BELLEROPHON THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and related
notes appearing elsewhere in this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Annual Report on Form 10-K, including information with respect to our plans
and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties and should be read together with
the "Risk Factors" section of this Annual Report on Form 10-K for a discussion
of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis. This section of this Annual Report on
Form 10-K generally discusses 2022 and 2021 items and year to-year comparisons
between 2022 and 2021. Discussions of 2020 items and year to-year comparisons
between 2021 and 2020 that are not included in this Form 10-K can be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for
the fiscal year ended
Overview
Business
We are a clinical-stage therapeutics company focused on developing innovative products that address significant unmet medical needs in the treatment of cardiopulmonary. Our focus is the continued development of our nitric oxide therapy for patients with or at risk of pulmonary hypertension, or PH, using our proprietary pulsatile nitric oxide delivery platform, INOpulse.
In 2016, we began developing INOpulse for the treatment of pulmonary
hypertension associated with fibrotic interstitial lung disease ("fILD"), which
includes PH associated with idiopathic pulmonary fibrosis ("PH-IPF") as well as
other pulmonary fibrosing diseases. During
In
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fibrosis subjects at risk of PH, as well as the dose of iNO45. In
Analysis conducted on cohort 2 (Phase 2) data utilizing the statistical
analysis methodology to be used in REBUILD, including bi-weekly analysis of
? MVPA data and MMRM assessment of the last half of the blinded treatment period,
which showed the trial would be >90% powered for p<0.05 at 80 total patients
and >90% powered for a p<0.01 at 114 patients based on the effect size
determined from cohort 2;
? Similar baseline MVPA distribution between cohort 2 and the first 80 randomized
patients in REBUILD based on a blinded assessment; and
Independent Data Monitoring Committee unblinded safety review of the first 85
? randomized patients in REBUILD indicating no safety concern with regards to
reduction of REBUILD to 140 patients.
During
In 2018, we initiated an ancillary Phase 2 open-label intra-patient dose
escalation study that utilizes right heart catheterization to assess the
hemodynamic effect of INOpulse from a dose of iNO 30 to iNO 125 in PH-PF
subjects. In
In 2018, we also initiated development of INOpulse for the treatment of PH
associated with Sarcoidosis ("PH-Sarc"). Sarcoidosis is a multi-system disease
which is characterized by the growth of granulomas (inflammatory cells) in one
or more organs. The most frequent organs involved are the lungs and lymph nodes
within the chest. Pulmonary hypertension may be present in as many as 74% of
patients depending on the disease severity and how the pulmonary hypertension
("PH") is defined. The presence of PH in sarcoidosis is associated with a poor
prognosis. There are a number of different mechanisms linking PH with
sarcoidosis. The primary treatment for sarcoidosis is corticosteroids; however,
the outcome of this treatment on the PH is unclear. There is no approved therapy
for PH associated with sarcoidosis. Various PAH treatments have been tried
including iNO and IV prostacyclin with some clinical and functional improvement.
The study was a Phase 2 open-label dose escalation design that utilized right
heart catheterization to assess the acute hemodynamic effect of INOpulse from a
dose of iNO 30 to iNO 125 in PH-Sarc subjects. In
We completed a randomized, placebo-controlled, double-blind, dose-confirmation
Phase 2 clinical trial of INOpulse for pulmonary hypertension associated with
chronic obstructive pulmonary disease, or PH-COPD, in
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During
On
We have devoted all of our resources to our therapeutic discovery and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and the general and administrative support of these operations. We have devoted significant time and resources to developing and optimizing our drug delivery system, INOpulse, which operates through the administration of nitric oxide as brief, controlled pulses that are timed to occur at the beginning of a breath.
To date, we have generated no revenue from product sales. We expect that it may be several years before we commercialize a product candidate, if ever.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic is continuing to affect
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Financial Operations Overview
License Agreement with
In
Registered Direct Offering
On
The Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may increase or decrease this percentage, but not in excess of 19.99%, by providing at least 61 days prior notice to us.
The Offering was made pursuant to the Company's shelf registration statement
previously filed with the
Completion of Sale under the
During
Financial Operations Overview
Prior to
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Revenue
To date, we have not generated any revenue from product sales and may not generate any revenue from product sales for the next several years, if ever. In the future, we may generate revenue from a combination of product sales, license fees and milestone payments in connection with strategic partnerships, and royalties from the sale of products developed under licenses of our intellectual property. Our ability to generate revenue and become profitable depends primarily on our ability to successfully develop and commercialize or partner our product candidates as well as any product candidates we may advance in the future. We expect that any revenue we may generate will fluctuate from quarter to quarter as a result of the timing and amount of any payments we may receive under future partnerships, if any, and from sales of any products we successfully develop and commercialize, if any. If we fail to complete the development of any of our product candidates currently in clinical development or any future product candidates in a timely manner, or to obtain regulatory approval for such product candidates, our ability to generate future revenue, and our business, results of operations, financial condition and cash flows and future prospects would be materially adversely affected.
Research and Development Expenses
Research and development expenses consist of costs incurred in connection with the development of our product candidates, including upfront and development milestone payments, related to in-licensed product candidates and technologies.
Research and development expenses primarily consist of:
? employee-related expenses, including salary, benefits and stock-based
compensation expense;
expenses incurred under agreements with contract research organizations,
? investigative sites that conduct our clinical trials and consultants that
conduct a portion of our pre-clinical studies;
? expenses relating to vendors in connection with research and development
activities;
? the cost of acquiring and manufacturing clinical trial materials;
? facilities, depreciation and allocated expenses;
? lab supplies, reagents, active pharmaceutical ingredients and other direct and
indirect costs in support of our pre-clinical and clinical activities;
? device development and drug manufacturing engineering;
? license fees related to in-licensed products and technology; and
? costs associated with non-clinical activities and regulatory approvals.
We expense research and development costs as incurred.
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. Subject to the availability of requisite financing, we plan to increase our research and development expenses for ongoing clinical programs for the foreseeable future as we seek to continue multiple clinical trials for our product candidates, including to potentially advance INOpulse for PH-COPD and seek to identify additional early-stage product candidates.
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We track external research and development expenses and personnel expenses on a program-by-program basis. We use our employee and infrastructure resources, including regulatory, quality, clinical development and clinical operations, across our clinical development programs and have included these expenses in research and development infrastructure. Research and development laboratory expenses are also not allocated to a specific program and are included in research and development infrastructure. Engineering activities related to INOpulse and the manufacture of cylinders related to INOpulse are included in INOpulse engineering.
Drug and Delivery System Costs
Drug and delivery system costs include cartridge procurement, cartridge filling, delivery system manufacturing and delivery system servicing. These costs relate to all indications that utilize the INOpulse delivery system.
Research and Development Infrastructure
We invest in regulatory, quality, clinical development and clinical operations activities, which are expensed as incurred. These activities primarily support our clinical development programs.
INOpulse Engineering
We have invested a significant amount of funds in INOpulse, which is configured to be highly portable and compatible with available modes of long-term oxygen therapy via nasal cannula delivery. Our Phase 2 clinical trials of INOpulse for PAH and INOpulse for PH-COPD utilized the first generation INOpulse DS/DS-C device. We believe that our second generation INOpulse device, as well as a custom triple-lumen cannula, have significantly improved several characteristics of our INOpulse delivery system. We have also invested in design and engineering technology, through Ikaria, for the manufacture of our drug cartridges. We manufacture and service the INOpulse devices that we are using in our ongoing clinical trials of INOpulse for fILD and PH-Sarc by third party turnkey manufacturers.
General and Administrative Expenses
General and administrative expenses include salaries and costs related to executive, finance, and administrative support functions, patent filing, patent prosecution, professional fees for legal, insurance, consulting, investor relations, human resources, information technology and auditing and tax services not otherwise included in research and development expenses.
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Results of Operations
Comparison of Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021, together with the changes in these items in dollars and as a percentage. Year Ended December 31, (Dollar amounts in thousands) 2022 2021 $ Change % Change Research and development expenses: fILD, PH-Sarc and PH-COPD$ 5,466 $ 3,470 $ 1,996 58 % COVID-19 (5) 411 (416) (101) % Other clinical trials 1 9 (8) (86) % Drug and delivery system costs 2,751 1,388 1,363 98 % Clinical programs 8,213 5,278 2,935 56 % Research and development infrastructure 6,546 5,778 768 13 % INOpulse engineering 1,603 1,959 (356) (18) % Total research and development expenses 16,362 13,015 3,347 26 % General and administrative expenses 6,022 7,146 (1,124) (16) % Total operating expenses 22,384 20,161 2,223 11 % Loss from operations (22,384) (20,161) (2,223) 11 % Change in fair value of common stock warrant liability 1 600 (599) (100) % Interest income and financing expenses, net 135 5 130 2,605 % Pre-tax loss (22,248) (19,556) (2,692) 14 % Income tax benefit 2,417 1,800 617 34 % Net loss$ (19,831) $ (17,756) $ (2,075) 12 %
Total Operating Expenses. Total operating expenses for the year ended
Research and Development Expenses. Total research and development expenses for
the year ended
fILD, PH-Sarc and PH-COPD research and development expenses for the year ended
?
primarily due to the increase in patient enrollment and overall recruitment
activities related to the Phase 3 fILD trial during the year ended
2022.
COVID-19 expenses for the year ended
? compared to
trial and close-out activities during the first quarter of 2021.
Drug and delivery system costs for the year ended
million compared to
increase of
? at the time of purchase from our suppliers. The increase in the drug and
delivery system costs was attributable to the increased device demand to
support the increase in patient enrollment related to the Phase 3 trial
activities of fILD during the year ended
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Research and development infrastructure expenses for the year ended December
31, 2022 were
? 31, 2021, an increase of
to an increase in contractor costs associated with the Phase 3 clinical trial
for fILD during the year ended
INOpulse engineering expenses for the year ended
million compared to
? decrease of
in expenses related to improvement of the delivery system manufacturing process
and overall requirements to support the fILD study as it approached completion
of patient enrollment during the year ended
General and Administrative Expenses. General and administrative expenses for
the year ended
Change in Fair Value of Common Stock Warrant Liability. Change in fair value of
common stock warrant liability for the year ended
Income Tax Benefit. Income tax benefit was
Liquidity and Capital Resources
In the course of our development activities, we have sustained operating losses and expect such losses to continue over the next several years. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to develop, conduct clinical trials of, and seek regulatory approval for our product candidates. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, contract manufacturing services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs.
If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses. We do not have a sales, marketing, manufacturing or distribution infrastructure for a pharmaceutical product. To develop a commercial infrastructure, we will have to invest financial and management resources, some of which would have to be deployed prior to having any certainty of marketing approval.
We had unrestricted cash and cash equivalents of
We have evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Annual Report on Form 10-K.
As described in Note 12 - Subsequent Events of our consolidated financial
statement included herein, we completed a registered direct offering and a sale
of NOLs and entered into a licensing agreement during the first quarter of 2023,
from which we received an aggregate of
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including funds expected to be available, we believe that our existing cash and cash equivalents are not sufficient to satisfy our operating cash needs for at least one year after the filing of this Annual Report on Form 10-K. Accordingly, substantial doubt about our ability to continue as a going concern exists.
We may continue to pursue potential sources of funding, including equity financing and previously were able to obtain funding from the sale of tax attributes during 2022 and 2021, including the sale of NOLs and R&D credits described below.
The Technology Business Tax Certificate Transfer Program enables qualified,
unprofitable
percentage of NOL and research and development (R&D) tax credits to unrelated
profitable corporations, subject to meeting certain eligibility criteria. We
have sold
development credits under the
? Certificate Transfer Program in
have also sold an additional
research and development credits under the
Business Tax Certificate Transfer Program for net proceeds of
program in the future subject to program availability and state approval. The
proceeds from such sales are recorded as Income tax benefit when sales occur or
proceeds are received.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt financings, sales of state NOLs and R&D credits subject to program availability and approval, existing working capital and funding from potential future collaboration arrangements. To the extent that we raise additional capital through the future sale of equity or convertible debt, the ownership interest of our existing stockholders may be diluted, and the terms of such securities may include liquidation or other preferences or rights such as anti-dilution rights that adversely affect the rights of our existing stockholders. If we raise additional funds through strategic partnerships in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, or are unable to sell our state NOLs and R&D credits, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table summarizes our cash flows for the years ended
Year Ended
December 31,
(Dollar amounts in thousands) 2022 2021
Operating activities $ (17,770) $ (22,821)
Financing activities (40) -
Net change in cash, cash equivalents and restricted cash
Cash used in operating activities for the year ended
Cash used in financing activities for the year ended
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Contractual Obligations and Commitments
The following is a summary of our contractual cash obligations as of
Payments Due by Period
Less than
Contractual Obligations Total 1 year 1 to 3 years 3 to 5 years
Operating Lease Obligations(1) $ 205 $ 205 $ - $ -
Total $ 205 $ 205 $ - $ -
Operating lease obligations include a lease agreement we entered into on
Jersey.
Royalty payments and success-based milestones associated with our license and supply agreements with Ikaria have not been included in the above table of contractual obligations as we cannot reasonably estimate if or when they will occur.
In the course of our normal business operations, we also enter into agreements with suppliers, contract service providers and others to assist in the performance of our research and development and manufacturing activities. We can elect to discontinue the work under these contracts and purchase orders at any time with notice, and such contracts and purchase orders do not contain minimum purchase obligations.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with
While our significant accounting policies are described in Note 2 of the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Research and Development Expense
Research and development costs are expensed as incurred. These expenses include the costs of our proprietary research and development efforts, as well as costs incurred in connection with certain licensing arrangements. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties upon or subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. We expense the cost of purchased technology and equipment in the period of purchase if we believe that the technology or equipment has not demonstrated technological feasibility and does not have an alternative future use. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and are recognized as research and development expense as the related goods are delivered or the related services are performed.
As part of the process of preparing our financial statements, we are required to estimate a portion of our prepaid and accrued research expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable personnel and third party service providers to identify services that have been performed on our behalf
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and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. We make such estimates of our incurred research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include:
? fees paid to contract research organizations in connection with clinical
trials;
? fees paid to investigative sites in connection with clinical trials; and
? fees paid to contract manufacturers in connection with the production of
clinical trial materials.
We base our expenses related to research and development and clinical trials on actual costs incurred in addition to our estimates of the services received and efforts expended pursuant to contracts with multiple third parties, including research institutions and contract research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing the research and development service fees, we consider the terms of each agreement, the time period over which the services will be performed and the level of effort required to complete the service. If the actual timing of the performance of the services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
It is difficult to determine with certainty the duration and completion costs of our current or any future pre-clinical programs and any of our current or future clinical trials and any future product candidates we may advance, or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of any future clinical trials and pre-clinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of a product candidate could change significantly the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time with respect to the development of that product candidate. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential, including the likelihood of regulatory approval on a timely basis.
Common Stock Warrant Liability
We account for common stock warrants issued as freestanding instruments in
accordance with applicable accounting guidance provided in Accounting Standards
Codification, or ASC Topic 480, Distinguishing Liabilities From Equity, as
either liabilities or as equity instruments depending on the specific terms of
the warrant agreement. We classify warrant liability on the consolidated balance
sheet as noncurrent liabilities, which are revalued at each balance sheet date
subsequent to the initial issuance. Changes in the fair value of the warrants
are reflected in the consolidated statement of operations as "Change in fair
value of common stock warrant liability." We use the Black-Scholes-Merton
pricing model to value the related warrant liability. Certain assumptions used
in the model include expected volatility, dividend yield and risk-free interest
rate. All liability classified warrants have expired as of
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Note 6 of the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of our accounting for warrants.
Stock-Based Compensation
We issue stock-based awards to employees and non-employees in the form of stock options, restricted stock awards, or RSAs, and may issue restricted stock units, or RSUs.
We account for our stock-based compensation in accordance with ASC Topic 718 Compensation- Stock Compensation, which establishes accounting for share-based awards, including stock options and restricted stock, exchanged for services and requires companies to expense the estimated fair value of these awards over the requisite service period. We recognize stock-based compensation expense in operations based on the fair value of the award on the date of the grant. The resulting compensation expense is recognized on a straight-line basis over the requisite service period or sooner if the awards immediately vest. We use the Black-Scholes-Merton option pricing model to value our stock option awards. Refer to Note 8 of the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of our accounting for stock-based compensation.
Recently Issued Accounting Standards
Not Yet Adopted
In
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