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RGDO > SEC Filings for RGDO > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for REGADO BIOSCIENCES INC

Form 10-Q for REGADO BIOSCIENCES INC


8-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The interim financial statements included in this report and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2012, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our prospectus dated August 22, 2013 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission on August 22, 2013 (the "IPO Prospectus"). In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. See "Cautionary Note Regarding Forward-Looking Statements" in this report. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the "Part II - Item 1A Risk Factors" section and elsewhere in this report, as well as, in other reports and documents we file with the Securities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on the discovery and development of novel, first-in-class, actively controllable antithrombotic drug systems for acute and sub-acute cardiovascular indications. We are pioneering the discovery and development of two-component drug systems consisting of a therapeutic aptamer and its specific active control agent. Our actively controllable product candidates have the potential to improve outcomes, enhance the patient experience and reduce overall treatment costs.

Our lead product candidate, REG1, consists of pegnivacogin, a highly potent and selective FIXa inhibiting anticoagulant, and anivamersen, its specific active control agent. We are developing REG1 as an anticoagulant for use in patients with a wide variety of cardiovascular conditions undergoing percutaneous coronary intervention, or PCI, a hospital-based procedure used to mechanically open or widen obstructed coronary arteries. Interventional cardiologists performing PCIs must consider the risk of major bleeding events in determining the level of anticoagulation administered to patients to prevent ischemic events, including death, stroke, myocardial infarction, or MI, or the need for revascularization of the artery. Because the anticoagulant effect of existing drugs persists long after administration, intervention cardiologists are forced to make a compromising medical decision because they lack the means to simultaneously reduce the risks of ischemic and major bleeding events. In 2005, we filed an investigational new drug application, or IND, for the use of REG1 in this initial indication. REG1 has been studied in three Phase 1 trials involving a total of 174 subjects and one Phase 2a proof-of-concept PCI trial involving 26 subjects. In November 2010, we completed a randomized, partially blinded, dose-ranging Phase 2b trial of REG1 involving 640 subjects, or the RADAR trial. In September 2013, we commenced our single, open-label, 13,200 subjects Phase 3 trial of REG1 in patients undergoing PCI (excluding ST elevated myocardial infarction, or STEMI), or the REGULATE-PCI trial.

We completed our initial public offering ("IPO") in August 2013. Inclusive of the underwriters' exercise of the over-allotment option in connection with the IPO in September 2013, we issued 11,671,500 shares of common stock at a price of $4.00 per share, resulting in net proceeds of approximately $41.1 million, after deducting underwriting discounts of $3.3 million and offering costs of $2.3 million. Pursuant to the IPO all shares of convertible preferred stock then outstanding automatically converted into an aggregate of 9,396,767 shares of common stock.

We are not profitable and do not expect to be profitable in the foreseeable future. We have suffered negative cash flows from operating activities of $22.1 million during the nine months ended September 30, 2013 and a net accumulated deficit of $130.8 million since inception as of September 30, 2013. We have devoted most of our financial resources to research and development, including our preclinical development activities and clinical trials. We have not completed development of any product candidate and we have therefore not generated any revenues from product sales. As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' equity and working capital. Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern, and as a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2012 with respect to this uncertainty. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.


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Financial Operations Overview

Revenue

To date, we have not generated any product revenue. Our ability to generate product revenue, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of our lead product candidate, REG1.

Research and Development Expenses

Research and development expenses consist of the costs associated with our research and discovery activities, conducting preclinical studies and clinical trials and activities related to regulatory filings. Our research and development expenses consist of:

employee salaries and related expenses, which include all compensation benefits for the personnel involved in our drug discovery and development activities, including stock based compensation;

external research and development expenses incurred under agreements with third party AROs and CROs and investigative sites;

clinical trial supplies when used or upon determination that they have no alternative future use and clinical trial supplies shipped to clinical sites for use in clinical studies;

license fees for and milestone payments related to in-licensed products and technologies; and

overhead costs related to facilities, depreciation, research and development management, and research and development support services and supplies.

We expense research and development costs as incurred, with the exception of materials purchased and/or manufactured for use in clinical trials. We capitalize clinical trial supplies, which are comprised of materials that will be used in our clinical trials that also have an alternative future use in either ongoing or future clinical research or development projects. Capitalized clinical trial supplies that are determined to be unsuitable for future use are immediately expensed to research and development; otherwise, clinical trial supplies are expensed to research and development when shipped to clinical sites for use in clinical studies or when used in other research and development projects. Costs for clinical agreements, including ARO and CRO contracts, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued expenses.

Conducting a significant amount of research and development is central to our business model. Product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of late stage clinical trials. We expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our lead product candidate, REG1, and to further develop our other product candidates.

We incurred aggregate research and development expenses of approximately $9.6 million and $1.6 million for the three months ended September 30, 2013 and 2012, respectively, $15.6 million and $6.5 million for the nine months ended September 30, 2013 and 2012, respectively, and $97.6 million since inception as of September 30, 2013. We expect to incur increased expenses primarily related to our REGULATE-PCI trial.

We track direct external development expenses and direct personnel expenses on each indication for our product candidates. Substantially all of our research and development expenses for REG1 have related to its initial indication, although we expect certain of the data obtained will support development of additional REG1 indications as well as the development of REG2. Indirect expenses, such as, overhead costs related to facilities, depreciation, research and development management, and research and development support services and supplies are not allocated to specific product candidates or indications, because the development projects tend to vary from period to period and internal resources are utilized across and benefit multiple programs over any given period of time. The following table is a summary of our research and development expenses for the three and nine months ended September 30, 2013 and 2012 and for the period from inception to September 30, 2013 (in thousands):

                                           Three months ended          Nine months ended         Period from Inception
                                              September 30                September 30           (December 19, 2001) to
                                            2013          2012          2013         2012          September 30, 2013
REG1                                     $    8,777      $ 1,065     $   13,466     $ 4,863     $                 78,695
REG3                                            244           96            487         294                        6,180
REG2                                            177           81            383         250                        4,561

Total direct expenses                         9,198        1,242         14,366       5,407                       89,436
Indirect expenses                               399          365          1,258       1,112                        8,119

Total research and development expense   $    9,597      $ 1,607     $   15,594     $ 6,519     $                 97,555


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The successful development of our clinical and preclinical product candidates is highly uncertain. At this time, we can only reasonably estimate the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from those product candidates may commence. Our estimates are based on reasonable assumptions, past performance, experience and existing contracts. However, unforeseen changes may occur at any time due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

the number of sites included in the trials;

the number of countries included in the trials;

the ability to recruit subjects to participate in the trial;

the per subject trial costs;

the length of time required to enroll suitable subjects, achieve interim milestones and complete clinical trials; and

the cost and timeliness of obtaining clinical trial supplies.

Development timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we anticipate that we will make determinations as to which product candidates and indications to pursue and how much funding to direct to each product candidate and indication on an ongoing basis. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on the research and development of our product candidates.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related benefit costs, including stock-based compensation for administrative personnel. Other general and administrative expenses include facility costs, and professional fees for legal, consulting, auditing and tax services. We anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount, expanded infrastructure, and increased legal, compliance, accounting and investor and public relations expenses associated with being a public company.

Interest Income (Expense)

Interest income consists of interest earned on our cash and cash equivalents, as well as, fair value adjustments related to our warrant liability. We expect our interest income to increase as we invest the net proceeds from our IPO pending their use in our operations. Interest expense in 2013 primarily relates to the Comerica Loan (as described more fully under "Liquidity and Capital Resources") and to our loan with MidCap Financial SBIC, LP, or MidCap, which was paid in full with proceeds from the Comerica Loan. Interest expense in 2012 related to interest incurred on our MidCap loan and on our convertible notes.

Critical Accounting Policies and Significant Judgments and Estimates

A "critical accounting policy" is one that is both important to the portrayal of our financial condition and results of operations and that requires management's most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States applicable to interim financial reporting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. There were no significant changes in critical accounting policies from those at December 31, 2012 except for the addition of the warrant liability (see Note 3 to the financial statements for further information). During the nine months ended September 30, 2013, we consistently applied the critical accounting policies discussed in the IPO Prospectus, which contained our financial statements for the years ended December 31, 2012 and 2011. For a complete discussion regarding these critical accounting policies, refer to the IPO Prospectus.


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Results of Operations

Effective September 26, 2013, we reduced our workforce by eliminating 5 of our 32 full-time employees. The majority of the affected employees worked in drug discovery roles at our laboratory facility in North Carolina. The goal of our reduction in workforce was to enable us to focus management and financial resources on advancing our lead product candidate, REG1, in our REGULATE-PCI trial. In connection with the reduction in workforce, we incurred cash charges of approximately $250,000 in severance costs which were recorded in the third quarter of 2013. We believe that the reduction in workforce will result in annualized savings of approximately $625,000 beginning in the second quarter of 2014.

Three Months Ended September 30, 2013 and 2012

The following table sets forth certain information concerning our results of
operations for the periods shown (in thousands):



                                          Three Months Ended
                                             September 30,
                                                                       Increase
                                          2013           2012         (Decrease)
         Operating expenses:
         Research and development       $  (9,597 )    $ (1,607 )    $      7,990
         General and administrative        (1,614 )        (974 )             640

         Total operating expenses         (11,211 )      (2,581 )           8,630

         Other (expense) income:
         Interest income                        2             1                 1
         Interest expense                    (146 )        (137 )               9
         Other expense                        (60 )          -                 60

         Total other (expense) income        (204 )        (136 )              68

         Net loss                       $ (11,415 )    $ (2,717 )    $      8,698

Research and Development Expenses

Research and development expenses increased by $8.0 million for the three months ended September 30, 2013 compared to the three months ended September 30, 2012 due to the start of the REGULATE-PCI trial, including commencement of services provided by AROs and CROs, and to $1.5 million in accrued license agreement obligations which obligations were triggered upon the commencement of our REGULATE-PCI trial in September 2013.

General and Administrative Expenses

General and administrative expenses increased by $640,000 for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. The increase was primarily due to market analysis costs for trademark research and increased insurance and other administrative costs associated with becoming a public company.

Other Income (Expense)

Interest income increased by $1,000 for the three months ended September 30, 2013, compared to the three months ended September 30, 2012 as a result of the IPO proceeds.

Interest expense increased by $9,000 for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. The increase was primarily due to the fair value adjustment for our warrant liability.

Other expense increased by $60,000 for the three months ended September 30, 2013, compared to the three months ended September 30, 2012 from costs associated with the sale of patents.


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Nine Months Ended September 30, 2013 and 2012

The following table sets forth certain information concerning our results of
operations for the periods shown (in thousands):





                                          Nine Months Ended
                                            September 30,
                                                                       Increase
                                         2013           2012          (Decrease)
        Operating expenses:
        Research and development       $ (15,594 )    $  (6,519 )    $      9,075
        General and administrative        (4,240 )       (3,368 )             872

        Total operating expenses         (19,834 )       (9,887 )           9,947

        Other (expense) income:
        Interest income                       71              4                67
        Interest expense                    (545 )         (438 )             107

        Total other (expense) income        (474 )         (434 )              40

        Net loss                       $ (20,308 )    $ (10,321 )    $      9,987

Research and Development Expenses

Research and development expenses increased by $9.1 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 due to the start of the REGULATE-PCI trial, including commencement of services provided by AROs and CROs, and to $1.5 million in accrued license agreement obligations which obligations were triggered upon the commencement of our REGULATE-PCI trial in September 2013.

General and Administrative Expenses

General and administrative expenses increased by $872,000 for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 primarily due to market analysis costs for trademark research and increased insurance and other administrative costs associated with becoming a public company.

Other Income (Expense)

Interest income increased by $67,000 for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 primarily due to a fair value adjustment related to our warrant liability.

Interest expense increased by $107,000 for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. The increase was primarily due to the final fee payment of $192,000 related to the MidCap Financial loan, partially offset by lower interest charges in the 2013 period compared to the comparable period in 2012.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have not generated any product revenue. We have funded our operations to date through sales of our equity and debt securities, bank borrowings and government grants. As of September 30, 2013, we had $43.5 million in cash and cash equivalents.

We completed our IPO in August 2013. Inclusive of the underwriters' exercise of the over-allotment option in connection with the IPO in September 2013, we issued 11,671,500 shares of common stock at a price of $4.00 per share, resulting in net proceeds of approximately $41.1 million, after deducting underwriting discounts of $3.3 million and offering costs of $2.3 million. Upon closing of the IPO, all shares of convertible preferred stock then outstanding automatically converted into an aggregate of 9,396,767 shares of common stock.

From inception through September 30, 2013, we received net cash proceeds of $5.8 million from the sale of our Series A Preferred Stock, $19.9 million from sales of our Series B Preferred Stock, $23.0 million from sales of our Series C Preferred Stock, $51.2 million from sales of our Series D Preferred Stock and $32.3 million from sales of our Series E Preferred Stock. Convertible note proceeds of $14.9 million are included in these totals, as well as convertible notes that have been converted to convertible preferred stock as of September 30, 2013.

Comerica Loan

In May 2013, we entered into a Loan and Security Agreement, or the Loan Agreement, with Comerica Bank, or Comerica. Pursuant to the terms of the Loan Agreement, we were initially eligible to borrow $4.5 million in an initial tranche, or Tranche One. Upon Comerica's receipt of evidence satisfactory to Comerica that (i) the 1,000 patient interim analysis in the REGULATE-PCI study is successful and performed by April 30, 2014 and (ii) upon our completion of the IPO and receipt of net proceeds of at least $50 million prior to September 30, 2013, we had the option to borrow an additional $4 million in the second tranche, or Tranche Two. Since the Tranche Two conditions were not satisfied, Tranche Two is solely at the discretion of Comerica.


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The Comerica loan bears interest at Comerica's Prime Reference Rate (as defined in the Loan Agreement) subject to a floor of 30 day LIBOR plus 250 basis points plus 4.0%. The Comerica loan is interest-only until September 1, 2014. We must repay the principal amount in nine approximately equal consecutive monthly installments commencing on September 1, 2014. The loan matures on May 10, 2015.

In connection with the funding of Tranche One, we issued a warrant to Comerica, or the Comerica Warrant, to purchase 156,250 shares of our Series E Preferred Stock at a price of $0.72 per share, or the Warrant Price, subject to adjustment for stock splits, combinations, reclassifications or exchanges and certain dilutive issuances. After giving effect to our IPO and reverse stock-split, the Comerica Warrant was adjusted to a warrant to purchase 9,356 shares of our common stock at a price of $12.02 per share (the "Adjusted Warrant Price"), respectively. If Comerica, in its sole discretion, permits us to borrow the additional $4 million in Tranche Two, the Comerica Warrant will become exercisable for an additional number of shares of our common stock equal to 5,988 divided by the Adjusted Warrant Price.

The proceeds of Tranche One were used to repay in full amounts outstanding under our loan and security agreement with MidCap Financial SBIC, LP which has been terminated, and for general operating purposes.

Under the terms of the Loan Agreement, we granted Comerica a first priority security interest in substantially all of our assets other than our intellectual property. The Loan Agreement does not contain any ongoing financial covenants.

The Loan Agreement provides that upon the occurrence of and during a period of default as defined therein, interest on the loan will accrue at a penalty rate. Upon the occurrence and during the continuance of a default, Comerica may, at its election, make all obligations under the Loan Agreement immediately due and payable, cease advancing money or extending credit, exercise its right of setoff, foreclose on our assets, dispose of collateral at a public or private sale, and exercise any other remedies available to a secured creditor at law or in equity.

Cash Flows

Our net cash flow from operating, investing and financing activities for the
periods below were as follows (in thousands):



                                                             Nine Months Ended
                                                               September 30,
                                                            2013           2012
   Net cash provided by (used in):
   Operating activities                                   $ (22,126 )    $ (10,568 )
   Investing activities                                        (392 )         (271 )
   Financing activities                                      51,210          5,628

   Net increase (decrease) in cash and cash equivalents   $  28,692      $  (5,211 )

Operating Activities

Net cash used in operating activities was $22.1 million for the nine months ended September 30, 2013 and $10.6 million for the nine months ended September 30, 2012. Net cash used in operating activities for the nine months ended September 30, 2013 principally resulted from our net loss of $20.3 million and a higher level of prepaid expenses and other assets related to the REGULATE-PCI trial, partially offset by increases in accounts payable and . . .

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