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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
 
OR
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: 001-35867
 
CHIMERIX, INC.
(Exact Name of Registrant as Specified in Its Charter)  
Delaware 33-0903395
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
  
2505 Meridian Parkway, Suite 100
  
Durham, North Carolina
 27713
(Address of Principal Executive Offices) (Zip Code)
 
(919) 806-1074
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCMRXThe Nasdaq Global Market

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 ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
 
Accelerated filer o
Non-accelerated filer ☒
 
Smaller reporting company 
 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
 
As of July 28, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 88,583,567.



CHIMERIX, INC.
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
 
INDEX
  
 Page
 
 

Unless otherwise mentioned or unless the context indicates otherwise, as used in this prospectus, the terms “Chimerix,” “the Company,” “we,” “us” and “our” refer to Chimerix, Inc., a Delaware corporation. We have obtained a registered trademark for Chimerix® in the United States. All other trademarks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.


2



PART I - FINANCIAL INFORMATION
 
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS
 
CHIMERIX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited) 
 June 30, 2023December 31, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$20,099 $25,842 
Short-term investments, available-for-sale185,657 191,492 
Accounts receivable26 1,040 
Prepaid expenses and other current assets5,735 9,764 
Total current assets211,517 228,138 
Long-term investments27,258 48,626 
Property and equipment, net of accumulated depreciation256 227 
Operating lease right-of-use assets1,728 1,964 
Other long-term assets326 386 
Total assets$241,085 $279,341 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$1,823 $3,034 
Accrued liabilities13,518 17,381 
Total current liabilities15,341 20,415 
Line of credit commitment fee125 250 
Lease-related obligations1,507 1,819 
Total liabilities16,973 22,484 
Stockholders’ equity:  
Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2023 and December 31, 2022; no shares issued and outstanding as of June 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value, 200,000,000 shares authorized at June 30, 2023 and December 31, 2022; 88,583,567 and 88,054,127 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
89 88 
Additional paid-in capital978,213 970,535 
Accumulated other comprehensive loss, net(813)(337)
Accumulated deficit(753,377)(713,429)
Total stockholders’ equity224,112 256,857 
Total liabilities and stockholders’ equity$241,085 $279,341 
 
The accompanying notes are an integral part of the consolidated financial statements.



3



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Revenues:
Contract and grant revenue$26 $ 260 $ 
Licensing revenue 440 49 455 
Total revenues26 440 309 455 
Cost of goods sold   114 
Gross profit26 440 309 341 
Operating expenses:    
Research and development16,926 18,047 35,748 37,087 
General and administrative4,448 5,840 10,127 11,472 
Total operating expenses21,374 23,887 45,875 48,559 
Loss from operations(21,348)(23,447)(45,566)(48,218)
Other income (loss):
Interest income and other, net2,772 (21)5,618 (17)
Net loss(18,576)(23,468)(39,948)(48,235)
Other comprehensive loss:    
Unrealized (loss) gain on debt investments, net(582)5 (476)(47)
Comprehensive loss$(19,158)$(23,463)$(40,424)$(48,282)
Per share information:    
Net loss, basic and diluted$(0.21)$(0.27)$(0.45)$(0.55)
Weighted-average shares outstanding, basic and diluted88,583,567 87,436,180 88,439,894 87,263,452 
  
The accompanying notes are an integral part of the consolidated financial statements.

 
4



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited) 
Common Stock
SharesAmountAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 202288,054,127 $88 $970,535 $(337)$(713,429)$256,857 
Share-based compensation— — 4,363 — — 4,363 
Employee stock purchase plan purchases308,000 1 356 — — 357 
RSU stock issuance221,440 — — — — — 
Comprehensive loss:
Unrealized gain on investments, net— — — 106 — 106 
Net loss— — — — (21,372)(21,372)
Total comprehensive loss(21,266)
Balance, March 31, 202388,583,567 $89 $975,254 $(231)$(734,801)$240,311 
Share-based compensation— — 2,959 — — 2,959 
Comprehensive loss:
Unrealized loss on investments, net— — — (582)— (582)
Net loss— — — (18,576)(18,576)
Total comprehensive loss(19,158)
Balance, June 30, 202388,583,567 $89 $978,213 $(813)$(753,377)$224,112 


5



Common Stock
SharesAmountAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 202186,884,266 $87 $953,782 $(21)$(885,596)$68,252 
Share-based compensation— — 3,708 — — 3,708 
Exercise of stock options34,406 — 102 — — 102 
Employee stock purchase plan purchases383,981 — 555 — — 555 
RSU stock issuance133,527 — — — — — 
Comprehensive loss:
Unrealized loss on investments, net— — — (52)— (52)
Net loss— — — — (24,767)(24,767)
Total comprehensive loss(24,819)
Balance, March 31, 202287,436,180 $87 $958,147 $(73)$(910,363)$47,798 
Share-based compensation— — 3,593 — — 3,593 
Comprehensive loss:
Unrealized gain on investments, net— — — 5 — 5 
Net loss— — — (23,468)(23,468)
Total comprehensive loss(23,463)
Balance, June 30, 202287,436,180 $87 $961,740 $(68)$(933,831)$27,928 

6



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 Six Months Ended June 30,
 20232022
Cash flows from operating activities:  
Net loss$(39,948)$(48,235)
Adjustments to reconcile net loss to net cash used in operating activities:
  
Depreciation of property and equipment45 48 
Amortization of debt issuance costs132 100 
Amortization of discount/premium on investments(4,002)74 
Share-based compensation 7,324 7,301 
Gain on sale of investments (1)
Lease-related amortization(43)46 
Changes in operating assets and liabilities:  
Accounts receivable1,014  
Inventories (1,365)
Prepaid expenses and other assets4,019 917 
Accounts payable and accrued liabilities(5,108)7,108 
Net cash used in operating activities(36,567)(34,007)
Cash flows from investing activities:  
Purchases of property and equipment(74) 
Purchases of short-term investments(30,347)(5,258)
Purchases of long-term investments(15,208) 
Proceeds from sales of short-term investments 7,699 
Proceeds from maturities of short-term investments76,285 57,726 
Net cash provided by investing activities30,656 60,167 
Cash flows from financing activities:  
Proceeds from exercise of stock options 102 
Proceeds from employee stock purchase plan356 556 
Payments of debt issuance costs(188)(129)
Payment of note payable related to Oncoceutics acquisition (14,000)
Net cash provided by (used in) financing activities168 (13,471)
Net (decrease) increase in cash and cash equivalents(5,743)12,689 
Cash and cash equivalents:
Beginning of period25,842 15,397 
End of period$20,099 $28,086 
 
The accompanying notes are an integral part of the consolidated financial statements. 
 
7



CHIMERIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1. The Business and Summary of Significant Accounting Policies
 
Description of Business

Chimerix is a biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year, for any other interim period or for any future year. 

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of such instruments.
 
For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, fair value measurements cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the calculated current or future fair values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
 
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. These levels are:
 
Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and models for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
There was no material re-measurement to fair value of financial assets and liabilities that are not measured at fair value on a recurring basis. For additional information regarding the Company’s investments, please refer to Note 2, “Investments.”
 
8



Below are tables that present information about certain assets measured at fair value on a recurring basis (in thousands):
 
Fair Value Measurements
June 30, 2023
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$18,142 $18,142 $ $ 
          Total cash equivalents18,142 18,142   
Short-term investments
     U.S. treasury securities82,033 37,496 44,537  
     Commercial paper76,124  76,124  
     Corporate bonds27,500  27,500  
          Total short-term investments185,657 37,496 148,161  
Long-term investments
     U.S. treasury securities27,258 2,924 24,334  
          Total long-term investments27,258 2,924 24,334  
               Total assets$231,057 $58,562 $172,495 $ 
Fair Value Measurements
December 31, 2022
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$17,826 $17,826 $ $ 
     Commercial paper4,998  4,998  
          Total cash equivalents22,824 17,826 4,998  
Short-term investments
     U.S. treasury securities38,094 25,271 12,823  
     Commercial paper127,517  127,517  
     Corporate bonds25,881  25,881  
          Total short-term investments191,492 25,271 166,221  
Long-term investments
     U.S. treasury securities48,626 11,685 36,941  
          Total long-term investments48,626 11,685 36,941  
               Total assets$262,942 $54,782 $208,160 $ 
  
Inventories

The Company considers regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. The Company begins capitalization of these inventory related costs once regulatory approval is obtained. The Company primarily uses actual costs to determine its cost basis for inventories.

On May 15, 2022, we entered into an Asset Purchase Agreement (the Asset Purchase Agreement) with an affiliate of Emergent BioSolutions Inc. (Emergent BioSolutions) for the sale of our exclusive worldwide rights to brincidofovir, including
9



TEMBEXA® and specified related assets (the Asset Sale). On September 26, 2022, we closed the Asset Sale with Emergent Biodefense Operations Lansing LLC (Emergent), an affiliate of Emergent BioSolutions.

Prior to the sale of TEMBEXA to Emergent, the Company’s inventory consisted of TEMBEXA, which was being manufactured for the treatment of smallpox for potential delivery to the Strategic National Stockpile (SNS) for the U.S. government and to other government agencies. TEMBEXA was approved by the FDA on June 4, 2021, at which time the Company began to capitalize inventory costs associated with TEMBEXA. Prior to FDA approval of TEMBEXA, all costs related to the manufacturing of TEMBEXA were charged to research and development expense in the period incurred as there was no alternative future use.

The Company valued its inventories at the lower of cost or estimated net realizable value. The Company determined the cost of its inventories, which included amounts related to materials, manufacturing costs, shipping and handling costs on a first-in, first-out (FIFO) basis. Work-in-process included all inventory costs prior to packaging and labelling, including raw material, active product ingredient, and drug product. Finished goods included packaged and labelled products. Title to all inventory was transferred to Emergent upon the close of the Asset Sale.

Employee Retention Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) passed by the United States Congress and signed by the President, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company recognized a $2.0 million employee retention credit during the three months ended September 30, 2022 related to labor costs recognized during 2020 and 2021, which is recorded in prepaid expenses and other current assets. For the three months ended September 30, 2022, $1.5 million was recorded as a reduction to research and development expenses and $0.5 million was recorded as a reduction to general and administrative expenses. The Company has filed for refunds of the employee retention credits and as of the date of this Quarterly Report on Form 10-Q, it has received $27,000 of refunds and cannot reasonably estimate when it will receive any or all of the remaining refunds.

Deferred Loan Costs

On January 31, 2022 (the Effective Date), the Company entered into a Loan and Security Agreement (the Loan Agreement), by and between the Company, as borrower, and Silicon Valley Bank, now a division of First-Citizens Bank & Trust Company, as the lender (the Lender). The Loan Agreement provides for a four-year secured revolving loan facility (the Credit Facility) in an aggregate principal amount of up to $50.0 million. Proceeds from the Credit Facility may be used for working capital and general corporate purposes. The Company has no obligation to draw down any amount under the Credit Facility, and has not drawn down any amount as of June 30, 2023.

In September 2022, in connection with the Asset Sale, the Lender and the Company agreed to suspend the availability of future advances under the Loan Agreement until such time the parties mutually agree to amend the Loan Agreement to, among other things, adjust the borrowing base and reset the covenants.

Borrowings under the Credit Facility accrue interest at a floating per annum rate of the greater of (i) 1.50% above the Prime Rate (as defined below) and (ii) 4.75%. Prime Rate is defined as the rate of interest per annum published in The Wall Street Journal or any successor publication thereto as the “Prime Rate”. If such rate of interest from The Wall Street Journal becomes unavailable, the “Prime Rate” shall mean the rate of interest per annum announced by the Lender as its prime rate in effect. In each case, in the event such prime rate is less than zero, such rate shall be deemed to be zero for purposes of the Loan Agreement. The Company must also pay an unused line fee equal to 0.25% per annum on the unused portion of the Credit Facility, payable quarterly in arrears. Upon the termination of the Loan Agreement for any reason prior to the Maturity Date, the Company will be required to pay to the Lender an early termination fee of $0.5 million. The Loan Agreement also requires the Company to pay the Lender a non-refundable commitment fee of $0.5 million, payable in four equal installments beginning on the Effective Date and each anniversary of the Effective Date thereafter until January 31, 2025. As of June 30, 2023, the Company has recorded current deferred loan costs of $0.1 million in prepaid expenses and other current assets and non-current deferred loan costs of $0.2 million in other long-term assets on the Consolidated Balance Sheets. As of June 30, 2023, the Company has recorded a current loan fee liability of $0.2 million in accrued liabilities and a non-current loan fee liability of $0.1 million in line of credit commitment fee on the Consolidated Balance Sheets.


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Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
June 30, 2023December 31, 2022
Accrued research and development expenses$7,591 $6,691 
Accrued compensation3,649 6,438 
Other accrued liabilities2,278 4,252 
Total accrued liabilities$13,518 $17,381 

Revenue Recognition

Policy

The Company’s revenues generally consist of (i) contract and grant revenue—revenue generated under federal and private foundation grants and contracts, (ii) licensing revenue—revenue related to non-refundable upfront fees, royalties and milestone payments earned under license agreements (iii) royalty revenue—revenue related to sales of TEMBEXA made by Emergent after the Asset Sale, and (iv) procurement revenue—revenue related to sales of TEMBEXA prior to the Asset Sale. Revenue is recognized in accordance with the criteria outlined in Accounting Standards Codification (ASC) 606 issued by the Financial Accounting Standards Board (FASB). Following this accounting pronouncement, a five-step approach is applied for recognizing revenue, including (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

Emergent BioSolutions, Inc.

On September 26, 2022, the Company completed the Asset Sale to Emergent of the Company’s exclusive worldwide rights to brincidofovir, including TEMBEXA® and specified related assets (the Asset Sale). Emergent paid the Company an upfront cash payment of approximately $238 million upon the closing of the Asset Sale. In addition, pursuant to the Asset Purchase Agreement, the Company is eligible to receive from Emergent: (i) up to an aggregate of approximately $124 million in milestone payments payable upon the exercise of the options under the BARDA Agreement (as defined below) for the delivery of up to 1.7 million treatment courses of tablet and suspension formulations of TEMBEXA to the U.S. government; (ii) royalty payments equal to 15% of all gross profits associated with the sales of TEMBEXA made outside of the United States during the exclusivity period of TEMBEXA on a market-to-market basis; (iii) royalty payments equal to 20% of future gross profits of TEMBEXA made in the United States associated with volumes above 1.7 million treatment courses of therapy during the exclusivity period of TEMBEXA; and (iv) up to an additional $12.5 million upon the achievement of certain other developmental milestones.

The BARDA Agreement was novated to Emergent in December 2022. Under the Asset Purchase Agreement, the Company recognized $26,000 and $0.2 million of contract revenue for expense reimbursement related to support provided to Emergent for the three and six months ended June 30, 2023, respectively.

Grant Revenue

Grant revenue under cost-plus-fixed-fee grants from the federal government and private foundations is recognized as allowable costs are incurred and fees are earned. At June 30, 2023, the Company has a deferred revenue balance of $0.1 million related to these grants. For the three months ended June 30, 2023, the Company recognized no grant revenue and for the six months ended June 30, 2023, the Company recognized $30,000 of grant revenue. For the three and six months ended June 30, 2022, the Company recognized no grant revenue related to these grants.

Ohara Agreement

In 2019, Oncoceutics, Inc., a Delaware corporation (Oncoceutics) which was subsequently acquired by the Company in January 2021, entered into a license, development and commercialization agreement with Ohara Pharmaceutical Co., Ltd. for ONC201 in Japan. The Company is entitled to receive up to $2.5 million in nonrefundable regulatory milestone payments. The Company is entitled to double-digit tiered royalties based on the aggregate annual net sales of all products, as defined in the agreement, in Japan. For the three months ended June 30, 2023, the Company recognized no license revenue related to this agreement and for the six months ended June 30, 2023, the Company recognized approximately $58,000 of license revenue related to this agreement. For the three and six months ended June 30, 2022, the Company recognized approximately $0.4 million and $0.4 million, respectively, of license revenue related to this agreement.
11




TEMBEXA Procurement Agreements Revenue and Royalty Revenue

In June 2022, the Company entered into the Supply Agreement and the PHAC Contract (as defined in Note 6 below), pursuant to which the Company was responsible for supplying TEMBEXA (brincidofovir) treatment courses for use outside of the United States. There are no material performance obligations outside of delivery in the agreements, therefore revenue related to these procurement agreements was recognized when the delivery performance obligation was satisfied. Revenue was recognized based on price per treatment course as outlined in the agreements. For the three months ended September 30, 2022, the Company recognized $32.0 million of procurement revenue related to these agreements.

The remaining deliveries of treatment courses related to the PHAC Contract were delivered by Emergent and were subject to the royalty terms of the Asset Purchase Agreement applicable to gross profits outside the United States. The Company recognized approximately $0.4 million of royalty revenue in the three months ended December 31, 2022.
 
Research and Development Prepaids and Accruals

As part of the process of preparing financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts.

The Company’s objective is to reflect the appropriate research and development expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through June 30, 2023, there had been no material adjustments to the Company’s prior period estimates of prepaid and accruals for research and development expenses. The Company’s research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
 
Basic and Diluted Net Income (Loss) Per Share of Common Stock 

Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights. Diluted net income (loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights outstanding during the period calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during the periods of net loss, there was no difference between basic and diluted loss per share of common stock for the three and six months ended June 30, 2023 and 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In addition to estimates discussed in other sections of this Quarterly Report on Form 10-Q, the most significant estimates in the Company’s consolidated financial statements relate to the valuation of stock options and the valuation allowance for deferred tax assets resulting from net operating losses. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

12



Segments

The Company operates in only one segment, pharmaceuticals.

Impact of Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach on expected losses to estimate credit losses on certain financial instruments, including trade receivables and available-for-sale debt securities. The new guidance was originally due to become effective for the Company beginning in the first quarter of 2020, however the FASB in November 2019 issued ASU 2019-10 which moved the effective date for smaller reporting companies to the first quarter of 2023. The Company adopted ASU 2016-03 as of January 1, 2023. Given the nature of the Company’s receivables and investment portfolio, adoption of this standard had no impact on the Company's financial position, results of operations or cash flows.

Note 2. Investments
 
The following tables summarize the Company’s debt investments (in thousands):
 June 30, 2023
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$27,556 $ $(56)$27,500 
Commercial paper76,211 3 (90)76,124 
U.S. treasury securities109,961 1 (671)109,291 
Total investments$213,728 $4 $(817)$212,915 
 December 31, 2022
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$25,906 $4 $(29)$25,881 
Commercial paper127,657 36 (176)127,517 
U.S. treasury securities86,892 7 (179)86,720 
Total investments$240,455 $47 $(384)$240,118 
 
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The following tables summarize the Company’s debt investments with unrealized losses, aggregated by investment type and the length of time that individual investments have been in a continuous unrealized loss position (in thousands, except number of securities):

June 30, 2023
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$27,500 $(56)$ $ $27,500 $(56)
Commercial paper55,662 (90)  55,662 (90)
U.S. treasury securities104,558 (672)  104,558 (672)
Total$187,720 $(818)$ $ $187,720 $(818)
Number of securities with unrealized losses60  60 
December 31, 2022
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$22,905 $(29)$ $ $22,905 $(29)
Commercial paper88,860 (176)  88,860 (176)
U.S. treasury securities$67,489 $(179)$ $ $67,489 $(179)
Total$179,254 $(384)$ $ $179,254 $(384)
Number of securities with unrealized losses55  55 

The Company invests in high credit quality investments in accordance with its investment policy, which is designed to minimize the possibility of loss. The objective of the Company’s investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow requirements. The Company places its excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of its credit exposure. In accordance with its policy, the Company is able to invest in marketable debt securities that may consist of U.S. Government and government agency securities, money market and mutual fund investments, certificates of deposits, municipal and corporate notes and bonds, and commercial paper, among others. The Company’s investment policy requires it to purchase high-quality marketable securities with a maximum individual maturity of two years and requires an average portfolio maturity of no more than 12 months. Some of the securities in which the Company invests may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, the Company schedules its investments with maturities that coincide with expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, the Company does not believe it has a material exposure to interest rate risk arising from its investments. Generally, the Company’s investments are not collateralized. The Company has not realized any significant losses from its investments.

The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its cost basis. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Unrealized gains and losses on debt investments are recorded to unrealized gain (loss) on debt investments, net in the Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses on debt investments are recorded based on specific identification to interest income and other, net in the Consolidated Statements of Operations and Comprehensive Loss. Investments with original maturities at date of purchase beyond three months and which mature at or less than 12 months from the balance sheet date are classified as current investments. Investments with a maturity beyond 12 months from the balance sheet date are classified as long-term investments. At June 30, 2023, the Company believes that the cost of its investments is recoverable in all material
14



respects. The Company recognizes interest income on an accrual basis in interest income in the Consolidated Statements of Operations and Comprehensive Loss.

The following table summarizes the scheduled maturity for the Company’s debt investments at June 30, 2023 (in thousands):
Maturing in one year or less$185,657 
Maturing after one year through two years27,258 
     Total debt investments$212,915 
 
Note 3. Commitments and Contingencies
 
Leases

The Company leases its facilities under long-term operating leases that expire at various dates through 2026. The Company generally has options to renew lease terms on its facilities, which may be exercised at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option and has concluded on all operating leases that it is not reasonably certain that any options will be exercised. The weighted-average remaining lease term for the Company’s operating leases as of June 30, 2023 was 3.09 years.

Expense related to leases is recorded on a straight-line basis over the lease term. Lease expense under operating leases, including common area maintenance fees, totaled approximately $0.2 million and $0.1 million, respectively, for the three months ended June 30, 2023 and 2022 and $0.3 million and $0.3 million for the six months ended June 30, 2023 and 2022.

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate based on the information available at commencement date. As of June 30, 2023, the operating lease liabilities reflect a weighted-average discount rate of 7.89%.

The following table sets forth the operating lease right-of-use assets and liabilities as of June 30, 2023 (in thousands):
Assets
Operating lease right-of-use assets $1,728 
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)$607 
Operating lease long-term liabilities (recorded within Lease-related obligations)1,507 
     Total operating lease liabilities$2,114 

Operating lease payments over the remainder of the lease terms are as follows (in thousands):
Years Ending December 31,As of June 30, 2023
2023371 
2024759 
2025781 
2026467 
Total future minimum rental payments$2,378 
     Less amount of lease payments representing interest264 
Total present value of lease payments$2,114 

15



As of December 31, 2022, operating lease payments over the remainder of the lease terms were as follows (in thousands):
Years Ending December 31,As of December 31, 2022
2023736 
2024759 
2025781 
2026467 
Total future minimum rental payments$2,743 
     Less amount of lease payments representing interest351 
Total present value of lease payments$2,392 

For the three months ended June 30, 2023 and 2022, the Company made lease payments of approximately $0.2 million and $0.2 million, respectively, and for the six months ended June 30, 2023 and 2022, the Company made lease payments of approximately $0.4 million and $0.3 million, respectively.

Significance of Revenue Source

The Company was the recipient of federal research contract funds from BARDA, the primary source of the Company’s prior period contract and grant revenue. Periodic audits are required in connection with the Company’s receipt of such funds and certain costs may be questioned as appropriate by BARDA. Accordingly, at June 30, 2023 and December 31, 2022, the Company had recorded a provision for potential refundable amounts of $52,000.

Note 4. Equity Transactions and Share-based Compensation

At-The-Market Equity Offering; Shelf Registration Statement

On August 10, 2020, we entered into an Open Market Sale AgreementSM (the Jefferies Sales Agreement) with Jefferies LLC, as agent, pursuant to which we may offer and sell, from time to time through Jefferies, up to $75 million of shares of our common stock. As of June 30, 2023, we have not sold any shares of our common stock under the Jefferies Sales Agreement.

On May 6, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, which was subsequently amended in March 2022 to convert to a non-automatic shelf registration statement. This registration statement enables us to offer for sale, from time to time, in one or more offerings, up to $250 million in the aggregate, of common stock, debt securities, warrants, rights and/or units, and will remain in effect for up to three years from the date it became effective. As of June 30, 2023, no sales have been made under the shelf registration statement.

Stock Options

The Company maintains a 2013 Equity Incentive Plan (the 2013 Plan), which provides for the grant of incentive stock options (ISOs), non-statutory stock options (NSOs), stock appreciation rights, restricted stock awards, restricted stock unit (RSU) awards, performance-based stock awards, and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company and its affiliates. Additionally, the 2013 Plan provides for the grant of performance cash awards. The number of shares of common stock reserved for future issuance automatically increased on January 1, 2023, by 4% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or 3.5 million shares. As of June 30, 2023, there was a total of 2.6 million shares reserved for future issuance under the 2013 Plan. The Company issued no shares of common stock pursuant to the exercise of stock options during the three and six months ended June 30, 2023. The Company issued no shares and approximately 34,000 shares of common stock pursuant to the exercise of stock options during the three and six months ended June 30, 2022.

Employee Stock Purchase Plan

The Company maintains a 2013 Employee Stock Purchase Plan (ESPP), which provides for the issuance of shares of common stock pursuant to purchase rights granted to the Company’s employees or to employees of any of its designated affiliates. The Company has reserved a total of 4.8 million shares of common stock to be purchased under the ESPP, of which 2.3 million shares remained available for purchase as of June 30, 2023. The number of shares of common stock reserved for issuance automatically increased on January 1, 2023, by an additional 422,535 shares.

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The ESPP provides for an automatic reset feature to start participants on a new twenty-four month participation period in the event that the common stock market value on a purchase date is less than the common stock value on the first day of the twenty-four month offering period. Eligible employees may authorize an amount up to 15% of their salary to purchase common stock at the lower of a 15% discount to the beginning price of their offering period or a 15% discount to the ending price of each six-month purchase interval. The Company issued approximately 308,000 and 384,000 shares of common stock pursuant to the ESPP during the six months ended June 30, 2023 and 2022, respectively. Compensation expense for shares purchased under the ESPP related to the purchase discount and the “look-back” option and were determined using a Black-Scholes option pricing model.

Restricted Stock Units

The Company has issued RSUs to certain employees which vest based on service criteria. When vested, the RSU represents the right to be issued the number of shares of the Company’s common stock that is equal to the number of RSUs granted. The grant date fair value for RSUs is based upon the market price of the Company’s common stock on the date of the grant. The fair value is then amortized to compensation expense over the requisite service period or vesting term. The Company issued no shares and approximately 221,000 of common stock pursuant to the vesting of RSUs during the three and six months ended June 30, 2023. The Company issued no shares and approximately 134,000 shares of common stock pursuant to the vesting of RSUs during the three and six months ended June 30, 2022.

Stock-based Compensation

For awards with only service conditions and graded-vesting features, the Company recognizes compensation expense on a straight-line basis over the requisite service period. Total share-based compensation expense recognized related to stock options, the ESPP and RSUs was as follows (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Research and development expense$1,566 $1,827 $3,880 $3,730 
General and administrative expense1,393 1,766 3,444 3,571 
          Total share-based compensation expense$2,959 $3,593 $7,324 $7,301 

In December 2022, the Company announced a reduction in workforce. As a result, certain vested stock options were modified to extend their exercise period from 90 days to 12 months. In addition, certain outstanding stock option and RSU grants received accelerated vesting as if the service period of the terminated employee continued for up to an additional 12-month period. The Company recorded expense ratably from the announcement date through the date of termination with approximately $0.4 million being recognized during the twelve months ended December 31, 2022 and an additional $0.6 million being recognized during the three months ended March, 31, 2023.

In January 2023, the Company extended the post-termination exercise period from 90 days to three years for stock option grants made to non-employee members of our Board of Directors. This extension applies to all future grants as well as all then-outstanding grants. Related to this extension, the Company recorded approximately $0.3 million of expense during the three months ended March 31, 2023.

Note 5. Income Taxes

The Company estimates an annual effective tax rate of 0.0% for the year ending December 31, 2023 as the Company incurred losses for the six month period ended June 30, 2023 and is forecasting an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2023. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Company's history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company cannot currently support that realization of its deferred tax assets is more likely than not. However, the Company feels its deferred tax assets may be used upon the Company becoming profitable.
 
At June 30, 2023, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.
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Note 6. Significant Agreements

BARDA 2022 Procurement and Development Contract

On August 26, 2022, the Company entered into a procurement contract (as amended, the BARDA Agreement) with BARDA for the delivery of up to 1.7 million treatment courses of tablet and suspension formulations of TEMBEXA® to the U.S. government over a possible 10-year period. The BARDA Agreement consists of a five-year base period of performance and a total contract period of performance (base period plus option exercises) of up to ten years (if necessary). Under the terms of the BARDA Agreement, the base period activities are valued at approximately $127 million, consisting of an initial shipment of 319,000 treatment courses of TEMBEXA for delivery to the Strategic National Stockpile for an aggregate purchase price of approximately $115 million, and reimbursement for certain post-marketing activities of approximately $12 million. The options under the BARDA Agreement, which are exercised at the sole discretion of BARDA, are valued at approximately $553 million (if all such options are exercised during the 10-year contract period), which consists of options to purchase up to an additional 1.381 million treatment courses of TEMBEXA for an aggregate purchase price of approximately $551 million and funding for certain post-marketing activities of approximately $2 million.

In connection with the sale of the TEMBEXA assets to Emergent, the BARDA Agreement was novated to Emergent in December 2022. In accordance with federal regulations, the terms of the novation agreement require that the Company guarantee the performance of all obligations transferred to Emergent should Emergent not have the ability to deliver on the terms of the BARDA Agreement. In this instance, BARDA may request that we perform the obligations in place of Emergent.

Emergent BioSolutions, Inc.

On September 26, 2022, the Company completed the Asset Sale to Emergent of the Company’s exclusive worldwide rights to brincidofovir, including TEMBEXA and specified related assets (the Asset Sale). Emergent paid the Company an upfront cash payment of approximately $238 million upon the closing of the Asset Sale. In addition, pursuant to the Asset Purchase Agreement, the Company is eligible to receive from Emergent: (i) up to an aggregate of approximately $124 million in milestone payments payable upon the exercise of the options under the BARDA Agreement for the delivery of up to 1.7 million treatment courses of tablet and suspension formulations of TEMBEXA to the U.S. government; (ii) royalty payments equal to 15% of the gross profits from the sales of TEMBEXA made outside of the United States; (iii) royalty payments equal to 20% of the gross profits from the sales of TEMBEXA made in the United States in excess of 1.7 million treatment courses; and (iv) up to an additional $12.5 million upon the achievement of certain other developmental milestones. The effects of recording certain adjustments associated with contingent consideration related to TEMBEXA have been excluded as the Company has made a policy election to account for these amounts when the contingency has been resolved in accordance with Accounting Standards Codification 450, Contingencies.

The period under which the Company was contracted to provide the majority of operational support services to Emergent in furtherance of its obligations under the Asset Purchase Agreement and the BARDA Agreement concluded on March 26, 2023, except for certain services which the parties agreed would continue until the occurrence of a specific event, or in some cases a predetermined end date. The BARDA Agreement was novated to Emergent in December 2022. Under the Asset Purchase Agreement, the Company recognized approximately $26,000 and $0.2 million of contract revenue for support provided for the three and six months ended June 30, 2023, respectively.

The sale of TEMBEXA constitutes a significant disposition of a business, however, the Company determined the disposition did not represent a strategic shift, and accordingly, the Company did not account for the disposition as a discontinued operation. The Company recorded a $229.7 million net gain on sale of business in other income (loss) on the Consolidated Statement of Operations and Comprehensive Income (Loss) in the third quarter of 2022. The net gain consists of the following assets and liabilities transferred in accordance with the Asset Purchase Agreement (in thousands):

As of September 26, 2022
Up-front cash payment$237,987 
Liabilities assumed by Emergent1,423 
Inventory transferred to Emergent(5,227)
Prepaids transferred to Emergent(511)
Transaction costs incurred(4,002)
Net gain$229,670 

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TEMBEXA Procurement Agreements

In June 2022, the Company entered into a Supply Agreement (the Supply Agreement) with a third-party outside of North America (the Purchaser), pursuant to which the Company was responsible for supplying to the Purchaser, and the Purchaser was responsible for purchasing from the Company, TEMBEXA treatment courses for use in a jurisdiction outside of the United States. Under the terms of the Supply Agreement, the Purchaser paid the Company an aggregate purchase price of approximately $9.3 million, in two equal installments in June and July 2022. The Company recognized $9.3 million of procurement revenue under the Supply Agreement for the three months ended September 30, 2022.

Additionally, in June 2022, the Public Health Agency of Canada (PHAC) awarded a Contract (PHAC Contract) to the Company, pursuant to which PHAC agreed to purchase up to approximately USD $25.3 million (CAD $33.0 million) of TEMBEXA treatment courses for use in Canada. Substantially all of the procurement was delivered and accepted by PHAC in July 2022, completing the performance obligation for those shipments and resulting in $22.6 million of procurement revenue for the three months ended September 2022. Upon the assignment of the PHAC Contract to Emergent, which requires the consent of PHAC, if the remaining deliveries of treatment courses are made by Emergent, they will be subject to the royalty terms of the Asset Purchase Agreement applicable to gross profits outside the United States. PHAC assigned the PHAC Contract to Emergent in November 2022. The remaining deliveries of treatment courses were delivered by Emergent and are subject to the royalty terms of the Asset Purchase Agreement applicable to gross profits outside the United States. The Company recognized approximately $0.4 million of royalty revenue in the three months ended December 31, 2022.

Ohara Agreement

In 2019, Oncoceutics, Inc., a Delaware corporation (Oncoceutics) which was subsequently acquired by the Company in January 2021, entered into a license, development and commercialization agreement with Ohara Pharmaceutical Co., Ltd. for ONC201 in Japan. The Company is entitled to receive up to $2.5 million in nonrefundable regulatory milestone payments. The Company is entitled to double-digit tiered royalties based on the aggregate annual net sales of all products, as defined in the agreement, in Japan.

CR Sanjiu Agreement

In December 2020, Oncoceutics entered into a license, development and commercialization agreement with China Resources Sanjiu Medical & Pharmaceutical Co., Ltd. (CR Sanjiu). Oncoceutics granted CR Sanjiu an exclusive royalty bearing license to develop and commercialize ONC201 in China, Hong Kong, Macau and Taiwan (CR Sanjiu Territory). The Company is entitled to receive up to $5.0 million in nonrefundable regulatory milestone payments. The Company is entitled to double-digit tiered royalties based on the aggregate annual net sales of all licensed products, as defined in the agreement, in the CR Sanjiu Territory.

Note 7. DSTAT Contract Close-out

In May 2022, the Company made the decision to discontinue the development of DSTAT for the treatment of AML. Effective July 12, 2022, the Company terminated the License and Development Agreement with Cantex. As a result, the Company recorded an accrual of expenses to close-out the DSTAT vendor contracts. As of June 30, 2023, on the Consolidated Balance Sheets, the Company has recorded $0.9 million of contract close-out costs in accrued liabilities and accounts payable. These balances are expected to be fully paid prior to the end of 2023.

The following table summarizes the contract close-out costs (in thousands) recorded in 2022:

Contract Close-out Costs
Research & development$791 
General & administrative8 
Total contract close-out expenses$799 


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The following table sets forth the accounts payable and accrual activity for contract close-out costs (in thousands) for 2022.

Contract Close-out Costs
Balance at June 30, 2022$4,539 
     Revised estimates(746)
     Payments(2,482)
Balance at December 31, 2022$1,311 

The following table sets forth the accounts payable and accrual activity for contract close-out costs (in thousands) for the six months ended June 30, 2023.


Contract Close-out Costs
Balance at December 31, 2022$1,311 
     Revised estimates10 
     Payments(250)
Balance at March 31, 2023$1,071 
     Revised estimates(122)
     Payments(96)
Balance at June 30, 2023$853 


For the three and six months ended June 30, 2023, the revised accrual estimates resulted in a decrease to research and development expenses of $122,000 and $111,000, respectively.

Note 8. Restructuring Costs

In December 2022, the Company made the decision to restructure its operations, which included a reduction in workforce of 20 full-time employees. During the three months ended December 31, 2022, the Company recorded expense for one-time employee termination benefits of $1.9 million, which included a ratable share of the total stock compensation expense that resulted from the modifications of stock option agreements of employees. The total amount of stock compensation expense related to the reduction in workforce equals $1.0 million of which $0.4 million was recorded in the fourth quarter of 2022.

The following table summarizes the restructuring charges (in thousands) recorded for the three months ended December 31, 2022:

Employee Termination Benefits
Research and development$1,768 
General and administrative86 
Total restructuring expenses$1,854 
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The following table sets forth the accrual activity for employee termination benefits (in thousands) for the six months ended June 30, 2023:

Employee Termination Benefits
Balance at December 31, 2022$1,442 
     Revised estimates(73)
     Payments(641)
Balance at March 31, 2023$728 
     Revised estimates(89)
     Payments(395)
Balance at June 30, 2023$244 

Note 9. Subsequent Events

The Company has evaluated subsequent events through the issuance date of these financial statements to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2023, and events which occurred subsequently but were not recognized in the financial statements.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (SEC) on March 2, 2023. Past operating results are not necessarily indicative of results that may occur in future periods.
 
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information 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 (the Exchange Act), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
 
OVERVIEW

Chimerix (Chimerix, we, our, us or the Company) is a biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases. The Company is focused on developing imipridones as a potential new class of selective cancer therapies. The most advanced imipridone is dordaviprone (ONC201) which is in clinical-stage development for H3 K27M-mutant glioma as its lead indication. In addition, a second-generation imipridone (ONC206) is currently in dose escalating clinical trials.

Recent Developments

Michael Andriole, Chief Business Officer and Chief Financial Officer, was promoted to President and Chief Executive Officer

Effective August 1, 2023, Michael Andriole, the Company’s Chief Business Officer and Chief Financial Officer, was promoted to President and Chief Executive Officer and appointed to the Board of Directors. Mr. Andriole succeeded Michael Sherman who retired from his role as President and Chief Executive Officer. The Board of Directors appointed Mr. Sherman as Chair of the Board of Directors to succeed Martha J. Demski in that role and appointed Ms. Demski to serve as Lead Independent Director.
Dordaviprone, ONC201

Phase 3 ACTION Study Continues - Enrollment on Target for Interim Data in 2025

The Phase 3 ACTION trial is enrolling in eleven countries including the United States, the United Kingdom, South Korea, Israel, key markets across Western Europe, and Australia. Management expects interim overall survival (OS) and progression free survival (PFS) analyses from the trial to occur in 2025 with a final OS analysis expected in 2026. The ACTION trial enrolls patients shortly after they have completed front-line radiation therapy that is the standard of care for glioma. The study is designed to enroll 450 patients randomized 1:1:1 to receive ONC201 at one of two dosing frequencies or placebo. Participants will be randomized to receive either: (i) 625mg of ONC201 once per week, (ii) 625mg twice per week on two consecutive days or (iii) placebo. The study is open to pediatric and adult patients >10kg body weight and the dose will be scaled by body weight for patients weighing less than 52.5kg. Primary endpoints include OS and PFS. OS will be assessed for efficacy at three alpha-allocated timepoints consisting of two interim assessments by the Independent Data Monitoring Committee (IDMC) at 164 events and 246 events, respectively, and a final assessment at 327 events. The final PFS analysis will be performed after 286 events, with progression assessed using response assessment in neuro-oncology-high grade glioma (RANO HGG) criteria by blinded independent central review (BICR). Secondary endpoints include corticosteroid response,
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performance status response, change from baseline in quality of life (QoL) assessments and change from baseline in neurologic function as assessed by the Neurologic Assessment in Neuro-Oncology (NANO) scale.

Our plan is to initiate a submission to regulators for approval upon receipt of positive overall survival data at either of the interim or the final overall survival analyses. The first submission for marketing authorization would likely be initiated in the US with submissions outside the US to follow. In addition, in the event the result of the progression free survival analysis is positive, we would discuss the potential for submission and an approval of ONC201 with regulatory authorities based on this data.

Early Pipeline Development – ONC206, ONC212 and CMX521

ONC206

ONC206 is a second generation DRD2 antagonist and ClpP agonist that has demonstrated monotherapy anti-cancer activity in pre-clinical models. ONC206 is currently being evaluated in Phase 1 dose escalation trials enrolling patients with advanced central nervous system tumors in partnership with the National Institutes of Health (NIH) and with the Pacific Pediatric Neuro-Oncology Consortium (PNOC). In March 2023, the Company reported an investigator-assessed response in a patient with recurrent glioblastoma without the H3K27M-mutation. The patient has continued to respond and remains on treatment as part of the dose escalation. To date, ONC206 is generally well tolerated with a similar safety profile in adults and pediatrics. No dose limiting toxicities have been identified to date. The dose escalation trials are expected to intensify dosing from a once weekly dosing to a more frequent dose schedule to increase the duration of therapeutic exposure. ONC206 dose escalation is expected to be completed in the first half of 2024.

Preclinical studies are ongoing that are designed to further elucidate the ONC206 mechanism of action, to identify potential pharmacodynamic biomarkers and assess the monotherapy activity profile of ONC206 in tumors that do not harbor the H3 K27M-mutation. These activities will inform data-driven clinical development plans.

ONC212

ONC212, which targets GPR132 and ClpP, has completed IND-enabling toxicology studies. ONC212 is being explored pre-clinically in collaborations with MD Anderson Cancer Center and Brown University. Furthermore, preclinical studies are ongoing to evaluate potential oncology indications and predictive biomarkers for ONC212 that could be suitable for clinical development.

CMX521

CMX521 is a nucleoside analog antiviral drug candidate for the treatment of SARS-CoV-2. CMX521 is not mutagenic, clastogenic, or associated with mitochondrial toxicity. In addition, oral CMX521 demonstrated a favorable profile in GLP toxicology studies and was well-tolerated up to 2,400 mg in a healthy volunteer Phase 1 study for a different indication.

Pursuant to a 2006 agreement between the Company and The Regents of the University of Michigan (UM), the Company obtained an exclusive, worldwide license to UM’s patent rights in certain inventions related to certain compounds originally synthesized at UM, including CMX521. Under the license agreement, the Company is permitted to research, develop, manufacture and commercialize products utilizing the UM Patent Rights, and to sublicense such rights subject to certain sublicensing fees and royalty payments.

We are currently working with the Rapidly Emerging Antiviral Drug Development Initiative (READDI) at the University of North Carolina at Chapel Hill (UNC) for the development of CMX521 as a potential treatment for SARS-CoV-2. UNC which is the co-recipient of a grant for approximately $1.7 million from the state of North Carolina which will defray the majority of the costs on this effort. The grant will fund prodrug synthesis and animal studies to optimize delivery of CMX521 to the lungs via a convenient oral formulation. In addition, UNC will conduct COVID-19 disease mouse efficacy model studies and evaluate lung delivery of the active antiviral.

TEMBEXA (brincidofovir, BCV)

On September 26, 2022, we closed the Asset Sale with Emergent Biodefense Operations Lansing LLC (Emergent), upon which we received $238 million upfront and could receive additional milestones of up to $136.5 million to be paid contingent upon execution of optional future procurement awards from the Biomedical Advanced Research and Development Authority (BARDA) and other development milestones. We are also entitled to earn a 20% royalty on future gross profit of TEMBEXA in the United States associated with volumes above 1.7 million treatment courses of therapy during the exclusivity period of
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TEMBEXA. The agreement also allows us to earn a 15% royalty on all gross profit associated with TEMBEXA sales outside of the United States during the exclusivity period of TEMBEXA on a market-to-market basis.

The period under which the Company was contracted to provide the majority of operational support services to Emergent in furtherance of its obligations under the Asset Purchase Agreement and the BARDA Agreement concluded on March 26, 2023, except for certain services which the parties agreed would continue until the occurrence of a specific event, or in some cases a predetermined end date. The BARDA Agreement was novated to Emergent in December 2022.

Business Development Review

In addition to our prior business development transactions, management is continuing to conduct a review and assessment of potential transaction opportunities with the goal of building our product candidate pipeline, including, but not limited to, licensing, merger or acquisition transactions, or the license, purchase or sale of specific assets, in addition to other potential actions aimed at maximizing stockholder value. There can be no assurance that this review will result in the identification or consummation of any additional transaction or action.

FINANCIAL OVERVIEW

Revenues

To date, we have generated modest, non-recurring revenue from product sales. Prior to 2022, all of our revenue to date has been derived from government grants and a contract and the receipt of up-front proceeds under our collaboration and license agreements.

Emergent BioSolutions, Inc.

On September 26, 2022, the Company closed the previously disclosed Asset Sale with Emergent. Emergent paid the Company an upfront cash payment of approximately $238 million upon closing. In addition, pursuant to the Asset Purchase Agreement, the Company is eligible to receive from Emergent: (i) up to an aggregate of approximately $124 million in milestone payments payable upon the exercise of the options under the BARDA Agreement; (ii) royalty payments equal to 15% of the gross profits from the sales of TEMBEXA made outside of the United States; (iii) royalty payments equal to 20% of the gross profits from the sales of TEMBEXA made in the United States in excess of 1.7 million treatment courses; and (iv) up to an additional $12.5 million upon the achievement of certain other developmental milestones.

The BARDA Agreement was novated to Emergent in December 2022. Under the Asset Purchase Agreement, the Company recognized $26,000 and $0.2 million of contract revenue for expense reimbursement related to support provided to Emergent for the three and six months ended June 30, 2023, respectively.

Grant Revenue

Grant revenue under cost-plus-fixed-fee grants from the federal government and private foundations is recognized as allowable costs are incurred and fees are earned. At June 30, 2023, the Company has a deferred revenue balance of $0.1 million related to these grants. For the three months ended June 30, 2023, the Company recognized no grant revenue and for the six months ended June 30, 2023, the Company recognized $30,000 of grant revenue. For the three and six months ended June 30, 2022, the Company recognized no grant revenue related to these grants.

Ohara Agreement

In 2019, Oncoceutics, Inc., a Delaware corporation (Oncoceutics) which was subsequently acquired by the Company in January 2021, entered into a license, development and commercialization agreement with Ohara Pharmaceutical Co., Ltd. for ONC201 in Japan. The Company is entitled to receive up to $2.5 million in nonrefundable regulatory milestone payments. The Company is entitled to double-digit tiered royalties based on the aggregate annual net sales of all products, as defined in the agreement, in Japan. For the three months ended June 30, 2023, the Company recognized no license revenue related to this agreement and for the six months ended June 30, 2023, the Company recognized approximately $58,000 of license revenue related to this agreement. For the three and six months ended June 30, 2022, the Company recognized approximately $0.4 million and $0.4 million, respectively, of license revenue related to this agreement.

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TEMBEXA Procurement Agreements

In June 2022, the Company entered into a Supply Agreement (the Supply Agreement) with a third-party outside of North America (the Purchaser), pursuant to which the Company was responsible for supplying to the Purchaser, and the Purchaser was responsible for purchasing from the Company, TEMBEXA treatment courses for use in a jurisdiction outside of the United States. Under the terms of the Supply Agreement, the Purchaser paid the Company an aggregate purchase price of approximately $9.3 million, in two equal installments in June 2022 and July 2022. The Company recognized $9.3 million of procurement revenue under the Supply Agreement for the three months ended September 30, 2022.

Additionally, in June 2022, the Public Health Agency of Canada (PHAC) awarded a Contract (the PHAC Contract) to the Company, pursuant to which PHAC agreed to purchase up to approximately $25.3 million (CAD $33.0 million) of TEMBEXA treatment courses for use in Canada. Substantially all of the procurement was delivered and accepted by PHAC in July 2022, completing the performance obligation for those shipments and resulting in $22.6 million of procurement revenue for the three months ended September 30, 2022. PHAC assigned the PHAC Contract to Emergent in November 2022. The remaining deliveries of treatment courses were delivered by Emergent and were subject to the royalty terms of the Asset Purchase Agreement applicable to gross profits outside the United States. The Company recognized approximately $0.4 million of royalty revenue in the three months ended December 31, 2022.
 
Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize research and development expenses as they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors. We cannot determine with certainty the duration and completion costs of the current or future clinical studies of any product candidates. Our research and development expenses consist primarily of:
 
fees paid to consultants and contract research organizations (CROs), including in connection with preclinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;
salaries and related overhead expenses, which include stock option, restricted stock units and employee stock purchase program compensation and benefits, for personnel in research and development functions;
payments to third-party manufacturers, which produce, test and package drug substance and drug product (including continued testing of process validation and stability);
costs related to legal and compliance with regulatory requirements; and
license fees for and milestone payments related to licensed products and technologies.
 
The table below summarizes our research and development expenses for the periods indicated (in thousands). Our direct research and development expenses consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs, in connection with our clinical trials, preclinical development, and payments to third-party manufacturers of drug substance and drug product. We typically use our employee and infrastructure resources across multiple research and development programs.
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Direct research and development expenses$10,643 $10,981 $21,901 $22,325 
Research and development personnel costs - excluding stock-based compensation3,935 4,695 8,453 10,023 
Research and development personnel costs - stock-based compensation1,566 1,827 3,880 3,730 
Indirect research and development expenses782 544 1,514 1,009 
Total research and development expenses$16,926 $18,047 $35,748 $37,087 
 
The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the development of any product candidates or the period, if any, in which material net cash inflows from any product candidates may commence. This is due to the numerous risks and
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uncertainties associated with our business, as detailed in Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

Imipridones Program

In January 2021, we acquired Oncoceutics. As we continue to develop and prepare ONC201 for U.S. regulatory approval, we expect to incur significant research and development expense. We also plan to incur development expenses in connection with the continued development of other imipridone compounds, including ONC206 and ONC212.

TEMBEXA (Brincidofovir, BCV)

We developed TEMBEXA for the treatment of smallpox. FDA marketing approval for TEMBEXA was received on June 4, 2021. Under our February 2011 cost-plus-fixed fee development contract with BARDA, we incurred expenses in connection with the development of orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics of TEMBEXA in the animal models, the conduct of clinical studies for subjects with DNA viral infections, the manufacture and process validation of bulk drug substance and TEMBEXA 100 mg tablets and TEMBEXA 10 mg/mL oral suspension, and submission of the NDAs to the FDA. In addition, we have incurred additional supportive costs for the development of TEMBEXA for smallpox that we did not seek reimbursement for from BARDA. We have incurred costs related to the manufacturing of TEMBEXA for a procurement contract. These costs were expensed as incurred until the June 2021 FDA approval. Following the approval, costs related to the manufacturing of TEMBEXA are recorded and shown as inventories on the Consolidated Balance Sheets. With the sale of TEMBEXA to Emergent all inventory, prepaids and liabilities associated with TEMBEXA were transferred to Emergent as part of the transaction.

Dociparstat Sodium (DSTAT)

The final clinical study report related to the Phase 3 DASH AML trial has been completed, submitted to the FDA, and the IND has been inactivated. No further clinical or regulatory action is anticipated. Additionally, we have $0.9 million of accounts payable and contract close-out accruals as of June 30, 2023, which we expect to be paid prior to the end of 2023.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance, commercial, investor relations, information technology, legal, human resources and administrative support functions, including share-based compensation expenses and benefits. Other significant general and administrative expenses include costs related to accounting and legal services, costs of various consultants, director and officer liability insurance, occupancy costs and information systems.
 
Interest Income and Other, Net

Interest income and other, net consists primarily of interest earned on our cash, cash equivalents and short-term and long-term investments.
 
Share-based Compensation  

The Financial Accounting Standards Board authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. Total consolidated share-based compensation expense of $3.0 million and $3.6 million was recognized in the three months ended June 30, 2023 and 2022, respectively, and $7.3 million and $7.3 million was recognized in the six months ended June 30, 2023 and 2022, respectively. The share-based compensation expense recognized included expense for stock options, RSUs and employee stock purchase plan purchase rights.
 
We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes pricing model. This estimate is affected by our stock price as well as assumptions including the expected volatility, expected term, risk-free interest rate, expected dividend yield, expected rate of forfeiture and the fair value of the underlying common stock on the date of grant. 

For performance-based RSUs, we begin to recognize the expense when it is deemed probable that the performance-based goal will be achieved. We evaluate the probability of achieving performance-based goals on a quarterly basis.
 
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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
 
Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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 revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business.

We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 2, 2023. There have been no material changes during the six months ended June 30, 2023 to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

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RESULTS OF OPERATIONS

Comparison of the Six Months Ended June 30, 2023 and 2022.

The following table summarizes our results of operations for the six months ended months ended June 30, 2023 and 2022, together with the changes in those items (in thousands except percentages): 
 
 Six Months Ended June 30,Dollar Change% Change
 20232022Increase/(Decrease)
Revenues:
Contract and grant revenue$260 $— $260 *
Licensing revenue49 455 (406)(89.2)%
Total revenues309 455 (146)(32.1)%
Cost of goods sold— 114 (114)(100.0)%
Gross profit309 341 (32)(9.4)%
Operating expenses:  
Research and development35,748 37,087 (1,339)(3.6)%
General and administrative10,127 11,472 (1,345)(11.7)%
Total operating expenses45,875 48,559 (2,684)(5.5)%
Loss from operations(45,566)(48,218)2,652 (5.5)%
Other income:
Interest income and other, net5,618 (17)5,635 (33,147.1)%
Net loss$(39,948)$(48,235)$8,287 (17.2)%

*Not meaningful or not calculable

Contract and Licensing Revenue

For the six months ended June 30, 2023, total revenue decreased to $0.3 million compared to $0.5 million for the six months ended June 30, 2022. The decrease of $0.1 million is primarily related to a decrease in revenue related to the Ohara licensing agreement.

Research and Development Expenses

For the six months ended June 30, 2023, our research and development expenses decreased to $35.7 million compared to $37.1 million for the six months ended June 30, 2022. The decrease of $1.3 million primarily related to the following:

a decrease of $4.7 million in DSTAT development costs related to the discontinuation of the DSTAT program in 2022;
a decrease of $1.3 million in compensation expenses;
a decrease of $0.7 million in the development of our other pipeline products, ONC206, ONC212, and CMX521; and
a decrease of $0.4 million in TEMBEXA expenses following the Asset Sale with Emergent in 2022; offset by
an increase of $5.6 million primarily related to ONC201 research and development expenses and start-up expenses related to the ACTION Phase 3 study of ONC201 in patients who harbor the H3 K27M-mutation; and
an increase of $0.2 million in legal and other operational expenses.

General and Administrative Expenses

For the six months ended June 30, 2023, our general and administrative expenses decreased to $10.1 million compared to $11.5 million for the six months ended June 30, 2022. The decrease of $1.3 million primarily related to the following:

a decrease of $1.1 million in legal and other operational expenses primarily related to the Asset Sale with Emergent and international TEMBEXA procurement agreements secured in 2022; offset by
a decrease of $0.2 million in compensation expense.

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Interest Income and Other, Net

For the six months ended June 30, 2023, our interest income and other, net increased to income of $5.6 million compared to expense of $17,000 for the six months ended June 30, 2022. This increase is primarily attributable to interest earned on higher cash balances.

Comparison of the Three Months Ended June 30, 2023 and 2022.

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022, together with the changes in those items (in thousands, except percentages): 
 
 Three Months Ended June 30,Dollar Change% Change
 20232022Increase/(Decrease)
Revenues:
Contract and grant revenue$26 $— 26 *
Licensing revenue— 440 (440)(100.0)%
Total revenues26 440 (414)(94.1)%
Operating expenses:    
Research and development16,926 18,047 (1,121)(6.2)%
General and administrative4,448 5,840 (1,392)(23.8)%
Total operating expenses21,374 23,887 (2,513)(10.5)%
Loss from operations(21,348)(23,447)2,099 (9.0)%
Other income (loss):
Interest income and other, net2,772 (21)2,793 (13,300.0)%
Net loss$(18,576)$(23,468)$4,892 (20.8)%

*Not meaningful or not calculable

Contract and Licensing Revenue

For the three months ended June 30, 2023, total revenue decreased to $26,000 compared to $0.4 million for the three months ended June 30, 2022. The decrease of $0.4 million is primarily related to a decrease in revenue related to the Ohara licensing agreement.

Research and Development Expenses

For the three months ended June 30, 2023, our research and development expenses decreased to $16.9 million compared to $18.0 million for the three months ended June 30, 2022. The decrease of $1.1 million primarily related to the following:

a decrease of $3.1 million in DSTAT development costs related to the discontinuation of the DSTAT program;
a decrease of $1.0 million in compensation expenses;
a decrease of $0.5 million for the development of our other pipeline products, ONC206, ONC212, and CMX521; and
a decrease of $0.2 million in TEMBEXA expenses following the Asset Sale with Emergent in 2022; offset by
an increase of $3.5 million related to ONC201 research and development expenses, primarily in start-up expenses related to the ACTION Phase 3 study of ONC201 in patients who harbor the H3 K27M-mutation; and
an increase of $0.2 million in operating expenses.

General and Administrative Expenses

For the three months ended June 30, 2023, our general and administrative expenses decreased to $4.4 million compared to $5.8 million for the three months ended June 30, 2022. The decrease of $1.4 million primarily related to the following:

a decrease of $0.8 million in legal and other operational expenses primarily related to the Asset Sale with Emergent and international TEMBEXA procurement agreements secured in 2022; and
a decrease of $0.6 million in compensation.

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Interest Income and Other, Net

For the three months ended June 30, 2023, our interest income and other, net increased to $2.8 million compared to expense of $21,000 for the three months ended June 30, 2022. This increase is primarily attributable to interest earned on higher cash balances.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2023, we had capital available to fund operations of approximately $233.0 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. We have incurred losses since our inception in 2000 and as of June 30, 2023, we had an accumulated deficit of $753.4 million. We may continue to incur losses for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues.

On August 10, 2020, we entered into the Jefferies Sales Agreement with Jefferies LLC, as agent, pursuant to which we may offer and sell, from time to time through Jefferies, up to $75 million of shares of our common stock. As of June 30, 2023, we have not sold any shares of our common stock under the Jefferies Sales Agreement.

On May 6, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC (the 2021 Shelf Registration Statement), which was subsequently amended in March 2022 to convert it to a non-automatic shelf registration statement that we are eligible to use. The amendment to the 2021 Shelf Registration Statement to convert to a non-automatic shelf registration statement. This registration statement enables us to offer for sale, from time to time, in one or more offerings, up to $250 million in the aggregate, of common stock, preferred stock, debt securities, warrants, rights and/or units, and will remain in effect for up to three years from the date it initially became effective. As of June 30, 2023, no sales have been made under the 2021 Shelf Registration Statement.

On January 31, 2022, we entered into a Loan and Security Agreement (the Loan Agreement) with Silicon Valley Bank, now a division of First-Citizens Bank & Trust Company, as the lender (the Lender). The Loan Agreement provides for a four-year secured revolving loan facility (the Credit Facility) in an aggregate principal amount of up to $50.0 million. Proceeds from the Credit Facility may be used for working capital and general corporate purposes. We have no obligation to draw down any amount under the Credit Facility, and have not drawn down any amount as of December 31, 2022. In September 2022, in connection with the Asset Sale, the Lender and the Company agreed to suspend the availability of future advances under the Loan Agreement until such time the parties mutually agree to amend the Loan Agreement to, among other things, adjust the borrowing base and reset the covenants.

We cannot assure that adequate funding will be available on terms acceptable to us, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt may involve operating covenants that may restrict our business. If adequate funds are not available through these means, we may be required to curtail significantly one or more of our research or development programs, and any launch and other commercialization expenses for any of our products that may receive marketing approval. We cannot assure you that we will successfully develop or commercialize our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit.

We believe that our existing cash, cash equivalents, and investments will enable us to fund our current operating expenses and capital requirements for at least the next 12 months. However, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.

Cash Flows

The following table sets forth the significant sources and uses of cash for the period (in thousands): 
 Six Months Ended June 30,
 20232022
Cash sources and uses:  
Net cash used in operating activities$(36,567)$(34,007)
Net cash provided by investing activities30,656 60,167 
Net cash provided by (used in) financing activities168 (13,471)
Net (decrease) increase in cash and cash equivalents$(5,743)$12,689 

The table above sets forth the net decrease or increase in cash and cash equivalents alone and not the change in our total capital
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available to fund operations, which also includes short-term and long-term investments. Cash and cash equivalents includes cash on hand and securities with original maturities of 90 days or less.
 
Operating Activities

Net cash used in operating activities of $36.6 million for the six months ended June 30, 2023 was primarily the result of our $39.9 million net loss and the change in operating assets and liabilities offset by the add-back of non-cash adjustments. The change in operating assets and liabilities includes a decrease of $5.1 million in accounts payable and accrued liabilities offset by a decrease in prepaid expenses and other assets of $4.0 million and a decrease in accounts receivable of $1.0 million. Non-cash expenses included add-backs of $7.3 million for share-based compensation and $0.1 million of amortization of deferred loan costs offset by $4.0 million of amortization of discount/premium on investments. Net cash used in operating activities of $34.0 million for the six months ended June 30, 2022 was primarily the result of our $48.2 million net loss, partially offset by the change in operating assets and liabilities and the add-back of non-cash adjustments. The change in operating assets and liabilities includes an increase of $7.1 million in accounts payable and accrued liabilities and a decrease in prepaid expenses and other assets of $0.9 million, offset by an increase in inventories of $1.4 million. Non-cash expenses included add-backs of $7.3 million for share-based compensation, $0.1 million of amortization of deferred loan costs and $0.1 million of amortization of discount/premium on investments.

Investing Activities

Net cash provided by investing activities of $30.7 million for the six months ended June 30, 2023 was primarily the result of the maturity of $76.3 million in short-term investments, partially offset by the purchase of $30.3 million in short-term investments and the purchase of $15.2 million in long-term investments. Net cash provided by investing activities of $60.2 million for the six months ended June 30, 2022 was primarily the result of the maturity of $57.7 million in short-term investments and the sale of $7.7 million in short-term investments, offset by the purchase of $5.3 million in short-term investments.

Financing Activities

Net cash provided by financing activities of $0.2 million for the six months ended June 30, 2023 was primarily the result of $0.4 million in proceeds from stock purchases through our ESPP partially offset by the payment of $0.2 million of debt issuance costs. Net cash used by financing activities of $13.5 million for the six months ended June 30, 2022 was primarily the result of the $14.0 million payment of the note payable related to the Oncoceutics acquisition and the payment of $0.1 million of debt issuance costs, partially offset by $0.7 million in proceeds from the exercise of stock options and stock purchases through our ESPP.

MATERIAL CASH REQUIREMENTS

The discussion below summarizes our significant contractual obligations and commitments as of June 30, 2023.

Leases. See Note 3 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information, including the future operating lease minimum payments.

In addition to the amounts set forth above, we have payment obligations under license agreements that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones. We will be required to make additional payments when certain milestones are achieved, and we are obligated to pay royalties based on future product sales. As of June 30, 2023, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. In connection with the development and commercialization of ONC201, ONC206 and ONC212, in addition to royalties on product sales, we could be required to pay former Oncoceutics securityholders up to an aggregate of $340.0 million in remaining milestone payments, assuming the achievement of all remaining applicable milestone events under the merger agreement.
Additionally, we enter into contracts in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination or cancellation within 30 days of notice. We also have agreements with our executive officers that require the funding of specific payments, if certain events occur, such as a change in control or the termination of employment without cause.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.
 
We do not believe that our cash, cash equivalents and available-for-sale investments have significant risk of default or illiquidity. While we believe our cash and cash equivalents and certificates of deposit do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain certain amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.
 
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations for the three and six months ended June 30, 2023 and 2022.
 
ITEM 4.     CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2023, has concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. There have been no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act, during the second quarter of 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
None.
 
ITEM 1A.        RISK FACTORS

Summary of Risk Factors

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face, can be found under the heading “Risk Factors” below.

We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability.
All of our product candidates are still under clinical development and may not obtain regulatory approval or be successfully commercialized.
We may be unable to obtain, or may be delayed in obtaining, regulatory approval for our clinical candidates, including our most advanced clinical candidate, ONC201.
Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates, and even if we generate future revenues, they may not be sufficient to lead to profitability.
If we obtain regulatory approval for any of our product candidates, including ONC201, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.
We rely on third-party manufacturers to produce our preclinical drug supplies and clinical drug supplies, and we intend to rely on third parties to produce commercial supplies of any approved product candidates. We rely on limited sources of supply for the drug components for each of our product candidates including ONC201, and any disruption in the chain of supply for either of these product candidates may cause delays in their development and commercialization.
We routinely evaluate external assets to build our pipeline of product candidates and there can be no assurance that we will be successful in identifying or completing a transaction for a candidate, that any such transaction will result in additional value for our stockholders or that the process will not have an adverse impact on our business.
The anticipated benefits of the sale of our TEMBEXA assets to Emergent Biodefense Operations Lansing LLC, (Emergent) may not be realized fully or at all or may take longer to realize than expected. Our ability to receive future contingent consideration from the sale depends on, among other things, Emergent’s ability to successfully develop and commercialize TEMBEXA.
If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to compete effectively in our market.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, delays in the development of our product candidates, penalties and a loss of business.

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information contained elsewhere in this Quarterly Report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business.

Risks Related to Our Financial Condition and Need For Additional Capital

Except for the third quarter of 2022, we have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future.

We are a biopharmaceutical company focused primarily on developing ONC201 for the treatment of H3 K27M-mutant glioma as we also evaluate programs to advance from our earlier stage pipeline. We have incurred significant net losses in each year since our inception prior to 2022, including a net loss of $39.9 million for the six months ended June 30, 2023. As of June 30, 2023, we had an accumulated deficit of approximately $753.4 million.

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To date, with the exception of the Asset Sale, we have financed our operations primarily through the sale of equity securities and, to a lesser extent, through government funding, licensing fees, the sales of TEMBEXA product and debt. We have devoted most of our financial resources to research and development, including our preclinical development activities and clinical trials. We expect to continue to incur losses and negative cash flows for the foreseeable future. The size of any loss will depend, in part, on the rate of future expenditures and our ability to generate revenues. In particular, we expect to incur substantial expenses as we seek to:

continue development and manufacturing activities related to imipridones, including ONC201 for the treatment of H3 K27M-mutant glioma, and other potential indications;
obtain regulatory approvals for ONC201 and other imipridones;
scale-up manufacturing capabilities for ONC201 and other imipridones;
identify and in-license additional product candidates to expand our research and development pipeline;
maintain, expand and protect our intellectual property portfolio; and
continue our internal research and development efforts and seek to discover additional product candidates.

To become and remain profitable, we must succeed in developing and eventually commercializing products with significant market potential. This will require us to be successful in a range of challenging activities, including acquiring or discovering product candidates, completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of some of these activities.

We obtained regulatory approval for and initially commercialized TEMBEXA, however, none of our other product candidates have been commercialized. We may not succeed in developing additional product candidates or commercializing any product candidate. If we do not successfully develop or commercialize any product candidate, or if revenues from any products that do receive regulatory approvals are insufficient, we will not achieve profitability and our business may fail. In addition to these risks in the United States, assuming regulatory approval in other geographies, our revenues are also dependent upon the size of markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success outside of the United States.

Although we achieved profitability in 2022 as a result of the closing of our Asset Sale with Emergent Biodefense Operations Lansing LLC (Emergent), we have not been profitable in 2023, and we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates, and even if we generate future revenues, they may not be sufficient to lead to profitability.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for and commercialize product candidates. We may not generate revenues from product sales for the foreseeable future. Our ability to generate future revenues from product sales depends heavily on our success in:

obtaining favorable results for and advancing development of imipridones, including ONC201 for the treatment of H3 K27M-mutant glioma, and other potential indications;
obtaining United States regulatory approval for ONC201 and other pipeline assets;
obtaining foreign regulatory approval(s) for ONC201 and other pipeline assets;
generating, licensing or otherwise acquiring a pipeline of product candidates which progress to clinical development, regulatory approval, and commercialization.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to activate, enroll, and complete, and we may never successfully enroll a sufficient number of patients or generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely increase if we do not obtain favorable results or if development of any product candidate is delayed. In particular, we would likely incur higher costs than we currently anticipate if development of any product candidate is delayed because we are required by the FDA or foreign regulatory authorities to perform studies or trials in addition to those that we currently anticipate, or we decide to conduct additional studies or trials for strategic reasons.

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Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict with certainty the timing or amount of any increase in our anticipated development costs that will result should any additional trials be necessary.

Further, any product candidate if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that may not be commercially available for a number of years, if at all. For any approved product candidate, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved product candidate, or that we will achieve or maintain profitability even if we do generate sales.

If we fail to obtain additional financing, we could be forced to delay, reduce or eliminate our product development programs, seek corporate partners for the development of our product development programs or relinquish or license on unfavorable terms, our rights to technologies or product candidates.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We believe that our existing capital available to fund operations will enable us to fund our current operating expenses and capital requirements for at least the next twelve months. Changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate, and our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs more than we expected, or because the FDA or foreign regulatory authorities require us to perform studies or trials in addition to those that we currently anticipate.

In January 2021, we acquired Oncoceutics, Inc. (Oncoceutics), a privately-held, clinical-stage biotechnology company developing imipridones, a novel potential class of compounds. Oncoceutics’ lead product candidate, ONC201, is currently being evaluated in multiple clinical studies including in the Phase 3 ACTION Study, a registrational study for H3 K27M-mutant glioma.

We are also pursuing additional external opportunities to build our pipeline of product candidates, and we may need to raise additional funds if we identify additional product candidates, which we may obtain through one or more equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements.

Securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our most advanced clinical compounds, or any other product candidate. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

significantly delay, scale back or discontinue the development or commercialization of ONC201, or any other product candidate;
seek corporate partners for ONC201, or any other product candidate at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or
relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.

If we draw down on our credit facility with Silicon Valley Bank, the terms of our loan and security agreement place restrictions on our operating and financial flexibility, and failure to comply with covenants or to satisfy certain conditions may result in acceleration of our repayment obligations and foreclosure on our pledged assets, which could significantly harm our liquidity, financial condition, operating results, business and prospects and cause the price of our securities to decline.

Our Loan and Security Agreement (the Loan Agreement) with Silicon Valley Bank, now a division of First-Citizens Bank & Trust Company, effective January 31, 2022, requires us to comply with certain financial covenants, including requiring that we maintain specified liquidity and cash levels at certain times. The Loan Agreement also requires us to comply with a number of other covenants (affirmative and negative), including restrictive covenants that limit our ability to, among other things, incur additional indebtedness; merge or consolidate with or into any other organization or otherwise suffer a change in control; acquire, own or make investments; repurchase or redeem any class of stock or other equity interest; declare or pay any cash
35



dividend or make a cash distribution on any class of stock or other equity interest; and transfer a material portion of our assets, in each case subject to exceptions. Our obligations under the Loan Agreement are secured by a first priority perfected security interest in substantially all of our assets other than our intellectual property, subject to certain exceptions.

In addition to other specified events of default, and subject to limited exceptions, Silicon Valley Bank could declare an event of default upon our non-compliance with certain covenants or the occurrence of certain events that it may determine, in its sole discretion, to have a material adverse effect, including: a material adverse change in, or a material adverse effect on our business, property, assets or operations, taken as a whole; a material impairment of our ability to perform any of our obligations under the Loan Agreement; a material adverse effect upon the collateral for the loan or its value; or a material impairment of the enforceability or priority of the liens upon the collateral for the loan or the legality, validity, binding effect or enforceability of the Loan Agreement or related agreements.

If we default under the credit facility, Silicon Valley Bank may accelerate all of our repayment obligations, which may require us to seek additional or alternate financing and/or modify our operational plans. We cannot guarantee that we will be able to comply with all of the covenants contained in the Loan Agreement in the future, or secure waivers if or when required. If we are unable to comply with or obtain a waiver of any noncompliance under the Loan Agreement, Silicon Valley Bank could declare an event of default or require us to further renegotiate the Loan Agreement on terms that may be significantly less favorable to us, or we may be required to seek additional or alternative financing. If we were to seek additional or alternative financing, any such financing may not be available to us on commercially reasonable terms or at all. If we are unable to access funds to meet those obligations or to renegotiate our agreement, Silicon Valley Bank could foreclose on our pledged assets and we would have to immediately cease operations. In addition, during the continuance of an event of default, the then-applicable interest rate on the then-outstanding principal balance is subject to increase. Upon an event of default, Silicon Valley Bank could also require us to repay the loan immediately, together with a prepayment penalty, and other fees. If we were to renegotiate the agreement under such circumstances, the terms may be significantly less favorable to us. If we were liquidated, Silicon Valley Bank’s right to repayment would be senior to the rights of our stockholders to receive any proceeds from the liquidation. Any declaration by Silicon Valley Bank of an event of default could significantly harm our liquidity, financial condition, operating results, business, and prospects and cause the price of our securities to decline.

In September 2022, Silicon Valley Bank and the Company agreed to suspend the availability of future advances under the Loan Agreement until such time, if ever, the parties mutually agree to amend the Loan Agreement to, among other things, adjust the borrowing base and reset the covenants. We may never agree to such an amendment, and accordingly, we may not be able to rely upon the Loan Agreement as a viable source of future capital for our operations.

We may incur additional indebtedness in the future. The debt instruments governing such indebtedness may contain provisions that are as, or more, restrictive than the provisions governing our existing indebtedness. If we are unable to repay, refinance or restructure our indebtedness when payment is due, Silicon Valley Bank could proceed against the collateral or force us into bankruptcy or liquidation.

We routinely evaluate external assets to build our pipeline of product candidates and there can be no assurance that we will be successful in identifying or completing a transaction for a candidate, that any such transaction will result in additional value for our stockholders or that the process will not have an adverse impact on our business.

In early 2019, we initiated a review of external assets that could be added to our pipeline of product candidates. In January 2021, we acquired Oncoceutics, a privately-held, clinical-stage biotechnology company developing imipridones, including ONC201. In connection with this transaction, we are responsible for, and bear the future costs of, development and commercialization of the acquired compounds. These costs will be substantial, and we may require additional capital in order to pursue the development and commercialization of these compounds as planned. Moreover, the anticipated benefits of these transactions may never be realized due to the various risks and uncertainties associated with drug development detailed elsewhere in the risk factors. For example, in July 2019, we entered into a License and Development Agreement with Cantex Pharmaceuticals, Inc. pursuant to which we acquired exclusive worldwide rights to develop and commercialize Dociparstat Sodium (DSTAT) for any and all uses. In May 2022, we decided to discontinue the development of DSTAT and the License and Development Agreement was subsequently terminated.

In addition to our current assets, we may in-license or acquire additional assets, engage in a merger or acquisition transaction, issue additional shares of our common stock, or engage in other potential actions designed to maximize stockholder value. Our continuing review of these matters may not result in the identification or consummation of any transaction. The process of reviewing external opportunities may be time consuming and disruptive to our business operations and, if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We could incur substantial expenses associated with identifying, evaluating, negotiating, and consummating potential transactions.
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There can be no assurance that any potential additional transaction, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. In addition, once any potential additional transaction is consummated, we are likely to incur substantial costs associated with future development and testing of any new product candidate, which may require us to raise additional capital.

 Risks Related to Clinical Development and Regulatory Approval

All of our product candidates are still under clinical development and may not obtain regulatory approval or be successfully commercialized.

We have not marketed, distributed or sold any of our current product candidates. Our most advanced product candidate is ONC201, which we are developing for the treatment of H3 K27M-mutant glioma. In November 2022, we initiated a Phase 3 clinical study of ONC201 (the Phase 3 ACTION Study), and it is possible that a single trial to support regulatory approval may not be sufficient.

There is no guarantee that our current or future clinical trials will be approved by regulators, and no guarantee that they will be completed or, if completed, will be successful, or if successful, will result in an approval for the sale of any of our product candidates. The success of any of our product candidates will depend on several factors, including the following:

generating positive safety and efficacy data from our clinical trials of ONC201;
receipt of marketing approvals from the FDA and corresponding regulatory authorities outside the United States;
establishing commercial manufacturing capabilities;
acceptance of the product, if approved for marketing;
effectively competing with other therapies;
a continued acceptable safety profile of the product following approval; and
obtaining, maintaining, enforcing and defending intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, including ONC201, which would materially harm our business.

We may be unable to obtain, or may be delayed in obtaining, regulatory approval for our most advanced clinical candidate: ONC201.

In January 2021, we acquired Oncoceutics, a privately-held, clinical-stage biotechnology company developing imipridones, a novel potential class of compounds. Oncoceutic’s lead product candidate, ONC201, is currently being evaluated in the Phase 3 ACTION Study, and multiple investigator-sponsored clinical studies.

We have reached general agreement with the FDA on the design of the Phase 3 ACTION Study to support a potential approval for marketing. We have not yet reached agreement with foreign regulators regarding the adequacy of the planned studies, for any of our most advanced clinical candidates, with respect to a potential approval for marketing. We may be required to conduct additional clinical, nonclinical or manufacturing validation studies and submit those data before consideration of our application occurs. Depending on the extent of these or any other required studies, approval of any NDA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA and/or foreign health authorities to approve our NDA or foreign application.

Any delay in obtaining, or an inability to obtain, regulatory approvals could prevent us from generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for ONC201, which would have a material adverse effect on our business and could potentially cause us to cease operations.

We depend on the successful completion of clinical trials for our product candidates, including ONC201. The positive clinical results obtained for our product candidates in prior clinical studies may not be repeated in future clinical studies.

Before obtaining regulatory approval for the sale of our product candidates, including ONC201, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In the case of ONC201, early studies were open label studies of brain tumor patients, whereas the ongoing Phase 3 ACTION Study is a double blinded,
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placebo-controlled, investigational study. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

We may experience a number of unforeseen events during, or as a result of, clinical trials for our product candidates, that could adversely affect the completion of our clinical trials, including:

regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
we might be required to change one of our clinical research organizations (CROs) during ongoing clinical programs;
the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, or subjects may drop out of these clinical trials at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks, or other factors outside our control;
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory or quality requirements;
the cost of clinical trials of our product candidates may be greater than we anticipate;
we may encounter agency or judicial enforcement actions which impact our clinical trials;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; or
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.

We do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our most advanced product candidates, including ONC201. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for any of our product candidates may be adversely impacted.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.

Events which may result in a delay or unsuccessful completion of clinical trials, including our currently planned or future clinical trials include:

inability to raise funding necessary to initiate or continue a trial;
delays in obtaining, or failure to obtain, regulatory approval of Investigational New Drug applications or to commence a trial;
delays in reaching agreement with the FDA and foreign health authorities on final trial design;
imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
delays caused by disagreements with existing CROs and/or clinical trial sites;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
delays in obtaining, or failure to obtain, required IRB or ethics committee (EC) approvals covering each site;
delays in recruiting suitable patients to participate in a trial;
delays in having subjects complete participation in a trial or return for post-treatment follow-up;
delays caused by subjects dropping out of a trial due to side effects or otherwise;
clinical sites declining to participate or dropping out of a trial to the detriment of enrollment;
agency or judicial enforcement actions against us;
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changes in standard of care in specific diseases;
time required to add new clinical sites; and
delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of any of our clinical trials for our product candidates, are delayed for any of the above reasons, our development costs may increase, our approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may have more time to bring products to market before we do. Any of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.

Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Adverse events (AEs) caused by our product candidates could cause us, other reviewing entities, clinical study sites or regulatory authorities to interrupt, delay or halt clinical studies and could result in the denial of regulatory approval. For example, in our Phase 2 study of ONC201, one serious adverse event, considered to be possibly ONC201-related by the investigator and unlikely to be ONC201-related by the sponsor, was identified. Full safety data collection and analysis for this cohort is ongoing. If an unacceptable frequency and/or severity of AEs are reported in our clinical trials for our product candidates, our ability to obtain regulatory approval for product candidates may be negatively impacted.

If any of our approved products cause serious or unexpected side effects prior to or after receiving market approval, a number of potentially significant negative consequences could result, including:

regulatory authorities may approve the product only with a risk evaluation and mitigation strategy (REMS), potentially with restrictions on distribution and other elements to assure safe use (ETASU);
regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a modified REMS;
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
we may be required to change the way the product is administered or to conduct additional clinical studies;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.

After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize any of our product candidates and we cannot, therefore, predict the timing of any future revenue from any of our product candidates, including ONC201.

We cannot commercialize our product candidates, including ONC201, until the appropriate regulatory authorities have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval for any of our product candidates. Delays may occur because we may not be able to obtain accelerated approval for our product candidates and large confirmatory studies may be needed to support accelerated approval or be conducted to pursue a first full approval. For ONC201, a companion diagnostic test may be needed to identify patients with H3 K27M-mutant glioma before approval. Additional delays in the United States may result if any of our product candidates is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non-approval of the product candidate. In the EU context, an Oral Explanation duri