Outlook Therapeutics(OTLK) - 2023 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements and Industry Data Cautionary Note Regarding Forward-Looking Statements and Industry Data This section advises readers that the Annual Report on Form 10-K contains forward-looking statements based on management's beliefs and assumptions, which are subject to risks and uncertainties, and notes that industry data and market estimates are inherently uncertain and may differ from actual events - All statements other than historical facts are considered 'forward-looking statements,' including those related to future events, financial performance, and guidance[11] - Forward-looking statements are based on management's beliefs and assumptions and information currently available, but actual events or results may differ materially due to inaccurate assumptions or unknown risks[11] - Industry, business, and market data, including disease prevalence and market size estimates, are based on projections and market research, which are inherently subject to uncertainties[12] Selected Risks Affecting Our Business Selected Risks Affecting Our Business This section outlines key risks associated with investing in the company's common stock, including significant financial losses, going concern doubts, high dependence on its sole product candidate ONS-5010, regulatory approval challenges, intense competition, reliance on third-party manufacturers, intellectual property disputes, and potential delisting from Nasdaq - The company has incurred significant losses and negative cash flows since inception and expects this to continue for at least the next 12 months, with no product sales revenue to date[16] - There is substantial doubt about the company's ability to continue as a going concern, requiring significant additional funding for ONS-5010 development and operations, which may not be available on acceptable terms[16] - The business is highly dependent on the success of ONS-5010, its only active product candidate; failure to complete clinical development, receive regulatory approval, or commercialize it successfully would harm the business[16] - The company faces intense competition and rapid technological change, with competitors potentially developing more effective therapies or achieving market approval sooner, adversely affecting commercialization[16] - The common stock may be delisted from The Nasdaq Capital Market if the company fails to regain compliance with Nasdaq's continued listing standards, negatively impacting stock price and capital market access[18] PART I ITEM 1. Business Outlook Therapeutics, Inc. is a biopharmaceutical company focused on developing and commercializing ONS-5010 (LYTENAVA), an ophthalmic formulation of bevacizumab, for retinal indications like wet AMD, DME, and BRVO - Outlook Therapeutics is developing ONS-5010 (LYTENAVA (bevacizumab-vikg)) as the first FDA-approved ophthalmic formulation of bevacizumab for wet AMD, DME, and BRVO[20][22][31] - The FDA issued a Complete Response Letter (CRL) for ONS-5010's BLA due to CMC issues, open manufacturing inspection observations, and a lack of substantial evidence, requiring an additional adequate and well-controlled clinical trial (NORSE EIGHT)[22][42] - A Marketing Authorization Application (MAA) for ONS-5010 is under review by the European Medicines Agency (EMA), with an estimated decision in the first half of calendar 2024[23] - ONS-5010 is positioned to mitigate risks associated with off-label use of repackaged bevacizumab (Avastin), which currently accounts for approximately 66.3% of new patient starts in the US for wet AMD[24][37] - The company's strategy includes direct launch in the US and potential strategic partnerships for ex-US markets, leveraging executive team expertise and outsourcing manufacturing to reduce costs[29][33] ONS-5010 Clinical Trial Status | Trial Name | Status/Key Outcome | | :----------- | :------------------- | | NORSE ONE | Completed, positive safety/efficacy, proof-of-concept topline results (Aug 2020) | | NORSE TWO | Completed, pivotal Phase 3, met primary and key secondary efficacy endpoints (Aug 2021) | | NORSE THREE | Completed, positive safety profile (Mar 2021) | | NORSE EIGHT | Planned, additional adequate and well-controlled clinical trial required by FDA; SPA submitted (Dec 2023) | | NORSE FOUR | Planned, registration trial for BRVO (SPA agreement with FDA) | | NORSE FIVE | Planned, registration trial for DME (SPA agreement with FDA) | | NORSE SIX | Planned, registration trial for DME (SPA agreement with FDA) | | NORSE SEVEN | Enrolling, compares safety of vial vs. pre-filled syringe for sBLA submission | - The company has collaboration and license agreements, including a royalty-free license for ONS-5010 in greater China with a PRC joint venture (80% Syntone, 20% Outlook Therapeutics) and commercial license agreements with Selexis for ONS-5010 and legacy biosimilar candidates[64][68][69] - Manufacturing of ONS-5010 is outsourced to FujiFilm Diosynth Biotechnologies and Ajinomoto Bio-pharma Services, with a supply agreement for pre-filled ophthalmic syringes[85] - The competitive landscape for wet AMD includes approved VEGF inhibitors (EYLEA, BEOVU, LUCENTIS, SUSVIMO, VABYSMO) and biosimilar ranibizumab, with ONS-5010 aiming to be a lower-cost, on-label alternative to off-label Avastin[91] - The company holds three US patents, sixteen foreign patents, and numerous pending applications related to ONS-5010 formulations, antibody purification, and methods of use, with expected expiration dates ranging from 2034 to 2039[92][93][94] - The regulatory approval process in the US involves preclinical studies, IND submission, clinical trials (Phase 1, 2, 3), BLA submission and review, and post-approval requirements, all subject to extensive FDA regulation[95][96][97][98][99][103][104][105][106][107][108][109][110][111][112] - As of September 30, 2023, the company had 24 full-time employees, with 7 primarily engaged in R&D, and none represented by a labor union[135] ITEM 1A. Risk Factors This section details the significant risks facing Outlook Therapeutics, categorized into financial, product development, commercialization, reliance on third parties, intellectual property, business operations, and stock ownership - The company has incurred net losses of $59.0 million in FY2023 and $66.1 million in FY2022, with no product sales revenue since inception, and expects to continue incurring significant losses for at least the next 12 months[139][145] - There is substantial doubt about the company's ability to continue as a going concern, with current cash resources insufficient to fund operations through June 2024, necessitating additional funding for ONS-5010 development and operations[150][151][154] - The company is highly dependent on ONS-5010, its only active product candidate; failure to obtain regulatory approval or successful commercialization would severely harm the business[161] - Clinical drug development is a lengthy, expensive, and uncertain process, with potential for substantial delays, failure to demonstrate safety and efficacy, or undesirable side effects that could delay or prevent regulatory approval[167][168][178] - The company faces intense competition from major pharmaceutical and biotechnology companies with greater resources, and other anti-VEGF therapies may be approved and commercialized before ONS-5010[221][222][223][225] - Commercial success depends on market acceptance by physicians, patients, and third-party payors, which is uncertain, especially given the continued off-label use of Avastin[227][231] - Reliance on third parties for manufacturing, clinical trials, and other services poses risks, including failure to meet deadlines, comply with regulations, or maintain supply, which could harm the business[249][250][251][253][256] - The company's ability to protect its intellectual property is crucial, but patent rights are uncertain, expensive to enforce, and vulnerable to infringement claims or challenges by third parties[271][276][290][296][297][298] - Global economic and political conditions, disease outbreaks, and healthcare reform measures could adversely affect business, financial condition, and results of operations[324][326][339][344] - A pending securities class action lawsuit against the company and certain officers alleges false and misleading statements related to the BLA, which could result in substantial damages and divert management's attention[334][335][337] - The company's common stock may be delisted from The Nasdaq Capital Market if it fails to regain compliance with the minimum bid price requirement, leading to reduced liquidity and access to capital markets[369][370][373][374] ITEM 1B. Unresolved Staff Comments This item states that there are no unresolved staff comments from the SEC - No unresolved staff comments are applicable to the company[413] ITEM 2. Properties The company's headquarters are located in Iselin, New Jersey, occupying approximately 2,711 square feet of office and warehouse space under a lease expiring in March 2024 - The company's headquarters are in Iselin, New Jersey, occupying 2,711 square feet of office and warehouse space[414] - The current lease for the headquarters expires in March 2024[414] ITEM 3. Legal Proceedings This section discloses a pending securities class action lawsuit filed against the company and certain officers in November 2023, alleging violations of the Exchange Act due to allegedly false and misleading statements regarding ONS-5010's BLA - A securities class action lawsuit was filed on November 3, 2023, against the company and certain officers in the U.S. District Court for the District of New Jersey[415] - The lawsuit alleges violations of the Securities Exchange Act of 1934, claiming false and misleading statements related to ONS-5010's BLA, including an alleged lack of evidence for wet AMD treatment and deficient CMC controls[415] - The plaintiffs seek damages, interest, and reasonable costs, including attorneys' fees. The company cannot estimate the possible cost, but it could be material, and no reserve has been established[415][416] ITEM 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[418] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities This section provides information on the company's common stock market, stockholder count, dividend policy, and equity compensation plans, noting the common stock trades on The Nasdaq Capital Market and the company has never paid cash dividends - The company's common stock is traded on The Nasdaq Capital Market under the symbol "OTLK"[421] - As of December 14, 2023, there were approximately 80 stockholders of record[422] - The company has never declared or paid any cash dividends on its capital stock and does not anticipate paying any in the foreseeable future, intending to retain future earnings for business development[423][402] - No equity securities were repurchased by the issuer during the fiscal year ended September 30, 2023[426] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Outlook Therapeutics' financial performance and condition, highlighting its focus on ONS-5010 development despite recurring losses and negative cash flows, and details the impact of the FDA's Complete Response Letter (CRL) on ONS-5010's BLA and the need for additional funding - The company's primary focus is on launching ONS-5010 as the first FDA-approved ophthalmic bevacizumab for wet AMD, DME, and BRVO, with an EMA MAA review ongoing[429][432] - The FDA issued a CRL for ONS-5010's BLA, requiring an additional clinical trial (NORSE EIGHT) and CMC data, delaying potential approval[431][436] - The company has incurred significant net losses ($59.0 million in FY2023, $66.1 million in FY2022) and negative cash flows, with an accumulated deficit of $467.9 million as of September 30, 2023[439][446] - Current cash resources ($23.4 million as of Sep 30, 2023) are insufficient to fund operations for one year, raising substantial doubt about the company's ability to continue as a going concern, especially considering the NORSE EIGHT trial costs and the April 2024 debt maturity[446][489][502] - The company plans to seek additional funding through licensing, equity/debt offerings, and collaborations, and is negotiating to extend the maturity of its December 2022 Note[446][479][489][504] Consolidated Net Loss (FY2023 vs. FY2022) | Metric | Year ended September 30, 2023 | Year ended September 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Research and development | $26,452,942 | $42,330,856 | $(15,877,914) | | General and administrative | $26,673,440 | $20,739,897 | $5,933,543 | | Loss from operations | $(53,126,382) | $(63,070,753) | $9,944,371 | | Net loss | $(58,982,668) | $(66,052,264) | $7,069,596 | - R&D expenses decreased by $15.9 million in FY2023, primarily due to a $6.2 million BLA submission fee refund and a $1.7 million decrease in stock-based compensation[470] - G&A expenses increased by $5.9 million in FY2023, mainly due to a $5.8 million rise in professional fees for pre-launch preparations of ONS-5010[471] Cash Flow Summary (FY2023 vs. FY2022) | Activity | Year ended September 30, 2023 | Year ended September 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(42,973,398) | $(56,674,559) | | Net cash provided by financing activities | $48,968,568 | $59,594,047 | | Net increase in cash and cash equivalents | $5,995,170 | $2,919,488 | - Financing activities in FY2023 included $23.2 million from a registered direct equity offering, $7.2 million from ATM offerings, and $30.0 million from the December 2022 Note issuance, partially offset by $10.2 million in debt payments[495] - The December 2022 Note has a face amount of $31.8 million, bears 9.5% interest, and matures on April 1, 2024 (extended from Jan 1, 2024), convertible into common stock at $2.00/share (subject to adjustment) and includes covenants and potential default acceleration[497][499][580][582] ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk As a 'Smaller Reporting Company,' the company is not required to provide quantitative and qualitative disclosures about market risk - The company is a 'Smaller Reporting Company' and is not required to provide quantitative and qualitative disclosures about market risk[510] ITEM 8. Consolidated Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Outlook Therapeutics, Inc. and its subsidiary for the years ended September 30, 2023, and 2022, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows, along with detailed notes - The independent auditor's report (KPMG LLP) expresses an unqualified opinion on the consolidated financial statements but highlights substantial doubt about the company's ability to continue as a going concern due to recurring losses and negative cash flows[515][516] Consolidated Balance Sheet Highlights (as of September 30) | Metric | 2023 | 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $23,391,982 | $17,396,812 | | Total current assets | $30,979,198 | $27,520,446 | | Total assets | $32,300,601 | $28,527,751 | | Current portion of long-term debt | $35,551,000 | $10,915,015 | | Total current liabilities | $46,732,159 | $19,729,775 | | Total liabilities | $46,738,378 | $19,791,180 | | Accumulated deficit | $(467,918,186) | $(408,935,518) | | Total stockholders' (deficit) equity | $(14,437,777) | $8,736,571 | Consolidated Statements of Operations Highlights (Year ended September 30) | Metric | 2023 | 2022 | | :-------------------------------- | :------------- | :------------- | | Research and development | $26,452,942 | $42,330,856 | | General and administrative | $26,673,440 | $20,739,897 | | Loss from operations | $(53,126,382) | $(63,070,753) | | Net loss | $(58,982,668) | $(66,052,264) | | Net loss per share, basic and diluted | $(0.24) | $(0.31) | | Weighted average shares outstanding | 250,176,633 | 212,079,472 | Consolidated Statements of Cash Flows Highlights (Year ended September 30) | Activity | 2023 | 2022 | | :-------------------------------- | :-------------- | :-------------- | | Net cash used in operating activities | $(42,973,398) | $(56,674,559) | | Net cash provided by financing activities | $48,968,568 | $59,594,047 | | Net increase in cash and cash equivalents | $5,995,170 | $2,919,488 | | Cash and cash equivalents at end of year | $23,391,982 | $17,396,812 | - The company's liquidity is a concern, with an accumulated deficit of $467.9 million and $36.8 million in debt (December 2022 Note) due April 1, 2024, requiring substantial additional financing[541][542] - The December 2022 Note, measured at fair value, was $35.55 million as of September 30, 2023, with a fair value estimated using a binomial lattice model considering stock price, volatility, risk-free rate, and credit-adjusted discount rate[570][572][573] - As of September 30, 2023, the company had federal and state NOL carryforwards of $371.7 million and $207.5 million, respectively, and R&D tax credit carryforwards of $11.2 million and $0.8 million, respectively, with a full valuation allowance recorded against deferred tax assets[663] Report of Independent Registered Public Accounting Firm KPMG LLP, the independent auditor, issued an unqualified opinion on the consolidated financial statements for FY2023 and FY2022, but highlighted a 'going concern' matter due to the company's recurring losses and negative cash flows - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the years ended September 30, 2023 and 2022[515] - The auditor noted a 'going concern' issue due to recurring losses, negative cash flows, and an accumulated deficit, raising substantial doubt about the company's ability to continue operations[516] - A critical audit matter involved the evaluation of prepaid and accrued research and development expenses for contract manufacturing organizations (CMOs), requiring subjective judgment due to evidence regarding progress towards completion of work phases[523] Consolidated Balance Sheets The consolidated balance sheets show the company's financial position as of September 30, 2023, and 2022, with an increase in cash and cash equivalents to $23.4 million in 2023, but also a significant rise in current portion of long-term debt to $35.55 million and total current liabilities to $46.73 million, resulting in a total stockholders' deficit of $(14.44) million Consolidated Balance Sheet (as of September 30) | Metric | 2023 | 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $23,391,982 | $17,396,812 | | Prepaid expenses and other current assets | $7,587,216 | $10,123,634 | | Total current assets | $30,979,198 | $27,520,446 | | Total assets | $32,300,601 | $28,527,751 | | Current portion of long-term debt | $35,551,000 | $10,915,015 | | Total current liabilities | $46,732,159 | $19,729,775 | | Total liabilities | $46,738,378 | $19,791,180 | | Accumulated deficit | $(467,918,186) | $(408,935,518) | | Total stockholders' (deficit) equity | $(14,437,777) | $8,736,571 | Consolidated Statements of Operations The consolidated statements of operations show a net loss of $58.98 million for the year ended September 30, 2023, an improvement from $66.05 million in 2022, driven by a significant decrease in research and development expenses, partially offset by an increase in general and administrative expenses Consolidated Statements of Operations (Year ended September 30) | Metric | 2023 | 2022 | | :-------------------------------- | :------------- | :------------- | | Research and development | $26,452,942 | $42,330,856 | | General and administrative | $26,673,440 | $20,739,897 | | Loss from operations | $(53,126,382) | $(63,070,753) | | Loss on equity method investment | $10,998 | $48,730 | | Interest expense, net | $1,559,748 | $1,487,456 | | Loss on extinguishment of debt | $577,659 | $1,025,402 | | Change in fair value of promissory notes | $3,756,000 | $882,903 | | Change in fair value of warrant liability | $(50,919) | $(465,780) | | Loss before income taxes | $(58,979,868) | $(66,049,464) | | Income tax expense | $2,800 | $2,800 | | Net loss | $(58,982,668) | $(66,052,264) | | Net loss per share, basic and diluted | $(0.24) | $(0.31) | | Weighted average shares outstanding | 250,176,633 | 212,079,472 | Consolidated Statements of Stockholders' Equity (Deficit) The consolidated statements of stockholders' equity (deficit) show a shift from a positive equity of $8.74 million in 2022 to a deficit of $(14.44) million in 2023, primarily due to the net loss of $58.98 million in 2023, partially offset by $30.24 million from common stock sales and $5.55 million in stock-based compensation expense Consolidated Statements of Stockholders' Equity (Deficit) (as of September 30) | Metric | 2023 | 2022 | | :-------------------------------- | :----------- | :----------- | | Common Stock Shares | 260,257,517 | 227,310,572 | | Common Stock Amount | $2,602,574 | $2,273,105 | | Additional Paid-in Capital | $450,877,835 | $415,398,984 | | Accumulated Deficit | $(467,918,186) | $(408,935,518) | | Total Stockholders' Equity (Deficit) | $(14,437,777) | $8,736,571 | - Issuance of common stock from sales, net of costs, contributed $30,236,301 in 2023 and $62,264,732 in 2022 to additional paid-in capital[533] - Stock-based compensation expense was $5,547,019 in 2023 and $7,710,804 in 2022[533] Consolidated Statements of Cash Flows The consolidated statements of cash flows indicate a net increase in cash and cash equivalents of $5.99 million in 2023, up from $2.92 million in 2022, primarily driven by $48.97 million in cash provided by financing activities in 2023, which offset $42.97 million used in operating activities Consolidated Statements of Cash Flows (Year ended September 30) | Activity | 2023 | 2022 | | :-------------------------------- | :-------------- | :-------------- | | Net loss | $(58,982,668) | $(66,052,264) | | Net cash used in operating activities | $(42,973,398) | $(56,674,559) | | Net cash provided by financing activities | $48,968,568 | $59,594,047 | | Net increase in cash and cash equivalents | $5,995,170 | $2,919,488 | | Cash and cash equivalents at beginning of year | $17,396,812 | $14,477,324 | | Cash and cash equivalents at end of year | $23,391,982 | $17,396,812 | - Operating activities used $43.0 million in cash in 2023, primarily from the net loss, partially offset by non-cash items and changes in operating assets and liabilities[493] - Financing activities provided $49.0 million in cash in 2023, mainly from equity offerings ($30.0 million) and the issuance of the December 2022 Note ($30.0 million), offset by debt payments ($10.2 million)[495] Notes to Consolidated Financial Statements The notes to the consolidated financial statements provide detailed disclosures on the company's organization, liquidity, accounting policies, fair value measurements, debt, equity, and income taxes, reiterating the going concern uncertainty and providing specifics on the December 2022 Note, equity offerings, and R&D expenses Organization and Operations Outlook Therapeutics, Inc. is a biopharmaceutical company incorporated in Delaware, focused on developing and commercializing ONS-5010 for retinal indications, which received a CRL from the FDA for its BLA, while an MAA with the EMA is under review - Outlook Therapeutics, Inc. was reincorporated in Delaware in October 2015 and changed its name in November 2018[539] - The company's primary focus is on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for retinal indications[539] - The FDA issued a Complete Response Letter (CRL) for ONS-5010's BLA, requiring an additional clinical trial and CMC data for approval in wet AMD[540] - A Marketing Authorization Application (MAA) for ONS-5010 has been validated for review by the EMA, with an estimated decision in early 2024[540] Liquidity The company has an accumulated deficit of $467.9 million and $36.8 million in debt due April 1, 2024, leading to substantial doubt about its ability to continue as a going concern, necessitating additional financing and negotiations to extend the December 2022 Note maturity - The company has incurred recurring losses and negative cash flows, with an accumulated deficit of $467,918,186 as of September 30, 2023[541] - As of September 30, 2023, the company had $36,763,381 of principal, accrued interest, and exit fees due under the December 2022 Note, maturing on April 1, 2024[541] - Management believes current cash resources are insufficient to fund operations for one year from the Form 10-K filing date, raising substantial doubt about the company's ability to continue as a going concern[542] - Future operations are highly dependent on additional financing, revenue-generating partnerships, R&D success, competitive therapies, and regulatory approval/market acceptance of products[543][545] Basis of Presentation and Summary of Significant Accounting Policies The financial statements are prepared in conformity with U.S. GAAP, consolidating Outlook Therapeutics, Inc. and its Australian subsidiary, with key accounting policies including expensing R&D costs as incurred, accounting for equity investments using the equity method, and measuring equity-classified stock-based awards at fair value on the grant date - Consolidated financial statements are prepared in conformity with U.S. GAAP and include Outlook Therapeutics, Inc. and its wholly-owned Australian subsidiary[546] - The company accounts for equity investments where it has significant influence (e.g., Syntone JV) under the equity method of accounting[548] - Research and development costs are expensed as incurred, including third-party services for product candidate development, clinical trials, manufacturing, and regulatory compliance[563] - Equity classified stock-based awards are measured at fair value on the grant date and expensed over the vesting period[561] - The company uses estimates and judgments in preparing financial statements, particularly for prepaid and accrued R&D expenses, which are based on contract terms and estimated progress[549][508] Fair Value Measurements The company's financial instruments measured at fair value on a recurring basis include the unsecured convertible promissory note and warrant liability, both classified as Level 3, with the December 2022 Note's fair value estimated using a binomial lattice model and the warrant liability using the Black-Scholes option pricing model Fair Value Measurements (as of September 30, 2023) | Liabilities | Level 1 | Level 2 | Level 3 | | :----------------------------- | :------ | :------ | :---------- | | Unsecured convertible promissory note | $— | $— | $35,551,000 | | Warrant liability | $— | $— | $6,219 | | Total | $— | $— | $35,557,219 | - The December 2022 Note's fair value is estimated using a binomial lattice model, with key assumptions including a term of 0.3 years, stock price of $0.22, volatility of 71.0%, risk-free rate of 5.5%, and a credit-adjusted discount rate of 22.8% as of September 30, 2023[572][573] - The warrant liability is revalued each reporting period using the Black-Scholes option pricing model, with a fair value of $6,219 as of September 30, 2023, down from $57,138 in 2022, reflecting a decline in common stock price[570][573] Equity Method Investment The company holds a 20% non-controlling interest in Beijing Syntone Biopharma Ltd (Syntone JV), accounted for using the equity method, which holds a royalty-free license for ONS-5010 in the greater China market, with the company's maximum exposure to loss limited to its initial investment and committed future capital contributions of approximately $2.1 million - The company owns a 20% non-controlling interest in Beijing Syntone Biopharma Ltd (Syntone JV), with Syntone PRC owning 80%[574] - The investment is accounted for using the equity method, as the company can exert significant influence but does not control Syntone JV's operations[574] - Syntone JV has a royalty-free license for the development, commercialization, and manufacture of ONS-5010 in the greater China market[574] - The company's maximum exposure to loss from Syntone JV is limited to its initial investment and committed future capital contributions totaling approximately $2.1 million[575] Accrued Expenses Accrued expenses decreased from $3.43 million in 2022 to $2.75 million in 2023, primarily driven by a significant reduction in accrued compensation, partially offset by an increase in research and development accruals Accrued Expenses (as of September 30) | Category | 2023 | 2022 | | :-------------------- | :----------- | :----------- | | Compensation | $919,970 | $1,976,252 | | Research and development | $1,234,192 | $744,154 | | Professional fees | $165,192 | $564,423 | | Other accrued expenses | $426,386 | $143,071 | | Total | $2,745,740 | $3,427,900 | Debt The company's debt primarily consists of the December 2022 Note, an unsecured convertible promissory note with a face amount of $31.82 million, bearing 9.5% interest and maturing on April 1, 2024, which was issued to repay the November 2021 Note and is accounted for at fair value Debt (as of September 30) | Debt Type | 2023 | 2022 | | :-------------------------------- | :----------- | :----------- | | Unsecured convertible promissory note (fair value) | $35,551,000 | $— | | Unsecured promissory note | $— | $11,114,518 | | Total debt, net of unamortized loan costs | $35,551,000 | $10,915,015 | - The December 2022 Note, with a face amount of $31.82 million, was issued to Streeterville Capital, LLC, in December 2022, with net proceeds of $18.05 million after repaying the November 2021 Note[579] - The December 2022 Note bears 9.5% interest per annum and its maturity date was amended in December 2023 to April 1, 2024, with a one-time cash fee of $475,000 paid to the Lender[580][582] - The company elected to account for the December 2022 Note at fair value and recognized $2,074,964 of interest expense related to original issue discount and other debt issuance costs in FY2023[583] - The November 2021 Note ($10.22 million face amount) was fully prepaid and cancelled in December 2022, resulting in a $0.58 million loss on debt extinguishment in FY2023[584][585] Commitments and Contingencies This section outlines the company's commitments, including milestone and royalty payments under Selexis commercial license agreements for ONS-5010 and legacy biosimilars, and details ongoing legal proceedings, specifically a securities class action lawsuit filed in November 2023 - The company has commercial license agreements with Selexis for ONS-3010, ONS-1045 (covering ONS-5010), and ONS-1050, requiring milestone payments and low single-digit royalties on net sales[593][594] - A securities class action lawsuit was filed on November 3, 2023, alleging violations of the Exchange Act related to ONS-5010's BLA, with potential material costs[601][602] - The company's corporate office lease in Iselin, New Jersey, is a three-year term commencing April 2021, and it also has equipment finance leases[604][605] Lease Cost Components (Year ended September 30) | Lease Cost Component | 2023 | 2022 | | :--------------------- | :----- | :----- | | Total finance lease cost | $1,399 | $3,141 | | Operating lease cost | $44,867 | $44,867 | | Total lease cost | $46,266 | $48,008 | Future Minimum Payments Under Noncancelable Finance Leases (as of September 30, 2023) | Year | Finance Leases | | :--- | :------------- | | 2024 | $4,383 | | Total undiscounted lease payments | $4,383 | | Less: Imputed interest | $116 | | Total lease obligations | $4,267 | Stockholders' Equity The number of authorized common stock shares increased to 425 million in March 2023, with the company raising $23.2 million net proceeds from a registered direct equity offering in December 2022 and $6.08 million net from the BTIG ATM Offering in FY2023 - The number of authorized common stock shares increased from 325,000,000 to 425,000,000 in March 2023[611] - In December 2022, the company issued 28,460,831 common shares in a registered direct equity offering, generating $23.2 million in net proceeds[612] - The company terminated the Wainwright ATM Agreement in May 2023 and entered into the BTIG ATM Offering, selling 3,578,223 shares for $6.08 million net proceeds in FY2023[618][620][622] - As of September 30, 2023, there were 260,257,517 shares of common stock issued and outstanding[527] Outstanding Common Stock Warrants (as of September 30, 2023) | Expiration Date | Shares Issuable | Exercise Price Per Share | | :---------------- | :-------------- | :----------------------- | | December 22, 2024 | 277,128 | $12.00 | | February 26, 2024 | 1,747,047 | $0.9535 | | February 24, 2025 | 172,864 | $1.27 | | April 13, 2025 | 145,686 | $12.00 | | May 31, 2025 | 62,437 | $12.00 | | June 22, 2025 | 191,268 | $1.51875 | | December 28, 2025 | 515,755 | $1.0500 | | January 28, 2026 | 2,116,364 | $1.25 | | November 23, 2026 | 2,100,000 | $1.5625 | | Total | 7,328,549 | | Preferred Stock The company's board of directors is authorized to issue up to 10 million shares of preferred stock in various series, but as of September 30, 2023, no shares of preferred stock were issued and outstanding - The board of directors is authorized to issue up to 10,000,000 shares of preferred stock in one or more series[626] - Previously designated series include Series A Convertible Preferred Stock, Series A-1 Convertible Preferred Stock, and Series B Convertible Preferred Stock, each with specific dividend, voting, or conversion rights[626][627][628][630][631] - As of September 30, 2023, and 2022, there were no shares of preferred stock issued and outstanding[626] Stock-Based Compensation The company recognized $5.55 million in stock-based compensation expense in FY2023, down from $7.71 million in FY2022, with $9.18 million of unrecognized compensation expense for stock options expected to be recognized over 2.3 years as of September 30, 2023 Stock-Based Compensation Expense (Year ended September 30) | Category | 2023 | 2022 | | :------------------------ | :--------- | :--------- | | Research and development | $986,598 | $2,691,330 | | General and administrative | $4,560,421 | $5,019,474 | | Total | $5,547,019 | $7,710,804 | - The 2015 Equity Incentive Plan authorizes 42,265,841 shares, with 17,414,910 shares remaining available for grant as of September 30, 2023[633] - As of September 30, 2023, there were 23,956,279 stock options outstanding with a weighted average exercise price of $1.44, and $9,176,983 of unrecognized compensation expense[636][638] - Performance-based stock options totaling 700,000 shares were outstanding as of September 30, 2023, with no expense recognized in FY2023 as performance conditions were not considered probable of achievement[642][643] Collaboration Arrangements The company has a joint venture agreement with Syntone's PRC-based affiliate, forming Beijing Syntone Biopharma Ltd (Syntone JV), where the company holds a 20% ownership and the JV has a royalty-free license for ONS-5010 in the greater China market - The company entered a joint venture agreement with Syntone's PRC-based affiliate, forming Beijing Syntone Biopharma Ltd (Syntone JV)[648] - The company owns 20% of Syntone JV, which holds a royalty-free license for the development, commercialization, and manufacture of ONS-5010 in the greater China market[649] - An initial investment of $900,000 was made in June 2020, with a commitment for up to $2.1 million in additional capital contributions[650] Related-Party Transactions Related-party transactions primarily involve MTTR, LLC, and its principals, including current executive officers Mr. Dagnon and Mr. Evanson, with a strategic partnership agreement terminated in March 2020 leading to common share issuance and subsequent individual consulting agreements - A strategic partnership agreement with MTTR, LLC, which included current executive officers Mr. Dagnon and Mr. Evanson as principals, was terminated effective March 19, 2020[651][652][653] - Upon termination, 7,244,739 shares of common stock were issued to MTTR's four principals, and individual consulting agreements were established[653][654] - MTTR and its principals earned $185,552 in FY2023 and $526,435 in FY2022 from consulting fees and expense reimbursement[655] - In December 2021, Mr. Dagnon and Mr. Evanson entered employment agreements with base salaries of $450,000 and received grants of 800,000 stock options each, plus 200,000 performance-based options[656][658] Income Taxes The company recorded an income tax expense of $2,800 in both FY2023 and FY2022, primarily state tax, and has significant U.S. federal and state NOL carryforwards and R&D tax credit carryforwards, but a full valuation allowance is recorded against deferred tax assets due to uncertainty of realization Income Tax Benefit (Year ended September 30) | Tax Type | 2023 | 2022 | | :--------- | :----- | :----- | | State tax | $2,800 | $2,800 | - As of September 30, 2023, the company had federal and state NOL carryforwards of $371.7 million and $207.5 million, respectively, and federal and state R&D tax credit carryforwards of $11.2 million and $0.8 million, respectively[663] - A full valuation allowance is recorded against the company's deferred tax assets due to uncertainty of realizing a benefit from these items, with the allowance increasing by $17.1 million in FY2023[663] - The Inflation Reduction Act of 2022, effective for tax years beginning after December 31, 2022, is not expected to have a material impact on the company's financial statements[669] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item states that there have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[671] ITEM 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, and internal control over financial reporting was also deemed effective based on the COSO 2013 framework - As of September 30, 2023, the company's disclosure controls and procedures were evaluated and deemed effective[672] - Management concluded that internal control over financial reporting was effective as of September 30, 2023, based on the COSO 2013 Internal Control-Integrated Framework[674] - As a smaller reporting company, the independent registered accounting firm is not required to issue an attestation report on internal control over financial reporting[675] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[676] ITEM 9B. Other Information On December 21, 2023, the company amended its December 2022 Convertible Promissory Note with Streeterville Capital, LLC, extending the maturity date to April 1, 2024, in exchange for a one-time cash fee of $475,000 - On December 21, 2023, the company amended the December 2022 Convertible Promissory Note with Streeterville Capital, LLC[678] - The amendment extended the maturity date of the December 2022 Note to April 1, 2024[678] - A one-time cash fee of $475,000 was paid to the Lender in connection with the amendment[678] PART III ITEM 10. Directors, Executive Officers and Corporate Governance This item incorporates information regarding directors, executive officers, corporate governance, and the Code of Business Conduct and Ethics by reference from the company's definitive Proxy Statement for the next Annual Meeting of Stockholders - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[682][684] - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors, publicly available on its website[683] ITEM 11. Executive Compensation This item incorporates information regarding executive compensation by reference from the company's definitive Proxy Statement for the next Annual Meeting of Stockholders - Information on executive compensation is incorporated by reference from the 2024 Proxy Statement[684] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This item incorporates information regarding security ownership of certain beneficial owners and management, as well as equity compensation plan information, by reference from the company's definitive Proxy Statement for the next Annual Meeting of Stockholders - Information on security ownership of certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2024 Proxy Statement[685] ITEM 13. Certain Relationships and Related Transactions, and Director Independence This item incorporates information regarding certain relationships and related transactions, and director independence, by reference from the company's definitive Proxy Statement for the next Annual Meeting of Stockholders - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2024 Proxy Statement[686] ITEM 14. Principal Accounting Fees and Services This item incorporates information regarding principal accounting fees and services by reference from the company's definitive Proxy Statement for the next Annual Meeting of Stockholders - Information on principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement[687] PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K, including various corporate documents, equity incentive plans, commercial license agreements, and recent debt amendments - The financial statements required by Item 15(a) are filed in Item 8 of this Annual Report on Form 10-K[692] - Financial statement schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or notes[692] - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Equity Incentive Plans (2011 and 2015), Employee Stock Purchase Plan, Indemnity Agreements, Consulting Agreements, Selexis Commercial License Agreements, Investor Rights Agreement, Stock Purchase Agreements, Convertible Promissory Notes, and At-the-market Sales Agreements[691][693][694] - Exhibit 10.30 is an Amendment to the Convertible Promissory Note, dated December 21, 2023, between the Company and Streeterville Capital, LLC[694] ITEM 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[696]