eigr-10q_20160630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-36183

 

Eiger BioPharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

33-0971591

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

350 Cambridge Ave, Suite 350

Palo Alto, CA

 

94306

(Address of Principal Executive Offices)

 

(Zip Code)

 

(650) 272-6138

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

o

  

Accelerated filer

 

o

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of August 4, 2016, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 7,104,909

 

 


EIGER BIOPHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

Item 1. Financial Statements:

  

 

Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

  

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2016 and 2015 (unaudited)

  

4

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the six months ended June 30, 2016 (unaudited)

 

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)

  

6

Notes to the Condensed Consolidated Financial Statements (unaudited)

  

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

24

Item 4. Controls and Procedures

  

24

 

 

 

PART II. OTHER INFORMATION

  

 

Item 1. Legal Proceedings

  

25

Item 1A. Risk Factors

  

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

48

Item 3. Defaults Upon Senior Securities

  

48

Item 4. Mine Safety Disclosures

  

48

Item 5. Other Information

  

48

Item 6. Exhibits

  

48

Signatures

  

49

Exhibit Index

  

50

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Eiger,” and “the Company” refer to Eiger Biopharmaceuticals, Inc. Eiger, Eiger Biopharmaceuticals, the Eiger logo and other trade names, trademarks or service marks of Eiger are the property of Eiger Biopharmaceuticals, Inc. This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,399

 

 

$

4,778

 

Prepaid expenses and other current assets

 

 

1,160

 

 

 

717

 

Total current assets

 

 

46,559

 

 

 

5,495

 

Property and equipment, net

 

 

67

 

 

 

41

 

Other assets

 

 

145

 

 

 

46

 

Total assets

 

$

46,771

 

 

$

5,582

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,254

 

 

$

1,940

 

Accrued liabilities

 

 

1,535

 

 

 

1,006

 

Convertible promissory note

 

 

 

 

 

5,444

 

Total current liabilities

 

 

2,789

 

 

 

8,390

 

Warrant liability

 

 

 

 

 

885

 

Obligation to issue common stock

 

 

 

 

 

1,457

 

Other long term liabilities

 

 

15

 

 

 

2

 

Total liabilities

 

 

2,804

 

 

 

10,734

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Convertible preferred stock

 

 

 

 

 

22,567

 

Common stock

 

 

7

 

 

 

 

Additional paid-in capital

 

 

96,180

 

 

 

1,552

 

Accumulated deficit

 

 

(52,220

)

 

 

(29,271

)

Total stockholders’ equity (deficit)

 

 

43,967

 

 

 

(5,152

)

Total liabilities and stockholders’ equity (deficit)

 

$

46,771

 

 

$

5,582

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3


Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except shares and per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,720

 

 

$

2,008

 

 

$

15,565

 

 

$

2,383

 

General and administrative

 

 

2,477

 

 

 

577

 

 

 

6,310

 

 

 

1,006

 

Total operating expenses

 

 

13,197

 

 

 

2,585

 

 

 

21,875

 

 

 

3,389

 

Loss from operations

 

 

(13,197

)

 

 

(2,585

)

 

 

(21,875

)

 

 

(3,389

)

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

 

 

 

 

 

(685

)

 

 

 

Other expense, net

 

 

(4

)

 

 

 

 

 

(389

)

 

 

 

Net loss and comprehensive loss

 

$

(13,201

)

 

$

(2,585

)

 

$

(22,949

)

 

$

(3,389

)

Net loss per common share, basic and diluted

 

$

(1.87

)

 

$

(13.34

)

 

$

(5.73

)

 

$

(17.48

)

Weighted-average common shares outstanding,

   basic and diluted

 

 

7,069,257

 

 

 

193,850

 

 

 

4,002,454

 

 

 

193,850

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except shares)

 

 

 

Stockholders' Equity (Deficit)

 

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of December 31, 2015

 

 

2,609,102

 

 

$

22,567

 

 

 

273,993

 

 

$

 

 

$

1,552

 

 

$

(29,271

)

 

$

(5,152

)

Issuance of common stock upon private placement,

   net of issuance cost

 

 

 

 

 

 

 

 

1,954,390

 

 

 

2

 

 

 

32,106

 

 

 

 

 

 

32,108

 

Issuance of common stock upon conversion of

   convertible promissory note

 

 

 

 

 

 

 

 

350,040

 

 

 

 

 

 

6,129

 

 

 

 

 

 

6,129

 

Issuance of common stock upon exercise of warrants

 

 

 

 

 

 

 

 

61,254

 

 

 

 

 

 

1,057

 

 

 

 

 

 

1,057

 

Issuance of common stock to Eiccose upon private

   placement

 

 

 

 

 

 

 

 

96,300

 

 

 

 

 

 

1,661

 

 

 

 

 

 

1,661

 

Conversion of preferred stock into common stock

 

 

(2,609,102

)

 

 

(22,567

)

 

 

2,609,102

 

 

 

3

 

 

 

22,564

 

 

 

 

 

 

 

Issuance of common stock upon reverse merger

 

 

 

 

 

 

 

 

1,596,959

 

 

 

2

 

 

 

27,388

 

 

 

 

 

 

27,390

 

Issuance of common stock upon execution of license

   agreement

 

 

 

 

 

 

 

 

157,587

 

 

 

 

 

 

3,172

 

 

 

 

 

 

3,172

 

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

7,034

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

512

 

 

 

 

 

 

512

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,949

)

 

 

(22,949

)

Balance as of June 30, 2016

 

 

 

 

$

 

 

 

7,106,659

 

 

$

7

 

 

$

96,180

 

 

$

(52,220

)

 

$

43,967

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(22,949

)

 

$

(3,389

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9

 

 

 

5

 

Noncash interest expense

 

 

685

 

 

 

 

Stock-based compensation

 

 

512

 

 

 

50

 

Issuance of common stock in connection with a license agreement

 

 

3,172

 

 

 

 

Change in fair value of obligation to issue shares to Eiccose

 

 

204

 

 

 

 

Change in fair value of warrant liability

 

 

165

 

 

 

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(253

)

 

 

(192

)

Other non-current assets

 

 

(91

)

 

 

(21

)

Accounts payable

 

 

(701

)

 

 

309

 

Accrued and other liabilities

 

 

(284

)

 

 

67

 

Net cash used in operating activities

 

 

(19,531

)

 

 

(3,171

)

Investing activities

 

 

 

 

 

 

 

 

Cash received from merger transaction

 

 

28,018

 

 

 

 

Purchase of property and equipment

 

 

(20

)

 

 

(23

)

Net cash provided by (used in) investing activities

 

 

27,998

 

 

 

(23

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon private placement, net of issuance

   cost

 

 

32,108

 

 

 

 

Proceeds from issuance of common stock upon options exercises

 

 

39

 

 

 

 

Proceeds from issuance of common stock upon warrants exercises

 

 

7

 

 

 

 

Proceeds from issuance of preferred stock, net of issuance costs

 

 

 

 

 

7,201

 

Net cash provided by financing activities

 

 

32,154

 

 

 

7,201

 

Net increase in cash and cash equivalents

 

 

40,621

 

 

 

4,007

 

Cash and cash equivalents at beginning of period

 

 

4,778

 

 

 

777

 

Cash and cash equivalents at end of period

 

$

45,399

 

 

$

4,784

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Noncash activities:

 

 

 

 

 

 

 

 

Conversion of warrant liability to common stock upon private placement

 

$

1,050

 

 

$

 

Issuance of common stock in connection with a license agreement

 

$

3,172

 

 

$

 

Issuance of common stock to Eiccose upon private placement

 

$

1,661

 

 

$

 

Non-cash net liabilities assumed in reverse merger

 

$

671

 

 

$

 

Conversion of convertible promissory note to common stock upon private

   placement

 

$

6,129

 

 

$

 

Conversion of preferred stock to common stock upon reverse merger

 

$

22,567

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

6


Eiger BioPharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Description of Business

Eiger BioPharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on November 6, 2008. The Company is a clinical-stage biopharmaceutical company committed to bringing to market novel products for the treatment of orphan diseases. The Company has built a diverse portfolio of well-characterized product candidates with the potential to address diseases for which the unmet medical need is high, the biology for treatment is clear, and for which an effective therapy is urgently needed. The Company’s principal operations are based in Palo Alto, California and it operates in one segment.

Reverse Merger

On March 22, 2016, Eiger BioPharmaceuticals, Inc. (“Eiger”) completed its merger with Celladon Corporation (“Celladon”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated November 18, 2015 (the “Merger Agreement”), by and among Celladon, Celladon Merger Sub, Inc. (“Merger Sub”) and Eiger (the “Merger”). Pursuant to the Merger Agreement, Merger Sub merged with and into Eiger, with Eiger becoming a wholly-owned subsidiary of Celladon and the surviving corporation of the Merger. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Eiger stockholders became the majority stockholders of the surviving company. In connection with, and immediately prior to, the closing of the Merger, on March 22, 2016, Celladon filed an amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a fifteen-for-one reverse stock split of its common stock (the “Reverse Stock Split”). In connection with and immediately following the consummation of the Merger, on March 22, 2016, Celladon filed an amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to change its name to Eiger BioPharmaceuticals, Inc. The Company’s shares of common stock listed on the NASDAQ Global Market, previously trading through the close of business on Tuesday, March 22, 2016 under the ticker symbol “CLDN,” commenced trading on the NASDAQ Global Market, on a post-reverse stock split adjusted basis, under the ticker symbol “EIGR” on March 23, 2016. On March 22, 2016, a Certificate of Merger was filed with the Secretary of State of the State of Delaware to effect the Merger of Merger Sub with and into Eiger. See Note 4 for further details.

The Company, or Eiger, as used in the accompanying notes to the unaudited condensed consolidated financial statements, refers to Private Eiger prior to the completion of the Merger and Public Eiger subsequent to the completion of the Merger.

Reverse Stock Split and Exchange Ratio

On March 22, 2016, and prior to the closing of the Merger, Celladon completed a fifteen-for-one reverse stock split. As a result of the reverse stock split, every fifteen shares of Celladon common stock outstanding immediately prior to the Merger were combined and reclassified into one share of Celladon common stock. No fractional shares were issued in connection with the reverse stock split.

The holders of shares of Eiger common stock outstanding immediately prior to the Merger received approximately 0.09 shares of Celladon common stock in exchange for each share of Eiger common stock in the Merger. Following the reverse stock split and the Merger on March 22, 2016, the combined company had 6,945,401 shares of common stock outstanding.

The accompanying unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements give retroactive effect to the Reverse Stock Split for all periods presented.

Liquidity

The Company had an accumulated deficit of $52.2 million as of June 30, 2016 and negative cash flows from operating activities and expects to continue to incur losses for the next several years. On March 22, 2016, the Company completed the Merger which provided $28.0 million in net cash (see Note 4). In addition, prior to the closing of the Merger, the Company received $33.5 million in cash from the issuance of common stock issued to third parties and existing stockholders (see Note 8). Management believes that the currently available resources, including the funds obtained will provide sufficient funds to enable the Company to meet its operating plan through at least December 31, 2016. However if the Company’s anticipated operating results are not achieved in future periods, management believes that planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the Company’s operations.

 

 

7


2.

Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Eiger BioPharmaceuticals, Inc. and its wholly owned subsidiaries, EBPI Merger Inc., EB Pharma LLC and Eiger BioPharmaceuticals Europe Limited, and have been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other interim period or for any other future year. The balance sheet as of December 31, 2015 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto contained in the Company’s Form 8-K/A and Form 8-K/A Amendment No.2 for the year ended December 31, 2015, filed with the Securities and Exchange Commission on May 13, 2016 and June 17, 2016, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to clinical trial accrued liabilities, stock-based compensation and income taxes. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Accrued Research and Development Costs

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided, but not yet invoiced, and includes these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities.

Research and Development Expenses

Research and development costs are expensed as incurred and consist of payroll expenses, stock-based compensation expense, lab supplies and allocated facility costs, as well as fees paid to third parties that conduct certain research and development activities on the Company’s behalf. Amounts incurred in connection with license and asset purchase agreements are also included in research and development expense.

Stock-Based Compensation Expense

Stock-based awards to employees and directors, including stock options, are recorded at fair value as of the grant date using the Black-Scholes option pricing model and recognized as expense on a straight line-basis over the employee’s or director’s requisite service period (generally the vesting period). Non-cash stock compensation expense is based on awards ultimately expected to vest and is reduced by an estimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The determination of fair value for stock-based awards on the date of grant using an option pricing model requires management to make certain assumptions regarding subjective variables.

8


Stock-based awards and stock options issued to non-employee consultants are recorded at fair value and remeasured at the end of each period as they vest using the Black-Scholes option pricing model. Expense is recognized over the vesting period which is generally the same as the service period.

Net Loss per Share

Basic net loss per share of common stock is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The following table sets forth the outstanding potentially dilutive securities which have been excluded in the calculation of diluted net loss per share because including such would be anti-dilutive (in common stock equivalent shares):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Options to purchase common stock

 

 

310,069

 

 

 

105,900

 

 

 

310,069

 

 

 

105,900

 

Warrants to purchase common stock

 

 

10,180

 

 

 

 

 

 

10,180

 

 

 

 

Convertible preferred stock

 

 

 

 

 

2,609,102

 

 

 

 

 

 

2,609,102

 

Total

 

 

320,249

 

 

 

2,715,002

 

 

 

320,249

 

 

 

2,715,002

 

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU”), ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable that when, considered in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, for both annual and interim periods. ASU 2014-15 also requires certain disclosures around management’s plans and evaluation, as well as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU 2014-15 is effective for fiscal years ending after December 15, 2016. The Company does not anticipate the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements and related disclosures.

On February 25, 2016 the FASB issued ASU 2016-02, Leases, which requires lessees to recognize most leases on their balance sheet. The new standard will be effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The standard requires use of the modified retrospective transition method, with elective relief, which requires application of the guidance for all periods presented. The Company is evaluating the effect ASU 2016-02 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including the accounting and reporting of income taxes, the determination of forfeiture rates, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-09 will have on its consolidated financial statements and related disclosures.

 

 

3.

Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). At June 30, 2016 and December 31, 2015 the carrying amount of cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximated their estimate fair value due to their relatively short maturities. Management believes the terms of the convertible promissory notes reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company’s debt approximated its fair value.

9


Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company did not have any financial instruments that were measured at fair value on a recurring basis as of June 30, 2016. The Company’s financial instruments as of December 31, 2015 included a warrant liability and an obligation to issue common stock in connection with the Eiccose asset purchase agreement, which were classified as Level 3. See Notes 6 and 7 for further discussion on the obligation to issue common stock and the warrant liability.

As of December 31, 2015, in order to determine the fair value of the Company’s warrant liability and the obligation to issue common stock in connection with the Eiccose asset purchase agreement, the Company engaged an independent third-party valuation expert to determine the fair value of these instruments based on the common stock value which is based on probability weighted scenarios, each based on an income approach. The income approach estimates enterprise value based on the expectation of future cash flows that the Company will generate over the forecast horizon and a terminal value at the end of the forecast horizon. These future cash flows and terminal value are discounted to their present values using a discount rate based upon the required rate of return based on the risks associated with the investment. Upon settlement in March 2016, the Company remeasured the fair value of the Company’s warrant liability and the obligation to issue common stock in connection with the Eiccose asset purchase agreement based on the fair value of the common stock that was issued upon settlement of these instruments.

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the periods presented.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

$

 

 

$

 

 

$

885

 

 

$

885

 

Obligation to issue common stock

 

$

 

 

$

 

 

$

1,457

 

 

$

1,457

 

Total

 

$

 

 

$

 

 

$

2,342

 

 

$

2,342

 

 

The following table provides a reconciliation of liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands) for the three months ended June 30, 2016:

 

 

 

Six Months Ended June 30, 2016

 

Balance, beginning of period

 

$

2,342

 

Change in fair value of common stock warrants and obligation

   to issue common stock to Eiccose (1)

 

 

369

 

Settlement of warrant liability upon exercise of common stock

   warrants

 

 

(1,050

)

Settlement of Eiccose obligation upon issuance of common

   stock

 

 

(1,661

)

Balance, end of period

 

$

 

 

(1)

Changes in fair value of the obligation to issue common stock are recorded in other expense, net on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

 

10


4.

Reverse Merger

On March 22, 2016, Eiger completed the Merger with Celladon as discussed in Note 1. For accounting purposes, Eiger is considered to be acquiring Celladon in the Merger. Eiger was determined to be the accounting acquirer based upon the terms of the Merger and other factors including; (i) Eiger security holders own approximately 78% of the combined company immediately following the closing of the Merger, (ii) Eiger directors hold all of the board seats in the combined company, and (iii) Eiger management holds all key positions in the management of the combined company. The Merger will be accounted for as an asset acquisition rather than business combination because the assets acquired and liabilities assumed by Eiger do not meet the definition of a business as defined by U.S. GAAP. The net assets acquired in connection with this transaction were recorded at their estimated acquisition date fair values as of March 22, 2015, the date the Merger with Celladon was completed.

Immediately prior to the effective date of the Merger and in connection with the private placement, the principal outstanding convertible promissory notes (“Promissory Notes” or “Notes”) of Eiger converted into shares of common stock of Eiger. Further, all outstanding warrants issued in connection with the Promissory Notes were exercised for common stock (see Note 7) and all shares of preferred stock of Eiger converted into shares of common stock of Eiger.

At the effective date of the Merger, Celladon issued shares of its common stock to Eiger stockholders, at an exchange rate of approximately 0.09 shares of common stock, after taking into account the Reverse Stock Split, in exchange for each share of Eiger common stock outstanding immediately prior to the Merger. The exchange rate was calculated by a formula that was determined through arms-length negotiations between Celladon and Eiger. The combined Company assumed all of the outstanding options, whether or not vested, under the Eiger 2009 Equity Incentive Plan (the “Eiger Plan”) with such options henceforth representing the right to purchase a number of shares of Celladon common stock equal to 0.09 multiplied by the number of shares of Eiger common stock previously represented by such options.

Immediately after the Reverse Stock Split and the Merger on March 22, 2016, there were 6,945,401 shares of the combined Company’s common stock outstanding. In addition, immediately after the Merger, pre-Merger Eiger stockholders, warrantholders and optionholders owned approximately 78% of the aggregate number of shares of the combined Company’s common stock, and the stockholders of Celladon immediately prior to the Merger owned approximately 22% of the aggregate number of shares of the combined Company’s common stock (on a fully diluted basis).

On the Merger closing date of March 22, 2016, Celladon had 1.6 million shares of common stock outstanding and a market capitalization of $27.5 million. The estimated fair value of the net assets of Celladon on March 22, 2016 was $27.3 million. The fair value of Celladon’s common stock on the Merger closing date was above the fair value of Celladon’s net assets. As Celladon’s net assets are predominantly comprised of cash offset by current liabilities, the fair value of Celladon’s net assets as of March 22, 2016 is considered to be the best indicator of the fair value and, therefore, the estimated preliminary purchase consideration.

The following table summarizes the net assets acquired based on their estimated fair values as of March 22, 2016 (in thousands):

 

Cash

 

$

28,018

 

Prepaid and other assets

 

 

198

 

Current liabilities

 

 

(857

)

Non-current liabilities

 

 

(12

)

Net acquired tangible assets

 

 

27,347

 

Estimated total purchase consideration

 

$

27,347

 

 

 

5.

License Agreements

Bristol-Meyers Squibb License Agreement

On April 20, 2016, the Company and Bristol-Myers Squibb Company (“BMS”) entered into a License Agreement (the “BMS License Agreement”) and a Common Stock Purchase Agreement (the “BMS Purchase Agreement”).

Under the BMS License Agreement, BMS granted the Company an exclusive, worldwide, license to research, develop, manufacture, and sell products containing the proprietary BMS molecule known as PEG-interferon Lambda-1a (the “Licensed Product”) for all therapeutic and diagnostic uses in humans and animals. The Company is responsible for the development and commercialization of the Licensed Product at its sole cost and expense. The License Agreement requires the Company to make an upfront payment of $2.0 million in cash and issue $3.0 million in Company common stock and includes development and regulatory milestone payments totaling $61.0 million and commercial sales milestones of up to $128.0 million. The Company is obligated to pay BMS annual net sales royalties in the range of mid-single to mid-double digits, depending on net sales levels. In addition, if the Company grants a sublicense, the Company is obligated to pay BMS a portion of the sublicensing income received.

11


The Company paid BMS an upfront payment of $2.0 million in April 2016, which was charged to research and development expense in the statement of operations and comprehensive loss as there is no future alternative use for the intellectual property licensed.

 

The BMS Purchase Agreement provides for the issuance of 157,587 shares of common stock of the Company to BMS in consideration of the license granted to the Company under the BMS License Agreement. The BMS Purchase Agreement grants BMS certain registration rights with respect to the shares of common stock delivered, and BMS has agreed to certain trading and other restrictions with respect to the shares purchased. In April 2016, the Company issued 157,587 common shares to BMS for an aggregate fair value of $3.2 million, which was charged to research and development expense in the statement of operations and comprehensive loss as there is no future alternative use for the intellectual property licensed.

Merck License Agreement

In September 2010, the Company entered into an exclusive license agreement with Schering Corporation, subsequently acquired by Merck & Co., Inc., or Merck, which provides the Company with the exclusive right to develop and commercialize Sarasar/Lonafarnib. As consideration for such exclusive right, the Company issued 27,350 shares of Series A convertible preferred stock with a fair value of $500,000 when the agreement was executed in September 2010. In addition, the Company is obligated to pay Merck up to an aggregate of $27.0 million in development milestones and will be required to pay tiered royalties based on aggregate annual net sales of all licensed products ranging from mid-single to low double-digit royalties on net sales. The Company’s obligation to pay royalties to Merck expires on a country-by-country and product-by-product basis on the later of either the expiration of the last to expire patent assigned to the Company under the agreement, which is estimated to be in December 2016 or the earliest of the tenth anniversary of the first commercial sale of the product. In May 2015, the first regulatory milestone was achieved and the Company paid the related milestone payment of $1.0 million to Merck. The amount has been recorded as a charge to research and development expense for the year ended December 31, 2015. No additional charges were recorded as of June 30, 2016.

Janssen License Agreement

In December 2014, the Company entered into a license agreement with Janssen Pharmaceutica NV, (“Janssen”). In connection with this license agreement, the Company is obligated to make development milestone payments in aggregate of up to $38.0 million, sales milestone payments in aggregate up to $65.8 million and will be required to pay tiered royalties based on aggregate annual net sales of all licensed products ranging from mid-single to low double-digit royalties of net sales. As of June 30, 2016, the product has not reached any development milestones nor achieved regulatory approval.

 

 

6.

Asset Purchase Agreements and Related License Agreements

EGI Asset Purchase Agreement

In December 2010, the Company entered into an asset purchase agreement with Eiger Group International, Inc. (“EGI”). Dr. Jeffrey Glenn, a director of the Company, is the sole owner of EGI. Pursuant to the agreement, the Company purchased all of the assets related to the use of farnesyl transferase inhibitors as anti-viral agents and methods to treat viral infections with those inhibitors and inhibitors of prenylation, prenyl cysteine methyltranferase and a protease that removes the XXX tripeptide from the CXXX polypeptide following prenylation including any related intellectual property to EGI. The Company paid EGI an upfront payment of $350,000 when the agreement was executed in December 2010. Additionally, the Company will not pay royalties until it has recouped the development costs of any drug product that incorporates clemizole. Once the costs have been recouped, the Company will pay a low single digit royalty of future aggregate annual net sales if there is no generic competition for the product and a lower single digit royalty of future aggregate annual net sales if there is generic competition for the product. Within the first ten years after commercialization, the Company may make a one-time payment of $500,000 for each contract for the three types of product related to such intellectual property that would reduce the payment term for the three products to the tenth anniversary of the first commercial sale. The obligation to pay royalties expires on a country-by-country and product-by-product basis on the later of either when the product is no longer sold in any country or the earliest of the tenth anniversary of the first commercial sale of the product. As of June 30, 2016, the product has not achieved regulatory approval.

In November 2012, the Company entered into an agreement with EGI whereby the Company sold all of the assets related to the compound clemizole, including any related intellectual property. EGI will pay to the Company a high single digit royalty on future aggregate annual net sales, subject to certain reductions and exceptions. EGI’s obligation to pay royalties expires on a country-by-country and product-by-product basis on the later of either expiration of the last to expire patent sold to EGI under the agreement or the earliest of the tenth anniversary of the first commercial sale of the product. As of June 30, 2016, the product has not achieved regulatory approval.

 

12


Exendin Purchase Agreement and Related Stanford License Agreement

In September 2015, the Company entered into an asset purchase agreement with two individuals, Drs. Tracey McLaughlin and Colleen Craig, (the “Sellers”), whereby the Company purchased all of the assets related to the compound exendin including any related intellectual property from the Sellers (the “Exendin APA”). The Company also entered into a consulting agreement with the Sellers as part of the agreement. The Company issued 15,378 shares of common stock that were valued at $211,000 and options to purchase 46,134 shares of common stock with an exercise price of $2.06 per share when the agreement was executed in September 2015.

Of the 46,134 options to purchase common stock, 15,378 shares vest monthly over four years as services are provided by the Sellers and 30,756 vest upon the earlier of the first commercial sale of the product or the approval of new drug application by the U.S. Food and Drug Administration (the milestone-vested options).

On March 22, 2016, immediately following the closing of the Merger, the Company issued additional “top-up” options to Drs. Tracey McLaughlin and Colleen Craig to purchase an aggregate of 48,544 shares of common stock, pursuant to the terms of the Exendin APA, with an exercise price of $17.25 per option. The top-up options consist of both time-vested and milestone-vested options.

The fair value of the time-vested options is recognized as non-employee share-based compensation expense as the awards vest over time, with the unvested portion revalued each period. The fair value of the milestone-vested options will be recognized as research and development expense when it is probable that the earliest milestone will be achieved at their then fair value. For the three months ended June 30, 2016, $31,516 and $0 of non-employee compensation expense related to the time-vested and milestone-vested options, respectively, were recognized. For the six months ended June 30, 2016, $228,412 and $0 of non-employee compensation expense related to the time-vested and milestone-vested options, respectively, were recognized.

The Company is also obligated to pay milestone payments in aggregate up to $1.0 million to each Seller. Additionally, the Company is obligated to pay each Seller royalties of low single digits based on aggregate annual net sales, subject to certain reductions and exceptions. The Company’s obligation to pay royalties expires on the expiration of the last to expire patent assigned to the Company under the agreement. Additionally, the Company has assumed the license agreement the Sellers had previously entered into with the Board of Trustees of the Leland Stanford Junior University (“Stanford”). After the Merger, Stanford became a holder of common stock shares of the Company. The Company is obligated to pay a royalty to Stanford in the low single digits on annual net sales after the first commercial sale. As of June 30, 2016, the Company had not reached any of the milestone events.

Eiccose Purchase Agreement and Related Stanford and Nippon License Agreements

In October 2015, the Company entered into an asset purchase agreement with Eiccose, LLC., or Eiccose, whereby Eiccose sold all of the assets related to the treatment of pulmonary arterial hypertension, or PAH, treatment of lymphedema and products containing ubenimex for the treatment of disorders involving LTB4, and any related intellectual property to the Company (the “Eiccose APA”). David Cory, the President, Chief Executive Officer and a director of the Company, is a managing member and significant equity interest holder of Eiccose. The Company made a payment to Eiccose of $120,000 representing reimbursement of certain previously incurred expenses, including payments and accrued amounts owed to Stanford in connection with the license agreement for the treatment of Lymphedema (the “Lymphedema License Agreement”) and the license agreement for the treatment of PAH (the “PAH License Agreement”). The Eiccose APA also provided that, upon a next round of financing pursuant to which the Company sells shares of capital stock resulting in gross proceeds to the Company of at least $25.0 million, the Company would issue to Eiccose fully vested shares of the Company’s common stock equal to 1.75% of the total number of the Company’s outstanding capital stock. In October 2015, the Company recorded $1.5 million in research and development expenses and a corresponding liability representing the fair value of the Company’s obligation to issue common stock to Eiccose.

On March 22, 2016, the Company issued to Eiccose 96,300 fully vested shares of the Company’s common stock pursuant to the terms of the Eiccose APA. In connection with this transaction the Company remeasured the fair value of the obligation to issue common stock at the settlement date and the change in fair value of $204,000 was recognized within other income (expense), net in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2016. Upon the settlement of the obligation with the issuance of shares on March 22, 2016, the liability was reclassified to common stock and additional paid-in capital within stockholders’ equity.

The Company is also obligated to pay to Eiccose an aggregate of $10.0 million of commercial milestones in connection with future sales of the product and royalties in the low single digits based on aggregate annual net sales following the first commercial sale of any product. As of June 30, 2016, the product has not reached any development milestones nor achieved regulatory approval.

 

 

13


In addition, as a result of this agreement, the Company has assumed the license agreements Eiccose had previously entered into. These include the PAH License Agreement, the Lymphedema License Agreement for the treatment of lymphedema and the license agreement with Nippon Kayaku Co., Ltd, (“Nippon”). As part of the agreement, Nippon is obligated to make a payment for royalties in the low single digits of sales to the Company. After the Merger, Stanford became a holder of common stock shares of the Company. In connection with the PAH License Agreement and the Lymphedema License Agreement, the Company is obligated to make milestone payments in aggregate of $500,000 for each contract, increasing annual license maintenance fees ranging from $10,000 to $75,000 over the term of each license agreement and royalty payments in low single digits on annual net sales after the first commercial sale of a product under each license. For the three and six months ended June 30, 2016, no amounts have been recorded to research and development expense in connection with the Eiccose APA.

 

 

7.

Convertible Promissory Note and Warrant Purchase Agreement

On November 12, 2015, the Company entered into a convertible note and warrant purchase agreement with three lenders under which the Company issued convertible promissory notes (the “Notes”) for an aggregate principal amount of $6.0 million and warrants exercisable for shares of the Company’s equity securities at a purchase price of $0.01 per share. The terms of the Notes included a provision whereby the Notes would be automatically converted into equity securities from a qualified financing with proceeds of at least $25.0 million. The terms of the warrants included a provision whereby the warrants would be automatically exercised if the Company consummated a public offering (“PO”) including a reverse merger. If the PO or reverse merger did not occur by February 28, 2016, the warrant coverage amount was equal to 17.5% of the outstanding principal balance of the Notes. The number of warrant shares into which the warrants could be exercised was equal to the warrant coverage amount divided by the per share price of the equity securities sold in a qualified financing for an exercise price of $0.12 per share. The warrants also include a provision whereby in the event of a PO or reverse merger which would result in the automatic exercise of the warrants and the automatic conversion of the Notes, the exercise price of the warrants would be paid by cancelling any unpaid interest on the Notes.

On November 18, 2015, the Company entered into a Subscription Agreement (the “Private Placement”) with the holders of the Notes and new investors for the sale of 2,304,430 shares of its common stock at purchase price of $17.14 per share for total gross proceeds of $39.5 million. The proceeds were comprised of $6.0 million from the conversion of the Notes and $33.5 million of cash.

The Company allocated the aggregate proceeds from the issuance of the Notes first to the warrants based on the warrants’ fair value and then the residual proceeds were allocated to the debt obligation. As of December 31, 2015 the fair value of warrants of $885,000 was recorded as a debt discount to be amortized as interest expense over the term of the Note using the effective interest rate method. The fair value of the warrants was also recorded as a corresponding warrant liability.

In addition, the Company incurred debt issuance costs of $21,000 in connection with the Note and Warrant Purchase Agreement. The debt issuance costs was being amortized to interest expense over the term of the Note using the effective interest rate method.

Upon the closing of the private placement on March 22, 2016, immediately prior to the closing of the Merger, the outstanding balance of the Notes totaling $6.0 million was converted into 350,040 shares of the Company’s common stock and the accrued interest of $122,000 was paid in cash. The warrants were exercised for 61,254 shares of the Company’s common stock. During the three and six months ended June 30, 2016, the Company recognized a loss related to the change in fair value of the warrants of $0 and $165,000, respectively. The warrant liability was reclassified to common stock and additional paid-in capital within stockholders’ equity, upon the exercise of the warrants and issuance of shares on March 22, 2016.

For the three and six months ended June 30, 2016, the Company recognized $0 and $685,000, respectively, related to the accrued interest and amortization of the debt discount within interest expense on the Company’s condensed consolidated statements of operations and comprehensive loss. The discount was fully amortized upon the conversion of the Notes.

 

 

8.

Stockholder’s Equity

Common Stock

Immediately prior to the effective date of the Merger, the principal and outstanding balance of the Notes was converted into shares of the Company’s common stock. In addition, common stock warrants were also exercised and all outstanding preferred stock of the Company converted into common stock.

 

 

14


Private Placement

On November 18, 2015, Eiger entered into a Subscription Agreement, which provided for the sale and issuance, prior to the consummation of the Merger, of 2,304,430 shares of Eiger common stock to certain current stockholders and new investors of Eiger at a purchase price of $17.14 per share for aggregate gross proceeds of $39.5 million, including the conversion of the Notes. Prior to the Merger, the Company closed their private placement and issued additional common stock for cash proceeds of $33.5 million. Immediately prior to the effective date of the Merger and in connection with the private placement, the Notes were converted into shares of the Company’s common stock. Further, all outstanding warrants issued in connection with the Promissory Notes were exercised for shares of common stock (see Note 7) and all shares of preferred stock of Eiger converted into shares of common stock of Eiger.

At the effective date of the Merger, each outstanding share of the Company’s common stock was converted into the right to receive approximately 0.09 shares of Celladon common stock.

Warrants

The Company issued warrants to purchase equity securities of the Company in connection with the issuance of convertible promissory notes (see Note 7). As of December 31, 2015 the Company accounted for these warrants as a liability at fair value as the number of shares were not fixed and determinable at the issuance date. The Company adjusted the liability for changes in fair value until the exercise of the warrant in March, 2016, when the number of shares to be exercised became fixed, and the warrants were automatically exercised into common stock. The warrant liability was immediately reclassified to common stock and additional paid in capital within stockholders’ deficit. The change in fair value of the warrant liability was recognized as a component of other expense, net in the condensed consolidated statements of operations and comprehensive loss.

The Company assumed from Celladon fully exercisable warrants outstanding for the purchase of 10,180 shares of common stock. The warrants have an exercise price of $84.15 and expire in October 2018.

 

 

9.

Stock Based Compensation

As discussed in Note 4, the Company assumed all of the outstanding options, whether or not vested, under the Eiger Plan, with such options henceforth representing the right to purchase a number of shares of the Company’s common stock equal to approximately 0.09 multiplied by the number of shares of Eiger common stock previously represented by such options. For accounting purposes, however, the Company is deemed to have assumed the Celladon 2013 Equity Incentive Plan.

Because the Company is considered to be the acquirer for accounting purposes, the pre-Merger vested stock options granted by Celladon are deemed to have been exchanged for equity awards of the Company and, as such, the portion of the acquisition date fair value of these equity awards attributable to pre-Merger service to Celladon were accounted for as a component of the consideration transferred, which was not material to the unaudited condensed consolidated financial statements.

The exchange of options to purchase shares of Eiger common stock for options to purchase shares of the Combined Company, was accounted for as a modification of the awards because the legal exchange of the awards is considered a modification of Eiger stock options. The modification of the stock options did not result in any incremental compensation expense as the modification did not increase the fair value of the stock options.

The Company records stock-based compensation of stock options granted to employees and non-employees by estimating the fair value of stock-based awards using the Black-Scholes option pricing model and amortizing the fair value of the stock-based awards granted over the applicable vesting period of the awards on a straight-line basis.

15


The following table summarizes stock option activity under the Company’s stock based compensation plan during the six months ended June 30, 2016 (in thousands, except share data):

 

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price Per Share

 

 

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 

 

Aggregate Intrinsic Value

 

Outstanding as of December 31, 2015

 

 

254,058

 

 

$

1.94

 

 

 

 

 

 

$

3,369

 

Options assumed in the merger

 

 

37,276

 

 

$

177.57

 

 

 

 

 

 

 

 

 

Granted

 

 

48,544

 

 

$

17.25

 

 

 

 

 

 

 

 

 

Exercised

 

 

(7,034

)

 

$

5.93

 

 

 

 

 

 

 

 

 

Canceled

 

 

(22,775

)

 

$

217.32

 

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2016

 

 

310,069

 

 

$

9.55

 

 

 

9.00

 

 

$

4,574

 

Vested and expected to vest as of June 30, 2016

 

 

297,880

 

 

$

9.76

 

 

 

8.99

 

 

$

4,384

 

Vested and exercisable as of June 30, 2016

 

 

66,229

 

 

$

29.09

 

 

 

8.25

 

 

$

775

 

 

Stock Options Granted to Employees

There were no stock options granted to employees during the three and six months ended June 30, 2016 and 2015.

Stock Options Granted to Non-Employees

The Company grants stock options to non-employees in exchange for services rendered. During the three and six months ended June 30, 2016, the Company granted to non-employees stock options for 0 and 48,544 shares, respectively. There were no stock options granted to non-employees during the three and six months ended June 30, 2015. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned and will fluctuate as the estimated fair value of the common stock fluctuates until the awards vest. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.

The fair value of the stock options granted to non-employees is calculated at each reporting date using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Contractual term (in years)

 

7.25-9.92

 

 

8.25-8.42

 

 

7.25-10.0

 

 

8.25-8.67

 

Volatility

 

89.4%-95.8%

 

 

88.5%-88.8%

 

 

89.4%-95.8%

 

 

88.1%-88.8%

 

Risk free interest rate

 

1.4%-1.9%

 

 

1.8%-2.2%

 

 

1.4%-2.0%

 

 

1.7%-2.2%

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-Based Compensation Expense

Total stock-based compensation expense recognized for options granted to employees and non-employees was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

 

$

69

 

 

$

3

 

 

$

303

 

 

$

4

 

General and administrative

 

 

105

 

 

 

44

 

 

 

209

 

 

 

46

 

Total

 

$

174

 

 

$

47

 

 

$

512

 

 

$

50

 

 

As of June 30, 2016, the total unrecognized compensation expense related to unvested employee options, net of estimated forfeitures, was $1.7 million, which the Company expects to recognize over an estimated weighted average period of 3.1 years.

 

 

 

16


10.

Legal Matters

In July 2015, three putative securities class action complaints (captioned Fialkov v. Celladon Corporation, Case No. 15-cv-1458-AJB-DHB, Lorusso v. Celladon Corporation, Case No. 15-cv-1501-L-JLB and Jacobs v. Celladon Corporation, Case No. 15-cv-1529-AJB-MDD) were filed in the U.S. District Court for the Southern District of California against Celladon and certain of Celladon’s current and former officers. The complaints generally allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, by making materially false and misleading statements regarding the clinical trial program for MYDICAR, thereby artificially inflating the price of Celladon’s common stock. The complaints seek unspecified monetary damages and other relief, including attorneys’ fees. On September 1, 2015, six stockholders (or groups of stockholders) filed motions to consolidate the three putative securities class actions and to appoint lead plaintiffs (the “Motions to Consolidate”). A hearing on the Motions to Consolidate was held on December 3, 2015. On December 9, 2015, the Court consolidated the three putative securities class actions and appointed a lead plaintiff to represent the putative class. The lead plaintiff filed a consolidated amended complaint on February 29, 2016. On April 29, 2016, the defendants, including Eiger, filed a motion to dismiss the consolidated amendment complaint. On June 28, 2016, lead plaintiff filed his opposition to the motion to dismiss the consolidated amended complaint. On July 28, 2016, the defendants filed their reply in support of the motion to dismiss. The Company believes that it has meritorious defenses and intends to defend these lawsuits vigorously. Due to the early stage of these proceedings, the Company is not able to predict or reasonably estimate the ultimate outcome or possible losses relating to these claims.

 

 

11.Income taxes

Our tax expense for the three and six months ended June 30, 2016 was zero due to our loss position and full valuation allowance.  This is consistent with our zero tax expense for the three and six months ended June 30, 2015.

 

17


ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of Eiger’s financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, Celladon’s consolidated financial statements and related notes thereto for the year ended December 31, 2015, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and Eiger’s consolidated financial statements and related notes thereto for the year ended December 31, 2015, and pro forma financial statements included in our Form 8-K/A and Form 8-K/A Amendment No.2 filed with the SEC on May 13, 2016 and June 17,2016, respectively. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this report.

Forward-Looking Statements

This discussion contains certain 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, or the Exchange Act. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q in Part II, Item 1A — “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a clinical stage biopharmaceutical company focused on bringing to market novel product candidates for the treatment of orphan diseases. Since our founding in 2008, we have collaborated with investigators at Stanford University and in parallel evaluated a number of potential development candidates from pharmaceutical companies to ultimately build a pipeline of well characterized  product candidates against novel orphan disease targets. Our resulting pipeline includes four Phase 2 candidates addressing four distinct orphan diseases. The programs have several aspects in common: the disease targets represent conditions of high medical need which are inadequately treated by current standard of care; the therapeutic approaches are supported by an understanding of disease biology and mechanism as elucidated by our academic research relationships; prior clinical experience with the product candidates guides an understanding of safety; and the development paths leverage the experience and capabilities of our experienced, commercially focused management team. The pipeline includes SarasarTM (lonafarnib) for hepatitis delta virus, or HDV, PEG-interferon Lambda-1a (Lambda) for HDV, exendin (9-39) for post bariatric hypoglycemia (PBH) and Bestatin™ (ubenimex) for pulmonary arterial hypertension (PAH) and lymphedema. We plan to deliver Phase 2 data on all five programs over the course of the next one to three years beginning in the second half of 2016.

We have no products approved for commercial sale and have not generated any revenue from product sales. We have never been profitable and have incurred operating losses in each year since inception. Our net losses were $22.9 million and $3.4 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, we had an accumulated deficit of $52.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidates and add personnel necessary to operate as a public company with an advanced clinical candidate pipeline of products. In addition, we are now operating as a publicly traded company following the reverse merger with Celladon Corporation (“Celladon”), and we will be hiring additional financial and other personnel, upgrading our financial information systems and incurring costs associated with operating as a public company. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.

18


Merger with Celladon

On March 22, 2016, we completed the reverse merger (the “Merger”) between pre-merger Eiger (“Private Eiger”) and Celladon in accordance with the terms of the Agreement and Plan of Merger, dated as of November 18, 2015, by and among Private Eiger, Celladon and Celladon Merger Sub, Inc. Also on March 22, 2016, in connection with, and prior to the completion of, the Merger, we effected a fifteen for one reverse stock split of our common stock (the “Reverse Stock Split”) and changed our name to “Eiger BioPharmaceuticals, Inc.”

Immediately prior to and in connection with the Merger, each share of Private Eiger’s preferred stock outstanding was converted into shares of Private Eiger’s common stock at an exchange ratio of one share of common stock for each share of preferred stock.

Under the terms of the Merger Agreement, at the effective time of the Merger, Celladon issued shares of common stock to Private Eiger stockholders, at an exchange ratio of 0.09 shares of common stock, after taking into account the Reverse Stock Split, in exchange for each share of Private Eiger’s common stock outstanding immediately prior to the Merger. The exchange ratio was calculated by a formula that was determined through arms-length negotiations between Celladon and Private Eiger. Immediately after the Merger, the former Private Eiger equity holders beneficially owned approximately 78% of post-merger Eiger’s common stock. The Merger was accounted for as a reverse asset acquisition.

Financial Operations Overview

Research and Development Expenses

Research and development expenses represent costs we incurred to conduct research and development, such as the development of our product candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

 

·

expenses incurred under agreements with consultants and clinical trial sites that conduct research and development activities on our behalf;

 

·

laboratory and vendor expenses related to the execution of clinical trials;

 

·

contract manufacturing expenses, primarily for the production of clinical supplies;

 

·

license fees associated with our license agreements; and

 

·

internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs. These costs are not separately allocated by product candidate. Unallocated internal research and development costs consist primarily of:

 

·

personnel costs, which include salaries, benefits and stock-based compensation expense;

 

·

allocated facilities and other expenses, which include expenses for rent and maintenance of facilities and depreciation expense; and

 

·

regulatory expenses and technology license fees related to development activities.

The largest component of our operating expenses has historically been the investment in research and development activities. However, we do not allocate internal research and development costs, such as salaries, benefits, stock-based compensation expense and indirect costs to product candidates on a program-specific basis. The following table shows our research and development expenses for the three and six months ended June 30, 2016 and 2015:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Product candidates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ubenimex

 

$

1,604

 

 

$

 

 

$

4,733

 

 

$

 

Lonafarnib

 

 

2,018

 

 

 

183

 

 

 

2,751

 

 

 

339

 

Lambda

 

 

5,430

 

 

 

 

 

 

5,455

 

 

 

 

Other clinical programs and research related costs

 

 

700

 

 

 

 

 

 

815

 

 

 

 

Internal research and development costs

 

 

968

 

 

 

1,825

 

 

 

1,811

 

 

 

2,044

 

Total research and development expense

 

$

10,720

 

 

$

2,008

 

 

$

15,565

 

 

$

2,383

 

 

 

19


We expect research and development expenses will increase in the future as we advance our product candidates into and through later stage clinical trials and pursue regulatory approvals, which will require a significant investment in regulatory support and contract manufacturing and inventory build-up related costs. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, intellectual property rights, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated expenses and expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation expense and other supplies. During the three and six months ended June 30, 2016, we incurred incremental expenses as a result of the Merger and incremental expenses as a result of becoming a public company following completion of the Merger, including expenses related to compliance with the rules and regulations of the SEC and NASDAQ, additional insurance, investor relations and other administrative expenses and professional services.

Interest Expense

Interest expense consists of interest and amortization of the debt discount related to the convertible promissory notes outstanding and then converted into common stock in March 2016.

Other expense, net

Other expense, net consists of the change in fair value of the obligation to issue common stock to Eiccose and the change in fair value of warrant liability.

The change in fair value of the obligation to issue common stock to Eiccose was related to our obligation to issue shares to Eiccose upon the closing of the next round of financing that resulted in at least $25.0 million in gross proceeds to us. Upon the closing of the private placement on March 22, 2016, we issued to Eiccose 96,300 fully vested shares of our common stock in settlement of this obligation. In connection with this transaction we remeasured the fair value of the obligation to issue common stock at the settlement date and the change in fair value of $204,000 was recognized within other expense, net during the six months ended June 30, 2016. Upon the settlement of the obligation with the issuance of shares on March 22, 2016, the liability was reclassified to common stock and additional paid-in capital within stockholders’ equity.

In connection with our issuance of convertible promissory notes in November 2015, we issued warrants to the noteholders to purchase shares of our common stock at an exercise price of $0.01 per share. The number of shares into which the warrants could be exercised was equal to the warrant coverage amount divided by the per share price of the equity securities sold in a qualified financing and thus was accounted for as a liability. Upon the closing of the private placement on March 22, 2016, the number of shares of common stock under the warrants was fixed and the fair value remeasured at that date, then the warrants were automatically exercised for cash into common stock. During the six months ended June 30, 2016, we recognized a loss related to the change in fair value of the warrant liability of $165,000. The warrant liability was reclassified to common stock and additional paid-in capital within stockholders’ equity, upon the exercise of the warrants and issuance of shares on March 22, 2016.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

20


Accrued Research and Development Expenses

We record accrued expenses for estimated costs of research and development activities conducted by external service providers, which include the conduct of clinical research and contract formulation and manufacturing activities. We record the estimated costs of development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued liabilities in the unaudited condensed consolidated balance sheet and within development expense in the unaudited condensed consolidated statement of operations and comprehensive loss. These costs are a significant component our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these external service providers.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates.

Results of Operations

Comparison of the Three Months Ended June 30, 2016 and 2015

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

%

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

Change

 

Research and development

 

 

10,720

 

 

 

2,008

 

 

 

8,712

 

 

 

434

%

General and administrative

 

 

2,477

 

 

 

577

 

 

 

1,900

 

 

 

329

%

Other expense, net

 

 

4

 

 

 

 

 

 

4

 

 

*

 

Net loss

 

 

13,201

 

 

 

2,585

 

 

 

10,616

 

 

 

411

%

 

* - Change is not meaningful

 

Research and development

Research and development expenses increased by $8.7 million to $10.7 million for the three months ended June 30, 2016 from $2.0 million for the same period in 2015. The increase was primarily due to a $5.2 million expense related to upfront payments under our License Agreement with Bristol Myers Squibb Company (the “BMS License Agreement”), a $2.3 million increase in clinical expenditures due to increased program activity, a $0.6 million increase in consulting fees related to increased program activity and a $0.4 million increase in compensation and personnel related expenses due to increase in headcount.

General and administrative

General and administrative expenses increased by $1.9 million to $2.5 million for the three months ended June 30, 2016 from $0.6 million for the same period in 2015. The increase was primarily due to a $0.6 million increase in consulting, advisory and accounting services incurred related to being a public company, a $0.7 million increase in legal fees for the same reason and a $0.4 million increase in compensation and personnel related expenses due to increase in headcount.

Comparison of the Six Months Ended June 30, 2016 and 2015

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

%

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

Change

 

Research and development

 

$

15,565

 

 

$

2,383

 

 

$

13,182

 

 

 

553

%

General and administrative

 

 

6,310

 

 

 

1,006

 

 

 

5,304

 

 

 

527

%

Interest expense, net

 

 

685

 

 

 

 

 

 

685

 

 

 

100

%

Other expense, net

 

 

389

 

 

 

 

 

 

389

 

 

 

100

%

Net loss

 

 

22,949

 

 

 

3,389

 

 

 

19,560

 

 

 

577

%

 

21


Research and development

Research and development expenses increased by $13.2 million to $15.6 million for the six months ended June 30, 2016 from $2.4 million for the same period in 2015. The increase was primarily due to a $5.2 million expense related to upfront payments under the BMS License Agreement, a $5.7 million increase in clinical expenditures due to increased program activity, a $1.0 million increase in consulting fees related to increased program activity and a $1.0 million increase in compensation and personnel related expenses due to increase in headcount.

General and administrative

General and administrative expenses increased by $5.3 million to $6.3 million for the six months ended June 30, 2016 from $1.0 million for the same period in 2015. The increase was primarily due to a $3.0 million increase in consulting, advisory and accounting services incurred in connection with the Merger with Celladon and being a public company, a $1.1 million increase in legal fees for the same reason and a $0.8 million increase in compensation and personnel related expenses due to increase in headcount.

Interest expense, net

Interest expense of $0.7 million for the six months ended June 30, 2016 consists of interest and amortization of the debt discount related to the convertible promissory notes outstanding prior to their conversion into common stock in March 2016. We did not have any debt obligations during the six months ended June 30, 2015.

Other expenses, net

Other expense, net of $0.4 million for the six months ended June 30, 2016 consists of the change in fair value of the obligation to issue common stock to Eiccose and the change in fair value of warrant liability. We did not have any such items outstanding during the six months ended June 30, 2015.

Liquidity and Capital Resources

Sources of Liquidity

On March 22, 2016, we completed the Merger with Celladon, which provided $28.0 million in cash, and issued common stock in a private placement, which provided $32.1 million in cash, net of issuance costs. Prior to that time, our operations had been financed primarily by net proceeds from the sale of convertible preferred stock and the issuance of convertible promissory notes. As of June 30, 2016, we had $45.4 million of cash and cash equivalents and an accumulated deficit of $52.2 million.

In June 2016, we filed a registration statement on Form S-3 with the Securities and Exchange Commission which permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $125.0 million of our common stock, preferred stock, debt securities and warrants.  Up to a maximum of $25.0 million of the maximum aggregate offering price of $125.0 million may be issued and sold pursuant to an At-The-Market (ATM) financing facility under a sales agreement with Cantor Fitzgerald &Co.  During the three and six months ended June 30, 2016, we did not sell any shares of our common stock pursuant to the ATM program.

Our primary uses of cash are to fund operating expenses, including research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in outstanding accounts payable and accrued expenses.

Future Funding Requirements

We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seek regulatory approval for, our product candidates.

Our primary uses of capital are, and we expect will continue to be, funding research efforts and the development of our product candidates, compensation and related expenses, hiring additional staff, including clinical, scientific, operational, financial, and management personnel, and costs associated with operating as a public company. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates.

22


We plan to continue to fund losses from operations and capital funding needs through future equity and/or debt financings, as well as potential additional collaborations or strategic partnerships with other companies. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. We can provide no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding we may be forced to delay, make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm our business.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

 

 

 

Six Months Ended