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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 September 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 October 27, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 88,891,300.



CHIMERIX, INC.
 
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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) 
 September 30, 2023December 31, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$14,118 $25,842 
Short-term investments, available-for-sale180,357 191,492 
Accounts receivable11 1,040 
Prepaid expenses and other current assets6,136 9,764 
Total current assets200,622 228,138 
Long-term investments22,514 48,626 
Property and equipment, net of accumulated depreciation248 227 
Operating lease right-of-use assets1,606 1,964 
Other long-term assets292 386 
Total assets$225,282 $279,341 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$2,502 $3,034 
Accrued liabilities13,008 17,381 
Total current liabilities15,510 20,415 
Line of credit commitment fee125 250 
Lease-related obligations1,344 1,819 
Total liabilities16,979 22,484 
Stockholders’ equity:  
Preferred stock, $0.001 par value, 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value, 200,000,000 shares authorized at September 30, 2023 and December 31, 2022; 88,891,300 and 88,054,127 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
89 88 
Additional paid-in capital986,202 970,535 
Accumulated other comprehensive loss, net(625)(337)
Accumulated deficit(777,363)(713,429)
Total stockholders’ equity208,303 256,857 
Total liabilities and stockholders’ equity$225,282 $279,341 
 
The accompanying notes are an integral part of the consolidated financial statements.



3



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Revenues:
Procurement revenue$ $31,971 $ $31,971 
Contract and grant revenue11 503 271 503 
Licensing revenue 81 49 536 
Total revenues11 32,555 320 33,010 
Cost of goods sold 333  447 
Gross profit11 32,222 320 32,563 
Operating expenses:    
Research and development17,396 15,263 53,144 52,350 
General and administrative9,304 5,313 19,431 16,785 
Total operating expenses26,700 20,576 72,575 69,135 
(Loss) income from operations(26,689)11,646 (72,255)(36,572)
Other income:
Interest income and other, net2,703 199 8,321 182 
Gain on sale of business, net 229,670  229,670 
(Loss) income before income taxes(23,986)241,515 (63,934)193,280 
Income tax expense 153  153 
Net (loss) income(23,986)241,362 (63,934)193,127 
Other comprehensive (loss) income:    
Unrealized gain (loss) on debt investments, net188 31 (288)(16)
Comprehensive (loss) income$(23,798)$241,393 $(64,222)$193,111 
Per share information:    
Net (loss) income, basic$(0.27)$2.75 $(0.72)$2.21 
Net (loss) income, diluted$(0.27)$2.75 $(0.72)$2.17 
Weighted-average shares outstanding, basic 88,620,666 87,634,888 88,500,813 87,388,624 
Weighted-average shares outstanding, diluted88,620,666 87,814,330 88,500,813 89,070,831 
  
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 
Share-based compensation— — 7,880 — — 7,880 
Employee stock purchase plan purchases121,233 — 109 — — 109 
RSU stock issuance186,500 — — — — — 
Comprehensive loss:
Unrealized gain on investments, net— — — 188 — 188 
Net loss— — — — (23,986)(23,986)
Total comprehensive loss(23,798)
Balance, September 30, 202388,891,300 $89 $986,202 $(625)$(777,363)$208,303 


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 
Share-based compensation— — 3,819 — — 3,819 
Exercise of stock options236,673 1 506 — — 507 
Employee stock purchase plan purchases151,274 — 305 — — 305 
RSU stock issuance221,000 — — — — — 
Comprehensive income:
Unrealized gain on investments, net— — — 31 — 31 
Net income— — — — 241,362 241,362 
Total comprehensive income241,393 
Balance, September 30, 202288,045,127 $88 $966,370 $(37)$(692,469)$273,952 

6



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 Nine Months Ended September 30,
 20232022
Cash flows from operating activities:  
Net (loss) income$(63,934)$193,127 
Adjustments to reconcile net loss to net cash used in operating activities:
  
Depreciation of property and equipment68 73 
Amortization of debt issuance costs201 166 
Amortization of discount/premium on investments(5,655)83 
Share-based compensation 15,204 11,120 
Gain on sale of TEMBEXA (229,670)
Gain on sale of investments (1)
Gain on sale of property and equipment(5) 
Lease-related amortization(66)28 
Changes in operating assets and liabilities:  
Accounts receivable1,029 (468)
Inventories (2,467)
Prepaid expenses and other assets3,616 (1,687)
Accounts payable and accrued liabilities(4,958)2,817 
Net cash used in operating activities(54,500)(26,879)
Cash flows from investing activities:  
Purchases of property and equipment(89)(72)
Proceeds from sale of property and equipment5  
Purchases of short-term investments(72,224)(11,310)
Purchases of long-term investments(24,592) 
Proceeds from sales of short-term investments 7,699 
Proceeds from maturities of short-term investments139,430 68,135 
Proceeds from sale of TEMBEXA 233,984 
Net cash provided by investing activities42,530 298,436 
Cash flows from financing activities:  
Proceeds from exercise of stock options 608 
Proceeds from employee stock purchase plan465 860 
Payments of debt issuance costs(219)(161)
Payment of note payable related to Oncoceutics acquisition (14,000)
Net cash provided by (used in) financing activities246 (12,693)
Net (decrease) increase in cash and cash equivalents(11,724)258,864 
Cash and cash equivalents:
Beginning of period25,842 15,397 
End of period$14,118 $274,261 
 
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. 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 for adult and pediatric patients with primary central nervous system tumors.

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 nine months ended September 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
September 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$12,928 $12,928 $ $ 
          Total cash equivalents12,928 12,928   
Short-term investments
     U.S. treasury securities97,939 44,880 53,059  
     Commercial paper58,447  58,447  
     Corporate bonds23,971  23,971  
          Total short-term investments180,357 44,880 135,477  
Long-term investments
     U.S. treasury securities22,514 3,939 18,575  
          Total long-term investments22,514 3,939 18,575  
               Total assets$215,799 $61,747 $154,052 $ 
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 Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), 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 September 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 September 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 September 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.


10



Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
September 30, 2023December 31, 2022
Accrued research and development expenses$6,532 $6,691 
Accrued compensation3,912 6,438 
Other accrued liabilities2,564 4,252 
Total accrued liabilities$13,008 $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 $11,000 and $0.2 million of contract revenue for support provided to Emergent for the three and nine months ended September 30, 2023, respectively. The Company recognized $36,000 of contract revenue for support provided to Emergent for the three and nine months ended September 30, 2022.

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 September 30, 2023, the Company has a deferred revenue balance of $0.1 million related to these grants. For the three months ended September 30, 2023, the Company recognized no grant revenue and for the nine months ended September 30, 2023, the Company recognized $30,000 of grant revenue. For the three and nine months ended September 30, 2022, the Company recognized $0.5 million 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 September 30, 2023, the Company recognized no license revenue related to this agreement and for the nine months ended September 30, 2023, the Company recognized approximately $58,000 of license revenue related
11



to this agreement. For the three and nine months ended September 30, 2022, the Company recognized approximately $0.1 million and $0.5 million, respectively, of license revenue related to this agreement.

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 September 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 nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, the diluted per-share computations reflect the number of additional common stock outstanding that would have been outstanding if the potentially dilutive common stock had been issued.

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
12



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.

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):
 September 30, 2023
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$24,004 $ $(33)$23,971 
Commercial paper58,517 1 (71)58,447 
U.S. treasury securities120,975  (522)120,453 
Total investments$203,496 $1 $(626)$202,871 
 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 
 
13



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):

September 30, 2023
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$18,971 $(33)$ $ $18,971 $(33)
Commercial paper51,968 (71)  51,968 (71)
U.S. treasury securities113,704 (521)  113,704 (521)
Total$184,643 $(625)$ $ $184,643 $(625)
Number of securities with unrealized losses66  66 
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 September 30, 2023, the Company believes that the cost of its investments is recoverable in all
14



material 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 September 30, 2023 (in thousands):
Maturing in one year or less$180,357 
Maturing after one year through two years22,514 
     Total debt investments$202,871 
 
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 September 30, 2023 was 2.84 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 for the three months ended September 30, 2023 and 2022 and approximately $0.5 million for the nine months ended September 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 September 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 September 30, 2023 (in thousands):
Assets
Operating lease right-of-use assets $1,606 
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)$624 
Operating lease long-term liabilities (recorded within Lease-related obligations)1,344 
     Total operating lease liabilities$1,968 

Operating lease payments over the remainder of the lease terms are as follows (in thousands):
Years Ending December 31,As of September 30, 2023
2023186 
2024759 
2025781 
2026467 
Total future minimum rental payments$2,193 
     Less amount of lease payments representing interest225 
Total present value of lease payments$1,968 

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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 September 30, 2023 and 2022, the Company made lease payments of approximately $0.2 million and for the nine months ended September 30, 2023 and 2022, the Company made lease payments of approximately $0.5 million.

Significance of Revenue Source

The Company was the recipient of federal research contract funds from BARDA. 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 September 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 August 9, 2023, the Form S-3 shelf registration statement that registered the shares of common stock available for sale under the Jefferies Sales Agreement expired at the end of its three-year term, and is no longer available for use. 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 September 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 September 30, 2023, there was a total of 2.4 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 nine months ended September 30, 2023. The Company issued 237,000 shares and approximately 271,000 shares of common stock pursuant to the exercise of stock options during the three and nine months ended September 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 2.2 million shares remained available for purchase as of September 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 121,000 and 429,000 shares of common stock pursuant to the ESPP during the three and nine months ended September 30, 2023. The Company issued approximately 151,000 and 535,000 shares of common stock pursuant to the ESPP during the three and nine months ended September 30, 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 187,000 shares and approximately 408,000 of common stock pursuant to the vesting of RSUs during the three and nine months ended September 30, 2023. The Company issued 221,000 shares and approximately 355,000 shares of common stock pursuant to the vesting of RSUs during the three and nine months ended September 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 September 30,Nine Months Ended September 30,
 2023202220232022
Research and development expense$1,739 $2,097 $5,619 $5,827 
General and administrative expense6,141 1,722 9,585 5,293 
          Total share-based compensation expense$7,880 $3,819 $15,204 $11,120 

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.

During the three months ended September 30, 2023, the Company’s then CEO transitioned to Chairman of the Board of Directors. Per the Company’s equity incentive plan, as there was no break in continuous service, the former CEO’s equity grants continue to vest on their normal schedule and remain outstanding, contingent upon continued service. In matching the grant expense to the service period for the role in which the grants were originally made, the Company recognized approximately $5.1 million in stock-based compensation during the period. This amount is recorded in general and administrative expenses.

Note 5. Income Taxes

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2023 as the Company incurred losses for the nine month period ended September 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.

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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 September 30, 2023, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.

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 $11,000 and $0.2 million of contract revenue for support provided for the three and nine months ended September 30, 2023, respectively. The Company recognized $36,000 of contract revenue for support provided to Emergent for the three and nine months ended September 30, 2022.
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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 on the Consolidated Statement of Operations and Comprehensive (Loss) Income 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 

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 September 30, 2023, on the Consolidated Balance Sheets, the Company has recorded $15,000 of contract close-out costs in accrued liabilities and accounts payable.
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These balances are expected to be fully paid by early 2024.

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 


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 nine months ended September 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 
     Revised estimates(79)
     Payments(759)
Balance at September 30, 2023$15 


For the three and nine months ended September 30, 2023, the revised accrual estimates resulted in a decrease to research and development expenses of $79,000 and $190,000, 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.

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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 

The following table sets forth the accrual activity for employee termination benefits (in thousands) for the nine months ended September 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 
     Revised estimates 
     Payments(92)
Balance at September 30, 2023$152 

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 September 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 for adult and pediatric patients with primary central nervous system tumors.

Recent Developments

Dordaviprone, ONC201

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

The Phase 3 ACTION trial is enrolling in twelve countries including the United States, Canada, the United Kingdom, South Korea, Israel, Denmark, Germany, Italy, the Netherlands, Spain, Switzerland 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, 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. Per the protocol, a safety interim analysis will be completed after the first 120 patients have been treated and followed for at least three cycles.

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 U.S. with submissions outside the U.S. to follow. In addition, in the event the result of the progression free survival analysis is
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positive, we would discuss the potential for submission and an approval of ONC201 with regulatory authorities based on this data.

Publication of Clinical efficacy of ONC201 in H3K27M-mutant diffuse midline gliomas is driven by disruption of integrated metabolic and epigenetic pathways

In August 2023, data in support of ONC201 as a treatment for H3 K27M-mutant diffuse midline gliomas (H3K27M-DMG) appeared in the peer-reviewed journal, Cancer Discovery, a journal of the American Association for Cancer Research. The manuscript titled, “Clinical efficacy of ONC201 in H3K27M-mutant diffuse midline gliomas is driven by disruption of integrated metabolic and epigenetic pathways,” reported survival analyses of 71 patients with H3K27M-DMG treated with ONC201, which demonstrated promising results in a patient population with a poor prognosis and few treatment options. In addition to assessing clinical outcomes, the study corroborated mechanistic findings from laboratory models in samples from treated patients that demonstrated the ability of ONC201 to disrupt metabolic pathways and reverse a molecular signature of the H3 K27M mutation in patient's tumor samples. According to the survival analyses in this study, ONC201 frontline treatment, administered post radiation therapy, demonstrated a significant increase in median overall survival (mOS) from diagnosis in ONC201-treated versus in historical controls (21.7 months mOS vs. 12 months mOS, p<0.0001). The study was led by a team of researchers from the University of Michigan and other collaborators including several authors from Chimerix.

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. 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. We are currently enrolling ONC206 dose escalation trials with a more frequent dosing schedule to increase the duration of therapeutic exposure. ONC206 dose escalation is expected to be completed in the first half of 2024.

ONC206 is in ongoing nonclinical studies to identify and evaluate candidate biomarker-defined oncology indications, to identify potential pharmacodynamic biomarkers and further elucidate its mechanism of action. 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.

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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 $11,000 and $0.2 million of contract revenue for expense reimbursement related to support provided to Emergent for the three and nine months ended September 30, 2023, respectively. The Company recognized $36,000 of contract revenue for support provided to Emergent for the three and nine months ended September 30, 2022.

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 September 30, 2023, the Company has a deferred revenue balance of $0.1 million related to these grants. For the three months ended September 30, 2023, the Company recognized no grant revenue and for the nine months ended September 30, 2023, the Company recognized $30,000 of grant revenue. For the three and nine months ended September 30, 2022, the Company recognized $0.5 million 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 September 30, 2023, the Company recognized no license revenue related to this agreement and for the nine months ended September 30, 2023, the Company recognized approximately $58,000 of license revenue related to this agreement. For the three and nine months ended September 30, 2022, the Company recognized approximately $0.1 million and $0.5 million, respectively, of license revenue related to this agreement.

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.

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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 September 30,Nine Months Ended September 30,
 2023202220232022
Direct research and development expenses$11,024 $9,303 $32,925 $31,627 
Research and development personnel costs - excluding stock-based compensation3,648 3,177 12,101 13,200 
Research and development personnel costs - stock-based compensation1,739 2,097 5,619 5,827 
Indirect research and development expenses985 686 2,499 1,696 
Total research and development expenses$17,396 $15,263 $53,144 $52,350 
 
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 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.

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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 approximately $15,000 of accounts payable and contract close-out accruals as of September 30, 2023, which we expect to be paid by early 2024.

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 $7.9 million and $3.8 million was recognized in the three months ended September 30, 2023 and 2022, respectively, and $15.2 million and $11.1 million was recognized in the nine months ended September 30, 2023 and 2022, respectively. The increase in share-based compensation expense in 2023 was primarily related to the one-time recognition of stock option and RSU expense in order to match the grant expense to the service period for the role in which the grants were originally made following the transition of the Company’s then CEO to Chairman of the Board of Directors. 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 nine months ended September 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 Nine Months Ended September 30, 2023 and 2022.

The following table summarizes our results of operations for the nine months ended months ended September 30, 2023 and 2022, together with the changes in those items (in thousands except percentages): 
 
 Nine Months Ended September 30,Dollar Change% Change
 20232022Increase/(Decrease)
Revenues:
Procurement revenue$— $31,971 $(31,971)(100.0)%
Contract and grant revenue271 503 (232)(46.1)%
Licensing revenue49 536 (487)(90.9)%
Total revenues320 33,010 (32,690)(99.0)%
Cost of goods sold— 447 (447)(100.0)%
Gross profit320 32,563 (32,243)(99.0)%
Operating expenses:  
Research and development53,144 52,350 794 1.5 %
General and administrative19,431 16,785 2,646 15.8 %
Total operating expenses72,575 69,135 3,440 5.0 %
Loss from operations(72,255)(36,572)(35,683)97.6 %
Other income:
Interest income and other, net8,321 182 8,139 4,472.0 %
Gain on sale of business, net— 229,670 (229,670)(100.0)%
(Loss) income before income taxes$(63,934)$193,280 $(257,214)(133.1)%
Income tax expense— 153 (153)(100.0)%
Net loss$(63,934)$193,127 $(257,061)(133.1)%

Contract, Licensing and Procurement Revenue

For the nine months ended September 30, 2023, total revenue decreased to $0.3 million compared to $33.0 million for the nine months ended September 30, 2022. The decrease of $32.7 million is primarily related to a decrease in revenue related to the international TEMBEXA procurement agreements secured in 2022.

Research and Development Expenses

For the nine months ended September 30, 2023, our research and development expenses increased to $53.1 million compared to $52.4 million for the nine months ended September 30, 2022. The increase of $0.8 million primarily related to the following:

an increase of $8.0 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; offset by
a decrease of $4.1 million in DSTAT development costs related to the discontinuation of the DSTAT program in 2022;
a decrease of $1.6 million in the development of our other pipeline products, ONC206, ONC212, and CMX521; and
a decrease of $1.2 million in compensation expenses.

General and Administrative Expenses

For the nine months ended September 30, 2023, our general and administrative expenses increased to $19.4 million compared to $16.8 million for the nine months ended September 30, 2022. The increase of $2.6 million primarily related to the following:

an increase of $4.3 million in non-cash stock compensation primarily related to the one-time recognition of stock option and RSU expense in order to match the grant expense to the service period for the role in which the grants
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were originally made following the transition of the Company’s then CEO to Chairman of the Board of Directors; offset by
a decrease of $1.7 million in legal and other operational expenses primarily related to the Asset Sale with Emergent and international TEMBEXA procurement agreements secured in 2022.

Interest Income and Other, Net

For the nine months ended September 30, 2023, our interest income and other, net increased to income of $8.3 million compared to income of $182,000 for the nine months ended September 30, 2022. This increase is primarily attributable to interest earned on higher cash balances.

Gain on Sale of Business, Net

For the nine months ended September 30, 2022, we recorded a total of $229.7 million related to the net gain on the sale of the exclusive worldwide rights to brincidofovir, including TEMBEXA and specified related assets to Emergent.

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

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022, together with the changes in those items (in thousands, except percentages): 
 
 Three Months Ended September 30,Dollar Change% Change
 20232022Increase/(Decrease)
Revenues:
Procurement revenue$— $31,971 $(31,971)(100.0)%
Contract and grant revenue11 503 (492)(97.8)%
Licensing revenue— 81 (81)(100.0)%
Total revenues11 32,555 (32,544)(100.0)%
Cost of goods sold— 333 (333)(100.0)%
Gross profit11 32,222 (32,211)(100.0)%
Operating expenses:    
Research and development17,396 15,263 2,133 14.0 %
General and administrative9,304 5,313 3,991 75.1 %
Total operating expenses26,700 20,576 6,124 29.8 %
(Loss) income from operations(26,689)11,646 (38,335)(329.2)%
Other income:
Interest income and other, net2,703 199 2,504 1,258.3 %
Gain on sale of business, net— 229,670 (229,670)(100.0)%
(Loss) income before income taxes$(23,986)$241,515 $(265,501)(109.9)%
Income tax expense— 153 (153)(100.0)%
Net (loss) income$(23,986)$241,362 $(265,348)(109.9)%

Contract, Licensing and Procurement Revenue

For the three months ended September 30, 2023, total revenue decreased to $11,000 compared to $32.6 million for the three months ended September 30, 2022. The decrease of $32.5 million is primarily related to a decrease in revenue related to the international TEMBEXA procurement agreements secured in 2022.

Research and Development Expenses

For the three months ended September 30, 2023, our research and development expenses increased to $17.4 million compared to $15.3 million for the three months ended September 30, 2022. The increase of $2.1 million primarily related to the following:

an increase of $2.5 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; offset by
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a decrease of $0.2 million in TEMBEXA expenses following the Asset Sale with Emergent in 2022.

General and Administrative Expenses

For the three months ended September 30, 2023, our general and administrative expenses increased to $9.3 million compared to $5.3 million for the three months ended September 30, 2022. The increase of $4.0 million primarily related to the following:

an increase of $4.4 million in non-cash stock compensation primarily related to the one-time recognition of stock option and RSU expense in order to match the grant expense to the service period for the role in which the grants were originally made following the transition of the Company’s then CEO to Chairman of the Board of Directors; offset by
a decrease of $0.6 million in legal and other operational expenses.

Interest Income and Other, Net

For the three months ended September 30, 2023, our interest income and other, net increased to $2.7 million compared to income of $199,000 for the three months ended September 30, 2022. This increase is primarily attributable to interest earned on higher cash balances.

Gain on Sale of Business, Net

For the three months ended September 30, 2022, we recorded a total of $229.7 million related to the net gain on the sale of the exclusive worldwide rights to brincidofovir, including TEMBEXA and specified related assets to Emergent.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2023, we had capital available to fund operations of approximately $217.0 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 September 30, 2023, we had an accumulated deficit of $777.4 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 August 9, 2023, the Form S-3 shelf registration statement that registered the shares of common stock available for sale under the Jefferies Sales Agreement expired at the end of its three-year term, and is no longer available for use. 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 September 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 September 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.

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
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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):