Lipocine(LPCN) - 2020 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Lipocine Inc. reported a Q1 2020 net loss of $5.8 million, with total assets at $21.0 million and liabilities at $14.4 million Condensed Consolidated Balance Sheets Total assets increased to $21.0 million as of March 31, 2020, driven by cash, while total liabilities rose to $14.4 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $15,134,789 | $9,728,523 | | Total current assets | $20,965,448 | $19,630,973 | | Total assets | $20,991,956 | $19,658,280 | | Total current liabilities | $4,059,855 | $4,964,877 | | Warrant liability | $5,691,229 | $4,591,200 | | Total liabilities | $14,439,220 | $13,370,484 | | Total stockholders' equity | $6,552,736 | $6,287,796 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a net loss of $5.8 million for Q1 2020, up from $3.2 million in Q1 2019, driven by higher operating expenses and a $1.1 million unrealized warrant loss Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2020 (USD) | Three Months Ended March 31, 2019 (USD) | | :--- | :--- | :--- | | Research and development | $2,511,754 | $1,949,821 | | General and administrative | $2,085,261 | $1,175,927 | | Total operating expenses | $4,597,015 | $3,125,748 | | Operating loss | ($4,597,015) | ($3,125,748) | | Unrealized loss on warrant liability | ($1,100,029) | - | | Net loss | ($5,770,651) | ($3,224,472) | | Basic and Diluted loss per share | ($0.14) | ($0.14) | Condensed Consolidated Statements of Cash Flows Q1 2020 saw $3.4 million cash used in operations, $3.9 million provided by investing, and $4.9 million from financing, resulting in a $5.4 million net cash increase Summary of Cash Flows (Unaudited) | Activity | Three Months Ended March 31, 2020 (USD) | Three Months Ended March 31, 2019 (USD) | | :--- | :--- | :--- | | Cash used in operating activities | ($3,376,262) | ($3,002,879) | | Cash provided by (used in) investing activities | $3,902,221 | ($2,082,438) | | Cash provided by financing activities | $4,880,307 | $5,229,881 | | Net increase in cash and cash equivalents | $5,406,266 | $144,564 | Notes to Condensed Consolidated Financial Statements Notes detail capital sufficiency through February 2021, a $10.0 million SVB loan, a $6.0 million stock offering, and ongoing legal proceedings - The company believes its existing capital resources will be sufficient to meet operating requirements through at least February 15, 2021, but will need to raise additional capital. Failure to do so would create a risk to its ability to continue as a going concern[22] - The company has a $10.0 million Loan and Security Agreement with Silicon Valley Bank (SVB), with principal repayments deferred by six months under an April 1, 2020 agreement. The loan is secured by substantially all assets and requires $5.0 million of restricted cash collateral until TLANDO is approved by the FDA[36][37] - In February 2020, the company completed a registered direct offering, raising gross proceeds of approximately $6.0 million by selling 10,084,034 Class A Units at $0.595 per unit[49] - The company is engaged in ongoing litigation, including a patent infringement lawsuit against Clarus regarding its JATENZO® product, a shareholder derivative complaint, and a shareholder class action lawsuit. The company has not recorded a liability for these matters as the outcomes are not considered probable or estimable[74][75][77] - Subsequent to the quarter end, on April 21, 2020, the company was granted a Paycheck Protection Program (PPP) loan of $233,537[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Lipocine, a clinical-stage biopharmaceutical company, discusses its lead candidate TLANDO™ (PDUFA August 2020), LPCN 1144 for NASH in Phase 2, Q1 2020 net loss of $5.8 million, and liquidity Overview of Our Business and Product Candidates The company focuses on TLANDO™, an oral testosterone replacement therapy with an August 2020 PDUFA date, and LPCN 1144 for NASH in Phase 2 - The company's most advanced product candidate, TLANDO™, received a Complete Response Letter (CRL) from the FDA in November 2019 due to not meeting three secondary endpoints for maximal testosterone concentrations (Cmax)[91] - Following a Post Action meeting, the company resubmitted the TLANDO™ NDA on February 28, 2020, and has been assigned a PDUFA date of August 28, 2020[91] - LPCN 1144 is being tested in the LiFT Phase 2 clinical study for pre-cirrhotic NASH. Top-line liver fat reduction data is expected in Q4 2020, with 36-week biopsy data expected by Q2 2021, subject to potential COVID-19 delays[134] - The company plans to focus its 2020 efforts on TLANDO and LPCN 1144 and does not anticipate initiating Phase 3 studies for TLANDO XR or LPCN 1107 unless additional capital is secured or the candidates are out-licensed[137][144] Results of Operations Q1 2020 R&D expenses rose by $0.6 million to $2.5 million, G&A by $0.9 million to $2.1 million (due to legal costs), and an $1.1 million unrealized warrant loss was recorded Comparison of Operating Results (Q1 2020 vs Q1 2019) | Expense Category | Q1 2020 (USD) | Q1 2019 (USD) | Variance (USD) | | :--- | :--- | :--- | :--- | | Research and development | $2,511,754 | $1,949,821 | $561,933 | | General and administrative | $2,085,261 | $1,175,927 | $909,334 | | Unrealized loss on warrant liability | $1,100,029 | - | $1,100,029 | - The increase in R&D expenses was primarily driven by $1.7 million in costs for the LPCN 1144 LiFT Phase 2 clinical study, offset by a $1.2 million decrease in costs for TLANDO following the completion of its ABPM study[158] - The increase in G&A expenses was mainly due to a $1.0 million rise in legal costs associated with the patent infringement lawsuit filed against Clarus[159] Liquidity and Capital Resources As of March 31, 2020, the company held $15.6 million in unrestricted cash and $5.0 million restricted, sufficient until February 2021, but additional capital is needed - The company believes its existing capital resources will be sufficient to meet projected operating requirements through at least February 15, 2021[172] - The company will need to raise additional capital to support operations, the ongoing LPCN 1144 clinical study, and litigation. If unsuccessful, its ability to continue as a going concern will be limited[172] - In February 2020, the company raised gross proceeds of approximately $6.0 million through a registered direct offering[165] - In April 2020, the company received a Paycheck Protection Program (PPP) loan of $233,537[164] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company faces interest rate risk from its investment portfolio and variable-rate SVB loan, with a 1% prime rate change impacting annual interest expense by $73,000 to $89,000 - The company's main market risk is interest rate risk affecting its investment portfolio and its variable-rate debt[190] - A one percent increase in the prime rate would increase annual interest expense on the SVB loan by $73,000, while a one percent decrease would reduce it by $89,000[192] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[194] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[196] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in three significant legal proceedings: a shareholder derivative complaint, a patent infringement lawsuit against Clarus, and a shareholder class action lawsuit - A shareholder derivative complaint was filed against certain current and former officers and directors regarding allegedly false and misleading statements about the TLANDO NDA filing. A motion to dismiss is pending[196] - The company filed a lawsuit against Clarus alleging its JATENZO® product infringes on six Lipocine patents. A five-day jury trial is scheduled to begin on February 8, 2021[197] - A shareholder class action lawsuit was filed against the company and certain officers, alleging misleading statements about deficiencies in the TLANDO NDA. The company has insurance for such claims with a $1.25 million retention[198] Item 1A. Risk Factors Key risk factors include COVID-19 impacts, substantial litigation costs, reliance on a sole manufacturer for TLANDO, warrant liability volatility, and restrictive loan covenants - The ongoing COVID-19 pandemic could disrupt clinical trials, reduce access to capital, and harm business operations and financial results[208][209][210] - The company may have to dedicate substantial resources to defend against ongoing shareholder lawsuits, which could divert managerial attention and financial resources from business operations[202] - The company relies on a sole contract manufacturer, M.W. Encap Ltd., for the supply of TLANDO capsules, and any disruption could significantly harm the business[212] - The fair value of the warrant liability from the November 2019 offering is subject to material fluctuations based on the company's stock price, which could impact reported financial results[215][216] - The loan agreement with SVB contains restrictive covenants that could adversely impact the business, and failure to comply could result in the debt becoming immediately payable[220] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information The company reported no other information required to be disclosed under this item Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including warrant forms, securities agreements, CEO/CFO certifications, and XBRL data - Exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer, as well as documents related to a securities purchase agreement and XBRL data[236]