
| ● | our expectations regarding government and third-party payor coverage and reimbursement; |
| ● | our ability to compete in the markets we serve; |
| ● | the factors that may impact our financial results; and |
| ● | our estimates regarding the sufficiency of our cash resources and our need for additional funding. |
These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the current macroeconomic environment, including as a result of the impacts of inflation, high interest rates, current or potential future bank failures or ongoing overseas conflict. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Outlook Therapeutics, Inc.
Consolidated Balance Sheets
(unaudited)
June 30, 2024 |
| September 30, 2023 | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses and other current assets | | | ||||
Total current assets | | | ||||
Operating lease right-of-use assets, net | | | ||||
Equity method investment | | | ||||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities, convertible preferred stock and stockholders’ deficit | ||||||
Current liabilities: | ||||||
Unsecured convertible promissory note | $ | | $ | | ||
Finance lease liabilities | — | | ||||
Current portion of operating lease liabilities | | — | ||||
Accounts payable | | | ||||
Accrued expenses | | | ||||
Income taxes payable | | | ||||
Total current liabilities | | | ||||
Operating lease liabilities | | — | ||||
Warrant liability | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 8) | ||||||
Stockholders’ deficit: | ||||||
Preferred stock, par value $ | ||||||
Common stock, par value $ | | | ||||
Additional paid-in capital | | | ||||
Accumulated deficit | ( | ( | ||||
Total stockholders' deficit | ( | ( | ||||
Total liabilities, convertible preferred stock and stockholders' deficit | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
1
Outlook Therapeutics, Inc.
Consolidated Statements of Operations
(unaudited)
Three months ended June 30, | Nine months ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Operating expenses: | ||||||||||||
Research and development | $ | | $ | | $ | | $ | | ||||
General and administrative | | | | | ||||||||
| | | | |||||||||
Loss from operations | ( | ( | ( | ( | ||||||||
Loss on equity method investment | | | | | ||||||||
Interest income | ( | ( | ( | ( | ||||||||
Interest expense | — | | | | ||||||||
Loss on extinguishment of debt | — | — | — | | ||||||||
Change in fair value of promissory notes | ( | | | | ||||||||
Warrant related expenses (Note 9) | | — | | — | ||||||||
Change in fair value of warrant liability | ( | | ( | ( | ||||||||
Income (loss) before income taxes | | ( | ( | ( | ||||||||
Income tax expense | — | — | | | ||||||||
Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | ||||
Per share information: | ||||||||||||
Net income (loss) per share of common stock, basic | $ | | $ | ( | $ | ( | $ | ( | ||||
Net loss per share of common stock, diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding, basic | | | | | ||||||||
Weighted average shares outstanding, diluted | | | | | ||||||||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
2
Outlook Therapeutics, Inc.
Consolidated Statements of Stockholders’ (Deficit) Equity
(unaudited)
Stockholders' Deficit | ||||||||||||||
Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |||||
Balance at October 1, 2023 | |
| $ | |
| $ | |
| $ | ( | $ | ( | ||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance at December 31, 2023 | | | | ( | ( | |||||||||
Sale of common stock, net of issuance costs | | | — | — | | |||||||||
Issuance of common stock in connection with conversion of convertible promissory note | | | | — | | |||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance at March 31, 2024 | | | | ( | ( | |||||||||
Sale of common stock, net of issuance costs | | | — | — | | |||||||||
Issuance of common stock in connection with conversion of convertible promissory note | | | | — | | |||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net income | — | — | — | | | |||||||||
Balance at June 30, 2024 | | $ | | $ | | $ | ( | $ | ( | |||||
Stockholders' Equity | ||||||||||||||
Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | |||||
Balance at October 1, 2022 | | $ | | $ | | $ | ( | $ | | |||||
Sale of common stock, net of issuance costs | | | | — | | |||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance at December 31, 2022 | | | | ( | | |||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance at March 31, 2023 | | | | ( | | |||||||||
Sale of common stock, net of issuance costs | | | | — | | |||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance at June 30, 2023 | | $ | | $ | | $ | ( | $ | ( | |||||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
3
Outlook Therapeutics, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended June 30, | ||||||
| 2024 |
| 2023 | |||
OPERATING ACTIVITIES | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization | | | ||||
Loss on extinguishment of debt | — | | ||||
Non-cash interest expense | | | ||||
Stock-based compensation | | | ||||
Change in fair value of promissory notes | | | ||||
Warrant related expenses (Note 9) | | — | ||||
Change in fair value of warrant liability | ( | ( | ||||
Loss on equity method investment | | | ||||
Interest paid on debt | — | ( | ||||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses and other current assets | ( | | ||||
Other assets | ( | ( | ||||
Operating lease liabilities | ( | ( | ||||
Accounts payable | ( | | ||||
Accrued expenses | ( | | ||||
Net cash used in operating activities | ( | ( | ||||
FINANCING ACTIVITIES | ||||||
Proceeds from the sale of common stock and warrants to purchase common stock, net of issuance costs | | | ||||
Proceeds from debt | — | | ||||
Payments of finance lease obligations | ( | ( | ||||
Repayment of debt | — | ( | ||||
Payment of financing costs | — | ( | ||||
Net cash provided by financing activities | | | ||||
Net increase in cash and cash equivalents | | | ||||
Cash and cash equivalents at beginning of period | | | ||||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Supplemental schedule of non-cash financing activities: | ||||||
Convertible promissory note converted into common stock | $ | | $ | — | ||
Recognition of warrant liability | $ | | $ | — | ||
Common stock issuance costs in accounts payable and accrued expenses | $ | | $ | | ||
Deferred offering costs amortization | $ | — | $ | | ||
Right-of-use asset and lease liability recognized for new operating lease liabilities | $ | | $ | — | ||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
4
1. Organization and Description of Business
Outlook Therapeutics, Inc. (“Outlook” or the “Company”) was incorporated in New Jersey on January 5, 2010, started operations in July 2011, reincorporated in Delaware by merging with and into a Delaware corporation in October 2015 and changed its name to “Outlook Therapeutics, Inc.” in November 2018. The Company is a biopharmaceutical company focused on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for use in retinal indications. The Company is based in Iselin, New Jersey.
In May 2024 the Company received Marketing Authorization from the European Commission for LYTENAVA™ (bevacizumab gamma), an ophthalmic formulation of bevacizumab for the treatment of wet age-related macular degeneration (“AMD”) in the European Union (“EU”). Additionally, in July 2024 the Company also received marketing authorization for LYTENAVA™ (bevacizumab gamma) in the United Kingdom (“UK”) from the UK Medicines and Healthcare products Regulatory Agency (MHRA). LYTENAVA™ (bevacizumab gamma) is the first and only authorized ophthalmic formulation of bevacizumab for use in treating wet AMD in the EU and UK.
In the fourth quarter of calendar 2023, the Company agreed to conduct an additional adequate and well-controlled clinical trial following discussions with the U.S. Food and Drug Administration (“FDA”) in support of the Company’s Biologics License Application (“BLA”) for ONS-5010. In December 2023, the Company submitted a Special Protocol Assessment (“SPA”) to the FDA for this study (NORSE EIGHT) seeking confirmation that, if successful, it will address the FDA’s requirement for a second adequate and well-controlled clinical trial to support its planned resubmission of the ONS-5010 BLA. In January 2024, the Company received confirmation that the FDA has reviewed and agreed upon the NORSE EIGHT trial protocol pursuant to the SPA and that, if the NORSE EIGHT trial is successful, it would satisfy the FDA’s requirement for a second adequate and well-controlled clinical trial to address fully the clinical deficiency identified in the Complete Response Letter (“CRL”). The first subject was enrolled in NORSE EIGHT in January 2024. In addition, through a Type A meeting and additional interactions, the Company has identified the approaches needed to resolve the chemistry, manufacturing and controls (“CMC”) comments in the CRL.
2. Liquidity
The Company has incurred recurring losses and negative cash flows from operations since its inception and has an accumulated deficit of $
Management does not believe that the existing cash and cash equivalents as of June 30, 2024 are sufficient to fund the Company’s operations through one year from the date of this Quarterly Report on Form 10-Q. As a result, there is substantial doubt about the Company’s ability to continue as a going concern and additional financing will be needed by the Company to fund its operations in the future and to commercially develop ONS-5010 and to develop any other product candidates. Management is currently evaluating different strategies to obtain the required funding for future operations, including but not limited to, the exercise of outstanding warrants to purchase shares of the Company’s common stock (subject to meeting the requirements for calling such warrants), proceeds from potential licensing and/or marketing arrangements or collaborations with pharmaceutical or other companies, sale of the development and commercial rights to the Company’s drug product candidates in regions outside of the U.S., the issuance of additional debt, the issuance of equity securities, including accessing capital through at-the-market offering agreements (refer to Note 9 for further details), and revenues from potential future product sales, if any. There can be no assurance that these future funding efforts will be successful.
5
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
However, management does believe that the existing cash and cash equivalents as of June 30, 2024, when combined with the expected proceeds from the full exercise of warrants to purchase shares of common stock (subject to meeting the requirements for calling such warrants), would be sufficient to support the Company’s operations through 2025. For further details on the warrants to purchase shares of common stock, refer to Note 9. The Company’s consolidated financial statements do not include any adjustments that might be necessary if it is unable to continue as a going concern.
The Company’s future operations are highly dependent on a combination of factors, including: (i) the timely and successful completion of additional financing discussed above; (ii) the Company’s ability to successfully begin marketing of its product candidates or complete revenue-generating partnerships with other companies; (iii) the success of its research and development; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (v) regulatory approval and market acceptance of the Company’s proposed future products.
3. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited interim consolidated financial statements have been prepared in conformity 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. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2024 and its results of operations for the three and nine months ended June 30, 2024 and 2023, cash flows for the nine months ended June 30, 2024 and 2023, and stockholders’ equity for the three and nine months ended June 30, 2024 and 2023. Operating results for the nine months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2024. The unaudited interim consolidated financial statements presented herein do not contain all of the required disclosures under GAAP for annual consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended September 30, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 22, 2023.
Reverse stock split
Effective on March 14, 2024, the Company amended its amended and restated certificate of incorporation to implement a reverse stock split of its common stock. As a result of the reverse stock split, the Company made corresponding adjustments to the share amounts under its employee incentive plans, outstanding options, and common stock warrant agreements with third parties. The disclosure of common shares and per common share data in the accompanying consolidated financial statements and related notes reflect the reverse stock split for all periods presented.
Use of estimates
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, such as the current macroeconomic environment, including as a result of inflation, high interest rates or ongoing overseas conflict, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the
6
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.
Net income (loss) per share
Basic net income (loss) per share of common stock is computed by dividing net income (loss) common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted net income (loss) per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, warrants, performance-based stock options and units, and stock options using the treasury stock method, which would result in the issuance of incremental shares of common stock. For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive.
The following table sets forth the computation of basic loss per share and diluted loss per share:
Three months ended June 30, | Nine months ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Numerator: | ||||||||||||
Net income (loss) attributable to common stockholders | $ | | $ | ( | $ | ( | $ | ( | ||||
Effect of dilutive securities: | ||||||||||||
Change in fair value of warrant liability | ( | — | — | — | ||||||||
Change in fair value of promissory notes | ( | — | — | — | ||||||||
Adjusted net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: | ||||||||||||
Weighted average shares outstanding, basic | | | | | ||||||||
Effect of dilutive securities: | ||||||||||||
Common stock warrants | | — | — | — | ||||||||
Convertible promissory notes | | — | — | — | ||||||||
Dilutive effect of stock options | — | — | — | — | ||||||||
Weighted average shares outstanding, diluted | ||||||||||||
Basic net income (loss) per share | $ | | $ | ( | $ | ( | $ | ( | ||||
Diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The following potentially dilutive securities (in common stock equivalents) have been excluded from the computation of diluted weighted-average shares outstanding as of June 30, 2024 and 2023, as they would be antidilutive:
As of June 30, | |||||
| 2024 |
| 2023 | ||
Performance-based stock units | — | | |||
Performance-based stock options | | | |||
Stock options | | | |||
Common stock warrants | | | |||
Convertible debt | — | | (i) | ||
| (i) | The potentially dilutive securities related to convertible debt are calculated based on a fixed conversion price of $ |
7
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07, which is applicable to entities with a single reportable segment and will primarily require enhanced disclosures about significant segment expenses and enhanced disclosures in interim periods. The guidance in ASU 2023-07 will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023 and interim reporting periods in fiscal years beginning after December 31, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-07 will have on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 which is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The guidance in ASU 2023-09 will be effective for annual reporting periods in fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its consolidated financial statements and disclosures.
4. Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
8
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
The following table presents the Company’s liabilities that are measured at fair value on a recurring basis:
June 30, 2024 | |||||||||
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Liabilities | |||||||||
Unsecured convertible promissory note | $ | — | $ | — | $ | | |||
— | — | | |||||||
Total | $ | — | $ | — | $ | | |||
September 30, 2023 | |||||||||
(Level 1) |
| (Level 2) |
| (Level 3) | |||||
Liabilities | |||||||||
Unsecured convertible promissory note | $ | — | $ | — | $ | | |||
— | — | | |||||||
Total | $ | — | $ | — | $ | | |||
The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant liability and unsecured convertible promissory note for the nine months ended June 30, 2024:
Unsecured Convertible | ||||||
| Promissory Note |
| Warrants | |||
Balance at October 1, 2023 | $ | | $ | | ||
Issued in connection with sale of common stock | — | | ||||
Promissory note maturity extension fee added to outstanding balance | | — | ||||
Principal and accrued interest converted to common stock | ( | — | ||||
| ( | |||||
Balance at June 30, 2024 | $ | | $ | | ||
As further described in Note 7, the Company elected the fair value option to account for an unsecured convertible promissory note issued in December 2022 (the “December 2022 Note”). The fair value of the December 2022 Note is estimated using a binomial lattice model, which evaluates the payouts under hold, convert or call decisions. Significant estimates in the binomial lattice model include the Company’s stock price, volatility, risk-free rate of return, and credit-adjusted discount rate.
The fair value of the December 2022 Note was estimated using a binomial lattice model with the following assumptions:
June 30, 2024 | September 30, 2023 | ||||||
Term (years) | | | |||||
Stock price | $ | | $ | | |||
Volatility | | % | | % | |||
Risk-free rate | | % | | % | |||
Dividend yield | | % | | % | |||
Credit-adjusted discount rate | | % | | % | |||
The warrants issued in connection with the convertible senior secured notes originally issued pursuant to that certain Note and Warrant Purchase Agreement dated December 22, 2017 and warrants issued in connection with private placements that closed on March 18, 2024 and April 15, 2024, are classified as liabilities on the accompanying unaudited interim consolidated balance sheets. The warrants related to the Note and Warrant Purchase Agreement dated December 22, 2017 are classified as liabilities as the warrants include cash settlement features at the option of the holders under certain
9
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
circumstances. The warrants issued in connection with private placements that closed on March 18, 2024 and April 15, 2024 are classified as liabilities as the Company assessed that they are not indexed to the Company’s own stock and must be classified as liabilities. For further details on the evaluation refer to Note 9.
The above warrant liabilities are revalued each reporting period with the change in fair values recorded in the accompanying consolidated statements of operations until the warrants are exercised or expire. The fair values of the warrant liabilities are estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
| June 30, 2024 | September 30, 2023 | |||||
Risk-free interest rate | | % | | % | |||
Remaining contractual term of warrants (years) | | | |||||
Expected volatility | | % | | % | |||
Annual dividend yield | | % | | % | |||
Fair value of common stock (per share) | $ | | $ | | |||
5. Equity Method Investment
In connection with the execution of a stock purchase agreement with Syntone Ventures LLC (“Syntone”), the United States-based affiliate of Syntone Technologies Group Co. Ltd. (“Syntone PRC”) on May 22, 2020, the Company and Syntone PRC entered into a joint venture agreement pursuant to which they agreed to form a People’s Republic of China (“PRC”) joint venture, Beijing Syntone Biopharma Ltd (“Syntone JV”), that is
The Company made the initial investment of $
6. Accrued Expenses
Accrued expenses consists of:
| June 30, 2024 | September 30, 2023 | ||||
Compensation | $ | | $ | | ||
Professional fees | | | ||||
Research and development | | | ||||
Other accrued expenses | | | ||||
$ | | $ | | |||
10
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
7. Debt
Debt consists of:
| June 30, 2024 |
| September 30, 2023 | |||
Unsecured convertible promissory note (measured at fair value) | $ | | $ | | ||
Less: current portion | ( | ( | ||||
Long-term debt | $ | — | $ | — | ||
December 2022 Note
On December 22, 2022, the Company entered into a Securities Purchase Agreement and issued the December 2022 Note with a face amount of $
In December 2023, the Company extended the maturity of the December 2022 Note from January 1, 2024 to April 1, 2024. The Company incurred a $
The December 2022 Note bore interest at
11
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
certain exceptions, while the December 2022 Note is outstanding, the Lender will have a consent right on any future variable rate transactions or any debt and a
On January 22, 2024, the Company entered into an amendment to the December 2022 Note (the “Note Amendment”) with the Lender, which became effective on April 1, 2024 after satisfaction of certain conditions, including various required stockholder approvals and the closing of the private placement on March 18, 2024. The maturity of the December 2022 Note was extended to July 1, 2025. An extension fee of $
Under the Note Amendment, the initial conversion price with respect to $
During the three and nine months ended June 30, 2024, an aggregate of principal and accrued interest totaling $
The Company elected to account for the December 2022 Note at fair value (Note 4) and was not required to bifurcate the conversion option as a derivative and as a result the original issue discount of $
During the nine months ended June 30, 2024, the Company recorded $
November 2021 Note
On November 16, 2021, the Company received $
As discussed above, the November 2021 Note was cancelled using proceeds from the December 2022 Note issued to the same lender. The total repayment was $
12
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
During the nine months ended June 30, 2023, the Company recognized $
8. Commitments and Contingencies
Litigation
On November 3, 2023, a securities class action lawsuit was filed against the Company and certain of its officers in the United States District Court for the District of New Jersey. The class action complaint alleges violations of the Securities Exchange Act of 1934, as amended, or the Exchange Act, in connection with allegedly false and misleading statements made by the Company related to the Company’s BLA during the period from August 3, 2021 through August 29, 2023. The complaint alleges, among other things, that the Company violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by failing to disclose that there was an alleged lack of evidence supporting ONS-5010 as a treatment for wet AMD and that the Company and/or their manufacturing partner had deficient CMC controls for ONS-5010, which remained unresolved at the time the Company’s BLA was re-submitted to the FDA and, as a result, the FDA was unlikely to approve the Company’s BLA, and that the Company’s stock price dropped when such information was disclosed. The plaintiffs in the class action complaint seek damages and interest, and an award of reasonable costs, including attorneys’ fees. The parties are in the process of briefing a motion to dismiss.
The pending lawsuit and any other related lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of the pending lawsuit and any other related lawsuits is necessarily uncertain. The Company could be forced to expend significant resources in the defense of the pending lawsuit and any additional lawsuits, and the Company may not prevail. In addition, the Company may incur substantial legal fees and costs in connection with such lawsuits. The Company currently is not able to estimate the possible cost to it from these matters, as the pending lawsuit is currently at an early stage, and the Company cannot be certain how long it may take to resolve the pending lawsuit or the possible amount of any damages that the Company may be required to pay. Such amounts could be material to the Company’s financial statements if it does not prevail in the defense of the pending lawsuit and any other related lawsuits, or even if it does prevail. The Company has not established any reserve for any potential liability relating to the pending lawsuit and any other related lawsuits. It is possible that the Company could, in the future, incur judgments or enter into settlements of claims for monetary damages.
Leases
Corporate office
In March 2021, the Company entered into a
In March 2024, the Company entered into a
Equipment leases
As of June 30, 2024, all equipment leases had expired. The Company had equipment leases, with terms between
13
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
The components of lease cost for the three and nine months ended June 30, 2024 and 2023 are as follows:
Three months ended June 30, | Nine months ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Lease cost: |
|
|
|
|
|
|
|
| ||||
Amortization of right-of-use assets | $ | — | $ | — | $ | — | $ | — | ||||
Interest on lease liabilities |
| — |
| |
| |
| | ||||
Total finance lease cost |
| — |
| |
| |
| | ||||
Operating lease cost |
| |
| |
| |
| | ||||
Total lease cost | $ | | $ | | $ | | $ | | ||||
Amounts reported in the unaudited interim consolidated balance sheets for leases where the Company is the lessee are as follows:
June 30, 2024 |
| September 30, 2023 | ||||
Operating leases: |
|
|
| |||
Right-of-use asset | $ | | $ | | ||
Operating lease liabilities |
| |
| — | ||
Finance leases: |
|
|
|
| ||
Right-of-use asset | $ | — | $ | — | ||
Financing lease liabilities |
| — |
| | ||
Weighted-average remaining lease term (years): |
|
|
|
| ||
Operating leases | ||||||
Finance leases |
| — |
| |||
Weighted-average discount rate: |
|
|
|
| ||
Operating leases | ||||||
Finance leases |
| — |
| |||
Other information related to leases for the nine months ended June 30, 2024 and 2023 are as follows:
Nine months ended June 30, | ||||||
| 2024 |
| 2023 | |||
Cash paid for amounts included in the measurement of lease obligations: |
|
|
| |||
Operating cash flows from finance leases | $ | | $ | | ||
Operating cash flows from operating leases |
| |
| | ||
Financing cash flows from finance leases |
| |
| | ||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
| ||
Operating leases | $ | | $ | — | ||
14
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
Future minimum lease payments under non-cancelable leases at June 30, 2024 are as follows for years ending September 30:
Operating leases | ||||||
2024 (remaining three months) | $ | | ||||
2025 | | |||||
2026 | | |||||
2027 | | |||||
2028 | | |||||
Thereafter |
| | ||||
Total undiscounted lease payments | | |||||
Less: Imputed interest |
| | ||||
Total lease obligations | $ | | ||||
9. Common Stock and Stockholders’ Equity
Preferred Stock
On May 13, 2024, the Company filed a Certificate of Elimination to its Certificate of Incorporation, as then amended, with the Secretary of State of the State of Delaware to eliminate from the Certificate of Incorporation all matters set forth in the Certificates of Designation filed with the Secretary of State of the State of Delaware on September 8, 2017 (with respect to its Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock) and July 18, 2018, as amended on March 19, 2020 (with respect to its Series A-1 Convertible Preferred Stock) and returning each of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series A-1 Convertible Preferred Stock to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series. There were
Common stock
On March 7, 2024, following receipt of stockholder approval at the Company’s 2024 annual meeting of stockholders, the number of authorized shares of common stock under the Company’s Certificate of Incorporation was increased from
On March 18, 2024, in a private placement (the “Private Placement”) pursuant to a securities purchase agreement entered in January 2024 with certain institutional and accredited investors, including GMS Ventures and Investments (“GMS Ventures”), the Company’s largest stockholder, the Company issued an aggregate of
On April 15, 2024, in a private placement with Syntone pursuant to a securities purchase agreement entered into on January 22, 2024 (the “Syntone Private Placement”), the Company issued
15
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
those in the Private Placement. The warrants have an exercise price of $
The Company evaluated the equity classification for the common stock warrants and considered the conditions as prescribed within ASC 815-40, Derivatives and Hedging, Contracts in an Entity’s own Equity (“ASC 815-40”). The Company determined that the warrants did not meet the “fixed for fixed” settlement provision set forth in Step 2 of the indexation guidance and as a result they are not indexed to the Company’s own stock and must be classified as liabilities. The warrants were measured at fair value at issuance and recorded as a liability and will be remeasured to fair value at each subsequent reporting date, with changes in fair value recorded in current earnings. The net proceeds from the Private Placement were allocated first to the warrants at fair value, with the residual amount recorded as common stock at par value. The Company will continue to classify such warrants as liabilities until they are exercised, expire, or are no longer required to be classified as liabilities.
As the fair value of the warrants upon issuance was more than the proceeds of the Private Placement and Syntone Private Placement, there are no proceeds allocated to additional paid in capital. The excess fair value of the Private Placement and Syntone Private Placement warrants over the net proceeds was $
In December 2022, in a registered direct equity offering to certain institutional and accredited investors, including GMS Ventures, the Company issued