Trevi Therapeutics(TRVI) - 2022 Q3 - Quarterly Report

FORM 10-Q Filing Information Registrant and Filing Details This section provides the basic filing information for Trevi Therapeutics, Inc.'s Form 10-Q for the quarterly period ended September 30, 2022, including its incorporation state, principal executive offices, and stock exchange listing Registrant Information | Detail | Value | | :----- | :---- | | Registrant Name | TREVI THERAPEUTICS, INC. | | State of Incorporation | Delaware | | Principal Executive Offices | 195 Church Street, 14th Floor, New Haven, Connecticut 06510 | | Telephone Number | (203) 304-2499 | | Commission File Number | 001-38886 | | Trading Symbol | TRVI | | Exchange Registered | The Nasdaq Stock Market LLC | - The registrant has filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days, also submitting electronically every Interactive Data File required by Rule 405 of Regulation S-T[3] Filer Status and Common Stock Outstanding | Category | Status | | :------- | :----- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | | Shell company | No ☒ | | Common Stock Outstanding (as of Nov 10, 2022) | 59,922,945 shares | Cautionary Note Regarding Forward-Looking Statements and Industry Data This section provides a cautionary note regarding forward-looking statements and industry data included in the Form 10-Q, emphasizing that actual results may differ materially from expectations due to substantial risks and uncertainties, particularly those detailed in the 'Risk Factors' section - The report contains forward-looking statements about strategy, future operations, financial position, revenues, costs, prospects, plans, and management objectives, identified by words like 'anticipate,' 'believe,' 'expect,' and 'plan'[5] - Key forward-looking statements include plans for Haduvio's clinical trials (IPF, refractory chronic cough, prurigo nodularis), timing of data reporting and regulatory approvals, funding expectations, and the impact of the COVID-19 pandemic[10] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results could differ materially due to factors discussed in the 'Risk Factors' section, and the company does not assume any obligation to update these statements[6][7] - Industry and market data are based on third-party publications and internal estimates, which involve assumptions and limitations, and readers are cautioned against undue reliance on such data[8] RISK FACTOR SUMMARY Summary of Principal Risks This section provides a high-level summary of the key risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth prospects, including significant losses, funding needs, dependence on Haduvio, clinical trial challenges, and competitive pressures - The company has incurred significant losses since inception and expects to continue incurring losses, with no assurance of achieving or maintaining profitability[12] - Substantial additional funding is required; inability to raise capital could force delays or abandonment of product development or commercialization efforts[12] - The business is highly dependent on the successful development and commercialization of Haduvio, its sole product candidate; delays or failures would substantially harm the business[12] - Clinical trials for Haduvio (chronic cough in IPF, refractory chronic cough, prurigo nodularis) face risks of design changes, regulatory delays, enrollment difficulties, and unpredictable outcomes regarding safety and efficacy[12] - Haduvio's mechanism of action (κ-opioid receptor agonist and μ-opioid receptor antagonist) may lead to side effects like psychiatric issues, withdrawal, respiratory depression, and cardiac risk, potentially resulting in restrictive labeling or controlled substance classification[12][13] - The company faces substantial competition and relies on third parties for clinical trials and manufacturing, posing risks if these parties do not perform satisfactorily[13] - Failure to establish sales, marketing, and distribution capabilities or maintain intellectual property rights could hinder commercialization and business success[13] Table of Contents This section presents the table of contents for the Quarterly Report on Form 10-Q, outlining the document's structure into Part I (Financial Information) and Part II (Other Information), with specific items and their corresponding page numbers PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Trevi Therapeutics, Inc., including the balance sheets, statements of comprehensive loss, statements of stockholders' equity, and statements of cash flows, providing a snapshot of the company's financial position and performance Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets and stockholders' equity from December 31, 2021, to September 30, 2022, primarily driven by increases in cash, cash equivalents, and marketable securities Condensed Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :-------------------------------- | :------------------------------- | :------------------ | | Cash and cash equivalents | $66,574 | $36,830 | | Marketable securities | $59,029 | — | | Total current assets | $127,318 | $37,957 | | Total assets | $128,361 | $38,475 | | Total current liabilities | $14,641 | $12,724 | | Total liabilities | $18,458 | $21,400 | | Total stockholders' equity | $109,903 | $17,075 | | Accumulated deficit | $(204,564) | $(180,917) | Condensed Consolidated Statements of Comprehensive Loss The statements of comprehensive loss indicate continued net losses for both the three and nine months ended September 30, 2022 and 2021, with research and development expenses being the largest operating cost Condensed Consolidated Statements of Comprehensive Loss Highlights (Amounts in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $5,769 | $4,718 | $15,517 | $16,805 | | General and administrative | $2,636 | $2,229 | $7,733 | $7,398 | | Total operating expenses | $8,405 | $6,947 | $23,250 | $24,203 | | Loss from operations | $(8,405) | $(6,947) | $(23,250) | $(24,203) | | Net loss | $(8,266) | $(7,255) | $(23,647) | $(25,420) | | Basic and diluted net loss per common share | $(0.12) | $(0.34) | $(0.44) | $(1.25) | - Net loss for the three months ended September 30, 2022, increased to $8.3 million from $7.3 million in the prior year, while for the nine months, it decreased to $23.6 million from $25.4 million[19] - Interest income, net, significantly increased to $424 thousand for the three months and $623 thousand for the nine months ended September 30, 2022, compared to minimal amounts in 2021, due to higher cash and marketable securities balances and interest rate yields[19] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity saw a substantial increase from December 31, 2021, to September 30, 2022, primarily due to significant issuances of common stock and warrants from public and private offerings, and warrant exercises Condensed Consolidated Statements of Stockholders' Equity Highlights (Amounts in thousands, except share amounts) | Metric | Balance at Dec 31, 2021 | Balance at Sep 30, 2022 | | :------------------------------------------ | :---------------------- | :---------------------- | | Common Stock (Shares) | 28,505,804 | 58,322,517 | | Common Stock (Amount) | $29 | $58 | | Additional Paid-in Capital | $197,963 | $314,672 | | Accumulated Deficit | $(180,917) | $(204,564) | | Total Stockholders' Equity | $17,075 | $109,903 | - Key activities contributing to the change in equity during the nine months ended September 30, 2022, include: issuance of common stock and warrants under public offering and private placement ($103,010 thousand), proceeds from warrant exercises ($11,782 thousand), and stock-based compensation ($1,826 thousand)[23] Condensed Consolidated Statements of Cash Flows The company experienced a net increase in cash and cash equivalents for the nine months ended September 30, 2022, primarily driven by significant cash provided by financing activities, offsetting cash used in operating and investing activities Condensed Consolidated Statements of Cash Flows Highlights (Amounts in thousands) | Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(21,844) | $(22,717) | | Net cash used in investing activities | $(59,067) | — | | Net cash provided by financing activities | $110,655 | $7,034 | | Net increase (decrease) in cash and cash equivalents | $29,744 | $(15,683) | | Cash and cash equivalents at end of period | $66,574 | $29,318 | - Financing activities provided $110.7 million in cash for the nine months ended September 30, 2022, largely from public and private offerings and warrant exercises, a substantial increase from $7.0 million in the prior year[26] - Investing activities used $59.1 million in cash during the nine months ended September 30, 2022, primarily due to purchases of available-for-sale marketable securities, compared to no investing activity in the prior year[26] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining the company's business, significant accounting policies, and specific financial line items such as marketable securities, debt, stockholders' equity, and commitments Note 1. Nature of the Business Trevi Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing Haduvio (oral nalbuphine ER) for chronic cough in adults with idiopathic pulmonary fibrosis (IPF), other chronic cough indications, and prurigo nodularis, leveraging its opioid receptor modulation mechanism - Trevi Therapeutics is a clinical-stage biopharmaceutical company developing Haduvio (oral nalbuphine ER) for chronic cough in adults with IPF, other chronic cough indications, and prurigo nodularis[29] - Haduvio's active ingredient, nalbuphine, is a mixed κ-opioid receptor agonist and μ-opioid receptor antagonist, approved as an injectable for pain for over 20 years in the U.S. and Europe, and is not scheduled as a controlled substance in most regions[30] Note 2. Summary of Significant Accounting Policies This note outlines the significant accounting policies used in preparing the unaudited interim condensed consolidated financial statements, including the basis of presentation, use of estimates, and specific policies for cash equivalents, marketable securities, fair value measurements, R&D expenses, and stock-based compensation - The financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, with certain information condensed or omitted[31] - Significant estimates include R&D expenses, valuation of stock-based awards, and valuation allowance of deferred tax assets, where actual results may differ from these estimates[34] - Marketable securities are classified as available-for-sale and reported at fair value, with unrealized gains and losses included in stockholders' equity[38] - Research and development expenses, including personnel, consulting, and contract manufacturing costs, are expensed as incurred and are not allocated by specific Haduvio indications due to broad support activities[49] - Stock-based compensation is recognized using a fair-value based method (Black-Scholes model) over the requisite service period, with performance-based vesting recognized when conditions are probable[55][60] Note 3. Marketable Securities As of September 30, 2022, the company held $59.0 million in available-for-sale marketable securities, primarily U.S. treasury securities, corporate bonds, and commercial paper, all maturing within one year, with net unrealized losses of $263 thousand Marketable Securities (Amounts in thousands) as of September 30, 2022 | Type of security | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :----------------- | :------------- | :--------------------- | :---------------------- | :------------------- | | U.S. treasury securities | $21,830 | $— | $(92) | $21,738 | | Corporate bonds | $15,425 | $— | $(171) | $15,254 | | Commercial paper | $22,037 | $— | $— | $22,037 | | Total marketable securities | $59,292 | $— | $(263) | $59,029 | - All marketable securities held as of September 30, 2022, are due to mature in less than one year[71] - No realized gains or losses on available-for-sale marketable securities were recorded during the three and nine months ended September 30, 2022, and no other-than-temporary impairment losses were recognized[72] Note 4. Fair Value Measurements The company's financial assets and liabilities are measured at fair value using a three-level hierarchy, with most assets classified as Level 1 (money market funds, U.S. treasury securities) or Level 2 (corporate bonds, commercial paper), and the term loan derivative liability, previously Level 3, was settled Fair Value Measurement Summary (Amounts in thousands) as of September 30, 2022 | Balance Sheet Classification | Type of Instrument | Level 1 | Level 2 | Level 3 | Total | | :--------------------------- | :----------------- | :------ | :------ | :------ | :------ | | Financial assets: | | | | | | | Cash equivalents | Money market funds | $65,574 | $— | $— | $65,574 | | Marketable securities | U.S. treasury securities | $21,738 | $— | $— | $21,738 | | Marketable securities | Corporate bonds | $— | $15,254 | $— | $15,254 | | Marketable securities | Commercial paper | $— | $22,037 | $— | $22,037 | | Total assets | | $87,312 | $37,291 | $— | $124,603 | - The term loan derivative liability, previously a Level 3 liability, was settled and reclassed to current and non-current interest payable as of September 30, 2022[74][90] Note 5. Leases The company holds an operating lease for office space in New Haven, CT, expiring in February 2023, and an immaterial office equipment lease, with lease expenses consistent year-over-year and the remaining lease term for the office space less than one year - The primary operating lease is for office space in New Haven, CT, with a 60-month term, expiring February 1, 2023[75] Operating Lease Liabilities (Amounts in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Operating lease right-of-use asset | $53 | $131 | | Operating lease liabilities, current portion | $59 | $120 | | Operating lease liabilities, long term portion | $2 | $24 | | Total operating lease liabilities | $61 | $144 | Future Minimum Lease Payments (Amounts in thousands) | Year | Amount | | :--- | :----- | | 2022 | $36 | | 2023 | $25 | | 2024 | $2 | | 2025 | $1 | | Total lease payments | $64 | | Less: imputed discount rate | $(3) | | Carrying value of operating lease liabilities | $61 | Note 6. Accrued Expenses Accrued expenses increased to $5.2 million as of September 30, 2022, from $3.8 million at December 31, 2021, primarily due to higher accruals for R&D projects and consulting/professional fees Accrued Expenses (Amounts in thousands) | Category | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Accrued R&D projects | $3,018 | $2,303 | | Accrued compensation and benefits | $1,069 | $1,250 | | Accrued consulting and professional fees | $747 | $176 | | Accrued other | $415 | $79 | | Total accrued expenses | $5,249 | $3,808 | Note 7. Debt The company's SVB Term Loan, initially $14.0 million, had an outstanding balance of $9.9 million as of September 30, 2022, with amendments modifying cash collateralization conditions and interest rates, and cash collateralization requirements no longer in effect after positive Phase 2b/3 PRISM trial data - The SVB Term Loan, with an original principal of $14.0 million, bears a floating interest rate (greater of prime + 3.00% or 6.25% after the 2022 Equity Event)[81][84] - Monthly principal and interest payments began March 1, 2022, with full repayment due February 1, 2024, and a final payment fee of $1.2 million[81][88] - Amendments to the SVB Loan Agreement terminated cash collateralization obligations upon the 2022 Equity Event (April 2022 Private Placement) and confirmation of positive Phase 2b/3 PRISM trial data[82][83][84] SVB Term Loan Payable (Amounts in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Principal outstanding under term loan | $9,917 | $14,000 | | Term loan discount-interest | $(35) | $(84) | | Term loan discount-unamortized deferred charges | $(43) | $(76) | | Term loan discount-financing costs, net of accretion | $(5) | $(12) | | Term loan-final payment fee | $966 | $657 | | Total term loan payable | $10,800 | $14,485 | | Less current portion | $7,000 | $5,833 | | Term loan payable, non-current | $3,800 | $8,652 | Interest Expense on SVB Term Loan (Amounts in thousands) | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest payments | $170 | $152 | $470 | $451 | | Accrual of the final payment fee | $89 | $118 | $309 | $355 | | Accretion and amortization of term loan discounts | $33 | $33 | $110 | $87 | | Total Interest Expense | $292 | $303 | $889 | $893 | Note 8. Stockholders' Equity The company significantly increased its common stock and additional paid-in capital through various equity financings, including private placements, a public offering, and warrant exercises, resulting in a substantial increase in shares reserved for future issuance Shares of Common Stock Reserved for Future Issuance | Category | September 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------------- | :------------------ | | 2012 Stock Incentive Plan | 607,494 | 665,720 | | 2019 Stock Incentive Plan | 4,547,939 | 3,400,489 | | 2019 Employee Stock Purchase Plan | 721,717 | 470,631 | | Common stock warrants and pre-funded warrants | 48,330,707 | 20,602,244 | | LPC Purchase Agreement | 30,000,000 | 30,000,000 | | Total Reserved Shares | 84,207,857 | 55,139,084 | - The ATM Sales Agreement was amended in May 2022 to increase the maximum aggregate offering price of common stock from $12.0 million to $62.0 million, with no sales made under this agreement during the three and nine months ended September 30, 2022[97][98] - Private placements in October 2021 and April 2022, along with a public offering in September 2022, generated significant gross proceeds (approx. $14.8 million, $55.0 million, and $58.1 million respectively) through the issuance of common stock and pre-funded warrants[100][101][103][105] Warrant Activity (Nine Months Ended September 30, 2022) | Category | Number of Pre-funded Warrant Shares | Number of Common Stock Warrant Shares | Total Number of Warrant Shares | Weighted Average Exercise Price | | :-------------------------------- | :---------------------------------- | :------------------------------------ | :----------------------------- | :------------------------------ | | Outstanding as of Dec 31, 2021 | 2,300,000 | 18,302,244 | 20,602,244 | $1.22 | | Issued | 38,627,003 | — | 38,627,003 | $0.001 | | Exercised | (2,300,000) | (8,598,540) | (10,898,540) | $1.37 | | Outstanding as of Sep 30, 2022 | 38,627,003 | 9,703,704 | 48,330,707 | $0.28 | Stock-Based Compensation Expenses (Amounts in thousands) | Expense Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | General and administrative | $371 | $371 | $1,195 | $1,410 | | Research and development | $198 | $169 | $631 | $593 | | Total | $569 | $540 | $1,826 | $2,003 | Note 9. Income Taxes The company maintains a full valuation allowance on deferred tax assets and recorded a minimal income tax benefit for both the three and nine months ended September 30, 2022 and 2021, primarily to align estimates for state R&D tax credits - A full valuation allowance is maintained on deferred tax assets as of September 30, 2022, and December 31, 2021[116] - Income tax benefit (expense) was $7 thousand for the three months ended September 30, 2022 (vs. $(2) thousand in 2021) and $16 thousand for the nine months ended September 30, 2022 (vs. $15 thousand in 2021), primarily for state R&D tax credits[19][116] Note 10. Net Loss per Share Basic and diluted net loss per common share were $(0.12) and $(0.44) for the three and nine months ended September 30, 2022, respectively, with potential dilutive securities excluded from diluted EPS calculations due to their anti-dilutive effect in periods of net loss Net Loss per Share Attributable to Common Stockholders | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(8,266) | $(7,255) | $(23,647) | $(25,420) | | Weighted average common shares (basic and diluted) | 68,898,810 | 21,607,979 | 53,221,949 | 20,390,852 | | Basic and diluted net loss per common share | $(0.12) | $(0.34) | $(0.44) | $(1.25) | - Pre-funded warrants (38,627,003 shares outstanding as of Sep 30, 2022) are included in the weighted average common shares for basic and diluted net loss per share calculations[118] Potential Common Shares Excluded from Diluted EPS (Anti-Dilutive) | Security Type | Shares as of Sep 30, 2022 | Shares as of Sep 30, 2021 | | :------------ | :------------------------ | :------------------------ | | Stock Options | 4,141,907 | 3,049,180 | | Warrants | 9,703,704 | — | | Total | 13,845,611 | 3,049,180 | Note 11. Collaborative and Licensing Agreements The company holds an exclusive worldwide license from Endo Pharmaceuticals Inc. for nalbuphine hydrochloride products, including Haduvio, which involves potential milestone payments and mid-single-digit royalties on net sales, and outlines termination rights for both parties - The company has an exclusive worldwide license from Endo Pharmaceuticals Inc. for patent rights and know-how to develop and commercialize nalbuphine hydrochloride products, including Haduvio[121] - Obligations include potential milestone payments of $0.3 million upon Phase 3 completion and $0.8 million upon U.S. marketing approval, plus mid-single-digit royalties on net sales and a low-to-mid double-digit percentage of sublicense income[122] - The royalty term extends until the later of patent expiration or 10 years post-first commercial sale, followed by a low single-digit know-how and trademark royalty[123] - Both parties have termination rights for material breach, and the company can terminate for convenience with 180 days' notice[125] Note 12. Commitments and Contingencies The company's commitments primarily stem from outsourced development activities with third parties, including CROs and contract manufacturers, which may involve termination costs, as well as existing lease and licensing agreements - Significant development activities are outsourced to third parties (CROs, contract manufacturers), which may require termination costs for reimbursement of incurred expenses[128] - Additional commitments exist under lease agreements (Note 5) and licensing agreements (Note 11)[129] Note 13. Subsequent Event Subsequent to the reporting period, on October 25, 2022, the company sold an additional 1,600,428 shares of common stock for approximately $3.1 million gross proceeds, as part of the underwriters' partial exercise of their option in the September 2022 Offering - On October 25, 2022, the company sold 1,600,428 shares of common stock at $1.93 per share to underwriters, generating approximately $3.1 million in gross proceeds, through the partial exercise of an option from the September 2022 Offering[130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business developments, financial performance, liquidity, and future funding requirements, with a focus on Haduvio's clinical progress and the impact of external factors like COVID-19 Overview Trevi Therapeutics is a clinical-stage biopharmaceutical company focused on Haduvio for chronic cough (IPF, refractory) and prurigo nodularis, reporting positive Phase 2 CANAL and Phase 2b/3 PRISM trial data, but continues to incur significant losses and requires substantial additional funding for ongoing and future clinical development - Trevi Therapeutics is focused on developing Haduvio (oral nalbuphine ER) for chronic cough in adults with IPF and other chronic cough indications, and for prurigo nodularis[134] - Positive data from the Phase 2 CANAL trial for chronic cough in IPF showed a 75.1% reduction in daytime cough frequency (p<0.0001) and significant improvements in patient-reported outcomes[135][141] - Positive results from the Phase 2b/3 PRISM trial for prurigo nodularis demonstrated a 25% response rate for a 4-point reduction in Worst Itch Numerical Rating Scale (p=0.0157) and significant improvements in ItchyQoL and PROMIS sleep disturbance[138][142] - The company has incurred an accumulated deficit of $204.6 million as of September 30, 2022, and expects to incur substantial expenditures for Haduvio's clinical development, regulatory approval, and commercial launch[143][152] - Existing cash, cash equivalents, and marketable securities of $125.6 million as of September 30, 2022, are expected to fund operations for at least 12 months, but substantial additional funding is required for the growth strategy[151][153] Impacts of the COVID-19 Pandemic The COVID-19 pandemic has caused significant disruptions, including delays in clinical trial activities (Phase 2 CANAL, Phase 2b/3 PRISM), operational interruptions, and potential supply chain issues, which may continue to adversely affect the company's business and financial condition - The COVID-19 pandemic has caused restrictions and delays at clinical sites for both Phase 2b/3 PRISM and Phase 2 CANAL trials[155] - Potential adverse impacts include difficulties in recruiting/retaining investigators and staff, redirection of hospital resources, travel restrictions, and delays in regulatory approvals[155] - Operations of third-party suppliers and contract research organizations could also be negatively affected, leading to delays or disruptions in drug product supply for clinical trials[156] Components of Operating Results This section details the components of the company's operating results, primarily focusing on research and development (R&D) and general and administrative (G&A) expenses, and other income/expense items like term loan derivative liability and interest income/expense - All R&D expenses are incurred for Haduvio's development, including personnel, consulting, and contract manufacturing costs, and are expensed as incurred without allocation by specific indications[157] - R&D expenses are expected to increase as Haduvio advances through clinical development, regulatory approval, and potential commercial launch[158] - General and administrative expenses, comprising personnel costs, professional fees, and operating expenses, are also anticipated to rise due to increased personnel and expanded infrastructure[159][160] - Other income (expense), net, includes changes in the fair value of the term loan derivative liability (now settled), interest income from cash/marketable securities, and interest expense from the SVB Term Loan[161][162][163] Results of Operations The company's results of operations show an increased net loss for the three months ended September 30, 2022, primarily due to higher R&D and G&A expenses, but a decreased net loss for the nine-month period, driven by reduced clinical trial activity and increased interest income Comparison of Three Months Ended September 30, 2022 and 2021 (Amounts in thousands) | Metric | 2022 | 2021 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Research and development | $5,769 | $4,718 | $1,051 | | General and administrative | $2,636 | $2,229 | $407 | | Total operating expenses | $8,405 | $6,947 | $1,458 | | Net loss | $(8,266) | $(7,255) | $(1,011) | | Other income (expense), net | $132 | $(306) | $438 | - R&D expenses increased by $1.1 million for the three months ended September 30, 2022, due to startup activities for planned trials and increased Phase 2 CANAL trial activity, partially offset by decreased Phase 2b/3 PRISM trial activity[168] - G&A expenses increased by $0.4 million for the three months ended September 30, 2022, mainly due to higher legal fees for intellectual property filings and increased market research costs[169] Comparison of Nine Months Ended September 30, 2022 and 2021 (Amounts in thousands) | Metric | 2022 | 2021 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Research and development | $15,517 | $16,805 | $(1,288) | | General and administrative | $7,733 | $7,398 | $335 | | Total operating expenses | $23,250 | $24,203 | $(953) | | Net loss | $(23,647) | $(25,420) | $1,773 | | Other expense, net | $(413) | $(1,232) | $819 | - R&D expenses decreased by $1.3 million for the nine months ended September 30, 2022, primarily due to decreased clinical trial recruitment and activity in the Phase 2b/3 PRISM trial, reduced consulting, and lower personnel-related expenses, partially offset by increased startup activities for planned trials[173] - Other expense, net, decreased by $0.8 million for the nine months ended September 30, 2022, driven by a $0.6 million increase in interest income and the non-recurrence of a $0.4 million expense related to the Lincoln Park Capital Fund agreement, partially offset by a $0.2 million expense from the term loan derivative liability[175] Liquidity and Capital Resources The company has historically financed operations through equity and debt, with significant proceeds from recent private and public offerings, and as of September 30, 2022, cash, cash equivalents, and marketable securities totaled $125.6 million, expected to fund operations into 2026, but substantial additional funding is required for future development and commercialization - Since inception, the company has financed operations through private placements, IPO, ATM sales, and term loans, incurring significant operating losses and negative cash flows[176][177] - Recent financing activities include two private placements in October 2021 (gross proceeds ~$14.8 million), an April 2022 private placement (gross proceeds ~$55.0 million), and a September 2022 public offering (aggregate gross proceeds ~$58.1 million)[147][148][149][150] Cash Flow Summary (Nine Months Ended September 30, Amounts in thousands) | Activity | 2022 | 2021 | Change | | :-------------------------------- | :------- | :------- | :------- | | Net cash used in operating activities | $(21,844) | $(22,717) | $873 | | Net cash used in investing activities | $(59,067) | $— | $(59,067) | | Net cash provided by financing activities | $110,655 | $7,034 | $103,621 | | Net increase (decrease) in cash and cash equivalents | $29,744 | $(15,683) | $45,427 | - As of September 30, 2022, cash, cash equivalents, and marketable securities totaled $125.6 million, projected to fund operating expenses and capital expenditure requirements into 2026, subject to FDA agreement on Haduvio's chronic cough trials[151][198] - Substantial additional funding will be required for future operations, including Haduvio's clinical development (IPF, refractory chronic cough, HAL study, PRISM open-label extension), regulatory approvals, and potential commercial launch activities[195][197] Critical Accounting Policies and Use of Estimates The company's financial statements rely on estimates and assumptions affecting reported asset and liability amounts and expenses, with no material changes to critical accounting policies occurring during the nine months ended September 30, 2022 - Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, and expenses[203] - No material changes to critical accounting policies were made during the nine months ended September 30, 2022[204] Recently Adopted Accounting Pronouncements There were no new accounting pronouncements adopted during the nine months ended September 30, 2022, that are expected to materially impact the company's condensed consolidated financial statements - No new accounting pronouncements were adopted during the nine months ended September 30, 2022, that are expected to materially impact the financial statements[205] Recently Issued Accounting Pronouncements There were no new accounting pronouncements issued during the nine months ended September 30, 2022, that are expected to materially impact the company's condensed consolidated financial statements - No new accounting pronouncements were issued during the nine months ended September 30, 2022, that are expected to materially impact the financial statements[206] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reporting period Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures As of September 30, 2022, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level, designed to ensure timely and accurate reporting - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022[209] - Disclosure controls and procedures were concluded to be effective at the reasonable assurance level, ensuring timely and accurate communication of required information[209] Changes in Internal Control over Financial Reporting No changes in internal control over financial reporting occurred during the three months ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2022[210] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not subject to any material legal proceedings[212] Item 1A. Risk Factors This comprehensive section details numerous risks that could materially affect the company's business, financial condition, and operating results, covering financial position, product development, dependence on third parties, intellectual property, regulatory approvals, employee matters, common stock volatility, and broader business operations Risks Related to Our Financial Position and Need for Additional Capital The company has a history of significant losses and an accumulated deficit, requiring substantial additional funding to continue operations and Haduvio's development, where inability to raise capital or increased debt obligations could severely impact its financial condition and growth strategy - The company has incurred significant net losses since inception, with an accumulated deficit of $204.6 million as of September 30, 2022, and expects increasing losses for the foreseeable future[214] - Substantial additional funding is required to advance Haduvio through clinical development, regulatory approval, and commercial launch; failure to raise capital could force delays or abandonment of programs[220][221] - Existing cash, cash equivalents, and marketable securities are projected to fund operations into 2026, but this estimate is based on assumptions that may prove wrong, necessitating earlier additional financing[222][223] - Indebtedness under the SVB Term Loan, with a floating interest rate, could adversely affect financial condition, restrict future operations, and potentially lead to acceleration of obligations if covenants are breached[225][227][228] - Raising additional capital through equity could dilute stockholders, while debt financing could impose restrictive covenants and fixed payment obligations[229][230] Risks Related to the Development and Commercialization of Haduvio and Any Future Product Candidates The company's success hinges on Haduvio's development and commercialization, which faces significant risks including an unproven approach for new indications, lengthy and uncertain clinical trials, potential for trial failures, difficulties in patient enrollment, adverse events, and challenges in achieving market acceptance against competitors - The company is solely dependent on Haduvio; failure in its development or commercialization for chronic cough or prurigo nodularis would substantially harm the business[233][234] - Haduvio's approach for neurologically mediated conditions is unproven, and its active ingredient, nalbuphine, has not been approved for indications other than pain[237] - Clinical drug development is lengthy, expensive, and uncertain, with risks including unfavorable or inconclusive results, need for additional trials, slow subject enrollment, and potential for regulatory restructuring or abandonment of programs[239][240] - Adverse events or undesirable side effects, such as psychiatric effects, withdrawal, respiratory depression, or cardiac risk associated with Haduvio's opioid mechanism, could delay or prevent marketing approval or limit its use[257][259] - Haduvio, if approved, may face restrictive marketing and distribution regulations, including potential REMS programs or classification as a controlled substance, which could harm profitability[262][265] - Market acceptance by physicians, patients, and third-party payors is uncertain, influenced by efficacy, safety, pricing, competition (e.g., Dupixent for prurigo nodularis), and reluctance to switch from existing or off-label therapies[275][276][287] Risks Related to Our Dependence on Third Parties The company heavily relies on third parties for clinical trials, manufacturing, storage, packaging, and distribution of Haduvio, where failures in performance, supply chain disruptions, or inability to establish collaborations on favorable terms could significantly harm business operations and development timelines - Reliance on third-party CROs, clinical data management organizations, and investigators for clinical trials limits control and poses risks of non-compliance with protocols or regulatory requirements (cGCPs), leading to delays or data unreliability[299][300][301] - The company depends on contract manufacturers for drug substance and product, including a single supplier (Mallinckrodt) for nalbuphine hydrochloride, posing risks of manufacturing delays, supply interruptions, and compliance failures[302][304][306] - Mallinckrodt's recent emergence from bankruptcy creates uncertainty regarding its ability to continue supplying nalbuphine hydrochloride drug substance, potentially causing significant delays and cost increases[304] - Inability to establish collaborations for Haduvio's development or commercialization on commercially reasonable terms could force the company to curtail or delay programs or undertake costly activities independently[309][310] - Collaborations, if established, carry risks such as collaborators not dedicating sufficient resources, failing to perform obligations, or pursuing competing products, which could delay or terminate development[313] Risks Related to Our Intellectual Property The company's intellectual property, including licensed patents for Haduvio, is crucial for its success, but faces risks including non-compliance with license obligations, challenges to patent validity or enforceability, difficulties in protecting trade secrets, and costly litigation related to infringement or misappropriation - Failure to comply with obligations under the exclusive license agreement with Endo Pharmaceuticals Inc. for Haduvio could result in loss of critical license rights or damages[315][316] - Inability to obtain and maintain sufficient patent protection for Haduvio or its indications, or if the scope is not broad enough, could allow competitors to commercialize similar products, adversely affecting business[320] - The patent application and approval process is expensive, time-consuming, and uncertain, with risks of challenges to validity, unenforceability, or narrow interpretation of claims[320][322][324] - Failure to protect the confidentiality of trade secrets, through breaches of non-disclosure agreements or independent development by competitors, could negatively impact product value and harm the business[329] - Involvement in intellectual property lawsuits, either to enforce patents or defend against infringement claims, could be costly, time-consuming, and divert management attention, with uncertain outcomes[330][333][334] - Changes in patent laws (e.g., America Invents Act) or their interpretation, both in the U.S. and internationally, could diminish the value of patents and impair the ability to protect products[336][339] Risks Related to Regulatory Approval and Other Legal Compliance Matters The company faces extensive regulatory risks, including the uncertainty of the 505(b)(2) pathway for Haduvio, lengthy and costly approval processes, challenges with foreign clinical trial data, and potential post-marketing restrictions, where compliance with anti-kickback, fraud and abuse, and global privacy laws is critical, with non-compliance leading to significant penalties - Uncertainty exists regarding the FDA's acceptance of the Section 505(b)(2) regulatory pathway for Haduvio, which could lead to longer development times, higher costs, and increased risks[349][351] - The regulatory approval process is expensive, time-consuming, and uncertain, potentially preventing or delaying commercialization of Haduvio or any future product candidate[354][355] - Data from clinical trials conducted outside the U.S. may not be accepted by the FDA, potentially requiring additional costly and time-consuming trials[358] - Fast Track, Priority Review, Breakthrough Therapy, or PRIME designations are not assured and do not guarantee faster development or approval, nor do they assure FDA approval[363][365] - Post-marketing approval, products are subject to ongoing review and extensive regulation, including restrictions on manufacturing, labeling, advertising, and promotion, with potential for withdrawal from the market or substantial penalties for non-compliance[366][367][373][375] - Relationships with healthcare providers and payors are subject to anti-kickback, fraud and abuse, and transparency laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Sunshine Act), with violations leading to significant civil and criminal penalties[393][394][395][396][398] - Compliance with global privacy and data security requirements (e.g., GDPR, CCPA, CPRA) could result in additional costs, liabilities, and inhibit data collection, with failure to comply leading to fines and reputational harm[402][403] - Current and future legislation, such as the ACA and the Inflation Reduction Act, may increase the difficulty and cost of obtaining marketing approval and commercializing products, potentially limiting prices and revenues[380][385][389][391] Risks Related to Employee Matters and Managing our Growth The company's future success depends on retaining key executive and scientific personnel and effectively managing anticipated organizational growth, where challenges include intense competition for talent, potential difficulties in expanding sales and marketing capabilities, and risks of employee misconduct leading to significant liability and reputational harm - The company is highly dependent on its executive team (Jennifer Good, Thomas Sciascia) and other key personnel; loss of these individuals could impede research, development, and commercialization objectives[419] - Competition for qualified scientific, clinical, manufacturing, and sales/marketing personnel is intense, and the company may struggle to attract, retain, or motivate additional key employees[420] - Expected significant growth in employee numbers and operations, particularly for commercialization, could lead to difficulties in management, weaknesses in infrastructure, operational mistakes, and diversion of financial resources[422][423] - Risks of employee misconduct, including fraud or non-compliance with regulatory standards, could result in significant liability, regulatory sanctions, and harm to the company's reputation[424] Risks Related to Our Common Stock The company's common stock faces risks including potential delisting from Nasdaq, high price volatility influenced by numerous factors, and the negative impact of future stock sales by the company or significant stockholders, where the substantial number of outstanding warrants could also dilute ownership and complicate future equity offerings - An active trading market for the common stock may not be sustainable, and failure to comply with Nasdaq's continued listing requirements (e.g., $1.00 minimum bid price) could lead to delisting, reducing liquidity and access to capital markets[425][426][430] - The trading price of common stock is highly volatile, influenced by clinical trial results, regulatory actions, competition, financing efforts, and broader economic conditions, potentially resulting in substantial losses for investors[431][432][433] - Future sales of common stock by the company, employees, or significant stockholders (including through ATM sales, private placements, and warrant exercises) could negatively affect the stock price due to dilution or market perception[436][439][440][448] - The significant number of shares underlying outstanding warrants (48,330,707 as of Sep 30, 2022) could negatively impact the market price and make future equity offerings more difficult, and in a sale of the company, warrant holders could receive disproportionately higher consideration[450][452][453] - Ownership of common stock is concentrated among executive officers, directors, and their affiliates (approx. 37.1% as of Nov 10, 2022), potentially limiting new investors' influence over corporate decisions and affecting control changes[454] - The company does not anticipate paying cash dividends, requiring stockholders to rely solely on stock price appreciation for returns[456] - Provisions in organizational documents and Delaware law (e.g., classified board, advance notice requirements, Section 203) may discourage or prevent changes in management or acquisitions, potentially limiting stockholder influence[465][466] Risks Related to Our Business Operations The company faces ongoing risks from health epidemics like COVID-19, which have caused clinical trial delays and operational disruptions, where system failures, including cyberattacks or data breaches, could also severely impact business operations, data integrity, and reputation - Health epidemics, such as the COVID-19 pandemic, have delayed clinical trials (Phase 2 CANAL, Phase 2b/3 PRISM) and disrupted business operations, with potential for continued adverse impacts on clinical activities, supply chain, and financial condition[470][472][474] - System failures, including computer viruses, unauthorized access, natural disasters, or cyberattacks, could disrupt operations, lead to loss or damage of data (e.g., clinical trial data), and result in legal claims or regulatory penalties[413][414][415] Item 5. Other Information This section reports a subsequent event regarding a change in executive roles, specifically Dr. Thomas Sciascia transitioning from Chief Medical Officer to Chief Scientific Officer, effective November 14, 2022 - Dr. Thomas Sciascia transitioned from Chief Medical Officer to Chief Scientific Officer, effective November 14, 2022[475] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including forms of warrants, consulting services agreements, certifications of principal executive and financial officers, and Inline XBRL documents - Exhibits include Form of Pre-Funded Warrant, Consulting Services Agreement, Certifications of Principal Executive and Financial Officers (pursuant to Section 302 and Section 906 of Sarbanes-Oxley Act), and Inline XBRL documents[476] Signatures This section contains the duly authorized signatures of the registrant's President and Chief Executive Officer, Jennifer L. Good, and Chief Financial Officer, Lisa Delfini, affirming the submission of the report on November 10, 2022 - The report was signed on November 10, 2022, by Jennifer L. Good (President and Chief Executive Officer) and Lisa Delfini (Chief Financial Officer)[481]