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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

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

 

For the quarterly period ended June 30, 2020

 

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:

001-37348

 

Corbus Pharmaceuticals Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   46-4348039

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

500 River Ridge Drive

Norwood, MA

  02062
(Address of principal executive offices)   (Zip code)

 

(617) 963-0100

(Registrant’s telephone number, including area code)

 

 

 

 

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share   CRBP   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 ☒ 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 ☒ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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   Accelerated filer
         
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. ☐

 

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

 

As of July 31, 2020, 81,712,134 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.

 

 

 

 
 

 

EXPLANATORY NOTE

 

Corbus Pharmaceuticals Holdings, Inc. (the “Company”) is filing this amendment (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Quarterly Report”) to revise a clerical error with respect to the status of the Company as a “non-accelerated filer.” The cover page of the Quarterly Report has been revised to indicate that the Company is an “accelerated filer.” In addition, this amendment is being filed to furnish Exhibit 101 (which was previously included in the Quarterly Report) formatted in iXBRL (Inline eXtensible Business Reporting Language), and Exhibit 104 (Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)), which had been inadvertently omitted from the Quarterly Report. For the convenience of the reader, this report on Form 10-Q/A refiles in its entirety the Quarterly Report.  Additionally, this filing includes updated CEO and CFO certifications filed as Exhibits 31.1, 31.2, 32.1, 32.2. No other changes have been made to the Quarterly Report.

 

 

 

 

CORBUS PHARMACEUTICALS HOLDINGS, INC.

 

Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2020

 

TABLE OF CONTENTS

 

    Page
PART I    
     
FINANCIAL INFORMATION    
     
1. Condensed Consolidated Financial Statements    
Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019   3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)   4
Condensed Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)   5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)   7
Notes to Unaudited Condensed Consolidated Financial Statements   8
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   26
3. Quantitative and Qualitative Disclosures about Market Risk   39
4. Controls and Procedures   39
     
PART II    
     
OTHER INFORMATION    
     
1. Legal Proceedings   40
1A. Risk Factors   40
2. Unregistered Sales of Equity Securities and Use of Proceeds   41
3. Defaults Upon Senior Securities   41
4. Mine Safety Disclosures   41
5. Other Information   41
6. Exhibits   42

 

-2-
 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Balance Sheets

 

   June 30, 2020   December 31, 2019 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $63,468,769   $31,748,686 
Customer receivable   5,000,000     
Stock subscriptions receivable   16,675,971     
Prepaid expenses and other current assets   2,872,275    3,724,932 
Contract asset       2,681,065 
Total current assets   88,017,015    38,154,683 
Property and equipment, net   4,547,303    5,083,865 
Operating lease right of use assets   5,539,677    5,818,983 
Other assets   14,085    84,968 
Total assets  $98,118,080   $49,142,499 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Notes payable  $108,936   $752,659 
Accounts payable   12,697,845    11,091,363 
Accrued expenses   28,144,144    22,447,939 
Deferred revenue, current   270,530     
Operating lease liabilities, current   873,525    595,745 
Total current liabilities   42,094,980    34,887,706 
Operating lease liabilities, noncurrent   7,609,221    8,097,228 
Total liabilities   49,704,201    42,984,934 
Commitments and Contingencies        
Stockholders’ equity          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019        
Common stock, $0.0001 par value; 150,000,000 shares authorized, 80,655,848 and 64,672,893 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively   8,065    6,467 
Additional paid-in capital   308,991,895    198,975,056 
Accumulated deficit   (260,586,081)   (192,823,958)
Total stockholders’ equity   48,413,879    6,157,565 
Total liabilities and stockholders’ equity  $98,118,080   $49,142,499 

 

See notes to the unaudited condensed consolidated financial statements.

 

-3-
 

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   2020   2019   2020   2019 
   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Revenue from awards and licenses  $286,346   $29,094,583   $2,048,405   $30,980,265 
Operating expenses:                    
Research and development   30,686,071    22,181,409    54,633,937    43,965,113 
General and administrative   7,738,968    5,207,962    15,438,447    11,832,709 
Total operating expenses   38,425,039    27,389,371    70,072,384    55,797,822 
Operating income (loss)   (38,138,693)   1,705,212    (68,023,979)   (24,817,557)
Other income (expense), net:                    
Interest income, net   12,649    448,717    114,642    783,312 
Foreign currency exchange gain (loss), net   20,721    (1,276)   147,214    (47,911)
Other income, net   33,370    447,441    261,856    735,401 
Net income (loss)  $(38,105,323)  $2,152,653   $(67,762,123)  $(24,082,156)
Net income (loss) per share, basic  $(0.52)  $0.03   $(0.95)  $(0.38)
Net income (loss) per share, diluted  $(0.52)  $0.03   $(0.95)  $(0.38)
Weighted average number of common shares outstanding, basic   73,885,548    64,546,628    71,578,975    63,119,196 
Weighted average number of common shares outstanding, diluted   73,885,548    68,511,587    71,578,975    63,119,196 

 

See notes to the unaudited condensed consolidated financial statements.

 

-4-
 

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

For the Three Months Ended June 30, 2020

 

   Shares   Amount   Capital   Deficit   Equity 
   Common Stock  

Additional

Paid-in

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Capital   Deficit   Equity 
Balance at March 31, 2020   72,490,449   $7,249   $245,164,999   $(222,480,758)  $22,691,490 
Stock-based compensation expense           3,348,260        3,348,260 
Issuance of common stock, net of issuance costs of $2,051,853   8,113,794    811    60,192,331        60,193,142 
Issuance of common stock upon exercise of stock options   51,605    5    286,305        286,310 
Net loss               (38,105,323)   (38,105,323)
Balance at June 30, 2020   80,655,848   $8,065   $308,991,895   $(260,586,081)  $48,413,879 

 

For the Three Months Ended June 30, 2019

 

   Shares   Amount   Capital   Deficit   Equity 
   Common Stock  

Additional

Paid-in

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Capital   Deficit   Equity 
Balance at March 31, 2019   64,455,221   $6,446   $189,899,554   $(147,605,049)  $42,300,951 
Stock-based compensation expense           2,817,488        2,817,488 
Issuance of common stock upon exercise of warrants   172,414    17    (17)        
Issuance of common stock upon exercise of stock options   16,458    2    102,706        102,708 
Net income               2,152,653    2,152,653 
Balance at June 30, 2019   64,644,093   $6,465   $192,819,731   $(145,452,396)  $47,373,800 

 

See notes to the unaudited condensed consolidated financial statements.

 

-5-
 

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

For the Six Months Ended June 30, 2020

 

   Shares   Amount   Capital   Deficit   Equity 
       Additional       Total 
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity 
Balance at December 31, 2019   64,672,893   $6,467   $198,975,056   $(192,823,958)  $6,157,565 
Issuance of common stock, net of issuance costs of $5,014,643   15,780,461    1,578    103,228,775        103,230,353 
Stock-based compensation expense           6,485,779        6,485,779 
Issuance of common stock upon exercise of stock options   202,494    20    302,285        302,305 
Net loss               (67,762,123)   (67,762,123)
Balance at June 30, 2020   80,655,848   $8,065   $308,991,895   $(260,586,081)  $48,413,879 

 

For the Six Months Ended June 30, 2019

 

   Shares   Amount   Capital   Deficit   Equity 
       Additional       Total 
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity 
Balance at December 31, 2018   57,247,496   $5,725   $148,888,635   $(121,370,240)  $27,524,120 
Issuance of common stock, net of issuance costs of $2,571,552   6,198,500    620    37,718,078        37,718,698 
Stock-based compensation expense           5,906,427        5,906,427 
Issuance of common stock upon exercise of warrants   1,119,868    112    (112)        
                          
Issuance of common stock upon exercise of stock options   78,229    8    306,703        306,711 
Net loss               (24,082,156)   (24,082,156)
Balance at June 30, 2019   64,644,093   $6,465   $192,819,731   $(145,452,396)  $47,373,800 

 

See notes to the unaudited condensed consolidated financial statements.

 

-6-
 

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2020   2019 
   Six Months Ended 
   June 30, 
   2020   2019 
Cash flows from operating activities:          
Net loss  $(67,762,123)  $(24,082,156)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation expense   6,485,779    5,906,427 
Depreciation and amortization   639,676    308,331 
Gain on foreign exchange   (120,098)   (591)
Operating lease right of use asset amortization   279,306    232,924 
Changes in operating assets and liabilities:          
Decrease in customer receivable       5,000,000 
Decrease in prepaid expenses   852,657    255,897 
Decrease in contract asset   

2,681,065

     
Decrease (increase) in other assets   70,883    (79,402)
Increase in accounts payable   1,866,324    1,097,910 
Increase in accrued expenses   5,737,946    8,989,731 
Decrease in deferred revenue   (4,729,470)   (3,980,265)
(Decrease) increase in operating lease liabilities   (210,227)   279,063 
Net cash used in operating activities   (54,208,282)   (6,072,131)
Cash flows from investing activities:          
Purchases of property and equipment   (479,779)   (256,898)
Net cash used in investing activities   (479,779)   (256,898)
Cash flows from financing activities:          
Principal payments on notes payable   (643,723)   (294,972)
Proceeds from issuance of common stock   90,003,980    40,596,961 
Issuance costs paid for common stock financings   (2,952,113)   (2,566,137)
Principal payments on capital lease obligation       (375)
Net cash provided by financing activities   86,408,144    37,735,477 
Net increase in cash and cash equivalents   31,720,083    31,406,448 
Cash and cash equivalents at beginning of the period   31,748,686    41,748,468 
Cash and cash equivalents at end of the period  $63,468,769   $73,154,916 
Supplemental disclosure of cash flow information and non-cash transactions:          
Cash paid during the period for interest  $12,752   $6,300 
Stock issuance costs included in accounts payable or accrued expenses  $195,181   $5,415 
Stock subscriptions receivable  $16,675,971   $ 
Purchases of property and equipment included in accounts payable or accrued expenses       259,731 
Right of use assets obtained in exchange for lease obligation upon adoption of ASU 2016-02  $   $2,399,524 
Right of use assets obtained in exchange for lease obligation upon entry into February 2019 Lease Agreement  $   $3,529,090 

 

See notes to the unaudited condensed consolidated financial statements.

 

-7-
 

 

Corbus Pharmaceuticals Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Six Months Ended June 30, 2020

 

1. NATURE OF OPERATIONS

 

Business

 

Corbus Pharmaceuticals Holdings, Inc. (the “Company”) is a clinical stage pharmaceutical company, focused on the development and commercialization of novel therapeutics to treat rare, chronic, and serious inflammatory and fibrotic diseases. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and the Company will be dependent on raising substantial additional capital before it becomes profitable and it may never achieve profitability.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management of the Company, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2020, the results of its operations and changes in stockholders’ equity for the three months and six months ended June 30, 2020 and 2019 and its cash flows for the six months ended June 30, 2020 and 2019. The December 31, 2019 condensed consolidated balance sheet was derived from audited financial statements. The Company prepared the condensed consolidated financial statements following the requirements of the SEC for interim reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020. The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.

 

 

2. LIQUIDITY AND GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses since inception and as of June 30, 2020, had an accumulated deficit of $260,586,081. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of its product candidates and its preclinical and clinical programs, strategic alliances and the development of its administrative organization.

 

Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. The Company will need to raise significant additional capital to continue to fund the clinical trials for lenabasum and CRB-4001 (see Note 4). The Company may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to the Company’s stockholders and certain of those securities may have rights senior to those of the Company’s common shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights.

 

-8-
 

 

The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or eliminate some or all of the Company’s planned clinical trials. These factors among others cause management to conclude there is a substantial doubt about the Company’s ability to continue as a going concern. There have been no adjustments made to these consolidated financial statements as a result of these uncertainties.

 

On February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock (“February 2020 Offering”) (See Note 10).

 

On April 7, 2020, the Company entered into an Open Market Sale AgreementSM (“April 2020 Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which Jefferies is serving as the Company’s sales agent to sell up to $75,000,000 of shares of the Company’s common stock through an “at the market offering,” (See Note 10).

 

In June 2020, the Company became entitled to receive $5,000,000 upon the Company’s achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Cystic Fibrosis Program Related Investment Agreement (“Investment Agreement”) with the Cystic Fibrosis Foundation (“CFF”), a non-profit drug discovery and development corporation, pursuant to which the Company received a development award for up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis. The Company received the $5,000,000 payment from the CFF for this milestone achievement in July 2020. The Company expects the remainder of the 2018 CFF Award will be paid to the Company incrementally upon the achievement of the remaining milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. (See Note 9).

 

On July 28, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, the Company, as guarantor, each lender party thereto (the “Lenders”), K2 HealthVentures LLC (“K2HV”), an unrelated third party, as administrative agent for the Lenders, and Ankura Trust Company, LLC, an unrelated third party, as collateral agent for the Lenders, pursuant to which K2HV may provide the Company with term loans in an aggregate principal amount of up to a $50,000,000. (See Note 13).

 

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:

 

Use of Estimates

 

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur. The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical obligations, the recognition of revenue under the Investment Agreement (See Note 9), and the valuation of the CFF Warrant discussed in Note 12.

 

-9-
 

 

Cash and Cash Equivalents

 

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months. At June 30, 2020 and December 31, 2019, cash equivalents were comprised of money market funds. The Company had no marketable investments at June 30, 2020 and December 31, 2019.

 

Cash and cash equivalents consists of the following:

 

 

   June 30,
2020
   December 31,
2019
 
Cash  $764,791   $884,115 
Money market fund   62,703,978    30,864,571 
Total cash and cash equivalents  $63,468,769   $31,748,686 

 

As of June 30, 2020, all of the Company’s cash and cash equivalents was held in the United States, except for approximately $556,000 of cash which was held in our subsidiaries in the United Kingdom and Australia. As of December 31, 2019, all of the Company’s cash was held in the United States, except for approximately $466,000 of cash which was held in our subsidiaries in the United Kingdom and Australia.

 

Financial Instruments

 

The carrying values of the notes payable approximate their fair value due to the fact that they are at market terms.

 

Property and Equipment

 

The estimated life for the Company's property and equipment is as follows: three years for computer hardware and software and three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease are amortized over the shorter of their useful lives or the respective leases. See Note 5 for details of property and equipment and Note 6 for operating and capital lease commitments.

 

Research and Development Expenses

 

Costs incurred for research and development are expensed as incurred.

 

Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.

 

-10-
 

 

Accruals for Research and Development Expenses and Clinical Trials

 

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the three and six months ended June 30, 2020 and 2019, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Concentrations of Credit Risk

 

The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.

 

-11-
 

 

Segment Information

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing therapeutics to treat rare life-threatening, inflammatory fibrotic diseases. As of June 30, 2020 all of the Company’s assets were located in the United States, except for approximately $556,000 of cash, $1,713,000 of prepaid expenses, $13,000 of other assets, and $37,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom. As of December 31, 2019, all of the Company’s assets were located in the United States, except for approximately $466,000 of cash, $1,606,000 of prepaid expenses, $23,000 of other assets, and $52,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom.

 

Income Taxes

 

For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly, given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax assets in order to eliminate the deferred tax assets amounts.

 

Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial statements as of June 30, 2020 or December 31, 2019.

 

Impairment of Long-lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value of the asset may not be recoverable. No impairment charges were recorded during the three and six months ended June 30, 2020 and 2019.

 

Stock-based Payments

 

The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model, net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

 

-12-
 

 

Foreign Currency

 

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

 

Net Income (Loss) Per Common Share

 

Net income (loss) per share was computed as follows:

 

 

                 
  

Three Months Ended

June 30

  

Six Months Ended

June 30

 
   2020   2019   2020   2019 
                 
Net income (loss)  $(38,105,323)  $2,152,653   $(67,762,123)  $(24,082,156)
Weighted average number of common shares-basic   73,885,548    64,546,628    71,578,975    63,119,196 
Effect of dilutive securities       3,964,959         
Weighted average number of common shares-diluted   73,885,548    68,511,587    71,578,975    63,119,196 
Net income (loss) per share of common stock-basic  $(0.52)  $0.03   $(0.95)  $(0.38)
Net income (loss) per share of common stock-diluted  $(0.52)  $0.03   $(0.95)  $(0.38)
Antidilutive awards (1)       281,132        317,945 

 

(1) Certain stock-based compensation awards were not included in the calculation of net income per common share for the three months ended June 30, 2019 because their effect would have been antidilutive. For the three months ended June 30, 2020 and the six months ended June 30, 2020 and 2019, the effect of dilutive shares was not included in the computation of net loss per share because the Company had a net loss.

 

Recent Accounting Pronouncements

 

Accounting for Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. The Company is currently evaluating the timing of the adoption of ASU 2019-12 and the expected impact it could have on the Company’s financial statements and related disclosures.

 

-13-
 

 

Collaborative Arrangements

 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). ASU 2018-18 clarifies the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company’s adoption of ASU 2018-18 as of January 1, 2020 had no impact on the Company’s financial statements and related disclosures.

 

 

4. LICENSE AGREEMENT

 

The Company entered into a License Agreement (the “Jenrin Agreement”) with Jenrin Discovery, LLC, a privately-held Delaware limited liability company (“Jenrin”), effective September 20, 2018. Pursuant to the Jenrin Agreement, Jenrin granted the Company exclusive worldwide rights to develop and commercialize the Licensed Products (as defined in the Jenrin Agreement) which includes the Jenrin library of over 600 compounds and multiple issued and pending patent filings. The compounds are designed to treat inflammatory and fibrotic diseases by targeting the endocannabinoid system. The lead product candidate is CRB-4001, a peripherally-restricted CB-1 inverse agonist targeting fibrotic liver, lung, heart and kidney diseases.

 

In consideration of the license and other rights granted by Jenrin, the Company paid Jenrin a $250,000 upfront cash payment and is obligated to pay potential milestone payments to Jenrin totaling up to $18,400,000 for each compound it elects to develop based upon the achievement of specified development and regulatory milestones. In addition, Corbus is obligated to pay Jenrin royalties in the mid, single digits based on net sales of any Licensed Products, subject to specified reductions.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) which clarifies the definition of a business and determines when an integrated set of assets and activities is not a business. ASU 2017-01 requires that if substantially all of the fair value of gross assets acquired or disposed of is concentrated in a single asset or group of similar identifiable assets, the assets would not represent a business. The Company determined that substantially all of the fair value of the Jenrin Agreement was attributable to a single in-process research and development asset, CRB-4001, which did not constitute a business. The Company concluded that it did not have any alternative future use for the acquired in-process research and development asset. Thus, the Company recorded the $250,000 upfront payment to research and development expenses in the third quarter of 2018. The Company will account for the $18,400,000 of development and regulatory milestone payments in the period that the relevant milestones are achieved as either research and development expense or as an intangible asset as applicable.

 

-14-
 

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

Summary of Property and Equipment 

 

  

June 30,

2020

   December 31,
2019
 
Computer hardware and software  $794,749   $711,442 
Office furniture and equipment   1,638,396    1,627,896 
Leasehold improvements   4,159,795    4,150,488 
Property and equipment, gross   6,592,940    6,489,826 
Less: accumulated depreciation   (2,045,637)   (1,405,961)
Property and equipment, net  $4,547,303   $5,083,865 

 

Depreciation expense was $320,188 and $155,709 for the three months ended June 30, 2020 and 2019, respectively and $639,676 and $308,331 for the six months ended June 30, 2020 and 2019, respectively.

 

 

6. COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

On August 21, 2017, the Company entered into a lease agreement (“August 2017 Lease Agreement”) for commercial lease of office space, pursuant to which the Company agreed to lease 32,733 square feet of office space (“Leased Premises”). The initial term of the August 2017 Lease Agreement was for a period of seven years which began with the Company’s occupancy of the Leased Premises in February 2018. The base rent for the Leased Premises ranged from approximately $470,000 for the first year to approximately $908,000 for the seventh year. Per the terms of the August 2017 Lease Agreement, the landlord agreed to reimburse the Company for $1,080,189 of leasehold improvements. The reimbursements had been deferred and were to be recognized as a reduction of rent expense over the term of the lease. Additionally, the August 2017 Lease Agreement required a standby irrevocable letter of credit of $400,000, which was to be reduced, if the Company is not in default under the August 2017 Lease Agreement, to $300,000 and $200,000 on the third and fourth anniversary of the commencement date, respectively, The Company entered into an unsecured letter of credit for $400,000 in connection with the August 2017 Lease Agreement.

 

The Company adopted ASU 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”) using the effective date method as of January 1, 2019 and recorded a lease liability of approximately $3,811,000, and a right-of-use asset of approximately $2,400,000, with no operations adjustment to the accumulated deficit related to the Leased Premises. Operating leases are included in operating lease right-of-use assets (“ROU”), operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s condensed consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the date of adoption based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, which was 9%. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

-15-
 

 

On February 26, 2019, the Company amended its lease (“February 2019 Lease Agreement”) pursuant to which an additional 30,023 square feet of office space (“New Premises”) will be leased by the Company in the same building for an aggregate total of 62,756 square feet of leased office space (“Total Premises”). Per ASC 842, the February 2019 Lease Agreement constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. Accordingly, the Company reassessed the classification of the Leased Premises and remeasured the lease liability on the basis of the extended lease term using the 20 additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 9%. The remeasurement for the modification resulted in an increase to the lease liability and the ROU asset of approximately $855,000. The Company determined that the New Premises will be treated as a new standalone operating lease under ASC 842 and recorded a lease liability and a right-of-use asset of approximately $2,700,000 for this lease.

 

On October 25, 2019, the Company amended its lease (“October 2019 Lease Amendment”) pursuant to which the term of the lease was extended through November 30, 2026 and the existing office space under lease was expanded by 500 square feet for an aggregate total of 63,256 square feet of leased office space (“Amended Total Premises”). The October 2019 Lease Amendment constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. The additional space did not result in a separate contract as the rent increase was determined not to be commensurate with the standalone price for the additional right of use. Accordingly, the Company reassessed the classification of the Amended Total Premises, which resulted in operating classification, and remeasured the lease liability on the basis of the extended lease term using the additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 8%. The remeasurement for the modification resulted in an increase to the lease liability and the ROU asset of approximately $381,000 that was recorded in the fourth quarter of 2019.

 

The following table contains a summary of the lease costs recognized and other information pertaining to the Company’s operating leases for the year ended December 31, 2019:

 

 

Lease cost     
Operating lease cost  $1,025,899 
Total lease cost  $1,025,899 
      
Other information     
Operating cash flows received for operating leases  $338,435 
Weighted average remaining lease term   6.9 years 
Weighted average discount rate   8.00%

 

Total lease expense for the three months ended June 30, 2020 and 2019 was $310,119 and $307,182, respectively. Total lease expense for the six months ended June 30, 2020 and 2019 was $620,237 and $507,344, respectively.

 

-16-
 

 

Pursuant to the terms of our non-cancelable lease agreements in effect at June 30, 2020, the following table summarizes our maturities of operating lease liabilities as of June 30, 2020:

 

 

    June 30, 2020 
2020 (Remainder of year)  $714,603 
2021   1,605,121 
2022   1,652,563 
2023   1,700,005 
2024   1,747,447 
Thereafter   3,483,034 
Total lease payments  $10,902,772 
      
Less: imputed interest   (2,420,027)
Total  $8,482,746 

 

Capital Lease Commitment

 

The lease payments under the capital lease agreement for the copier machine commenced when the machine was placed in service in January 2016. The lease was for a three-year term that concluded in January 2019 and included a bargain purchase option at the end of the term.

 

For commitments under the Company’s development award agreements see Note 9.

 

COVID-19

 

In response to the spread of COVID-19, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees and community, including temporarily requiring employees to work remotely, implementing remote monitoring procedures for clinical data and suspending all non-essential travel worldwide for its employees.

 

As a result of the COVID-19 pandemic, the Company may experience disruptions that could adversely impact its business. The COVID-19 pandemic may negatively affect clinical site initiation, patient recruitment and enrollment, patient dosing, distribution of drug to clinical sites and clinical trial monitoring for the Company’s clinical trials. The COVID-19 pandemic may also negatively affect the operations of the third-party contract research organizations that the Company relies upon to assist it in conducting its clinical trials and the contract manufacturers who manufacture the Company’s drug candidates.

 

The Company is continuing to assess the potential impact of the COVID-19 pandemic on its business and operations.

 

 

7. NOTES PAYABLE

 

In November 2018, the Company entered into a loan agreement with a financing company for $491,629 to finance one of the Company’s insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $49,857 over a ten-month period. Interest accrues on this loan at an annual rate of 3.07%. This loan was fully repaid in August 2019.

 

In November 2019, the Company entered into a loan agreement with a financing company for $963,514 to finance one of the Company’s insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $109,413 over a nine-month period. Interest accrues on this loan at an annual rate of 5.25%. Prepaid expenses as of June 30, 2020 and December 31, 2019, included $356,519 and $923,292, respectively, related to this insurance policy.

 

8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
         
Accrued clinical operations and trials costs  $16,901,307   $14,242,669 
Accrued product development costs   5,695,552    3,573,231 
Accrued compensation   3,842,249    3,673,111 
Accrued other   1,705,036    958,928 
Total  $28,144,144   $22,447,939 

 

 

-17-
 

 

9. DEVELOPMENT AWARDS AND DEFERRED REVENUE

 

Collaboration with Kaken

 

On January 3, 2019, Corbus Pharmaceuticals Holdings, Inc. the Company entered into a Collaboration and License Agreement (the “Agreement”) with Kaken Pharmaceutical Co., Ltd., a company organized under the laws of Japan (“Kaken”). Pursuant to the Agreement, Corbus granted Kaken an exclusive license to commercialize pharmaceutical preparations containing lenabasum (the “Licensed Products”) for the prevention or treatment of dermatomyositis and systemic sclerosis (together, the “Initial Indications”) in Japan (the “Territory”).

 

Pursuant to the terms of the Agreement, Corbus will bear the cost of, and be responsible for, among other things, conducting the clinical studies and other developmental activities for the Licensed Products in the Initial Indications in the Territory, and Kaken will bear the cost of, and be responsible for, among other things, preparing and filing applications for regulatory approval in the Territory and for commercializing Licensed Products in the Territory, and will use commercially reasonable efforts to commercialize Licensed Products and obtain pricing approval for Licensed Products in the Territory.

 

In consideration of the license and other rights granted by Corbus, Kaken paid to Corbus in March 2019 a $27,000,000 upfront cash payment and is obligated to pay potential milestone payments to Corbus totaling up to approximately $173,000,000 for the achievement of certain development, sales and regulatory milestones, with part of the milestone payments being calculated in Japanese Yen, and therefore subject to change based on the conversion rate to U.S. Dollars in effect at the time of payment. In addition, during the Royalty Term (as defined below), Kaken is obligated to pay Corbus royalties on sales of Licensed Products in the Territory, under certain conditions, in the double digits, which royalty shall be reduced in certain circumstances. In particular, for so long as Corbus supplies Licensed Products to Kaken pursuant to a supply agreement to be entered into by the parties, royalty payments shall be payable for each unit of Licensed Product that Corbus supplies as a percentage of the Japanese National Health Insurance price of the Licensed Product. During any time in which a supply agreement is not in effect, royalty payments shall be changed to a rate to be agreed upon by the parties in good faith.

 

The Agreement will remain in effect on a Licensed Product-by-Licensed product basis and will expire upon the expiration of the Royalty Term for the final Licensed Product. The “Royalty Term” means the period beginning on the date of the first commercial sale of the Licensed Product in Japan and ends on the latest of (i) the expiration of the last valid claim of the royalty patents covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product for such Initial Indication in Japan, or (iii) ten (10) years after the first commercial sale of such Licensed Product for such Initial Indication in Japan. The Agreement may be terminated by either party for material breach, upon a party’s insolvency or bankruptcy or upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for a safety concern or clinical failure, or at its convenience following the second anniversary of the first commercial sale of a Licensed Product in either of the Initial Indications in the Territory, with 180 days’ notice.

 

Pursuant to the Agreement, the parties agreed to develop a joint steering committee to provide strategic oversight of the parties’ activities under the Agreement, as well as a joint development committee to coordinate the development of Licensed Products in Japan. Additionally, the parties will establish a joint commercialization committee to review and confirm commercialization activities with respect to Licensed Products in Japan upon regulatory approval of such Licensed Product.

 

The Agreement also contains customary representations, warranties and covenants by both parties, as well as customary provisions relating to indemnification, confidentiality and other matters.

 

-18-
 

 

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Kaken, is a customer. The Company identified the following material promises under the arrangement: (1) the exclusive license to commercialize lenabasum; (2) the product’s initial know-how transfer; (3) election to use the product trademarks; (4) the sharing of data gathered through the execution of the Global Development Plan for the Initial Indications; and (5) Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”)-required supplemental studies. The Company identified two performance obligations; (1) the combined performance obligation of the License, initial know-how transfer and license to the Company’s product trademarks; and (2) the sharing of data gathered through the execution of the Global Development Plan (as defined in the Agreement) for the Initial Indications. The Company determined that the license and initial know-how transfer were not distinct from another in the context of the contract, as initial know-how transfer is highly interrelated to the license and Kaken would incur significant costs to re-create the know-how of the Company. The Company determined that the election to use the product trademarks license contributes to the exclusivity of the license and, therefore, is combined with the license. The PMDA-required supplemental study is a contingent promise although not a performance obligation as the promise does not provide Kaken with a material right.

 

Under the Agreement, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of $27,000,000 constituted the entirety of the consideration to be included in the transaction price at the outset of the arrangement, which was allocated to the two performance obligations. The potential milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone payments are fully constrained based on the probability of achievement. The Company will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

 

The Company estimated the stand-alone selling price of each performance obligation using a market approach and allocated the transaction price on a relative basis. This allocation resulted in a de minimis value attributable the obligation to sharing of data gathered through the execution of the Global Development Plan for the Initial Indications and effectively all of the value to the combined license, initial know-how transfer and license to product trademarks. Therefore, the full upfront payment of $27,000,000 is allocated to the combined performance obligation of the license, initial technology transfer and license to the product trademarks.

 

The Company received the upfront payment of $27,000,000 in March 2019 and, as the performance obligations were not yet satisfied at that time, the payment was recorded in deferred revenue as of March 31, 2019. The Company satisfied the combined performance obligation by June 30, 2019, upon which the Company recognized the $27,000,000 upfront payment as revenue in the second quarter of 2019.

 

The Company was required to make a $2,700,000 royalty payment to CFF within 60 days of receipt of the upfront cash payment from Kaken pursuant to the 2018 CFF Award. This obligation was paid by the Company to CFF in May 2019.

 

-19-
 

 

2018 CFF Award

 

On January 26, 2018, the Company entered into the Cystic Fibrosis Program Related Investment Agreement with the CFF (“Investment Agreement”), a non-profit drug discovery and development corporation, pursuant to which the Company received an award for up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis, of which the Company has received $17,500,000 in the aggregate through June 30, 2020 upon the Company’s achievement of milestones related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. In June 2020, the Company became entitled to receive $5,000,000 upon the Company’s achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. The Company received the $5,000,000 payment from the CFF for this milestone achievement in July 2020. The Company expects that the remainder of the 2018 CFF Award will be paid incrementally upon the Company’s achievement of the remaining milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement, and the Company expects to receive the remainder before the end of the fourth quarter of 2020.

 

Pursuant to the terms of the Investment Agreement, the Company is obligated to make certain royalty payments to CFF, including a royalty payment of one and one-half times the amount of the 2018 CFF Award, payable in cash within sixty days upon the first receipt of approval of lenabasum in the United States and a second royalty payment of one and one-half times the amount of the 2018 CFF Award upon approval in another major market, as set forth in the Investment Agreement (the “Approval Royalty”). At the Company’s election, the Company may satisfy the first of the two Approval Royalties in registered shares of the Company’s common stock.

 

Additionally, the Company is obligated to make (i) royalty payments to CFF of two and one-half percent of net sales from lenabasum due within sixty days after any quarter in which such net sales occur in the Field, as defined in the Investment Agreement, (ii) royalty payments to CFF of one percent of net sales of Non-Field Products, as defined in the Investment Agreement due within sixty days after any quarter in which such net sales occur, and (iii) royalty payments to CFF of ten percent of any amount the Company and its stockholders receive in connection with the license, sale, or other transfer to a third party of lenabasum, if indicated for the treatment or prevention of CF, or a change of control transaction, except that such payment shall not exceed five times the amount of the 2018 CFF Award, with such payments to be credited against any other net sales royalty payments due. Accordingly, the Company will owe to CFF a royalty payment equal to 10% of any amounts the Company receives as payment under the collaboration agreement with Kaken, provided that the total royalties that the Company will be required to pay under the Investment Agreement resulting from income from licenses or sales subject to the Investment Agreement are capped at five times the total amount of the 2018 CFF Award, and the Company may credit such royalties against any royalties on net sales otherwise owed to CFF under the Investment Agreement. Accordingly, the Company was required to pay CFF $2,700,000 in May 2019 as a result of its receipt of the $27,000,000 upfront cash payment from Kaken.

 

Either CFF or the Company may terminate the Investment Agreement for cause, which includes the Company’s material failure to achieve certain commercialization and development milestones. The Company’s payment obligations survive the termination of the Investment Agreement.

 

Pursuant to the terms of the Investment Agreement, the Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement, the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered and subject to a one-year lock-up.

 

-20-
 

 

Under the Investment Agreement, the Company recorded $286,346 and $2,094,583 of revenue during the three months ended June 30, 2020 and 2019, respectively, and recorded $2,048,405 and $3,980,265 of revenue during the six months ended June 30, 2020 and 2019, respectively. The Company concluded that the contract counterparty, CFF, is a customer. The Company identified the following material promise under the arrangement: research and development activities and related services under the Phase 2b Clinical Trial. Based on these assessments, the Company identified one performance obligation at the outset of the Investment Agreement, which consists of: Phase 2b Clinical Trial research and development activities and related services.

 

To determine the transaction price, the Company included the total aggregate payments under the Investment Agreement which amount to $25,000,000 and reduced the revenue to be recognized by the payment to the customer of $6,215,225 in the form of the CFF Warrant representing its fair value, leaving the remaining $18,784,775 as the transaction price as of the outset of the arrangement, which will be recognized as revenue over the performance period as discussed below. The $6,215,225 fair value of the warrant was also recorded as an increase to additional paid in capital.

 

The Company has billed and received $22,500,000 so far in milestone payments including $12,500,000 in 2018, $5,000,000 in 2019 and $5,000,000 was billed in the second quarter of 2020 and received in July 2020. A roll forward of deferred revenue related to the Investment Agreement for the six months ended June 30, 2020 is presented below.

 

   June 30, 2020 
Beginning balance, December 31, 2019  $ 
Billing to CFF upon achievement of milestone   5,000,000 
Recognition of revenue   (2,048,405)

Reverse to contract asset (unbilled revenue)

   (2,681,065)
Ending balance  $270,530 

 

The CFF Warrant is accounted for as a payment to the customer under ASC 606. See Note 12 for further information related to the CFF Warrant. The Company notes that the Investment Agreement contains an initial payment that was received upon contract execution and subsequent milestone payments, which are a form of variable consideration that require evaluation for constraint considerations. The Company concluded that the related performance milestones are generally within the Company’s control and as result are considered probable. Revenue associated with the performance obligation is being recognized as revenue as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The research and development services related to this performance obligation are expected to be performed over approximately 2.75 years and is expected to be completed in the fourth quarter of 2020. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue and the amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets on the Company’s condensed consolidated balance sheet.

 

10. COMMON STOCK

 

The Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 80,655,848 shares, and 64,672,893 shares were issued and outstanding as of June 30, 2020, and December 31, 2019, respectively.

 

On January 30, 2019, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the Company sold an aggregate of 6,198,500 shares of its common stock, including 808,500 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a purchase price of $6.50 per share with gross proceeds to the Company totaling $40,290,250, less issuance costs incurred of approximately $2,572,000.

 

-21-
 

 

On February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the Company sold an aggregate of 7,666,667 shares of its common stock, including 1,000,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a purchase price of $6.00 per share with gross proceeds to the Company totaling $46,000,000, less estimated issuance costs incurred of approximately $3,147,000.

 

On April 7, 2020, the Company entered into the April 2020 Sale Agreement with Jefferies pursuant to which Jefferies is serving as the Company’s sales agent to sell up to $75,000,000 of shares of the Company’s common stock through an “at the market offering.” Sales of common stock under the April 2020 Sale Agreement were made pursuant to an effective registration statement for an aggregate offering of up to $75,000,000. During the second quarter of 2020, the Company sold 8,113,794 shares of its common stock under the April 2020 Sale Agreement for which the Company received net proceeds of approximately $43,702,000 through June 30, 2020 and had stock subscriptions receivable as of June 30, 2020 for approximately $16,676,000, for which the Company received the proceeds in July 2020. In July 2020, the Company sold an additional 1,053,286 shares of its common stock under the April 2020 Sale Agreement for net proceeds of approximately $8,148,000.

 

During the three and six months ended June 30, 2020, the Company issued 51,605 and 202,494 shares of common stock upon the exercise of stock options to purchase common stock and the Company received proceeds of $286,310 and $302,305 from these exercises, respectively. During the three and six months ended June 30, 2019, the Company issued 16,458 and 78,229 shares of common stock upon the exercise of stock options to purchase common stock and the Company received proceeds of $102,708 and $306,711 from these exercises, respectively.

 

During the three and six months ended June 30, 2019, warrants to purchase 200,000 shares and 1,283,500 shares of common stock were exercised on a cashless basis resulting in the issuance of 172,414 and 1,119,868 shares of common stock, respectively. No warrants were exercised during the three and six months ended June 30, 2020.

 

11. STOCK OPTIONS

 

In April 2014, the Company adopted the Corbus Pharmaceuticals Holdings, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). Pursuant to the 2014 Plan, the Company’s Board of Directors may grant incentive and nonqualified stock options and restricted stock to employees, officers, directors, consultants and advisors. Options issued under the 2014 Plan generally vest over 4 years from the date of grant in multiple tranches and are exercisable for up to 10 years from the date of issuance.

 

Pursuant to the terms of an annual evergreen provision in the 2014 Plan, the number of shares of common stock available for issuance under the 2014 Plan shall automatically increase on January 1 of each year by at least seven percent (7%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, or, pursuant to the terms of the 2014 Plan, in any year, the Board of Directors may determine that such increase will provide for a lesser number of shares.

 

In accordance with the terms of the 2014 Plan, effective as of January 1, 2019, the number of shares of common stock available for issuance under the 2014 Plan increased by 3,000,000 shares, which was less than seven percent (7%) of the outstanding shares of common stock on December 31, 2018. As of January 1, 2019, the 2014 Plan had a total reserve of 18,543,739 shares and there were 8,072,241 shares available for future grants. As of June 30, 2019, there were 5,200,795 shares available for future grants.

 

In accordance with the terms of the 2014 Plan, effective as of January 1, 2020, the number of shares of common stock available for issuance under the 2014 Plan increased by 4,527,103 shares, which was seven percent (7%) of the outstanding shares of common stock on December 31, 2019. As of January 1, 2020, the 2014 Plan had a total reserve of 23,070,842 shares and there were 8,840,939 shares available for future grants. As of June 30, 2020 there were 5,512,150 shares available for future grants.

 

-22-
 

 

Stock-based Compensation

 

For stock options issued and outstanding for the three months ended June 30, 2020 and 2019, respectively, the Company recorded non-cash, stock-based compensation expense of $3,348,360 and $2,817,488, net of estimated forfeitures. For stock options issued and outstanding for the six months ended June 30, 2020 and 2019, respectively, the Company recorded non-cash, stock-based compensation expense of $6,485,779 and $5,906,427, respectively, net of estimated forfeitures.

 

The fair value of each option award for employees is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Due to its limited operating history, the Company estimates its volatility including the volatility of comparable public companies and its own common stock, taking into account the expected life of the option. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises and employee terminations in order to estimate its forfeiture rate. The expected term of options granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined based on the simplified method due to the Company’s limited operating history, and is 6.25 years based on the average between the vesting period and the contractual life of the option. For non-employee options, the expected term is the contractual term. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

 

The weighted average assumptions used principally in determining the fair value of options granted to employees were as follows:

 

   Six Months Ended June 30, 
   2020   2019 
Risk free interest rate   0.62%    2.56%
Expected dividend yield   0%    0% 
Expected term in years   6.25    6.25 
Expected volatility   82.89%    87.65% 
Estimated forfeiture rate   5.98%    4.75% 

 

A summary of option activity for the six months ended June 30, 2020 and is presented below:

 

Options  Shares   Weighted
Average
Exercise
Price
  

Weighted
Average
Remaining

Contractual
Term in
Years

   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019   13,245,366   $5.19           
Granted   3,883,600    4.87           
Exercised   (202,494)   1.49           
Forfeited   (554,811)   5.93           
Outstanding at June 30, 2020   16,371,661   $5.14    7.27   $54,044,121 
Vested at June 30, 2020   9,148,866   $4.50    5.86   $36,271,485 
Vested and expected to vest at June 30, 2020   15,775,432   $5.13    7.20   $52,286,782 

 

-23-
 

 

The weighted average grant-date fair value of options granted during the six months ended June 30, 2020 and 2019 was $3.44 and $5.41 per share, respectively. The aggregate intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was approximately $1,030,994 and $233,095, respectively. The total fair value of options that were vested as of June 30, 2020 and 2019 was $31,198,928 and $19,252,762, respectively. As of June 30, 2020, there was approximately $26,300,051 of total unrecognized compensation expense, related to non-vested share-based option compensation arrangements. The unrecognized compensation expense is estimated to be recognized over a period of 2.69 years as of June 30, 2020.

 

12. WARRANTS

 

During the three and six months ended June 30, 2019, warrants to purchase 200,000 shares and 1,283,500 shares of common stock were exercised on a cashless basis resulting in the issuance of 172,414 shares and 1,119,868 shares of common stock, respectively. No warrants were exercised during the three and six months ended June 30, 2020.

 

At June 30, 2020, there were warrants outstanding to purchase 1,000,000 shares of common stock with a weighted average exercise price of $13.20 and a weighted average remaining life of 4.58 years, related only to the warrant issued to CFF pursuant to the terms of the Investment Agreement (Note 8). The Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement, the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered and subject to a one-year lock-up. The CFF Warrant is classified as equity as it meets all the conditions under GAAP for equity classification. In accordance with GAAP, the Company has calculated the fair value of the warrant for initial measurement and will reassess whether equity classification for the warrant is appropriate upon any changes to the warrants or capital structure, at each balance sheet date. The weighted average assumptions used in determining the $6,215,225 fair value of the CFF Warrant were as follows:

 

Risk free interest rate   2.60%
Expected dividend yield   0%
Expected term in years   7.00 
Expected volatility   83.5%

 

On July 28, 2020, the Company entered into the Loan Agreement with K2HV pursuant to which K2HV may provide the Company with term loans in an aggregate principal amount of up to a $50,000,000. On July 28, 2020, in connection with the funding of the first $20,000,000 tranche, the Company issued a warrant exercisable for 86,206 shares of the Company’s common stock at an exercise price of $6.96 per share. (See Note 13).

 

-24-
 

 

13. SUSBSEQUENT EVENTS

 

Loan Agreement with K2 HealthVentures LLC

 

On July 28, 2020, the Company, with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, entered into a $50,000,000 secured Loan and Security Agreement with K2HV, an unrelated third party (the “Loan Agreement”) and received the first $20,000,000 tranche upon signing. The second tranche of $20,000,000 and the third tranche of $10,000,000 will be made available at the Company’s option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and the Company is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche. K2HV may elect to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share. At closing, the Company issued a warrant to K2HV exercisable for 86,206 shares of the Company’s common stock at an exercise price of $6.96 per share. The Company granted registration rights to the lenders in connection with the Loan Agreement and the Warrant.

 

August 2020 Sale Agreement

 

On August 6, 2020, the Company entered into an Open Market Sale AgreementSM (the “August 2020 Sale Agreement”) with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company may issue and sell, from time to time, through Jefferies, shares of its common stock, and pursuant to which Jefferies may sell its common stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. The Company will pay Jefferies a commission of 3.0% of the aggregate gross proceeds from each sale of common stock and have agreed to provide Jefferies with customary indemnification and contribution rights. The Company has also agreed to reimburse Jefferies for certain specified expenses. As of August 6, 2020, the Company is authorized to offer and sell up to $150 million of its common stock pursuant to the August 2020 Sale Agreement.

 

-25-
 

 

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 together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

  our lack of operating history and history of operating losses;
     
  our current and future capital requirements and our ability to satisfy our capital needs;
     
  our ability to complete required clinical trials of our product and obtain approval from the FDA or other regulatory agents in different jurisdictions;
     
  the potential impact of the recent COVID-19 pandemic on our operations, including on our clinical development plans and timelines;
     
  our ability to maintain or protect the validity of our patents and other intellectual property;
     
  our ability to retain key executive members;
     
  our ability to internally develop new inventions and intellectual property;
     
  interpretations of current laws and the passages of future laws;
     
  acceptance of our business model by investors;
     
  the accuracy of our estimates regarding expenses and capital requirements; and
     
  our ability to adequately support growth.

 

-26-
 

 

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance.

 

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

 

Overview

 

We are a Phase 3, clinical-stage pharmaceutical company focused on the development and commercialization of novel therapeutics to treat chronic and serious inflammatory and fibrotic diseases with clear unmet medical needs by targeting the human endocannabinoid system, or ECS. We are developing a pipeline of cannabinoid drug candidates which are rationally designed, synthetic, small molecule drugs which target the ECS to treat inflammatory and fibrotic diseases. Our focus on the ECS is backed by an ever-expanding body of knowledge on the biology of the ECS and its role as being a master regulator of inflammation and fibrosis. Our lead investigational drug candidate, lenabasum, is a novel, synthetic, oral, cannabinoid type 2 (“CB2”), agonist designed to resolve chronic inflammation, limit fibrosis and support tissue repair. We are currently developing lenabasum to treat four life threatening diseases: systemic sclerosis, (“SSc”) dermatomyositis (“DM”), cystic fibrosis (“CF”), and systemic lupus erythematosus (“SLE”). In addition, we are developing a pipeline of experimental drug candidates from our library of novel compounds targeting the ECS. Our pipeline also includes CRB-4001, a second generation, peripherally restricted cannabinoid receptor type 1, or CB1, inverse agonist designed to treat organ specific fibrotic liver diseases, such as nonalcoholic steatohepatitis, or NASH.

 

Lenabasum selectively binds to CB2 in the periphery, which is preferentially expressed on activated immune cells, fibroblasts and other cell types, including muscle and bone cells. Lenabasum stimulates the production of Specialized Pro-Resolving Lipid Mediators, or SPMs, that act to resolve inflammation and halt fibrosis without immunosuppression by activating endogenous pathways. These pathways are activated in healthy individuals during the course of normal immune responses but are dysfunctional in patients with chronic inflammatory and fibrotic diseases. By its binding to CB2, lenabasum drives innate immune responses from the activation phase into the resolution phase. CB2 plays a central role in modulating and resolving inflammation by, in effect, turning heightened inflammation “off” and restoring homeostasis. This has been demonstrated in animal models lacking CB2 as well as humans with genetic polymorphism in the CB2 gene, as these exhibit excessive inflammation and fibrosis in response to activators of the innate immune system.

 

Lenabasum is currently being evaluated in a Phase 3 SSc study that has completed the enrollment of 365 patients with top-line data expected to be reported in the summer of 2020, a Phase 2b CF study that has completed the enrollment of 426 patients with top-line data expected by the end of the third quarter of 2020, and a Phase 3 study in DM that has completed the enrollment of 176 patients with top-line data expected in the fourth quarter of 2021. In addition, we are conducting a Phase 2 SLE study funded by a grant through the National Institutes of Health, or NIH, that is expected to enroll 100 patients with enrollment expected to be completed by early 2021. Open-label extension studies are ongoing in SSc and DM for patients who completed the Phase 2 studies and Phase 3 studies in these indications. Lenabasum has generated positive clinical data in three consecutive Phase 2 studies in diffuse cutaneous SSc, CF and skin-predominant DM. Lenabasum has demonstrated acceptable safety and tolerability profiles in clinical studies to date.

 

The U.S. Food and Drug Administration (“FDA”), has granted lenabasum Orphan Drug Designation as well as Fast Track Status for SSc and CF, and Orphan Drug Designation for DM. The European Medicines Authority, or EMA, has granted lenabasum Orphan Drug Designation for SSc, CF and DM. The Pharmaceuticals and Medical Devices Agency in Japan has granted Orphan Drug Designation for lenabasum in SSc.

 

CRB-4001 is undergoing chronic pharmacokinetic studies in primates to measure brain exposure to CRB-4001. Results of these studies are expected this year and will be considered in the design of Phase 1 studies.

 

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Since our inception, we have devoted substantially all of our efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Our research and development activities have included conducting preclinical studies, developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients. Two of the four clinical programs for lenabasum are being supported by non -dilutive awards and grants. The NIH has funded the majority of the clinical development costs for the DM Phase 2 clinical trial and is funding the SLE Phase 2 clinical trials. In cystic fibrosis, the Phase 2b clinical trial is being supported by a 2018 award from the Cystic Fibrosis Foundation, or CFF, of up to $25,000,000, and the Phase 2 clinical trial was partially funded by a $5,000,000 award from the Cystic Fibrosis Foundation Therapeutics, Inc. (“CFFT”), a non-profit drug discovery and development affiliate of the CFF.

 

On February 11, 2020, we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $6.00 per share with gross proceeds to us totaling approximately $46,000,000, less estimated issuance costs incurred of approximately $3,147,000. On April 7, 2020, we entered into an Open Market Sale AgreementSM (“April 2020 Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which Jefferies is serving as our sales agent to sell up to $75,000,000 of shares of our common stock through an “at the market offering,” Sales of common stock under the April 2020 Sale Agreement were made pursuant to an effective registration statement for an aggregate offering of up to $75,000,000. During the second quarter of 2020, 8,113,794 shares of our common stock were sold under the April 2020 Sale Agreement for which we received net proceeds of approximately $43,702,000 through June 30, 2020 and had a stock subscription receivable of approximately $16,676,000 as of June 30, 2020, for which we received the proceeds in July 2020. In July 2020, we sold an additional 1,053,286 shares of our common stock under the April 2020 Sale Agreement for net proceeds of approximately $8,148,000.

 

On July 28, 2020, we entered into the Loan Agreement with K2HV pursuant to which K2HV may provide us with term loans in an aggregate principal amount of up to a $50,000,000 and we received the first tranche for $20,000,000 at closing. The second tranche for $20,000,000 and third tranche for $10,000,000 will be made available at our option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and we are obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche. K2HVmay elect to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share. At closing, we issued a warrant to K2HVexercisable for 86,206 shares of our common stock at an exercise price of $6.96 per share. We granted registration rights to the lenders in connection with the Loan Agreement and the Warrant.

 

In response to the spread of COVID-19, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees and community, including temporarily requiring employees to work remotely, implementing remote monitoring procedures for clinical data and suspending all non-essential travel worldwide for our employees.

 

As a result of the COVID-19 pandemic, we may experience disruptions that could adversely impact our business. The COVID-19 pandemic may negatively affect clinical site initiation, patient recruitment and enrollment, patient dosing, distribution of drug to clinical sites and clinical trial monitoring for our clinical trials. The COVID-19 pandemic may also negatively affect the operations of the third-party contract research organizations that we rely upon to assist us in conducting our clinical trials and the contract manufacturers who manufacture our drug candidates.

 

We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations. For additional information on the various risks posed by the COVID-19 pandemic, refer to Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.

 

Financial Operations Overview

 

We are a clinical stage pharmaceutical company and have not generated any revenues from the sale of products and at June 30, 2020, we had an accumulated deficit of approximately $260,586,000. Although we had net income of approximately $2,153,000 for the second quarter of 2019, we historically have incurred net losses. Our net loss for the three months ended June 30, 2020 was approximately $38,105,000. For the six months ended June 30, 2020 and 2019 our net losses were approximately $67,762,000 and $24,082,000, respectively. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses to increase significantly in connection with our ongoing activities to develop, seek regulatory approval of and commercialize lenabasum. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or other sources, which may include government grants and collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

 

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We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in 2020 and in the future in connection with our ongoing activities, as we:

 

  conduct clinical trials for our product candidates in scleroderma, cystic fibrosis, DM, systemic lupus erythematosus and other indications;
     
  continue our research and development efforts;
     
  manufacture clinical study materials and develop commercial scale manufacturing capabilities;
     
  seek regulatory approval for our product candidates;
     
  add personnel to support development of our product candidates; and
     
  operate as a public company

 

Critical Accounting Policies and Estimates

 

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to stock-based compensation expense. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Stock-Based Compensation

 

Stock options are granted with an exercise price at no less than fair market value at the date of the grant. The stock options normally expire ten years from the date of grant. Stock option awards vest upon terms determined by our board of directors.

 

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We recognize compensation costs resulting from the issuance of stock-based awards to employees, members of our Board of directors and consultants. The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Due to our limited operating history, we estimated our volatility in consideration of a number of factors, including the volatility of comparable public companies and, commencing in 2015, we also included the volatility of our own common stock. We use historical data, as well as subsequent events occurring prior to the issuance of the consolidated financial statements, to estimate option exercise and employee forfeitures within the valuation model. The expected term of options granted to employees under our stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 48 months). The expected term of options granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is based on the average of the 6.25 years. For non-employee options, the expected term is the contractual term. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. We estimate the forfeiture rate at the time of grant and revise it, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on management’s expectation through industry knowledge and historical data. We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our share-based compensation.

 

Accrued Research and Development Expenses

 

As part of the process of preparing financial statements, we are required to estimate and accrue expenses, the largest of which are research and development expenses. This process involves: communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.

 

Examples of estimated research and development expenses that we accrue include:

 

  fees paid to CROs in connection with nonclinical studies;
     
  fees paid to contract manufacturers in connection with the production of lenabasum for clinical trials;
     
  fees paid to CRO and research institutions in connection with conducting of clinical studies; and
     
  professional service fees for consulting and related services.

 

We base our expense accruals related to clinical studies on our estimates of the services performed pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical study milestones. Our service providers invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

 

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To date, we have not experienced significant changes in our estimates of accrued research and development expenses following each applicable reporting period. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information regarding the status or conduct of our clinical studies and other research activities.

 

Leases

 

We lease our office space. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in our consolidated balance sheets.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate we would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Revenue Recognition

 

Revenue from awards for the three months ended June 30, 2020 and 2019 was $286,346 and $2,094,583, respectively. Revenue from awards for the six months ended June 30, 2020 and 2019 was $2,048,405 and $3,980,265, respectively. Revenue from awards was recognized in accordance with ASC 606 and pertains only to the 2018 CFF Award. Revenue for the three and six months ended June 30, 2019 included the recognition of the $27,000,000 upfront payment received from Kaken in March 2019 for which we satisfied the combined performance obligation by June 30, 2019, upon which we recognized the $27,000,000 as revenue in the second quarter of 2019.

 

We will assess any new agreements we enter into under ASC 606, including whether such agreements fall under the scope of such standard. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The five-step model is applied to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

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Revenue associated with the performance obligation is being recognized as revenue as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The research and development services related to this performance obligation are expected to be performed over an approximately two and a half-year period expected to be completed in the second quarter of 2020. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets.

 

We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2020 and 2019

 

Revenue

 

To date, we have not generated any revenues from the sales of products. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of lenabasum, which we expect will take a number of years and is subject to significant uncertainty.

 

We have recognized $286,346 and $29,094,583 of revenue in the three months ended June 30, 2020 and 2019, respectively.

 

Amounts recognized in revenue for the three months ended June 30, 2020 and 2019 were in connection with our entry on January 26, 2018 into the Cystic Fibrosis Program Related Investment Agreement (“Investment Agreement) with the Cystic Fibrosis Foundation (“CFF”), a non-profit drug discovery and development corporation, pursuant to which we received a development award for up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis of which we received $6,250,000 in the first quarter of 2018, $6,250,000 in the second quarter of 2018, and $5,000,000 in the second quarter of 2019 upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. In June 2020 we became entitled to receive an additional $5,000,000 upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. We received payment from the CFF for this milestone achievement in July 2020. The $2,500,000 remainder of the 2018 CFF Award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement and we expect to receive the remainder before the end of the fourth quarter of 2020.

 

Revenue for the three months ended June 30, 2019 also included the recognition of the $27,000,000 upfront payment received from Kaken in March 2019 for which we satisfied the combined performance obligation by June 30, 2019, upon which we recognized the $27,000,000 as revenue in the second quarter of 2019.

 

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Research and Development Expenses

 

Research and development expenses are incurred for the development of lenabasum and consist primarily of payroll and payments to contract research and development companies. To date, these costs are related to generating pre-clinical data and the cost of manufacturing lenabasum for clinical trials and conducting clinical trials. These costs are expected to increase significantly in the future as lenabasum is continued to be evaluated in additional later stage clinical trials.

 

Research and development expenses for the three months ended June 30, 2020 totaled approximately $30,686,000, an increase of approximately $8,505,000 over the $22,181,000 recorded for the three months ended June 30, 2019. The increase was primarily attributable to increases of $6,294,000 in clinical trial costs, $1,958,000 in compensation costs, and $253,000 in stock-based compensation expense.

 

During 2019, the Company formed a subsidiary in each of the United Kingdom and Australia and approximately 46% and 44% of research and development expenses recorded for the three months ended June 30, 2020 and 2019, respectively, was recorded in these entities.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of payroll, rent and professional services such as accounting and legal services. We anticipate that our general and administrative expenses will increase significantly during 2020 and in the future as we increase our headcount to support our continued research and development and the potential commercialization of our product candidates. We also anticipate increased expenses related to audit, legal, and tax-related services associated with maintaining compliance with NASDAQ exchange listing and SEC requirements, director and officer insurance, and investor relations costs associated with being a public company.

 

General and administrative expense for the three months ended June 30, 2020 totaled approximately $7,739,000, an increase of approximately $2,531,000 over the $5,208,000 recorded for the three months ended June 30, 2019. The increases include approximately $925,000 in compensation costs, $730,000 in brand design and market research, $278,000 in stock-based compensation expense, $229,000 in facility and insurance costs, $117,000 in temporary help and recruiting costs, $75,000 in software as a service costs, and an aggregate net increase of approximately $177,000 for other general and administrative expenses.

 

Other Income, Net

 

Other income, net consists primarily of interest income we earn on interest-bearing accounts, interest expense incurred on our outstanding debt, and realized and unrealized foreign currency exchange gains and losses.

 

Other income, net for the three months ended June 30, 2020 totaled approximately $33,000, a decrease of approximately $414,000 over the $447,000 recorded for the three months ended June 30, 2019. The decrease was primarily attributable to a decrease in net interest income of approximately $436,000 due to lower cash balances in the second quarter of 2020 as compared to the second quarter of 2019, offset partially by increases in foreign currency exchange transaction gains of approximately $22,000.

 

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Comparison of Six Months Ended June 30, 2020 and 2019

 

Revenue

 

We have recognized $2,048,405 and $30,980,265 of revenue in the six months ended June 30, 2020 and 2019, respectively.

 

Amounts recognized in revenue for the six months ended June 30, 2020 were in connection with the 2018 CFF Award of which we received $6,250,000 in the first quarter of 2018, $6,250,000 in the second quarter of 2018, and $5,000,000 in the second quarter of 2019 upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. In June 2020 we became entitled to receive an additional $5,000,000 upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. We received payment from the CFF for this milestone achievement in July 2020. The $2,500,000 remainder of the 2018 CFF Award is payable to us incrementally upon the achievement of the remaining milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement and we expect to receive the remainder before the end of the fourth quarter of 2020. We recorded $2,048,405 and $3,980,265 of revenue related to the 2018 CFF Award during the six months ended June 30, 2020 and 2019, respectively.

 

Revenue for the six months ended June 30, 2019 also included the recognition of the $27,000,000 upfront payment received from Kaken in March 2019 for which we satisfied the combined performance obligation by June 30, 2019, upon which we recognized the $27,000,000 as revenue in the second quarter of 2019.

 

Research and Development Expenses

 

Research and development expenses for the six months ended June 30, 2020 totaled approximately $54,634,000, an increase of approximately $10,669,000 over the $43,965,000 recorded for the six months ended June 30, 2019. The increase was primarily attributable to increases of $6,564,000 in clinical trial costs, $4,283,000 in compensation costs, partially offset by a decrease of $178,000 in stock-based compensation expense. Approximately 46% and 46% of research and development expenses recorded for the six months ended June 30, 2020 and 2019, was recorded in our subsidiaries in the United Kingdom and Australia.

 

General and Administrative Expenses

 

General and administrative expense for the six months ended June 30, 2020 totaled approximately $15,438,000, an increase of approximately $3,605,000 over the $11,833,000 recorded for the six months ended June 30, 2019. The increases include approximately $2,226,000 in compensation costs, $1,189,000 in brand design and market research, $757,000 in stock-based compensation expense, $619,000 in legal and audit fees, $483,000 in facility and insurance costs, $304,000 in temporary help and recruiting costs, $239,000 in software as a service costs, $237,000 in consulting costs and an aggregate net increase of approximately $204,000 for other general and administrative expenses. These increases were partially offset by the $2,700,000 we recorded in the first quarter of 2019 related to the amount we owed to CFF as a royalty payment equal to 10% of any amounts we received as payment under the collaboration agreement with Kaken.

 

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Other Income, Net

 

Other income, net for the six months ended June 30, 2020 totaled approximately $262,000, a decrease of approximately $473,000 over the $735,000 recorded for the six months ended June 30, 2019. The decrease was primarily attributable to a decrease in net interest income of approximately $668,000 due to lower cash balances in the second quarter of 2020 as compared to the second quarter of 2019, offset partially by increases in foreign currency exchange transaction gains of approximately $195,000.

 

Liquidity and Capital Resources

 

Since inception, we have experienced negative cash flows from operations. We have financed our operations primarily through sales of equity-related securities. In addition, the majority of the costs of the Phase 2 DM and SLE clinical trials have been or are expected to be funded by NIH grants, and our Phase 2 cystic fibrosis clinical trial was partially funded by the 2015 CFFT Award. Our Phase 2b cystic fibrosis trial is being supported by the 2018 CFF Award. At June 30, 2020, our accumulated deficit since inception was approximately $260,586,000.

 

At June 30, 2020, we had total current assets of approximately $88,017,000 and total current liabilities of approximately $42,095,000, resulting in working capital of approximately $45,922,000. Of our total cash and cash equivalents of approximately $63,469,000 at June 30, 2020, approximately $62,913,000 was held within the United States.

 

Net cash used in operating activities for the six months ended June 30, 2020 was approximately $54,208,000, which includes a net loss of approximately $67,762,000, adjusted for non-cash expenses of approximately $7,285,000 largely related to stock-based compensation expense, and approximately $6,269,000 of cash provided by net working capital items principally due to increases in accounts payable and accrued expenses.

 

Cash used in investing activities for the six months ended June 30, 2020 totaled approximately $480,000, which was principally related to purchases of property and equipment for the build out our office space that we occupied in the latter part of 2019.

 

Cash provided by financing activities for the six months ended June 30, 2020 totaled approximately $86,408,000. On February 11, 2020, we consummated an underwritten public offering of shares of our common stock pursuant to which we sold an aggregate of 7,666,667 shares of our common stock at a purchase price of $6.00 per share with gross proceeds to us totaling $46,000,000, less estimated issuance costs incurred of approximately $3,147,000. On April 7, 2020, we entered into the April 2020 Sale Agreement with Jefferies pursuant to which Jefferies is serving as our sales agent to sell up to $75,000,000 of shares of our common stock through an “at the market offering,” Sales of common stock under the April 2020 Sale Agreement were made pursuant to an effective registration statement for an aggregate offering of up to $75,000,000. During the second quarter of 2020, we sold 8,113,794 shares of our common stock under the April 2020 Sale Agreement for net proceeds of approximately $60,378,000, which we received net proceeds of approximately $43,702,000 through June 30, 2020 and had subscriptions receivable at June 30, 2020 for approximately $16,676,000 for which we received the proceeds in July 2020. In July 2020 we sold an additional 1,053,286 shares of our common stock under the April 2020 Sale Agreement for net proceeds of approximately $8,148,000.

 

On July 28, 2020, we entered into a Loan and Security Agreement (the “Loan Agreement”) with K2 HealthVentures LLC (“K2HV”) pursuant to which K2HV may provide us with term loans in an aggregate principal amount of up to a $50,000,000 and we received the first tranche for $20,000,000 at closing. The second tranche for $20,000,000 and the third tranche for $10,000,000 will be made available at the Company’s option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and the Company is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche. K2HV may elect to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share. At closing, the Company issued a Warrant to K2HV exercisable for 86,206 shares of the Company’s common stock at an exercise price of $6.96 per share. We granted registration rights to the lenders in connection with the Loan Agreement and the Warrant.

 

During the six months ended June 30, 2020, the Company issued 202,494 shares of common stock upon the exercise of stock options to purchase common stock and the Company received proceeds of $302,305 from these exercises. Cash provided by financing activities for the six months ended June 30, 2020 included principal payments on notes payable of approximately $644,000 in connection with our loan agreement with a financing company. The terms of the loan that we entered into in November 2019 stipulate equal monthly payments of principal and interest payments of $109,413 over a nine-month period. Interest accrues on this loan at an annual rate of 5.25%.

 

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We expect our cash and cash equivalents of approximately $63,469,000 at June 30, 2020 combined with the proceeds we received in July 2020 including approximately $24,824,000 from sales of shares of our common stock under the April 2020 Sale Agreement, the $5,000,000 milestone payment from the CFF and the first tranche for $20,000,000 from the K2HV debt financing facility together with the final $2,500,000 milestone payment that we expect to receive under the 2018 CFF Award before the end of the fourth quarter of 2020 will be sufficient to meet our operating and capital requirements into the third quarter of 2021, based on current planned expenditures. The $2,500,00 remainder of the up to $25,000,000 2018 CFF Award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement.

 

We will need to raise significant additional capital to continue to fund operations and the clinical trials for lenabasum. We may seek to sell common stock, preferred stock or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights.

 

The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all.

 

Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate expenses including some or all of our planned clinical trials.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, other than future royalty payments under development award agreements discussed as follows:

 

Collaboration Agreement with Kaken

 

Pursuant to the terms of the Kaken Agreement, we will bear the cost of, and be responsible for, among other things, conducting the clinical studies and other developmental activities for the Licensed Products in the Initial Indications in the Territory, and Kaken will bear the cost of, and be responsible for, among other things, preparing and filing applications for regulatory approval in the Territory and for commercializing Licensed Products in the Territory, and will use commercially reasonable efforts to commercialize Licensed Products and obtain pricing approval for Licensed Products in the Territory.

 

In consideration of the license and other rights granted by us, Kaken paid us a $27,000,000 upfront cash payment in March 2019 and is obligated to pay potential milestone payments to us totaling up to approximately $173,000,000 for the achievement of certain development, sales and regulatory milestones. In addition, during the Royalty Term (as defined below), Kaken is obligated to pay us royalties on sales of Licensed Products in the Territory, under certain conditions, in the double digits, which royalty shall be reduced in certain circumstances. In particular, for so long as we supply Licensed Products to Kaken pursuant to a supply agreement to be entered into by the parties, royalty payments shall be payable for each unit of Licensed Product that we supply as a percentage of the Japanese National Health Insurance price of the Licensed Product. During any time in which a supply agreement is not in effect, royalty payments shall be changed to a rate to be agreed upon by the parties in good faith.

 

The Agreement will remain in effect on a Licensed Product-by-Licensed product basis and will expire upon the expiration of the Royalty Term for the final Licensed Product. The “Royalty Term” means the period beginning on the date of the first commercial sale of the Licensed Product in Japan and ends on the latest of (i) the expiration of the last valid claim of the royalty patents covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product for such Initial Indication in Japan, or (iii) ten (10) years after the first commercial sale of such Licensed Product for such Initial Indication in Japan. The Agreement may be terminated by either party for material breach, upon a party’s insolvency or bankruptcy or upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for a safety concern or clinical failure, or at its convenience following the second anniversary of the first commercial sale of a Licensed Product in either of the Initial Indications in the Territory, with 180 days’ notice.

 

License Agreement with Jenrin

 

Pursuant to the terms of the Jenrin Agreement, we are obligated to pay potential milestone payments to Jenrin totaling up to $18,400,000 for each compound we elect to develop based upon the achievement of specified development and regulatory milestones. In addition, we are obligated to pay Jenrin royalties in the mid, single digits based on net sales of any Licensed Products, as defined in the Jenrin Agreement, subject to specified reductions.

 

-37-
 

 

The Jenrin Agreement terminates on a country-by-country basis and product-by-product basis upon the expiration of the royalty term for such product in such country. Each royalty term begins on the date of the first commercial sale of the licensed product in the applicable country and ends on the later of seven years from such first commercial sale or the expiration of the last to expire of the applicable patents in that country. The Jenrin Agreement may be terminated earlier in specified situations, including termination for uncured material breach of the Jenrin Agreement by either party, termination by Jenrin in specified circumstances, termination by Corbus with advance notice and termination upon a party’s insolvency or bankruptcy.

 

2018 CFF Award

 

Pursuant to the terms of the Investment Agreement, we are obligated to make certain royalty payments to CFF, including a royalty payment of one and one-half times the amount of the 2018 CFF Award, payable in cash within sixty days upon the first receipt of approval of lenabasum in the United States and a second royalty payment of one and one-half times the amount of the 2018 CFF Award upon approval in another major market, as set forth in the Investment Agreement (the “Approval Royalty”). At our election, we may satisfy the first of the two Approval Royalties in registered shares of our common stock. Additionally, we will owe to CFF a royalty payment equal to 10% of any amounts we receive as payment under the collaboration agreement with Kaken, provided that the total royalties that we will be required to pay under the Investment Agreement resulting from income from licenses or sales subject to the Investment Agreement are capped at five times the total amount of the 2018 CFF Award, and we may credit such royalties against any royalties on net sales otherwise owed to CFF under the Investment Agreement. Accordingly, we were required to pay CFF $2,700,000 in May 2019, which is within 60 days of our receipt of the $27,000,000 upfront cash payment from Kaken described below.

 

Additionally, we are obligated to make (i) royalty payments to CFF of two and one-half percent of net sales from lenabasum due within sixty days after any quarter in which such net sales occur in the Field, as defined in the Investment Agreement, (ii) royalty payments to CFF of one percent of net sales of Non-Field Products, as defined in the Investment Agreement due within sixty days after any quarter in which such net sales occur, and (iii) royalty payments to CFF of ten percent of any amount that we and our stockholders receive in connection with the license, sale, or other transfer to a third party of lenabasum, if indicated for the treatment or prevention of CF, or a change of control transaction, except that such payment shall not exceed five times the amount of the 2018 CFF Award, with such payments to be credited against any other net sales royalty payments due. Either CFF or we may terminate the Investment Agreement for cause, which includes our material failure to achieve certain commercialization and development milestones. Our payment obligations survive the termination of the Investment Agreement.

 

2015 CFFT Award

 

Pursuant to the terms of the 2015 CFFT Award agreement, we are obligated to make royalty payments to CFFT contingent upon commercialization of lenabasum in the Field of Use (as defined in the 2015 CFFT Award Agreement) as follows: (i) a royalty payment equal to five times the amount we receive under the 2015 CFFT Award Agreement, up to $25,000,000, payable in three equal annual installments following the first commercial sale of lenabasum, the first of which is due within 90 days following the first commercial sale of lenabasum, (ii) a royalty payment to CFFT equal to the amount we receive under the 2015 CFFT Award Agreement, up to $5,000,000, due in the first calendar year in which the aggregate cumulative net sales of lenabasum in the Field of Use exceed $500,000,000, and (iii) royalty payment(s) to CFFT of up to approximately $15,000,000 if we transfer, sell or license lenabasum in the Field of Use other than for certain clinical or development purposes, or if we enter into a change of control transaction, with such payment(s) to be credited against the royalty payments due upon commercialization. The Field of Use is defined in the CFFT Award Agreement as the treatment in humans of CF, asbestosis, bronchiectasis, byssinosis, chronic bronchitis/COPD hypersensitivity pneumonitis, pneumoconiosis, primary ciliary dyskinesis, sarcoidosis and silicosis. Either CFFT or we may terminate the 2015 CFFT Award Agreement for cause, which includes our material failure to achieve certain commercialization and development milestones. Our payment obligations, if any, would survive the termination of the 2015 CFFT Award Agreement.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Our exposure to market risk is limited to our cash and cash equivalents, all of which have maturities of three months or less. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. We do not have other derivative financial instruments.

 

Foreign Exchange Risk

 

The majority of our operations are based in the United States and, accordingly our transactions are denominated in U.S. Dollars. However, we have foreign currency exposures related to our cash valued in the United Kingdom in British Pounds and Euros and our cash valued in Australia in Australian Dollars because our functional currency is the U.S. Dollar in our foreign-based subsidiaries. Our foreign denominated assets and liabilities are remeasured each reporting period with any exchange gains and losses recorded in our consolidated statements of operations.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Evaluation of Our Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13(a)-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2020, our disclosure controls and procedures were not effective due to material weaknesses in our internal controls over financial reporting described in Item 9A of our annual report on Form 10-K for the fiscal year ended December 31, 2019.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the above evaluation that occurred during the second quarter of 2020 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

-39-
 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

 

Item 1A. Risk Factors.

 

There have been no material changes in or additions to the risk factors included in or Annual Report on Form 10-K for the year ended December 31, 2019, other than as set forth below.

 

Risks Related to Our Financial Position and Need for Capital

 

Our Loan and Security Agreement contains restrictive and financial covenants that may limit our operating flexibility. 

 

Our Loan Agreement with K2HV for up to $50.0000,000 is secured by a lien covering substantially all of our personal property, excluding intellectual property.

 

The Loan Agreement contains customary representations, warranties and covenants. including restrictive covenants by the Company and Borrower limiting additional indebtedness, liens, mergers and acquisitions, dispositions, investments, distributions, subordinated debt, transactions with affiliates and fundamental changes. We therefore may not be able to engage in any of the foregoing types of transactions unless we obtain the consent of K2 Health Ventures or prepay the outstanding amount under the Loan Agreement. The Loan Agreement also contains certain financial covenants, including requirements to maintain unrestricted cash in the amount of $10,000,000 or the amount of all principal loans outstanding if certain regulatory and developmental milestones do not occur.

 

The restrictions and covenants in the Loan Agreement, as well as those contained in any future debt financing agreements that we may enter into, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants and restrictions may be affected by events beyond our control, and breaches of these covenants and restrictions could result in a default under the loan agreement and any future financing agreements that we may enter into.

 

Risks Related to COVID-19

 

The coronavirus COVID-19 pandemic or the widespread outbreak of any other communicable disease could materially and adversely affect our business, financial condition and results of operations.

 

We face risks related to health epidemics or outbreaks of communicable diseases, for example, the recent outbreak around the world of the highly transmissible and pathogenic coronavirus COVID-19. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries.

 

In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China and on March 11, 2020 was declared a pandemic by the World Health Organization. The extent to which COVID-19 may impact our preclinical and clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration and geographic reach of the outbreak, the severity of COVID-19, and the effectiveness of actions to contain and treat COVID-19.

 

To limit the spread of COVID-19, governments have taken various actions from time to time including the issuance of travel restrictions, complete or partial prohibitions of non-essential activities, restrictions or shutdowns of non-essential businesses, stay-at-home orders and social distancing guidelines. Some of these actions have varied from initial responses, pivoting between full or complete to partial or limited restrictions depending upon local or regional conditions. As local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

 

Some of our business partners and manufacturing operations are in China and Italy, each of which have reported large numbers of patient cases and deaths. We have significant manufacturing operations in these countries, including production of our commercial and clinical active pharmaceutical ingredient. Although we have not experienced any material disruptions to these manufacturing operations or any material delays in shipping our commercial and clinical active pharmaceutical ingredient to our clinical trial sites to date, the continued impact resulting from the COVID-19 outbreak in these areas or in other areas where we have operations, or if the COVID-19 outbreak in these areas were to increase in severity, and the measures taken by the governments of countries affected could adversely affect our business, financial condition or results of operations by limiting our ability to manufacture or ship materials within or outside China or Italy or forcing temporary closure of facilities that we rely upon.

 

-40-
 

 

The global spread of COVID-19 has created significant volatility and uncertainty in global financial markets and may materially affect us economically and such conditions continue to persist. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common shares.

 

We are currently conducting our clinical trials in multiple countries where there has been a COVID-19 outbreak, and where enrollment in our Phase 3 “DETERMINE” study in DM is ongoing. The continued spread of COVID-19 globally, and the resulting travel restrictions in place by governments to help stop the spread of COVID-19, could adversely impact our clinical trial operations, including the ability of our patients, principal investigators and site staff to travel to our clinical trial sites, and our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. To date, one of the sites in our Phase 3 SSc trial has withdrawn from open-label study participation because of COVID-19. We cannot predict whether other clinical testing sites will withdraw from participation in any of our studies temporarily or permanently. In addition, if the patients enrolled in our clinical trials become infected with COVID-19, we may have more adverse events and deaths in our clinical trials as a result. We may also face difficulties enrolling patients in our clinical trials if the patient populations that are eligible for our clinical trials are impacted by the coronavirus disease. The National Institutes of Health temporarily stopped enrolling the Phase 2 study testing safety and efficacy of lenabasum in patients with SLE because of COVID-19. While enrollment has resumed at some sites, delay in completing enrollment in this trial is expected. Vulnerable patients, including patients with autoimmune disorders like the patients enrolled in our clinical trials, may be at a higher risk of contracting COVID-19 and may experience more severe symptoms from the disease, adversely affecting our chances for regulatory approval or requiring further clinical studies.

 

The COVID-19 outbreak may also affect the ability of our staff and the parties we work with to carry out our non-clinical, clinical, and drug development and manufacturing activities. We rely on clinical sites, investigators and other study staff, consultants, independent contractors, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our nonclinical studies and clinical trials. We also rely on consultants, independent contractors, contract development and manufacturing organizations, and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our API production, formulation, and drug manufacturing activities. COVID-19 may affect the ability of any of these external people, organizations, or companies to devote sufficient time and resources to our programs or to travel to perform work for us.

 

Potential negative impacts of the COVID-19 outbreak on the conduct of current or future clinical studies include delays in gaining feedback from regulatory agencies, starting new clinical studies, and recruiting subjects to studies that are enrolling. Although we have implemented remote data monitoring procedures for our clinical trials, the potential negative impacts also include inability to have study visits at study sites, incomplete collection of safety and efficacy data, and higher rates of drop-out of subjects from ongoing studies, delays in site entry of study data into the data base, delays in monitoring of study data because of restricted physical access to study sites, delays in site responses to queries, delays in data-base lock, delays in data analyses, delays in time to top-line data, and delays in completing study reports. New or worsening COVID-19 disruptions or restrictions could have the potential to further negatively impact our non-clinical studies, clinical trials, and drug manufacturing activities.

 

As a result of the factors described above, the expected timeline for data readouts of our drug manufacturing activities, non-clinical studies, clinical trials, and certain regulatory filings may be negatively impacted, which would adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our financial results.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On August 6, 2020, we entered into an Open Market Sale AgreementSM (the “Sale Agreement”) with Jefferies, as sales agent, pursuant to which we may issue and sell, from time to time, through Jefferies, shares of our Common Stock.

 

We are not obligated to sell any shares of Common Stock under the Sale Agreement. Subject to the terms and conditions of the Sale Agreement, Jefferies will use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Global Market to sell shares of Common Stock from time to time based upon the Company’s instructions, including any price, time or size limits specified by us. Upon delivery of a placement notice, and subject to our instructions in that notice, and the terms and conditions of the Sale Agreement generally, Jefferies may sell our Common Stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Jefferies’ obligations to sell shares under the Sale Agreement are subject to satisfaction of certain conditions. We will pay Jefferies a commission of 3.0% of the aggregate gross proceeds from each sale of Common Stock and have agreed to provide Jefferies with customary indemnification and contribution rights. We have also agreed to reimburse Jefferies for certain specified expenses.

 

Shares of Common Stock will be offered and sold pursuant to the Sale Agreement, our Registration Statement on Form S-3 (File No. 333-237588), which was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on May 1, 2020, and our Registration Statement on Form S-3 (File No. 333-222447), which was declared effective by the SEC on January 17, 2018, and the related prospectus supplement that will be filed with SEC for an aggregate offering price of up to $150,000,000.

 

The foregoing summary of the Sale Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sale Agreement, which is attached as Exhibit 1.2 to this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q shall not constitute an offer to sell or the solicitation of an offer to buy any shares under the Sale Agreement, nor shall there be any sale of such shares in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

 

-41-
 

 

Item 6. Exhibits.

 

Exhibit

No.

  Description
     
1.1  

Open Market Sale AgreementSM, dated April 7, 2020, by and between the Registrant and Jefferies LLC (incorporated by reference to Exhibit 1.2 to the Company’s Registration Statement on Form S-3 filed with the SEC on April 7, 2020)

     
1.2  

Open Market Sale AgreementSM, dated August 6, 2020, by and between the Registrant and Jefferies LLC.* 

     
 4,1  

Form of Warrant to Purchase Common Stock. (incorporated by reference herein to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020).

     
5.1   Legal Opinion of Lowenstein Sandler LLP*
     
10.1#  

Loan and Security Agreement, dated as of July 28, 2020, by and between Corbus Pharmaceuticals Holdings, Inc., Corbus Pharmaceuticals, Inc., K2 HealthVentures LLC and Ankura Trust Company, LLC. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020).

     
23.1  

Consent of Lowenstein Sandler LLP (included in Exhibit 5.1).*

     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).*
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).*
     
32.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).**
     
32.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).**
     
101.INS  

XBRL Instance Document.* - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

     
101.SCH   XBRL Taxonomy Extension Schema Document.*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.*
     

104

  The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 is formatted in iXBRL*

 

* Filed herewith.
** Furnished, not filed.
# Confidential portions of this exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and Corbus Pharmaceuticals Holdings, Inc. agrees to furnish supplementally to the U.S. Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request. The confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

-42-
 

 

EXHIBIT INDEX

 

Exhibit

No.

  Description
     
1.1  

Open Market Sale AgreementSM, dated April 7, 2020, by and between the Registrant and Jefferies LLC (incorporated by reference to Exhibit 1.2 to the Company’s Registration Statement on Form S-3 filed with the SEC on April 7, 2020)

     
1.2  

Open Market Sale AgreementSM, dated August 6, 2020, by and between the Registrant and Jefferies LLC.*

     
 4,1  

Form of Warrant to Purchase Common Stock. (incorporated by reference herein to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020).

     
5.1   Legal Opinion of Lowenstein Sandler LLP*
     
10.1#  

Loan and Security Agreement, dated as of July 28, 2020, by and between Corbus Pharmaceuticals Holdings, Inc., Corbus Pharmaceuticals, Inc., K2 HealthVentures LLC and Ankura Trust Company, LLC. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020).

     
23.1  

Consent of Lowenstein Sandler LLP (included in Exhibit 5.1).*

     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).*
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).*
     
32.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).**
     
32.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).**
     
101.INS  

XBRL Instance Document.* - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

     
101.SCH   XBRL Taxonomy Extension Schema Document.*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.*
     
104   The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 is formatted in iXBRL*

 

* Filed herewith.
** Furnished, not filed.
# Confidential portions of this exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and Corbus Pharmaceuticals Holdings, Inc. agrees to furnish supplementally to the U.S. Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request. The confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

-43-
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Corbus Pharmaceuticals Holdings, Inc.
   
Date: August 31, 2020 By: /s/ Yuval Cohen
  Name: Yuval Cohen
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 31, 2020 By: /s/ Sean Moran
  Name: Sean Moran
  Title: Chief Financial Officer
    (Principal Financial Officer and Chief Accounting Officer)

 

-44-

 

 

Exhibit 1.2 

 

OPEN MARKET SALE AGREEMENTSM

 

August 6, 2020

 

JEFFERIES LLC

520 Madison Avenue

New York, New York 10022

 

Ladies and Gentlemen:

 

Corbus Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell from time to time through Jefferies LLC, as sales agent and/or principal (the “Agent”), shares of the Company’s common stock, par value $0.0001 per share (the “Common Shares”), on the terms set forth in this agreement (this “Agreement”).

 

Section 1. DEFINITIONS

 

(a) Certain Definitions. For purposes of this Agreement, capitalized terms used herein and not otherwise defined shall have the following respective meanings:

 

Affiliate” of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first- mentioned Person. The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Agency Period” means the period commencing on the date of this Agreement and expiring on the earliest to occur of (x) the date on which the Agent shall have placed the Maximum Program Amount pursuant to this Agreement and (y) the date this Agreement is terminated pursuant to Section 7.

 

Commission” means the U.S. Securities and Exchange Commission.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.

 

Floor Price” means the minimum price set by the Company in the Issuance Notice below which the Agent shall not sell Shares during the applicable period set forth in the Issuance Notice, which may be adjusted by the Company at any time during the period set forth in the Issuance Notice by delivering written notice of such change to the Agent and which in no event shall be less than $1.00 without the prior written consent of the Agent, which may be withheld in the Agent’s sole discretion.

 

 

SM “Open Market Sale Agreement” is a service mark of Jefferies LLC

 

  

 

 

Issuance Amount” means the aggregate Sales Price of the Shares to be sold by the Agent pursuant to any Issuance Notice.

 

Issuance Notice” means a written notice delivered to the Agent by the Company in accordance with this Agreement in the form attached hereto as Exhibit A that is executed by its Chief Executive Officer, President or Chief Financial Officer.

 

Issuance Notice Date” means any Trading Day during the Agency Period that an Issuance Notice is delivered pursuant to Section 3(b)(i).

 

Issuance Price” means the Sales Price less the Selling Commission.

 

Maximum Program Amount” means Common Shares with an aggregate Sales Price of the lesser of (a) the number or dollar amount of Common Shares registered under the effective Registration Statements (defined below) pursuant to which the offering is being made, (b) the number of authorized but unissued Common Shares (less Common Shares issuable upon exercise, conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital stock), (c) the number or dollar amount of Common Shares permitted to be sold under Form S-3 (including General Instruction I.B.6 thereof, if applicable), or (d) the number or dollar amount of Common Shares for which the Company has filed a Prospectus (defined below).

 

Person” means an individual or a corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind.

 

Principal Market” means the Nasdaq Global Market or such other national securities exchange on which the Common Shares, including any Shares, are then listed.

 

Sales Price” means the actual sale execution price of each Share placed by the Agent pursuant to this Agreement.

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.

 

Selling Commission” means three percent (3%) of the gross proceeds of Shares sold pursuant to this Agreement, or as otherwise agreed between the Company and the Agent with respect to any Shares sold pursuant to this Agreement.

 

Settlement Datemeans the second business day following each Trading Day during the period set forth in the Issuance Notice on which Shares are sold pursuant to this Agreement, when the Company shall deliver to the Agent the amount of Shares sold on such Trading Day and the Agent shall deliver to the Company the Issuance Price received on such sales.

 

-2-

 

 

Shares” shall mean the Company’s Common Shares issued or issuable pursuant to this Agreement.

 

Trading Day” means any day on which the Principal Market is open for trading.

 

Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to, and agrees with, the Agent that as of (1) the date of this Agreement, (2) each Issuance Notice Date, (3) each Settlement Date, (4) each Triggering Event Date and (5) each Time of Sale (each of the times referenced above is referred to herein as a “Representation Date”), except as may be disclosed in the Prospectus (including any documents incorporated by reference therein and any supplements thereto) on or before a Representation Date:

 

(a) Registration Statement. The Company has prepared and filed with the Commission shelf registration statements on Form S-3 (File No. 333-222447 (the “First Registration Statement”) and File No. 333-237588 (the “Second Registration Statement”), each of which contains a base prospectus, to be used in connection with the public offering and sale of the Shares. The Company will file in final form a prospectus supplement relating to the public offering and sale of the Shares in a form reasonably satisfactory to the Agent. The Company may file one or more additional registration statements from time to time that will contain a base prospectus and related prospectus or prospectus supplement, if applicable, with respect to the Shares. Except where the context otherwise requires, such registration statements, including the financial statements, exhibits and schedules thereto, in the form in which they became or become effective under the Securities Act, including all documents incorporated or deemed to be incorporated therein by reference and any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430B under the Securities Act, are herein referred to as the “Registration Statements” (each, a “Registration Statement”), and the prospectuses constituting a part of such registration statements, together with any prospectus supplement filed with the Commission pursuant to Rule 424(b) under the Securities Act relating to a particular issuance of the Shares, including all documents incorporated or deemed to be incorporated therein by reference pursuant to Item 12 of Form S-3 under the Securities Act, in each case, as from time to time amended or supplemented, are collectively referred to herein as the “Prospectus,” except that if any revised prospectus is provided to the Agent by the Company for use in connection with the offering of the Shares that is not required to be filed by the Company pursuant to Rule 424(b) under the Securities Act, the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to the Agent for such use. Each of the First Registration Statement and the Second Registration Statement, at the time such Registration Statement originally became effective, is herein called an “Original Registration Statement.”

 

If immediately prior to the expiration of the First Registration Statement (the “Renewal Deadline”), the aggregate gross sales price of Shares sold by the Company is less than the Maximum Program Amount and this Agreement has not expired or been terminated, the Company will file, prior to the Renewal Deadline, if it has not already done so and is eligible to do so, a new shelf registration statement relating to the Shares, in a form reasonably satisfactory to the Agent, and will cause such registration statement to be declared effective within 180 days after the Renewal Deadline. The Company will take all other action necessary or appropriate to permit the issuance and sale of the Shares to continue as contemplated in the expired registration statement relating to the Shares. References herein to the Registration Statements shall include such new shelf registration statement. Upon effectiveness of the new shelf registration statement, the Company will file in final form a prospectus supplement relating to the public offering and sale of the Shares in a form reasonably satisfactory to the Agent.

 

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As used in this Agreement, the terms “amendment” or “supplement” when applied to the Registration Statements or the Prospectus shall be deemed to include the filing by the Company with the Commission of any document under the Exchange Act after the date hereof that is or is deemed to be incorporated therein by reference.

 

All references in this Agreement to financial statements and schedules and other information which is “contained,” “described,” “included” or “stated” in, or “part of” the Registration Statements or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in or otherwise deemed under the Securities Act to be a part of or included in the Registration Statements or the Prospectus, as the case may be, as of any specified date; and all references in this Agreement to amendments or supplements to the Registration Statements or the Prospectus shall be deemed to mean and include, without limitation, the filing of any document under the Exchange Act which is or is deemed to be incorporated by reference in or otherwise deemed under the Securities Act to be a part of or included in the Registration Statements or the Prospectus, as the case may be, as of any specified date. All references in this Agreement to (i) the Registration Statements or the Prospectus, any amendments or supplements to the foregoing, or any free writing prospectus, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) and (ii) the Prospectus shall be deemed to include any “electronic Prospectus” provided for use in connection with the offering of the Shares as contemplated by Section 4(g) of this Agreement. As used herein, “free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act.

 

At the time each Original Registration Statement was filed with the Commission or, if later, at the time the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) was filed with the Commission, the Company met the then-applicable requirements for use of Form S-3 under the Securities Act. During the Agency Period, each time the Company files an Annual Report on Form 10-K, the Company will meet the then-applicable requirements for use of Form S-3 under the Securities Act.

 

(b) Compliance with Registration Requirements. Each Original Registration Statement has been declared effective under the Securities Act. The Company has complied or will comply in all material respects with all requests of the Commission for additional or supplemental information, if any. No stop order suspending the effectiveness of any Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission.

 

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The Prospectus when filed complied or will comply in all material respects with the Securities Act and, if filed with the Commission through its EDGAR, was or will be identical (except as may be permitted by Regulation S-T under the Securities Act) to the copy thereof delivered to the Agent for use in connection with the offer and sale of the Shares. Each Registration Statement and any post-effective amendment thereto, at the time it became or becomes effective, and at any subsequent time that it is deemed to have become effective as to the Agent pursuant to Rule 430B(f)(2) under the Securities Act, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the date of this Agreement, the Prospectus and any free writing prospectus considered together (collectively, the “Time of Sale Information”) did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the three immediately preceding sentences do not apply to statements in or omissions from the Registration Statements or any post-effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to the Agent furnished to the Company in writing by the Agent expressly for use therein, it being understood and agreed that the only such information furnished by the Agent to the Company consists of the information described in Section 6 below. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statements which have not been described or filed as required. The Registration Statements and the offer and sale of the Shares as contemplated hereby meet the requirements of Rule 415 under the Securities Act and comply in all material respects with said rule.

 

(c) Ineligible Issuer Status; Free Writing Prospectuses. As of the determination date referenced in Rule 164(h) under the Securities Act, the Company was not, is not or will not be (as applicable) an “ineligible issuer” in connection with the offering of the Shares pursuant to Rules 164, 405 and 433 under the Securities Act. Each free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of Rule 433 under the Securities Act including timely filing with the Commission or retention where required and legending, and each such free writing prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Shares did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statements or the Prospectus that is not superseded or modified. Except for the free writing prospectuses, if any, furnished to you before first use, the Company has not prepared, used or referred to any free writing prospectus. Other than the Registration Statements and the Prospectus, the Company (including its agents and representatives, other than the Agent in its capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares other than any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act.

 

(d) Incorporated Documents. The documents incorporated by reference in the Registration Statements and the Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act, and none of such documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Registration Statements and the Prospectus, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

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(e) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included or incorporated by reference in the Registration Statements or the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

 

(f) Disclosure Controls. The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that complies in all material respects with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

 

(g) Accounting Controls. The Company and its subsidiaries maintain systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that have been designed to comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”), including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Registration Statements fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto. Except as disclosed in the Registration Statements and the Prospectus, there are no material weaknesses in the Company’s internal control over financial reporting. The Company’s auditors and the audit committee of the board of directors of the Company have been advised of: (A) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

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(h) Due Authorization. The Company has full corporate right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.

 

(i) This Agreement. This Agreement has been duly authorized, executed and delivered by the Company.

 

(j) Authorization of the Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof in the Registration Statements and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights that have not been duly waived.

 

(k) No Registration Rights. Except as described in the Registration Statements and the Prospectus, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statements with the Commission or the issuance and sale of the Shares, except for such rights that have been waived.

 

(l) No Material Adverse Change. Since the date of the most recent financial statements of the Company included or incorporated by reference in the Registration Statements and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of Common Shares upon exercise of stock options and warrants described as outstanding in the Registration Statements and the Prospectus, and the grant of options and other equity-based awards under any stock-based compensation plans of the Company and its subsidiaries that are in existence as of the date hereof and disclosed in the Registration Statements and the Prospectus (“Company Stock Plans”)), short-term debt or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development that could reasonably be expected to result in a prospective material adverse change, in or affecting the business, properties, management, financial position, prospects, shareholders’ equity or results of operations of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) or incurred any liability or obligation, direct or contingent; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each of clauses (i) through (iii) as otherwise disclosed in the Registration Statements and the Prospectus.

 

(m) Independent Accountants. EisnerAmper LLP, who have certified certain financial statements of the Company and its subsidiaries, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

 

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(n) Financial Statements. The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included or incorporated by reference in the Registration Statements and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods covered thereby, except in the case of any unaudited financial statements, which are subject to normal year-end adjustments and do not contain certain footnotes as permitted by the applicable rules of the Commission, and any supporting schedules included or incorporated by reference in the Registration Statements present fairly in all material respects the information required to be stated therein; and the other financial information included or incorporated by reference in the Registration Statements or the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly the information shown thereby.

 

(o) eXtensible Business Reporting Language. The interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Registration Statements fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.

 

(p) Organization and Good Standing. The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing (or their jurisdictional equivalents) under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all corporate power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the business, properties, management, financial position, prospects, shareholders’ equity or results of operations of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21.1 to its Annual Report on Form 10-K for the year ended December 31, 2019.

 

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(q) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statements and the Prospectus under the heading “Description of Capital Stock”; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and fully paid and nonassessable and are not subject to any preemptive or similar rights that have not been duly waived or satisfied; except as described in or expressly contemplated by the Registration Statements and the Prospectus, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its wholly owned subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any of its wholly owned subsidiaries, any convertible or exchangeable securities or any rights, warrants or options; the capital stock of the Company conforms in all material respects to the descriptions thereof contained in the Registration Statements and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary described in the Registration Statements or the Prospectus as owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and nonassessable and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party.

 

(r) Stock Options. With respect to the outstanding stock options (the “Stock Options”) granted pursuant to the Company Stock Plans, (i) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required shareholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto; (ii) each such grant was made in all material respects in accordance with the terms of the applicable Company Stock Plan, Exchange Act and all applicable laws and regulatory rules or requirements, including the rules of the Principal Market and any other exchange on which the Company’s securities are traded, to the extent applicable; and (iii) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(s) Stock Exchange Listing. The Common Shares (including the Shares) are registered pursuant to Section 12(b) or 12(g) of the Exchange Act and are listed on the Principal Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Shares under the Exchange Act or delisting the Common Shares from the Principal Market, nor has the Company received any notification that the Commission or the Principal Market is contemplating terminating such registration or listing. To the Company’s knowledge, it is in compliance with all applicable listing requirements of the Principal Market.

 

(t) No Violation or Default. Neither the Company nor any of its subsidiaries is (i) in violation of its charter or bylaws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party, by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject (collectively, “Company Contracts”); or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that could not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of the Company, all third parties that are parties to any Company Contracts are in compliance with the terms, covenants and conditions contained in such Company Contracts, except for any violation that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(u) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares by the Company and the consummation by the Company of the transactions contemplated by this Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party, by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; (ii) result in any violation of the provisions of the charter or bylaws or similar organizational documents of the Company or any of its subsidiaries; or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(v) No Consents Required. No consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and consummation of the transactions contemplated by this Agreement, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the Principal Market, and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Agent.

 

(w) Legal Proceedings. Except as described in the Registration Statements and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is the subject, including any proceeding before the United States Food and Drug Administration of the U.S. Department of Health and Human Services (the “FDA”) or comparable federal, state, local or foreign governmental and regulatory authorities (“Governmental Authority”) relating to an alleged failure to comply, or deficiency in compliance, with the requirements of the FDA or other Governmental Authority that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statements or the Prospectus that are not so described in the Registration Statements and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statements or described in the Registration Statements or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statements and the Prospectus.

 

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(x) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is threatened, and to the knowledge of the Company, there is no existing or imminent labor disturbance by, or dispute with, the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, except as could not, individually or in the aggregate, have a Material Adverse Effect.

 

(y) Intellectual Property. The Company and its subsidiaries own, or have obtained valid and enforceable licenses for, the inventions, patent applications, patents, trademarks, trade names, service names, copyrights, trade secrets and other intellectual property (1) described in the Registration Statements or the Prospectus as being owned or licensed by them or (2) which, to their knowledge, are necessary for the conduct of their respective businesses as currently conducted or as currently proposed in the Registration Statements or the Prospectus to be conducted (collectively, “Intellectual Property”) except in the case of clause (2) where the failure to own, possess or acquire such rights could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Except as described in the Registration Statements and the Prospectus or as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, to the Company’s knowledge: (i) there are no third parties who have rights to any Intellectual Property, except for Intellectual Property rights which are licensed by the Company from or granted by the Company to its partners, licensors and licensees and customary reversionary rights of third-party licensors with respect to Intellectual Property that is licensed to the Company or one or more of its subsidiaries; and (ii) there is no infringement by third parties of any Intellectual Property. Except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others: (A) challenging the Company’s rights in or to any Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim; (B) challenging the validity, enforceability or scope of any Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim; or (C) asserting that the Company or any of its subsidiaries infringes or otherwise violates, or would, upon the commercialization of any product or service described in the Registration Statements or the Prospectus as under development, infringe or violate, any patent, trademark, trade name, service name, copyright, trade secret or other proprietary rights of others, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim. Except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Company and its subsidiaries have complied with the terms of each agreement pursuant to which Intellectual Property has been licensed to the Company or any subsidiary, and all such agreements are in full force and effect. The product candidates described in the Registration Statements or the Prospectus as under development by the Company or any subsidiary fall within the scope of the claims of one or more patents or patent applications owned by, or exclusively licensed to, the Company or any subsidiary.

 

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(z) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statements or the Prospectus (including, without limitation, those administered by the FDA, the U.S. Drug Enforcement Administration or by any other Governmental Authority), except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; and except as described in the Registration Statements and the Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course, except where such revocation, modification or nonrenewal would not reasonably be expected to have a Material Adverse Effect.

 

(aa) Title to Real and Personal Property. The Company owns no real property, and the Company and its subsidiaries have valid rights to lease or otherwise use all items of real and personal property that are material to the respective businesses of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(bb) Taxes. The Company and its subsidiaries have timely filed all material returns that are required to have been filed by them pursuant to applicable state, local or foreign law, and have paid all taxes shown thereon or otherwise assessed, which are due and payable, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided; and except as otherwise disclosed in the Registration Statements and the Prospectus, there is no material tax deficiency that has been, or would reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets.

 

(cc) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds therefrom as described in the Registration Statements or the Prospectus, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (the “Investment Company Act).

 

(dd) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as the Company reasonably believes are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business in all material respects.

 

(ee) No Stabilization. Neither the Company nor any of its subsidiaries, nor any of their respective directors, officers or controlling persons, has taken, directly or indirectly, any action that has constituted or is designed to or that would reasonably be expected to cause or result in, under the Exchange Act or otherwise, any stabilization or manipulation of the price any security of the Company to facilitate the sale or resale of the Common Shares, including any stabilization or manipulation of the price of the Common Shares.

 

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(ff) Margin Rules. The application of the proceeds received by the Company from the issuance, sale and delivery of the Shares as described in the Registration Statements and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

 

(gg) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statements or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

(hh) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, shareholders, customers or suppliers of the Company, or any of its subsidiaries or any other related party, on the other, that is required by the Securities Act to be described in the Registration Statements and the Prospectus that has not been described as required.

 

(ii) No Contract Termination. The Company has not sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or described in the Prospectus, or referred to or described in, or filed as an exhibit to, the Registration Statements, and no such termination or non-renewal has been threatened by the Company or, to the Company’s knowledge, any other party to any such contract or agreement, which threat of termination or non-renewal has not been rescinded as of the date hereof.

 

(jj) FINRA Matters. All of the information provided to the Agent or to counsel for the Agent by the Company, its counsel, its officers and directors and the holders of any securities (debt or equity) or options to acquire any securities of the Company in connection with the offering of the Shares is true, complete, correct and compliant with FINRA’s rules, and any letters, filings or other supplemental information provided to FINRA pursuant thereto or to conduct rules promulgated by the National Association of Securities Dealers, Inc. is true, complete and correct.

 

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(kk) Compliance with and Liability under Environmental Laws. (i) The Company and its subsidiaries (A) are, and, during the past five years, were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, Release (as defined below) or threat of Release of Hazardous Materials (as defined below) (collectively, “Environmental Laws”), (B have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (C) have not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any Release or threat of Release of Hazardous Materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (D) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (E) are not a party to any order, decree or agreement that imposes any obligation or liability under any Environmental Law; and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) except as described in the Registration Statements and the Prospectus, (A) there are no proceedings that are pending, or that are known by the Company to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed against the Company or any of its subsidiaries, (B) to the knowledge of the Company, there are no facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws, including the Release or threat of Release of Hazardous Materials, that would reasonably be expected to have a Material Adverse Effect, and (C) none of the Company or any of its subsidiaries anticipates material capital expenditures relating to any Environmental Laws.

 

(ll) Hazardous Materials. To the knowledge of the Company, there has been no storage, generation, transportation, use, handling, treatment, Release (as defined below) or threat of Release of Hazardous Materials (as those terms are defined below) by, relating to or caused by the Company or any of its subsidiaries (or, to the knowledge of the Company and its subsidiaries, any other entity (including any predecessor) for whose acts or omissions the Company or any of its subsidiaries is or would reasonably be expected to be liable) at, on, under or from any property or facility now or, to the knowledge of the Company, previously owned, operated or leased by the Company or any of its subsidiaries, or, to the knowledge of the Company, at, on, under or from any other property or facility, in violation of any Environmental Laws or in a manner or amount or to a location that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials, brine, and drilling mud, which is regulated or which can give rise to liability under any Environmental Law. “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into, from or through any building or structure.

 

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(mm) Compliance with ERISA. Except, in each case, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan, excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been satisfied (without taking into account any waiver thereof or extension of any amortization period) and to the knowledge of the Company is reasonably expected to be satisfied in the future (without taking into account any waiver thereof or extension of any amortization period); (iv) the fair market value of the assets of each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan); (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or to the knowledge of the Company is reasonably expected to occur; (vi) neither the Company nor any member of the Controlled Group has incurred, nor to the knowledge of the Company reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the Pension Benefit Guaranty Corporation (the “PBGC”), in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA); and (vii) to the knowledge of the Company, there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the PBGC or any other governmental agency or any foreign regulatory agency with respect to any Plan. None of the following events has occurred or, to the knowledge of the Company, is reasonably likely to occur: (x) a material increase in the aggregate amount of contributions required to be made to all Plans by the Company or its subsidiaries in the current fiscal year of the Company and its subsidiaries compared to the amount of such contributions made during the Company and its subsidiaries’ most recently completed fiscal year; or (y) an increase that is material to the Company and its subsidiaries, taken as a whole, in the Company and its subsidiaries’ “accumulated post-retirement benefit obligations” (within the meaning of Statement of Financial Accounting Standards 106) compared to the amount of such obligations in the Company and its subsidiaries’ most recently completed fiscal year.

 

(nn) Brokers. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or the Agent for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

(oo) No Restrictions on Subsidiaries. Except as prohibited by law, no wholly owned subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such wholly owned subsidiary’s capital stock, from repaying to the Company any loans or advances to such wholly owned subsidiary from the Company or from transferring any of such wholly owned subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

 

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(pp) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person authorized to act on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed to or requested any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce, policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

(qq) Compliance with Anti-Money Laundering Laws. The operations of the Company and its subsidiaries are, and have been conducted at all times, in material compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(rr) FDA and Healthcare Compliance. Except as described in the Registration Statements and the Prospectus, and except where such noncompliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company: (i) is and at all times has been in compliance with all statutes, rules and regulations of the FDA and other Governmental Authority applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, storage, import, export or disposal of any product under development, manufactured or distributed by the Company, including, without limitation, the federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., the Controlled Substances Act, 21 U.S.C. § 801 et. seq., the False Claims Act, 31 U.S.C. §§ 3729-3733, the Health Insurance Portability and Accountability Act, and the Health Information Technology for Economic and Clinical Health Act (collectively, “Applicable FDA Laws”); (ii) to the knowledge of the Company, has not received any FDA Form 483, notice of adverse finding, warning letter, untitled letter or other correspondence or notice from the FDA or any Governmental Authority alleging or asserting material noncompliance with any Applicable FDA Laws or any licenses, certificates, approvals, clearances, exemptions, authorizations, permits and supplements or amendments thereto required by any such Applicable FDA Laws (“Authorizations”); (iii) possesses all Authorizations and the Company is in compliance with the terms of such Authorizations; (iv) has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from the FDA or any Governmental Authority or third party alleging that any product, operation or activity is in material violation of any Applicable FDA Laws or Authorizations and has no knowledge that the FDA or any Governmental Authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (v) has not received notice that the FDA or any Governmental Authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any material Authorizations and has no knowledge that the FDA or any Governmental Authority is considering such action; and (vi) has filed, obtained, maintained or submitted all reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable FDA Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were materially complete and correct on the date filed (or were corrected or supplemented by a subsequent submission).

 

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(ss) Clinical Studies. The studies, tests and preclinical and clinical trials conducted by or, to the Company’s knowledge, on behalf of the Company that are described in the Registration Statements or the Prospectus, or the results of which are referred to in the Registration Statements or the Prospectus, as applicable, were and, if still ongoing, are being conducted in all material respects in accordance with Applicable FDA Laws; the descriptions of the results of such studies, tests and trials contained in the Registration Statements or the Prospectus are, to the Company’s knowledge, accurate and complete in all material respects and fairly present the data derived from such studies, tests and trials; except to the extent disclosed in the Registration Statements or the Prospectus, the Company is not aware of any studies, tests or trials, the results of which the Company believes reasonably call into question the study, test or trial results described or referred to in the Registration Statements or the Prospectus when viewed in the context in which such results are described and the clinical state of development; and, except to the extent disclosed in the Registration Statements and the Prospectus, the Company has not received any notices or correspondence from the FDA or any Governmental Authority requiring the termination or suspension of any studies, tests or preclinical or clinical trials conducted by or on behalf of the Company that are described in the Registration Statements or the Prospectus or the results of which are referred to in the Registration Statements or the Prospectus, other than ordinary course communications with respect to modifications in connection with the design and implementation of such trials.

 

(tt) Regulatory Compliance. Other than those FDA and healthcare compliance matters that are addressed in Section 2 (rr) hereof, and except as described in the Registration Statements and the Prospectus, to the knowledge of the Company, all third parties that are collaborating with the Company (i) are in material compliance with all applicable statutes, rules and regulations of the applicable regulatory authorities (collectively, “Applicable Laws”) and (ii) have not received any notice of adverse finding, warning letter, untitled letter or other correspondence or notice from any regulatory authority alleging or asserting material noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, exemptions, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws, in either case of (i) or (ii) above, solely related to products being developed in collaboration with the Company.

 

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(uu) No Conflicts with Sanctions Laws. None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person associated with or authorized to act on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority (collectively, “Sanctions”); nor is the Company or any of its subsidiaries located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and the Crimea region of Ukraine, (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

 

(vv) Compliance with Cuba Act. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the “Cuba Act”) or is exempt therefrom.

 

(ww) Recognition of the U.S. Special Resolution Regimes.

 

(i) In the event that the Agent is a Covered Entity and becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from the Agent of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

 

(ii) In the event that the Agent is a Covered Entity and the Agent or a BHC Act Affiliate of the Agent becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against the Agent are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.

 

For purposes of this Agreement, (A) “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); (B) “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); (C) “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and (D) “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

 

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(xx) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any applicable provision of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection therewith, including Section 402 related to loans and Sections 302 and 906 related to certifications.

 

(yy) Cybersecurity. The Company and its subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its subsidiaries as currently conducted, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its subsidiaries have implemented and maintained commercially reasonable physical, technical and administrative controls, policies, procedures, and safeguards to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and data, including “Personal Data,” used in connection with their businesses. “Personal Data” means (i) a natural person’s name, street address, telephone number, e-mail address, photograph, social security number or tax identification number, driver’s license number, passport number, credit card number, bank information, or customer or account number; (ii) any information which would qualify as “personally identifying information” under the Federal Trade Commission Act, as amended; (iii) “personal data” as defined by the European Union General Data Protection Regulation (“GDPR”) (EU 2016/679); (iv) any information which would qualify as “protected health information” under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”); and (v) any other piece of information that allows the identification of such natural person, or his or her family, or permits the collection or analysis of any data related to an identified person’s health or sexual orientation. There have been no breaches, violations, outages or unauthorized uses of or accesses to same, except for those that have been remedied without material cost or liability or the duty to notify any other person, nor any incidents under internal review or investigations relating to the same. The Company and its subsidiaries are presently in material compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification.

 

(zz) Compliance with Data Privacy Laws. The Company and its subsidiaries are, and at all prior times were, in material compliance with all applicable state and federal data privacy and security laws and regulations, including without limitation HIPAA, and the Company and its subsidiaries have taken commercially reasonable actions to prepare to comply with, and since May 25, 2018, have been and currently are in compliance with, GDPR (collectively, the “Privacy Laws”). To ensure compliance with the Privacy Laws, the Company and its subsidiaries have in place, comply with, and take appropriate steps reasonably designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the collection, storage, use, disclosure, handling, and analysis of Personal Data (the “Policies”). The Company and its subsidiaries have at all times made all disclosures to users or customers required by Privacy Laws, and none of such disclosures made or contained in any Policy have, to the knowledge of the Company, been inaccurate or in violation of any Privacy Laws in any material respect. The Company further certifies that neither it nor any subsidiary: (i) has received notice of any actual or potential liability under or relating to, or actual or potential violation of, any of the Privacy Laws, and has no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) is currently conducting or paying for, in whole or in part, any investigation, remediation, or other corrective action pursuant to any Privacy Law; or (iii) is a party to any order, decree, or agreement that imposes any obligation or liability under any Privacy Law.

 

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(aaa) Other Underwriting Agreements. The Company is not a party to any agreement with an agent or underwriter for any other “at the market” or continuous equity transaction.

 

Any certificate signed by any officer or representative of the Company or any of its subsidiaries and delivered to the Agent or counsel for the Agent in connection with an issuance of Shares shall be deemed a representation and warranty by the Company to the Agent as to the matters covered thereby on the date of such certificate.

 

The Company acknowledges that the Agent and, for purposes of the opinions to be delivered pursuant to Section 4(p) hereof, counsel to the Company and counsel to the Agent, will rely upon the accuracy and truthfulness of the foregoing representations and hereby consents to such reliance.

 

Section 3. ISSUANCE AND SALE OF COMMON SHARES

 

(a) Sale of Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and the Agent agree that the Company may from time to time seek to sell Shares through the Agent, acting as sales agent, or directly to the Agent, acting as principal, as follows, with an aggregate Sales Price of up to the Maximum Program Amount, based on and in accordance with Issuance Notices as the Company may deliver, during the Agency Period.

 

(b) Mechanics of Issuances.

 

(i) Issuance Notice. Upon the terms and subject to the conditions set forth herein, on any Trading Day during the Agency Period on which the conditions set forth in Section 5(a) and Section 5(b) shall have been satisfied, the Company may exercise its right to request an issuance of Shares by delivering to the Agent an Issuance Notice; provided, however, that (A) in no event may the Company deliver an Issuance Notice to the extent that (I) the sum of (x) the aggregate Sales Price of the requested Issuance Amount, plus (y) the aggregate Sales Price of all Shares issued under all previous Issuance Notices effected pursuant to this Agreement, would exceed the Maximum Program Amount; and (B) prior to delivery of any Issuance Notice, the period set forth for any previous Issuance Notice shall have expired or been terminated. An Issuance Notice shall be considered delivered on the Trading Day that it is received by e-mail to the persons set forth in Schedule A hereto and confirmed by the Company by telephone (including a voicemail message to the persons so identified), with the understanding that, with adequate prior written notice, the Agent may modify the list of such persons from time to time.

 

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(ii) Agent Efforts. Upon the terms and subject to the conditions set forth in this Agreement, upon the receipt of an Issuance Notice, the Agent will use its commercially reasonable efforts consistent with its normal sales and trading practices to place the Shares with respect to which the Agent has agreed to act as sales agent, subject to, and in accordance with the information specified in, the Issuance Notice, unless the sale of the Shares described therein has been suspended, cancelled or otherwise terminated in accordance with the terms of this Agreement. For the avoidance of doubt, the parties to this Agreement may modify an Issuance Notice at any time provided they both agree in writing to any such modification.

 

(iii) Method of Offer and Sale. The Shares may be offered and sold (A) in privately negotiated transactions with the consent of the Company; (B) as block transactions; or (C) by any other method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the Principal Market or sales made into any other existing trading market of the Common Shares. Nothing in this Agreement shall be deemed to require either party to agree to the method of offer and sale specified in the preceding sentence, and (except as specified in clauses (A) and (B) above) the method of placement of any Shares by the Agent shall be at the Agent’s discretion.

 

(iv) Confirmation to the Company. If acting as sales agent hereunder, the Agent will provide written confirmation to the Company no later than the opening of the Trading Day next following the Trading Day on which it has placed Shares hereunder setting forth the number of shares sold on such Trading Day, the corresponding Sales Price and the Issuance Price payable to the Company in respect thereof.

 

(v) Settlement. Each issuance of Shares will be settled on the applicable Settlement Date for such issuance of Shares and, subject to the provisions of Section 5, on or before each Settlement Date, the Company will, or will cause its transfer agent to, electronically transfer the Shares being sold by crediting the Agent or its designee’s account at The Depository Trust Company through its Deposit/Withdrawal At Custodian (DWAC) System, or by such other means of delivery as may be mutually agreed upon by the parties hereto and, upon receipt of such Shares, which in all cases shall be freely tradable, transferable, registered shares in good deliverable form, the Agent will deliver, by wire transfer of immediately available funds, the related Issuance Price in same day funds delivered to an account designated by the Company prior to the Settlement Date. The Company may sell Shares to the Agent as principal at a price agreed upon at each relevant time Shares are sold pursuant to this Agreement (each, a “Time of Sale”).

 

(vi) Suspension or Termination of Sales. Consistent with standard market settlement practices, the Company or the Agent may, upon notice to the other party hereto in writing or by telephone (confirmed immediately by verifiable email), suspend any sale of Shares, and the period set forth in an Issuance Notice shall immediately terminate; provided, however, that (A) such suspension and termination shall not affect or impair either party’s obligations with respect to any Shares placed or sold hereunder prior to the receipt of such notice; (B) if the Company suspends or terminates any sale of Shares after the Agent confirms such sale to the Company, the Company shall still be obligated to comply with Section 3(b)(v) with respect to such Shares; and (C) if the Company defaults in its obligation to deliver Shares on a Settlement Date, the Company agrees that it will hold the Agent harmless against any loss, claim, damage or expense (including, without limitation, penalties, interest and reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company. The parties hereto acknowledge and agree that, in performing its obligations under this Agreement, the Agent may borrow Common Shares from stock lenders in the event that the Company has not delivered Shares to settle sales as required by subsection (v) above, and may use the Shares to settle or close out such borrowings. The Company agrees that no such notice shall be effective against the Agent unless it is made to the persons identified in writing by the Agent pursuant to Section 3(b)(i).

 

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(vii) No Guarantee of Placement, Etc. The Company acknowledges and agrees that (A) there can be no assurance that the Agent will be successful in placing Shares; (B) the Agent will incur no liability or obligation to the Company or any other Person if it does not sell Shares; and (C) the Agent shall be under no obligation to purchase Shares on a principal basis pursuant to this Agreement, except as otherwise specifically agreed by the Agent and the Company.

 

(viii) Material Non-Public Information. Notwithstanding any other provision of this Agreement, the Company and the Agent agree that the Company shall not deliver any Issuance Notice to the Agent, and the Agent shall not be obligated to place any Shares, during any period in which the Company is in possession of material non-public information.

 

(c) Fees. As compensation for services rendered, the Company shall pay to the Agent, on the applicable Settlement Date, the Selling Commission for the applicable Issuance Amount (including with respect to any suspended or terminated sale pursuant to Section 3(b)(vi)) by the Agent deducting the Selling Commission from the applicable Issuance Amount.

 

(d) Expenses. The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Shares (including all printing and engraving costs); (ii) all fees and expenses of the registrar and transfer agent of the Shares; (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Shares; (iv) all fees and expenses of the Company’s counsel, independent public or certified public accountants and other advisors; (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statements (including financial statements, exhibits, schedules, consents and certificates of experts), the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company, and all amendments and supplements thereto, and this Agreement; (vi) all filing fees, attorneys’ fees and expenses incurred by the Company or the Agent in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Shares for offer and sale under the state securities or blue sky laws or the provincial securities laws of Canada, and, if requested by the Agent, preparing and printing a “Blue Sky Survey” or memorandum and a “Canadian wrapper,” and any supplements thereto, advising the Agent of such qualifications, registrations, determinations and exemptions; (vii) the reasonable fees and disbursements of the Agent’s counsel, including the reasonable fees and expenses of counsel for the Agent in connection with, determining compliance of the sales of Shares with FINRA’s rules and FINRA review, if any, and approval of the Agent’s participation in the offering and distribution of the Shares; (viii) the filing fees incident to FINRA review, if any; (ix) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives, employees and officers of the Company and of the Agent and any such consultants, and the cost of any aircraft chartered in connection with the road show; and (x) the fees and expenses associated with listing the Shares on the Principal Market. The fees and disbursements of Agent’s counsel pursuant to subsections (vi) and (vii) above shall not exceed (A) $50,000 in connection with the execution of this Agreement and the establishment of the program contemplated hereby and (B) $15,000 in connection with each Triggering Event Date (as defined below) on which the Company is required to provide a certificate pursuant to Section 4(o).

 

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Section 4. ADDITIONAL COVENANTS

 

The Company covenants and agrees with the Agent as follows, in addition to any other covenants and agreements made elsewhere in this Agreement:

 

(a) Continued Compliance with Securities Laws. The Company will comply with the Securities Act and the Exchange Act so as to permit the completion of the distribution of the Shares as contemplated by this Agreement, the Registration Statements and the Prospectus. Without limiting the generality of the foregoing, the Company will, during the Agency Period: (i) file on a timely basis with the Commission and the Principal Market all reports and documents required to be filed under the Exchange Act; and (ii) either (A) include in its Quarterly reports on Form 10-Q and its Annual Reports on Form 10-K, a summary detailing, for the relevant reporting period, (1) the number of Shares sold through the Agent pursuant to this Agreement and (2) the net proceeds received by the Company from such sales or (B) prepare a prospectus supplement containing, or include in such other filing permitted by the Securities Act or Exchange Act (each an “Interim Prospectus Supplement”), such summary information and, at least once a quarter and subject to this Section 4, file such Interim Prospectus Supplement pursuant to Rule 424(b) under the Securities Act (and within the time periods required by Rule 424(b) and Rule 430B under the Securities Act).

 

(b) Certain Notifications and Required Actions. After the date of this Agreement, the Company shall promptly advise the Agent in writing of: (i) the receipt of any comments of, or requests for additional or supplemental information from, the Commission; (ii) the time and date of any filing of any post-effective amendment to any Registration Statement or any amendment or supplement to the Prospectus or any free writing prospectus; (iii) of the time and date that any post-effective amendment to any Registration Statement becomes effective; and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or any post-effective amendment thereto or any amendment or supplement to the Prospectus or of any order preventing or suspending the use of any free writing prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Shares from any securities exchange upon which they are listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company will use its reasonable best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with all applicable provisions of Rule 424(b), Rule 433 and Rule 430B under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under Rule 424(b) or Rule 433 were received in a timely manner by the Commission.

 

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(c) Amendments and Supplements to the Prospectus and Other Securities Act Matters. If any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus so that the Prospectus does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered (whether physically or through compliance with Rule 172 under the Securities Act or any similar rule) to a purchaser, not misleading, or if in the opinion of the Agent or counsel for the Agent it is otherwise necessary to amend or supplement the Prospectus to comply with applicable law, the Company agrees (subject to Section 4 (d) and Section 4 (e) hereof) to promptly prepare, file with the Commission and furnish at its own expense to the Agent, amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered (whether physically or through compliance with Rule 172 under the Securities Act or any similar rule) to a purchaser, not misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law. Neither the Agent’s consent to, nor delivery of, any such amendment or supplement shall constitute a waiver of any of the Company’s obligations under Section 4 (d) and Section 4 (e) hereof. Notwithstanding the foregoing, the Company shall not be required to file such amendment or supplement if there is no pending Issuance Notice and the Company believes that it is in its best interest not to file such amendment or supplement; provided, however, that if the Company subsequently chooses to deliver an Issuance Notice to the Agent, the Company agrees to file such amendment or supplement prior to the delivery of such Issuance Notice.

 

(d) Agent’s Review of Proposed Amendments and Supplements. Prior to amending or supplementing any Registration Statement or the Prospectus (including any amendment or supplement through incorporation of any report filed under the Exchange Act), the Company shall furnish to the Agent for review, a reasonable amount of time prior to the time of filing or use of the proposed amendment or supplement, a copy of each such proposed amendment or supplement. The Company shall not file or use any such proposed amendment or supplement without the Agent’s prior written consent, which consent shall not be unreasonably delayed, withheld or conditioned. The Company shall file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.

 

(e) Free Writing Prospectuses. The Company shall furnish to the Agent for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each proposed free writing prospectus or any amendment or supplement thereto to be prepared by or on behalf of, used by, or referred to by the Company, and the Company shall not file, use or refer to any proposed free writing prospectus or any amendment or supplement thereto without the Agent’s prior written consent. The Company shall furnish to the Agent, without charge, as many copies of any free writing prospectus prepared by or on behalf of, used by or referred to by the Company, as the Agent may reasonably request. If at any time when a prospectus is required by the Securities Act (including, without limitation, pursuant to Rule 173(d)) to be delivered in connection with sales of the Shares (but in any event if at any time through and including the date of this Agreement) there occurred or occurs an event or development as a result of which any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company conflicted or would conflict with the information contained in the Registration Statements or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at such time, not misleading, the Company shall promptly amend or supplement such free writing prospectus to eliminate or correct such conflict or so that the statements in such free writing prospectus as so amended or supplemented will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at such time, not misleading, as the case may be; provided, however, that prior to amending or supplementing any such free writing prospectus, the Company shall furnish to the Agent for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of such proposed amended or supplemented free writing prospectus, and the Company shall not file, use or refer to any such amended or supplemented free writing prospectus without the Agent’s prior written consent, which consent shall not be unreasonably delayed, withheld or conditioned.

 

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(f) Filing of Agent Free Writing Prospectuses. The Company shall not take any action that would result in the Agent or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Agent that the Agent otherwise would not have been required to file thereunder.

 

(g) Delivery of Registration Statement and Prospectus. After the date of this Agreement through the last time that a prospectus is required by the Securities Act (including, without limitation, pursuant to Rule 173(d)) to be delivered in connection with sales of the Shares, the Company shall furnish to the Agent, without charge, in connection with sales of the Shares, copies of the Registration Statement and each amendment thereto, and copies of the Prospectus and each amendment or supplement thereto in the form in which it is filed with the Commission pursuant to the Securities Act or Rule 424(b) under the Securities Act, both in such quantities as the Agent may reasonably request from time to time. If requested by the Agent, the Company shall cause to be prepared and delivered, at its expense, to the Agent an “electronic Prospectus” to be used by the Agent in connection with the offering and sale of the Shares. As used herein, the term “electronic Prospectus” means a form of Prospectus, and any amendment or supplement thereto, that meets each of the following conditions: (i) it shall be encoded in an electronic format, satisfactory to the Agent, that may be transmitted electronically by the Agent to offerees and purchasers of the Shares; (ii) it shall disclose the same information as the paper Prospectus, except to the extent that graphic and image material cannot be disseminated electronically, in which case such graphic and image material shall be replaced in the electronic Prospectus with a fair and accurate narrative description or tabular representation of such material, as appropriate; and (iii) it shall be in or convertible into a paper format or an electronic format, reasonably satisfactory to the Agent, that will allow investors to store and have continuously ready access to the Prospectus at any future time, without charge to investors (other than any fee charged for subscription to the Internet as a whole and for on-line time). The Company hereby confirms that it has included or will include in the Prospectus filed pursuant to EDGAR or otherwise with the Commission and in each Registration Statement at the time each such Registration Statement was declared effective an undertaking that, upon receipt of a request by an investor or his or her representative, the Company shall transmit or cause to be transmitted promptly, without charge, a paper copy of the Prospectus.

 

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(h) Future Reports to the Agent. During the Agency Period, the Company will furnish to the Agent, at 520 Madison Avenue, New York, New York 10022, Attention: Global Head of Syndicate: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders’ equity and cash flows for the year then ended and the opinion thereon of the Company’s independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, FINRA or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company furnished or made available generally to holders of its capital stock; provided, however, that the requirements of this Section 4(h) shall be satisfied to the extent that such reports, statement, communications, financial statements or other documents are available on EDGAR.

 

(i) Blue Sky Compliance. The Company shall cooperate with the Agent and counsel for the Agent to qualify or register the Shares for sale under (or obtain exemptions from the application of) the state securities or blue sky laws or Canadian provincial securities laws (or other foreign laws) of those jurisdictions designated by the Agent, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Shares. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Agent promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its reasonable best efforts to obtain the withdrawal thereof at the earliest possible moment.

 

(j) Earnings Statement. The Company will make generally available to its security holders and to the Agent as soon as practical an earnings statement (which need not be audited) covering a period of at least twelve months beginning with the first fiscal quarter of the Company commencing after the date of this Agreement that will satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.

 

(k) Listing; Reservation of Shares. (i) The Company will maintain the listing of the Shares on the Principal Market; and (ii) the Company will reserve and keep available at all times, free of preemptive rights, Common Shares for the purpose of enabling the Company to satisfy its obligations under this Agreement.

 

(l) Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Shares.

 

(m) Due Diligence. During the term of this Agreement, the Company will reasonably cooperate with any reasonable due diligence review conducted by the Agent in connection with the transactions contemplated hereby, including, without limitation, providing information and making available documents and senior corporate officers, during normal business hours and at the Company’s principal offices, as the Agent may reasonably request from time to time.

 

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(n) Representations and Warranties. The Company acknowledges that each delivery of an Issuance Notice and each delivery of Shares on a Settlement Date shall be deemed to be (i) an affirmation to the Agent that the representations and warranties of the Company contained in or made pursuant to this Agreement are true and correct as of the date of such Issuance Notice or of such Settlement Date, as the case may be, as though made at and as of each such date, except as may be disclosed in the Prospectus (including any documents incorporated by reference therein and any supplements thereto); and (ii) an undertaking that the Company will advise the Agent if any of such representations and warranties will not be true and correct as of the Settlement Date for the Shares relating to such Issuance Notice, as though made at and as of each such date (except that such representations and warranties shall be deemed to relate to the Registration Statements and the Prospectus as amended and supplemented relating to such Shares).

 

(o) Deliverables at Triggering Event Dates; Certificates. The Company agrees that on or prior to the date of the first Issuance Notice and, during the term of this Agreement after the date of the first Issuance Notice, upon:

 

(i) the filing of the Prospectus or the amendment or supplement of any Registration Statement or Prospectus (other than a prospectus supplement relating solely to an offering of securities other than the Shares or a prospectus filed pursuant to Section 4(a)(ii)(B)), by means of a post-effective amendment, sticker or supplement, but not by means of incorporation of documents by reference into the Registration Statements or Prospectus;

 

(ii) the filing with the Commission of an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q (including any Form 10-K/A or Form 10-Q/A containing amended financial information or a material amendment to the previously filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q), in each case, of the Company; or

 

(iii) the filing with the Commission of a Current Report on Form 8-K of the Company containing amended financial information (other than information “furnished” pursuant to Item 2.02 or 7.01 of Form 8-K or to provide disclosure pursuant to Item 8.01 of Form 8-K relating to reclassification of certain properties as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144) that is material to the offering of securities of the Company in the Agent’s reasonable discretion;

 

(any such event, a “Triggering Event Date”), the Company shall furnish the Agent (but in the case of clause (iii) above only if the Agent reasonably determines that the information contained in such Current Report on Form 8-K of the Company is material) with a certificate as of the Triggering Event Date, in the form and substance satisfactory to the Agent and its counsel, substantially similar to the form previously provided to the Agent and its counsel, modified, as necessary, to relate to the Registration Statements and the Prospectus as amended or supplemented, (A) confirming that the representations and warranties of the Company contained in this Agreement are true and correct on the date of such certificate as if made on such date, (B) confirming that the Company has performed all of its obligations hereunder to be performed on or prior to the date of such certificate and as to the matters set forth in Section 5(a)(iii) hereof, and (C) containing any other certification that the Agent shall reasonably request. The requirement to provide a certificate under this Section 4(o) shall be waived for any Triggering Event Date occurring at a time when no Issuance Notice is pending or a suspension is in effect, which waiver shall continue until the earlier to occur of the date the Company delivers instructions for the sale of Shares hereunder (which for such calendar quarter shall be considered a Triggering Event Date) and the next occurring Triggering Event Date. Notwithstanding the foregoing, if the Company subsequently decides to sell Shares following a Triggering Event Date when a suspension was in effect and did not provide the Agent with a certificate under this Section 4(o), then before the Company delivers the instructions for the sale of Shares or the Agent sells any Shares pursuant to such instructions, the Company shall provide the Agent with a certificate in conformity with this Section 4(o) dated as of the date that the instructions for the sale of Shares are issued.

 

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(p) Legal Opinions. On or prior to the date of the first Issuance Notice and on or prior to each Triggering Event Date with respect to which the Company is obligated to deliver a certificate pursuant to Section 4 (o) for which no waiver is applicable and excluding the date of this Agreement, a negative assurances letter and the written legal opinion of Lowenstein Sandler LLP, counsel to the Company, Covington & Burling LLP, counsel to the Agent, and Lowenstein Sandler LLP, intellectual property counsel to the Company, each dated the date of delivery, in form and substance reasonably satisfactory to Agent and its counsel, substantially similar to the form previously provided to the Agent and its counsel, modified, as necessary, to relate to the Registration Statements and the Prospectus as then amended or supplemented. In lieu of such opinions for subsequent periodic filings, in the discretion of the Agent, the Company may furnish a reliance letter from such counsel to the Agent, permitting the Agent to rely on a previously delivered opinion letter, modified as appropriate for any passage of time or Triggering Event Date (except that statements in such prior opinion shall be deemed to relate to the Registration Statements and the Prospectus as amended or supplemented as of such Triggering Event Date).

 

(q) Comfort Letter. On or prior to the date of the first Issuance Notice and on or prior to each Triggering Event Date with respect to which the Company is obligated to deliver a certificate pursuant to Section 4 (o) for which no waiver is applicable and excluding the date of this Agreement, the Company shall cause EisnerAmper LLP, the independent registered public accounting firm who has audited the financial statements included or incorporated by reference in the Registration Statements, to furnish the Agent a comfort letter, dated the date of delivery, in form and substance reasonably satisfactory to the Agent and its counsel, substantially similar to the form previously provided to the Agent and its counsel; provided, however, that any such comfort letter will only be required on the Triggering Event Date specified to the extent that it contains financial statements filed with the Commission under the Exchange Act and incorporated or deemed to be incorporated by reference into a Prospectus. If requested by the Agent, the Company shall also cause a comfort letter to be furnished to the Agent within ten (10) Trading Days of the date of occurrence of any material transaction or event requiring the filing of a Current Report on Form 8-K containing material amended financial information of the Company, including the restatement of the Company’s financial statements. The Company shall be required to furnish no more than one comfort letter hereunder per calendar quarter.

 

(r) Secretary’s Certificate. On or prior to the date of the first Issuance Notice and on or prior to each Triggering Event Date, the Company shall furnish the Agent a certificate executed by the Secretary of the Company, signing in such capacity, dated the date of delivery (i) certifying that attached thereto are true and complete copies of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, the issuance of the Shares pursuant to this Agreement), which authorization shall be in full force and effect on and as of the date of such certificate, (ii) certifying and attesting to the office, incumbency, due authority and specimen signatures of each Person who executed this Agreement for or on behalf of the Company, and (iii) containing any other certification that the Agent shall reasonably request.

 

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(s) Agent’s Own Account; Clients’ Account. The Company consents to the Agent trading, in compliance with applicable law, in the Common Shares for the Agent’s own account and for the account of its clients at the same time as sales of the Shares occur pursuant to this Agreement.

 

(t) Investment Limitation. The Company shall not invest or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of its subsidiaries to register as an investment company under the Investment Company Act.

 

(u) No Stabilization or Manipulation; Compliance with Regulation M. The Company will not take, and will ensure that no affiliate of the Company will take, directly or indirectly, any action designed to or that might cause or result in stabilization or manipulation of the price of the Shares or any reference security with respect to the Shares, whether to facilitate the sale or resale of the Shares or otherwise, and the Company will, and shall cause each of its Affiliates to, comply with all applicable provisions of Regulation M under the Exchange Act.

 

(v) Notice of Other Sale. Without the written consent of the Agent, the Company will not, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any Common Shares or securities convertible into or exchangeable for Common Shares (other than Shares hereunder), warrants or any rights to purchase or acquire Common Shares, during the period beginning on the third Trading Day immediately prior to the date on which any Issuance Notice is delivered to the Agent hereunder and ending on the third Trading Day immediately following the Settlement Date with respect to Shares sold pursuant to such Issuance Notice; and will not directly or indirectly enter into any other “at the market” or continuous equity transaction offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any Common Shares (other than the Shares offered pursuant to this Agreement) or securities convertible into or exchangeable for Common Shares, warrants or any rights to purchase or acquire, Common Shares prior to the termination of this Agreement; provided, however, that such restrictions will not be required in connection with the Company’s (i) issuance of Common Shares or options to purchase Common Shares, or issuance of Common Shares upon the exercise of options, or the grant of other equity awards pursuant to any Company Stock Plan, (ii) issuance of Common Shares upon the exercise of warrants described as outstanding in the Registration Statements and the Prospectus and (iii) issuance of Common Shares in connection with mergers or acquisitions of business, entities, property or other assets, joint ventures or strategic alliances, provided that the aggregate number of Common Shares issued under this subsection (iii) pursuant to any such arrangement shall not exceed five percent (5%) of the number of Common Shares outstanding immediately prior to giving effect to such issuance.

 

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Section 5. CONDITIONS TO DELIVERY OF ISSUANCE NOTICES AND TO SETTLEMENT

 

(a) Conditions Precedent to the Right of the Company to Deliver an Issuance Notice and the Obligation of the Agent to Sell Shares. The right of the Company to deliver an Issuance Notice hereunder is subject to the satisfaction, on the date of delivery of such Issuance Notice, and the obligation of the Agent to use its commercially reasonable efforts to place Shares during the applicable period set forth in the Issuance Notice is subject to the satisfaction, on each Trading Day during the applicable period set forth in the Issuance, of each of the following conditions:

 

  (i) Accuracy of the Company’s Representations and Warranties; Performance by the Company. The Company shall have delivered the certificate required to be delivered pursuant to Section 4(o) on or before the date on which delivery of such certificate is required pursuant to Section 4(o). The Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to such date, including, but not limited to, the covenants contained in Section 4(p), Section 4(q) and Section 4(r).
     
  (ii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby that prohibits or directly and materially adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by this Agreement.
     
  (iii) Material Adverse Changes. Except as disclosed in the Prospectus and the Time of Sale Information, (A) in the judgment of the Agent there shall not have occurred any Material Adverse Effect; and (B) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any securities of the Company or any of its subsidiaries by any “nationally recognized statistical rating organization” as such term is defined for purposes of Section 3(a)(62) of the Exchange Act.

 

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  (iv) No Suspension of Trading in or Delisting of Common Shares; Other Events. The trading of the Common Shares (including without limitation the Shares) shall not have been suspended by the Commission, the Principal Market or FINRA and the Common Shares (including without limitation the Shares) shall have been approved for listing or quotation on and shall not have been delisted from the Nasdaq Stock Market, the New York Stock Exchange or any of their constituent markets. There shall not have occurred (and be continuing in the case of occurrences under clauses (A) and (B) below) any of the following: (A) trading or quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by the Principal Market or trading in securities generally on either the Principal Market shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the FINRA; (B) a general banking moratorium shall have been declared by any of federal or New York, authorities; or (C) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States’ or international political, financial or economic conditions, as in the judgment of the Agent is material and adverse and makes it impracticable to market the Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities.

 

(b) Documents Required to be Delivered on each Issuance Notice Date. The Agent’s obligation to use its commercially reasonable efforts to place Shares hereunder shall additionally be conditioned upon the delivery to the Agent on or before the Issuance Notice Date of a certificate in form and substance reasonably satisfactory to the Agent, executed by the Chief Executive Officer, President or Chief Financial Officer of the Company, to the effect that all conditions to the delivery of such Issuance Notice shall have been satisfied as at the date of such certificate (which certificate shall not be required if the foregoing representations shall be set forth in the Issuance Notice).

 

(c) No Misstatement or Material Omission. Agent shall not have advised the Company that the Registration Statements, the Prospectus or the Time of Sale Information, or any amendment or supplement thereto, contains an untrue statement of fact that in the Agent’s reasonable opinion is material, or omits to state a fact that in the Agent’s reasonable opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading.

 

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Section 6. INDEMNIFICATION AND CONTRIBUTION

 

(a) Indemnification of the Agent. The Company agrees to indemnify and hold harmless the Agent, its officers and employees, and each person, if any, who controls the Agent within the meaning of the Securities Act or the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which the Agent or such officer, employee or controlling person may become subject, under the Securities Act, the Exchange Act, other federal or state statutory law or regulation, or the laws or regulations of foreign jurisdictions where Shares have been offered or sold or at common law or otherwise (including in settlement of any litigation), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430B under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any free writing prospectus that the Company has used, referred to or filed, or is required to file, pursuant to Rule 433(d) of the Securities Act or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (iii) any act or failure to act or any alleged act or failure to act by the Agent in connection with, or relating in any manner to, the Common Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i) or (ii) above, provided that the Company shall not be liable under this clause (iii) to the extent that a court of competent jurisdiction shall have determined by a final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by the Agent through its bad faith or willful misconduct, and to reimburse the Agent and each such officer, employee and controlling person for any and all expenses (including the fees and disbursements of counsel chosen by the Agent) as such expenses are reasonably incurred by the Agent or such officer, employee or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Agent expressly for use in the Registration Statements, any such free writing prospectus or the Prospectus (or any amendment or supplement thereto), it being understood and agreed that the only such information furnished by the Agent to the Company consists of the first sentence in the ninth paragraph under the caption “Plan of Distribution” in the Prospectus. The indemnity agreement set forth in this Section 6(a) shall be in addition to any liabilities that the Company may otherwise have.

 

(b) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 6 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the fees and expenses of more than one separate counsel (together with local counsel), representing the indemnified parties who are parties to such action), which counsel (together with any local counsel) for the indemnified parties shall be selected by the Agent (in the case of counsel for the indemnified parties referred to in Section 6(a) above), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party and shall be paid as they are incurred.

 

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(c) Settlements. The indemnifying party under this Section 6 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(b) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request; and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding.

 

(d) Contribution. If the indemnification provided for in this Section 6 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Agent, on the other hand, from the offering of the Shares pursuant to this Agreement; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Agent, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Agent, on the other hand, in connection with the offering of the Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total gross proceeds from the offering of the Shares (before deducting expenses) received by the Company bear to the total commissions received by the Agent. The relative fault of the Company, on the one hand, and the Agent, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Agent, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

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The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6(b), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 6(b) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 6(d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 6(b) for purposes of indemnification.

 

The Company and the Agent agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d).

 

Notwithstanding the provisions of this Section 6(d), the Agent shall not be required to contribute any amount in excess of the agent fees received by the Agent in connection with the offering contemplated hereby. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 6(d), each officer and employee of the Agent and each person, if any, who controls the Agent within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Agent, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company.

 

Section 7. TERMINATION & SURVIVAL

 

(a) Term. Subject to the provisions of this Section 7, the term of this Agreement shall continue from the date of this Agreement until the end of the Agency Period, unless earlier terminated by the parties to this Agreement pursuant to this Section 7.

 

(b) Termination; Survival Following Termination.

 

  (i) Either party may terminate this Agreement prior to the end of the Agency Period, by giving written notice as required by this Agreement, upon five (5) Trading Days’ notice to the other party; provided that, (A) if the Company terminates this Agreement after the Agent confirms to the Company any sale of Shares, the Company shall remain obligated to comply with Section 3(b)(v) with respect to such Shares and (B) Section 2, Section 6, Section 7 and Section 8 shall survive termination of this Agreement. If termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall nevertheless settle in accordance with the terms of this Agreement.

 

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  (ii) In addition to the survival provision of Section 7(b)(i), the respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers and of the Agent set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Agent or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and, anything herein to the contrary notwithstanding, will survive delivery of and payment for the Shares sold hereunder and any termination of this Agreement.

 

Section 8. MISCELLANEOUS

 

(a) Press Releases and Disclosure. The Company may issue a press release describing the material terms of the transactions contemplated hereby as soon as practicable following the date of this Agreement, and may file with the Commission a Current Report on Form 8-K, with this Agreement attached as an exhibit thereto, describing the material terms of the transactions contemplated hereby, and the Company shall consult with the Agent prior to making such disclosures, and the parties hereto shall use all commercially reasonable efforts, acting in good faith, to agree upon a text for such disclosures that is reasonably satisfactory to all parties hereto. No party hereto shall issue thereafter any press release or like public statement (including, without limitation, any disclosure required in reports filed with the Commission pursuant to the Exchange Act) related to this Agreement or any of the transactions contemplated hereby without the prior written approval of the other party hereto, except as may be necessary or appropriate in the reasonable opinion of the party seeking to make disclosure to comply with the requirements of applicable law or stock exchange rules. If any such press release or like public statement is so required, the party making such disclosure shall consult with the other party prior to making such disclosure, and the parties shall use all commercially reasonable efforts, acting in good faith, to agree upon a text for such disclosure that is reasonably satisfactory to all parties hereto.

 

(b) No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (i) the transactions contemplated by this Agreement, including the determination of any fees, are arm’s-length commercial transactions between the Company and the Agent, (ii) when acting as a principal under this Agreement, the Agent is and has been acting solely as a principal and is not the agent or fiduciary of the Company, or its stockholders, creditors, employees or any other party, (iii) the Agent has not assumed nor will assume an advisory or fiduciary responsibility in favor of the Company with respect to the transactions contemplated hereby or the process leading thereto (irrespective of whether the Agent has advised or is currently advising the Company on other matters) and the Agent does not have any obligation to the Company with respect to the transactions contemplated hereby except the obligations expressly set forth in this Agreement, (iv) the Agent and its respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, and (v) the Agent has not provided any legal, accounting, regulatory or tax advice with respect to the transactions contemplated hereby and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

 

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(c) Research Analyst Independence. The Company acknowledges that the Agent’s research analysts and research departments are required to and should be independent from their respective investment banking divisions and are subject to certain regulations and internal policies, and as such the Agent’s research analysts may hold views and make statements or investment recommendations and/or publish research reports with respect to the Company or the offering that differ from the views of their respective investment banking divisions. The Company understands that the Agent is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account of its customers and hold long or short positions in debt or equity securities of the companies that may be the subject of the transactions contemplated by this Agreement.

 

(d) Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows:

 

If to the Agent:

 

Jefferies LLC
520 Madison Avenue
New York, NY 10022
Facsimile: (646) 786-5719
Attention: General Counsel

 

with a copy (which shall not constitute notice) to:

 

Covington & Burling LLP

620 Eighth Avenue

New York, New York 10018

Attention: Donald Murray

 

If to the Company:

 

Corbus Pharmaceuticals Holdings, Inc.
500 River Ridge Drive
Norwood, MA 02062

Email: smoran@corbuspharma.com

Attention: Sean Moran

Chief Financial Officer

 

with a copy (which shall not constitute notice) to:

 

Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, New York 10020
Facsimile: (973) 507-2476
Attention: Steven M. Skolnick

 

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Any party hereto may change the address for receipt of communications by giving written notice to the others in accordance with this Section 8(d).

 

(e) Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 6, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term “successors” shall not include any purchaser of the Shares as such from the Agent merely by reason of such purchase.

 

(f) Partial Unenforceability. The invalidity or unenforceability of any Article, Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Article, Section, paragraph or provision hereof. If any Article, Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

 

(g) Governing Law Provisions. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed in such state. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) may be instituted in the federal courts of the United States of America located in the Borough of Manhattan in the City of New York or the courts of the State of New York in each case located in the Borough of Manhattan in the City of New York (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.

 

(h) General Provisions. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and may be delivered by facsimile transmission or by electronic delivery of a portable document format (PDF) file. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The Article and Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.

 

[Signature Page Immediately Follows]

 

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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms

 

  Very truly yours,
   
  CORBUS PHARMACEUTICALS HOLDINGS, INC.
                                 
  By: /s/ Yuval Cohen, PhD
  Name: Yuval Cohen, PhD.
  Title: Chief Executive Officer

 

The foregoing Agreement is hereby confirmed and accepted by the Agent in New York, New York as of the date first above written.

 

JEFFERIES LLC  
     
By:

/s/ Dustin Tyner

 
Name:

Dustin Tyner

 
Title: Managing Director  

 

 

 
 

 

EXHIBIT A

 

ISSUANCE NOTICE

 

[Date]

 

Jefferies LLC

520 Madison Avenue

New York, New York 10022

 

Attn: [__________]

 

Reference is made to the Open Market Sale Agreement between Corbus Pharmaceuticals Holdings, Inc. (the “Company”) and Jefferies LLC (the “Agent”) dated as of August 6, 2020. The Company confirms that all conditions to the delivery of this Issuance Notice are satisfied as of the date hereof.

 

Date of Delivery of Issuance Notice (determined pursuant to Section 3(b)(i)): _______________________

 

Issuance Amount (equal to the total Sales Price for such Shares):     
      
   $ 
Number of days in selling period:     
First date of selling period:    
Last date of selling period:     
Settlement Date(s) if other than standard T+2 settlement:     

 

Floor Price Limitation (in no event less than $1.00 without the prior written consent of the Agent, which consent may be withheld in the Agent’s sole discretion): $ ____ per share

 

Comments: _____________________________________________________________________________________

 

  By:      
  Name:  
  Title:  

 

A-1
 

 

Schedule A

 

Notice Parties

 

The Company

 

Sean Moran

 

The Agent

 

Dustin Tyner

 

Mike Magarro

 

Don Lynaugh

 

 

 

 

Exhibit 5.1

 

[Lowenstein Sandler LLP letterhead]

 

August 6, 2020

 

Corbus Pharmaceuticals Holdings, Inc.

500 River Ridge Drive

Norwood, MA 02062

 

Re: Sale of Common Stock registered pursuant to
    Shelf Registration Statement on Form S-3

 

Ladies and Gentlemen:

 

We have acted as counsel to Corbus Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), in connection with the offer and sale by the Company of up to an aggregate of $150,000,000 of shares of its common stock, par value $0.0001 per share (the “Shares”), pursuant to the Open Market Sale AgreementSM (the “Sale Agreement”), dated August 6, 2020, by and between the Company and Jefferies LLC, as sales agent. The Shares are being offered for sale pursuant to the Company’s registration statements on Form S-3 (File No. 333-237588 and 333-222447) filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”) and the rules and regulations promulgated thereunder, the prospectuses, dated May 1, 2020 and January 17, 2018 (the “Prospectuses”) and the Prospectus Supplement that will be filed pursuant to Rule 424(b) under the Securities Act, dated August 6, 2020 (the “Prospectus Supplement”).

 

We understand that the Shares are to be issued by the Company and sold by Jefferies LLC pursuant to the Sales Agreement, as described in the Registration Statements, the Prospectuses and the Prospectus Supplement.

 

In connection with this opinion, we have (i) investigated such questions of law, (ii) examined originals or certified, conformed or reproduction copies of such agreements, instruments, documents and records of the Company, such certificates of public officials and such other documents and (iii) received such information from officers and representatives of the Company as we have deemed necessary or appropriate for the purposes of this opinion.

 

In all such examinations, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of original and certified documents and the conformity to original or certified documents of all copies submitted to us as conformed or reproduction copies. As to various questions of fact relevant to the opinion expressed herein, we have relied upon, and assume the accuracy of, the representations and warranties set forth in the Sale Agreement, and certificates and oral or written statements and other information of or from public officials and officers and representatives of the Company.

 

Based upon the foregoing and subject to the limitations, qualifications and assumptions set forth herein, we are of the opinion that the Shares have been duly authorized for issuance, and when issued and paid for in accordance with the terms and conditions of the Sale Agreement, the Shares will be validly issued, fully paid and non-assessable.

 

The opinion expressed herein is limited to the applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”), as currently in effect, and reported judicial decisions interpreting such provisions of the DGCL.

 

The opinion expressed herein is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated herein. We undertake no obligation to supplement this letter if any applicable laws change after the date hereof or if we become aware of any facts that might change the opinion expressed herein after that date or for any other reason.

 

We hereby consent to the inclusion of this opinion as as Exhibit 5.1 to the Quarterly Report on Form 10-Q filed by the Company on the date hereof and which is incorporated by reference into the Prospectuses and to the references to this firm under the caption “Legal Matters” in the Prospectus Supplement. In giving these consents, we do not admit that we are “experts” within the meaning of Section 11 of the Securities Act or within the category of persons whose consent is required by Section 7 of the Securities Act.

 

  Very truly yours,
   
  /s/ Lowenstein Sandler LLP

 

  

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT

 

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yuval Cohen, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q/A for the period ended June 30, 2020 of Corbus Pharmaceuticals Holdings, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financing reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

    a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
       
    b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
       
    c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
       
    d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

    a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
       
    b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

 

  Date: August 31, 2020
   
  /s/ Yuval Cohen
  Yuval Cohen
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

 

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT

 

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Sean M. Moran, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q/A for the period ended June 30, 2020 of Corbus Pharmaceuticals Holdings, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financing reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

    a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
       
    b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
       
    c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
       
    d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

    a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
       
    b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: August 31, 2020
   
  /s/ Sean Moran
  Sean Moran
  Chief Financial Officer
  (Principal Financial Officer and Chief Accounting Officer)

 

 

 

 

Exhibit 32.1

 

Certification of Chief Executive Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

This Certification is being filed pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. This Certification is included solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. In connection with the accompanying Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2020 (the “Quarterly Report”) of Corbus Pharmaceuticals Holdings, Inc. (the “Company”), the undersigned hereby certifies in his capacity as an officer of the Company that to such officer’s knowledge:

 

(1) The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By: /s/ Yuval Cohen
Dated: August 31, 2020   Yuval Cohen
    Chief Executive Officer
    (Principal Executive Officer)

 

 

 

 

Exhibit 32.2

 

Certification of Chief Financial Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

This Certification is being filed pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. This Certification is included solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. In connection with the accompanying Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2020, (the “Quarterly Report”) of Corbus Pharmaceuticals Holdings, Inc. (the “Company”), the undersigned hereby certifies in his capacity as an officer of the Company that to such officer’s knowledge:

 

(1) The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By: /s/ Sean Moran
Dated: August 31, 2020   Sean Moran
    Chief Financial Officer
    (Principal Financial Officer and Chief Accounting Officer)

 

 

 

 

v3.20.2
Cover - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Cover [Abstract]    
Document Type 10-Q/A  
Amendment Flag true  
Amendment Description Corbus Pharmaceuticals Holdings, Inc. (the “Company”) is filing this amendment (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Quarterly Report”) to revise a clerical error with respect to the status of the Company as a “non-accelerated filer.” The cover page of the Quarterly Report has been revised to indicate that the Company is an “accelerated filer.” In addition, this amendment is being filed to furnish Exhibit 101 (which was previously included in the Quarterly Report) formatted in iXBRL (Inline eXtensible Business Reporting Language), and Exhibit 104 (Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)), which had been inadvertently omitted from the Quarterly Report. For the convenience of the reader, this report on Form 10-Q/A refiles in its entirety the Quarterly Report.  Additionally, this filing includes updated CEO and CFO certifications filed as Exhibits 31.1, 31.2, 32.1, 32.2. No other changes have been made to the Quarterly Report.  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --12-31  
Entity File Number 001-37348  
Entity Registrant Name Corbus Pharmaceuticals Holdings, Inc.  
Entity Central Index Key 0001595097  
Entity Tax Identification Number 46-4348039  
Entity Incorporation, State or Country Code DE  
Entity Address, Address Line One 500 River Ridge Drive  
Entity Address, City or Town Norwood  
Entity Address, State or Province MA  
Entity Address, Postal Zip Code 02062  
City Area Code (617)  
Local Phone Number 963-0100  
Title of 12(b) Security Common Stock, par value $0.0001 per share  
Trading Symbol CRBP  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   81,712,134
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 63,468,769 $ 31,748,686
Customer receivable 5,000,000
Stock subscriptions receivable 16,675,971
Prepaid expenses and other current assets 2,872,275 3,724,932
Contract asset 2,681,065
Total current assets 88,017,015 38,154,683
Property and equipment, net 4,547,303 5,083,865
Operating lease right of use assets 5,539,677 5,818,983
Other assets 14,085 84,968
Total assets 98,118,080 49,142,499
Current liabilities:    
Notes payable 108,936 752,659
Accounts payable 12,697,845 11,091,363
Accrued expenses 28,144,144 22,447,939
Deferred revenue, current 270,530
Operating lease liabilities, current 873,525 595,745
Total current liabilities 42,094,980 34,887,706
Operating lease liabilities, noncurrent 7,609,221 8,097,228
Total liabilities 49,704,201 42,984,934
Commitments and Contingencies
Stockholders’ equity    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019
Common stock, $0.0001 par value; 150,000,000 shares authorized, 80,655,848 and 64,672,893 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 8,065 6,467
Additional paid-in capital 308,991,895 198,975,056
Accumulated deficit (260,586,081) (192,823,958)
Total stockholders’ equity 48,413,879 6,157,565
Total liabilities and stockholders’ equity $ 98,118,080 $ 49,142,499
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 80,655,848 64,672,893
Common stock, shares outstanding 80,655,848 64,672,893
v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue from awards and licenses $ 286,346 $ 29,094,583 $ 2,048,405 $ 30,980,265
Operating expenses:        
Research and development 30,686,071 22,181,409 54,633,937 43,965,113
General and administrative 7,738,968 5,207,962 15,438,447 11,832,709
Total operating expenses 38,425,039 27,389,371 70,072,384 55,797,822
Operating income (loss) (38,138,693) 1,705,212 (68,023,979) (24,817,557)
Other income (expense), net:        
Interest income, net 12,649 448,717 114,642 783,312
Foreign currency exchange gain (loss), net 20,721 (1,276) 147,214 (47,911)
Other income, net 33,370 447,441 261,856 735,401
Net income (loss) $ (38,105,323) $ 2,152,653 $ (67,762,123) $ (24,082,156)
Net income (loss) per share, basic $ (0.52) $ 0.03 $ (0.95) $ (0.38)
Net income (loss) per share, diluted $ (0.52) $ 0.03 $ (0.95) $ (0.38)
Weighted average number of common shares outstanding, basic 73,885,548 64,546,628 71,578,975 63,119,196
Weighted average number of common shares outstanding, diluted 73,885,548 68,511,587 71,578,975 63,119,196
v3.20.2
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Beginning balance, value at Dec. 31, 2018 $ 5,725 $ 148,888,635 $ (121,370,240) $ 27,524,120
Beginning balance, shares at Dec. 31, 2018 57,247,496      
Stock-based compensation expense 5,906,427 5,906,427
Issuance of common stock, net of issuance costs of $2,571,552 $ 620 37,718,078 37,718,698
Issuance of common stock, net of issuance costs of $2,571,552, shares 6,198,500      
Issuance of common stock upon exercise of warrants $ 112 (112)
Issuance of common stock upon exercise of warrants, shares 1,119,868      
Issuance of common stock upon exercise of stock options $ 8 306,703 306,711
Issuance of common stock upon exercise of stock options, shares 78,229      
Net loss (24,082,156) (24,082,156)
Ending balance, value at Jun. 30, 2019 $ 6,465 192,819,731 (145,452,396) 47,373,800
Ending balance, shares at Jun. 30, 2019 64,644,093      
Beginning balance, value at Mar. 31, 2019 $ 6,446 189,899,554 (147,605,049) 42,300,951
Beginning balance, shares at Mar. 31, 2019 64,455,221      
Stock-based compensation expense 2,817,488 2,817,488
Issuance of common stock upon exercise of warrants $ 17 (17)
Issuance of common stock upon exercise of warrants, shares 172,414      
Issuance of common stock upon exercise of stock options $ 2 102,706 102,708
Issuance of common stock upon exercise of stock options, shares 16,458      
Net loss 2,152,653 2,152,653
Ending balance, value at Jun. 30, 2019 $ 6,465 192,819,731 (145,452,396) 47,373,800
Ending balance, shares at Jun. 30, 2019 64,644,093      
Beginning balance, value at Dec. 31, 2019 $ 6,467 198,975,056 (192,823,958) 6,157,565
Beginning balance, shares at Dec. 31, 2019 64,672,893      
Stock-based compensation expense 6,485,779 6,485,779
Issuance of common stock, net of issuance costs of $2,571,552 $ 1,578 103,228,775 103,230,353
Issuance of common stock, net of issuance costs of $2,571,552, shares 15,780,461      
Issuance of common stock upon exercise of stock options $ 20 302,285 $ 302,305
Issuance of common stock upon exercise of stock options, shares 202,494     202,494
Net loss (67,762,123) $ (67,762,123)
Ending balance, value at Jun. 30, 2020 $ 8,065 308,991,895 (260,586,081) 48,413,879
Ending balance, shares at Jun. 30, 2020 80,655,848      
Beginning balance, value at Mar. 31, 2020 $ 7,249 245,164,999 (222,480,758) 22,691,490
Beginning balance, shares at Mar. 31, 2020 72,490,449      
Stock-based compensation expense 3,348,260 3,348,260
Issuance of common stock, net of issuance costs of $2,571,552 $ 811 60,192,331 60,193,142
Issuance of common stock, net of issuance costs of $2,571,552, shares 8,113,794      
Issuance of common stock upon exercise of warrants, shares      
Issuance of common stock upon exercise of stock options $ 5 286,305 286,310
Issuance of common stock upon exercise of stock options, shares 51,605      
Net loss (38,105,323) (38,105,323)
Ending balance, value at Jun. 30, 2020 $ 8,065 $ 308,991,895 $ (260,586,081) $ 48,413,879
Ending balance, shares at Jun. 30, 2020 80,655,848      
v3.20.2
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (Parenthetical) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Jun. 30, 2019
Statement of Stockholders' Equity [Abstract]      
Stock issuance cost $ 2,051,853 $ 5,014,643 $ 2,571,552
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net loss $ (67,762,123) $ (24,082,156)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 6,485,779 5,906,427
Depreciation and amortization 639,676 308,331
Gain on foreign exchange (120,098) (591)
Operating lease right of use asset amortization 279,306 232,924
Changes in operating assets and liabilities:    
Decrease in customer receivable 5,000,000
Decrease in prepaid expenses 852,657 255,897
Decrease in contract asset 2,681,065
Decrease (increase) in other assets 70,883 (79,402)
Increase in accounts payable 1,866,324 1,097,910
Increase in accrued expenses 5,737,946 8,989,731
Decrease in deferred revenue (4,729,470) (3,980,265)
(Decrease) increase in operating lease liabilities (210,227) 279,063
Net cash used in operating activities (54,208,282) (6,072,131)
Cash flows from investing activities:    
Purchases of property and equipment (479,779) (256,898)
Net cash used in investing activities (479,779) (256,898)
Cash flows from financing activities:    
Principal payments on notes payable (643,723) (294,972)
Proceeds from issuance of common stock 90,003,980 40,596,961
Issuance costs paid for common stock financings (2,952,113) (2,566,137)
Principal payments on capital lease obligation (375)
Net cash provided by financing activities 86,408,144 37,735,477
Net increase in cash and cash equivalents 31,720,083 31,406,448
Cash and cash equivalents at beginning of the period 31,748,686 41,748,468
Cash and cash equivalents at end of the period 63,468,769 73,154,916
Supplemental disclosure of cash flow information and non-cash transactions:    
Cash paid during the period for interest 12,752 6,300
Stock issuance costs included in accounts payable or accrued expenses 195,181 5,415
Stock subscriptions receivable 16,675,971
Purchases of property and equipment included in accounts payable or accrued expenses 259,731
Right of use assets obtained in exchange for lease obligation upon adoption of ASU 2016-02 2,399,524
Right of use assets obtained in exchange for lease obligation upon entry into February 2019 Lease Agreement $ 3,529,090
v3.20.2
NATURE OF OPERATIONS
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF OPERATIONS

 

1. NATURE OF OPERATIONS

 

Business

 

Corbus Pharmaceuticals Holdings, Inc. (the “Company”) is a clinical stage pharmaceutical company, focused on the development and commercialization of novel therapeutics to treat rare, chronic, and serious inflammatory and fibrotic diseases. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and the Company will be dependent on raising substantial additional capital before it becomes profitable and it may never achieve profitability.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management of the Company, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2020, the results of its operations and changes in stockholders’ equity for the three months and six months ended June 30, 2020 and 2019 and its cash flows for the six months ended June 30, 2020 and 2019. The December 31, 2019 condensed consolidated balance sheet was derived from audited financial statements. The Company prepared the condensed consolidated financial statements following the requirements of the SEC for interim reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020. The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.

 

v3.20.2
LIQUIDITY AND GOING CONCERN
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
LIQUIDITY AND GOING CONCERN

 

2. LIQUIDITY AND GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses since inception and as of June 30, 2020, had an accumulated deficit of $260,586,081. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of its product candidates and its preclinical and clinical programs, strategic alliances and the development of its administrative organization.

 

Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. The Company will need to raise significant additional capital to continue to fund the clinical trials for lenabasum and CRB-4001 (see Note 4). The Company may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to the Company’s stockholders and certain of those securities may have rights senior to those of the Company’s common shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights.

 

 

The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or eliminate some or all of the Company’s planned clinical trials. These factors among others cause management to conclude there is a substantial doubt about the Company’s ability to continue as a going concern. There have been no adjustments made to these consolidated financial statements as a result of these uncertainties.

 

On February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock (“February 2020 Offering”) (See Note 10).

 

On April 7, 2020, the Company entered into an Open Market Sale AgreementSM (“April 2020 Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which Jefferies is serving as the Company’s sales agent to sell up to $75,000,000 of shares of the Company’s common stock through an “at the market offering,” (See Note 10).

 

In June 2020, the Company became entitled to receive $5,000,000 upon the Company’s achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Cystic Fibrosis Program Related Investment Agreement (“Investment Agreement”) with the Cystic Fibrosis Foundation (“CFF”), a non-profit drug discovery and development corporation, pursuant to which the Company received a development award for up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis. The Company received the $5,000,000 payment from the CFF for this milestone achievement in July 2020. The Company expects the remainder of the 2018 CFF Award will be paid to the Company incrementally upon the achievement of the remaining milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. (See Note 9).

 

On July 28, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, the Company, as guarantor, each lender party thereto (the “Lenders”), K2 HealthVentures LLC (“K2HV”), an unrelated third party, as administrative agent for the Lenders, and Ankura Trust Company, LLC, an unrelated third party, as collateral agent for the Lenders, pursuant to which K2HV may provide the Company with term loans in an aggregate principal amount of up to a $50,000,000. (See Note 13).

 

v3.20.2
SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:

 

Use of Estimates

 

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur. The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical obligations, the recognition of revenue under the Investment Agreement (See Note 9), and the valuation of the CFF Warrant discussed in Note 12.

 

 

Cash and Cash Equivalents

 

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months. At June 30, 2020 and December 31, 2019, cash equivalents were comprised of money market funds. The Company had no marketable investments at June 30, 2020 and December 31, 2019.

 

Cash and cash equivalents consists of the following:

 

 

   June 30,
2020
   December 31,
2019
 
Cash  $764,791   $884,115 
Money market fund   62,703,978    30,864,571 
Total cash and cash equivalents  $63,468,769   $31,748,686 

 

As of June 30, 2020, all of the Company’s cash and cash equivalents was held in the United States, except for approximately $556,000 of cash which was held in our subsidiaries in the United Kingdom and Australia. As of December 31, 2019, all of the Company’s cash was held in the United States, except for approximately $466,000 of cash which was held in our subsidiaries in the United Kingdom and Australia.

 

Financial Instruments

 

The carrying values of the notes payable approximate their fair value due to the fact that they are at market terms.

 

Property and Equipment

 

The estimated life for the Company's property and equipment is as follows: three years for computer hardware and software and three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease are amortized over the shorter of their useful lives or the respective leases. See Note 5 for details of property and equipment and Note 6 for operating and capital lease commitments.

 

Research and Development Expenses

 

Costs incurred for research and development are expensed as incurred.

 

Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.

 

 

Accruals for Research and Development Expenses and Clinical Trials

 

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the three and six months ended June 30, 2020 and 2019, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Concentrations of Credit Risk

 

The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.

 

 

Segment Information

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing therapeutics to treat rare life-threatening, inflammatory fibrotic diseases. As of June 30, 2020 all of the Company’s assets were located in the United States, except for approximately $556,000 of cash, $1,713,000 of prepaid expenses, $13,000 of other assets, and $37,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom. As of December 31, 2019, all of the Company’s assets were located in the United States, except for approximately $466,000 of cash, $1,606,000 of prepaid expenses, $23,000 of other assets, and $52,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom.

 

Income Taxes

 

For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly, given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax assets in order to eliminate the deferred tax assets amounts.

 

Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial statements as of June 30, 2020 or December 31, 2019.

 

Impairment of Long-lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value of the asset may not be recoverable. No impairment charges were recorded during the three and six months ended June 30, 2020 and 2019.

 

Stock-based Payments

 

The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model, net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

 

 

Foreign Currency

 

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

 

Net Income (Loss) Per Common Share

 

Net income (loss) per share was computed as follows:

 

 

                 
  

Three Months Ended

June 30

  

Six Months Ended

June 30

 
   2020   2019   2020   2019 
                 
Net income (loss)  $(38,105,323)  $2,152,653   $(67,762,123)  $(24,082,156)
Weighted average number of common shares-basic   73,885,548    64,546,628    71,578,975    63,119,196 
Effect of dilutive securities       3,964,959         
Weighted average number of common shares-diluted   73,885,548    68,511,587    71,578,975    63,119,196 
Net income (loss) per share of common stock-basic  $(0.52)  $0.03   $(0.95)  $(0.38)
Net income (loss) per share of common stock-diluted  $(0.52)  $0.03   $(0.95)  $(0.38)
Antidilutive awards (1)       281,132        317,945 

 

(1) Certain stock-based compensation awards were not included in the calculation of net income per common share for the three months ended June 30, 2019 because their effect would have been antidilutive. For the three months ended June 30, 2020 and the six months ended June 30, 2020 and 2019, the effect of dilutive shares was not included in the computation of net loss per share because the Company had a net loss.

 

Recent Accounting Pronouncements

 

Accounting for Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. The Company is currently evaluating the timing of the adoption of ASU 2019-12 and the expected impact it could have on the Company’s financial statements and related disclosures.

 

 

Collaborative Arrangements

 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). ASU 2018-18 clarifies the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company’s adoption of ASU 2018-18 as of January 1, 2020 had no impact on the Company’s financial statements and related disclosures.

 

v3.20.2
LICENSE AGREEMENT
6 Months Ended
Jun. 30, 2020
License Agreement  
LICENSE AGREEMENT

 

4. LICENSE AGREEMENT

 

The Company entered into a License Agreement (the “Jenrin Agreement”) with Jenrin Discovery, LLC, a privately-held Delaware limited liability company (“Jenrin”), effective September 20, 2018. Pursuant to the Jenrin Agreement, Jenrin granted the Company exclusive worldwide rights to develop and commercialize the Licensed Products (as defined in the Jenrin Agreement) which includes the Jenrin library of over 600 compounds and multiple issued and pending patent filings. The compounds are designed to treat inflammatory and fibrotic diseases by targeting the endocannabinoid system. The lead product candidate is CRB-4001, a peripherally-restricted CB-1 inverse agonist targeting fibrotic liver, lung, heart and kidney diseases.

 

In consideration of the license and other rights granted by Jenrin, the Company paid Jenrin a $250,000 upfront cash payment and is obligated to pay potential milestone payments to Jenrin totaling up to $18,400,000 for each compound it elects to develop based upon the achievement of specified development and regulatory milestones. In addition, Corbus is obligated to pay Jenrin royalties in the mid, single digits based on net sales of any Licensed Products, subject to specified reductions.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) which clarifies the definition of a business and determines when an integrated set of assets and activities is not a business. ASU 2017-01 requires that if substantially all of the fair value of gross assets acquired or disposed of is concentrated in a single asset or group of similar identifiable assets, the assets would not represent a business. The Company determined that substantially all of the fair value of the Jenrin Agreement was attributable to a single in-process research and development asset, CRB-4001, which did not constitute a business. The Company concluded that it did not have any alternative future use for the acquired in-process research and development asset. Thus, the Company recorded the $250,000 upfront payment to research and development expenses in the third quarter of 2018. The Company will account for the $18,400,000 of development and regulatory milestone payments in the period that the relevant milestones are achieved as either research and development expense or as an intangible asset as applicable.

 

v3.20.2
PROPERTY AND EQUIPMENT
6 Months Ended
Jun. 30, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

Summary of Property and Equipment 

 

  

June 30,

2020

   December 31,
2019
 
Computer hardware and software  $794,749   $711,442 
Office furniture and equipment   1,638,396    1,627,896 
Leasehold improvements   4,159,795    4,150,488 
Property and equipment, gross   6,592,940    6,489,826 
Less: accumulated depreciation   (2,045,637)   (1,405,961)
Property and equipment, net  $4,547,303   $5,083,865 

 

Depreciation expense was $320,188 and $155,709 for the three months ended June 30, 2020 and 2019, respectively and $639,676 and $308,331 for the six months ended June 30, 2020 and 2019, respectively.

 

v3.20.2
COMMITMENTS AND CONTINGENCIES
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

 

6. COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

On August 21, 2017, the Company entered into a lease agreement (“August 2017 Lease Agreement”) for commercial lease of office space, pursuant to which the Company agreed to lease 32,733 square feet of office space (“Leased Premises”). The initial term of the August 2017 Lease Agreement was for a period of seven years which began with the Company’s occupancy of the Leased Premises in February 2018. The base rent for the Leased Premises ranged from approximately $470,000 for the first year to approximately $908,000 for the seventh year. Per the terms of the August 2017 Lease Agreement, the landlord agreed to reimburse the Company for $1,080,189 of leasehold improvements. The reimbursements had been deferred and were to be recognized as a reduction of rent expense over the term of the lease. Additionally, the August 2017 Lease Agreement required a standby irrevocable letter of credit of $400,000, which was to be reduced, if the Company is not in default under the August 2017 Lease Agreement, to $300,000 and $200,000 on the third and fourth anniversary of the commencement date, respectively, The Company entered into an unsecured letter of credit for $400,000 in connection with the August 2017 Lease Agreement.

 

The Company adopted ASU 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”) using the effective date method as of January 1, 2019 and recorded a lease liability of approximately $3,811,000, and a right-of-use asset of approximately $2,400,000, with no operations adjustment to the accumulated deficit related to the Leased Premises. Operating leases are included in operating lease right-of-use assets (“ROU”), operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s condensed consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the date of adoption based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, which was 9%. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

 

On February 26, 2019, the Company amended its lease (“February 2019 Lease Agreement”) pursuant to which an additional 30,023 square feet of office space (“New Premises”) will be leased by the Company in the same building for an aggregate total of 62,756 square feet of leased office space (“Total Premises”). Per ASC 842, the February 2019 Lease Agreement constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. Accordingly, the Company reassessed the classification of the Leased Premises and remeasured the lease liability on the basis of the extended lease term using the 20 additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 9%. The remeasurement for the modification resulted in an increase to the lease liability and the ROU asset of approximately $855,000. The Company determined that the New Premises will be treated as a new standalone operating lease under ASC 842 and recorded a lease liability and a right-of-use asset of approximately $2,700,000 for this lease.

 

On October 25, 2019, the Company amended its lease (“October 2019 Lease Amendment”) pursuant to which the term of the lease was extended through November 30, 2026 and the existing office space under lease was expanded by 500 square feet for an aggregate total of 63,256 square feet of leased office space (“Amended Total Premises”). The October 2019 Lease Amendment constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. The additional space did not result in a separate contract as the rent increase was determined not to be commensurate with the standalone price for the additional right of use. Accordingly, the Company reassessed the classification of the Amended Total Premises, which resulted in operating classification, and remeasured the lease liability on the basis of the extended lease term using the additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 8%. The remeasurement for the modification resulted in an increase to the lease liability and the ROU asset of approximately $381,000 that was recorded in the fourth quarter of 2019.

 

The following table contains a summary of the lease costs recognized and other information pertaining to the Company’s operating leases for the year ended December 31, 2019:

 

 

Lease cost     
Operating lease cost  $1,025,899 
Total lease cost  $1,025,899 
      
Other information     
Operating cash flows received for operating leases  $338,435 
Weighted average remaining lease term   6.9 years 
Weighted average discount rate   8.00%

 

Total lease expense for the three months ended June 30, 2020 and 2019 was $310,119 and $307,182, respectively. Total lease expense for the six months ended June 30, 2020 and 2019 was $620,237 and $507,344, respectively.

 

 

Pursuant to the terms of our non-cancelable lease agreements in effect at June 30, 2020, the following table summarizes our maturities of operating lease liabilities as of June 30, 2020:

 

 

    June 30, 2020 
2020 (Remainder of year)  $714,603 
2021   1,605,121 
2022   1,652,563 
2023   1,700,005 
2024   1,747,447 
Thereafter   3,483,034 
Total lease payments  $10,902,772 
      
Less: imputed interest   (2,420,027)
Total  $8,482,746 

 

Capital Lease Commitment

 

The lease payments under the capital lease agreement for the copier machine commenced when the machine was placed in service in January 2016. The lease was for a three-year term that concluded in January 2019 and included a bargain purchase option at the end of the term.

 

For commitments under the Company’s development award agreements see Note 9.

 

COVID-19

 

In response to the spread of COVID-19, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees and community, including temporarily requiring employees to work remotely, implementing remote monitoring procedures for clinical data and suspending all non-essential travel worldwide for its employees.

 

As a result of the COVID-19 pandemic, the Company may experience disruptions that could adversely impact its business. The COVID-19 pandemic may negatively affect clinical site initiation, patient recruitment and enrollment, patient dosing, distribution of drug to clinical sites and clinical trial monitoring for the Company’s clinical trials. The COVID-19 pandemic may also negatively affect the operations of the third-party contract research organizations that the Company relies upon to assist it in conducting its clinical trials and the contract manufacturers who manufacture the Company’s drug candidates.

 

The Company is continuing to assess the potential impact of the COVID-19 pandemic on its business and operations.

 

v3.20.2
NOTES PAYABLE
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
NOTES PAYABLE

 

7. NOTES PAYABLE

 

In November 2018, the Company entered into a loan agreement with a financing company for $491,629 to finance one of the Company’s insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $49,857 over a ten-month period. Interest accrues on this loan at an annual rate of 3.07%. This loan was fully repaid in August 2019.

 

In November 2019, the Company entered into a loan agreement with a financing company for $963,514 to finance one of the Company’s insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $109,413 over a nine-month period. Interest accrues on this loan at an annual rate of 5.25%. Prepaid expenses as of June 30, 2020 and December 31, 2019, included $356,519 and $923,292, respectively, related to this insurance policy.

v3.20.2
ACCRUED EXPENSES
6 Months Ended
Jun. 30, 2020
Payables and Accruals [Abstract]  
ACCRUED EXPENSES

 

8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
         
Accrued clinical operations and trials costs  $16,901,307   $14,242,669 
Accrued product development costs   5,695,552    3,573,231 
Accrued compensation   3,842,249    3,673,111 
Accrued other   1,705,036    958,928 
Total  $28,144,144   $22,447,939 

 

v3.20.2
DEVELOPMENT AWARDS AND DEFERRED REVENUE
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
DEVELOPMENT AWARDS AND DEFERRED REVENUE

 

9. DEVELOPMENT AWARDS AND DEFERRED REVENUE

 

Collaboration with Kaken

 

On January 3, 2019, Corbus Pharmaceuticals Holdings, Inc. the Company entered into a Collaboration and License Agreement (the “Agreement”) with Kaken Pharmaceutical Co., Ltd., a company organized under the laws of Japan (“Kaken”). Pursuant to the Agreement, Corbus granted Kaken an exclusive license to commercialize pharmaceutical preparations containing lenabasum (the “Licensed Products”) for the prevention or treatment of dermatomyositis and systemic sclerosis (together, the “Initial Indications”) in Japan (the “Territory”).

 

Pursuant to the terms of the Agreement, Corbus will bear the cost of, and be responsible for, among other things, conducting the clinical studies and other developmental activities for the Licensed Products in the Initial Indications in the Territory, and Kaken will bear the cost of, and be responsible for, among other things, preparing and filing applications for regulatory approval in the Territory and for commercializing Licensed Products in the Territory, and will use commercially reasonable efforts to commercialize Licensed Products and obtain pricing approval for Licensed Products in the Territory.

 

In consideration of the license and other rights granted by Corbus, Kaken paid to Corbus in March 2019 a $27,000,000 upfront cash payment and is obligated to pay potential milestone payments to Corbus totaling up to approximately $173,000,000 for the achievement of certain development, sales and regulatory milestones, with part of the milestone payments being calculated in Japanese Yen, and therefore subject to change based on the conversion rate to U.S. Dollars in effect at the time of payment. In addition, during the Royalty Term (as defined below), Kaken is obligated to pay Corbus royalties on sales of Licensed Products in the Territory, under certain conditions, in the double digits, which royalty shall be reduced in certain circumstances. In particular, for so long as Corbus supplies Licensed Products to Kaken pursuant to a supply agreement to be entered into by the parties, royalty payments shall be payable for each unit of Licensed Product that Corbus supplies as a percentage of the Japanese National Health Insurance price of the Licensed Product. During any time in which a supply agreement is not in effect, royalty payments shall be changed to a rate to be agreed upon by the parties in good faith.

 

The Agreement will remain in effect on a Licensed Product-by-Licensed product basis and will expire upon the expiration of the Royalty Term for the final Licensed Product. The “Royalty Term” means the period beginning on the date of the first commercial sale of the Licensed Product in Japan and ends on the latest of (i) the expiration of the last valid claim of the royalty patents covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product for such Initial Indication in Japan, or (iii) ten (10) years after the first commercial sale of such Licensed Product for such Initial Indication in Japan. The Agreement may be terminated by either party for material breach, upon a party’s insolvency or bankruptcy or upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for a safety concern or clinical failure, or at its convenience following the second anniversary of the first commercial sale of a Licensed Product in either of the Initial Indications in the Territory, with 180 days’ notice.

 

Pursuant to the Agreement, the parties agreed to develop a joint steering committee to provide strategic oversight of the parties’ activities under the Agreement, as well as a joint development committee to coordinate the development of Licensed Products in Japan. Additionally, the parties will establish a joint commercialization committee to review and confirm commercialization activities with respect to Licensed Products in Japan upon regulatory approval of such Licensed Product.

 

The Agreement also contains customary representations, warranties and covenants by both parties, as well as customary provisions relating to indemnification, confidentiality and other matters.

 

 

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Kaken, is a customer. The Company identified the following material promises under the arrangement: (1) the exclusive license to commercialize lenabasum; (2) the product’s initial know-how transfer; (3) election to use the product trademarks; (4) the sharing of data gathered through the execution of the Global Development Plan for the Initial Indications; and (5) Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”)-required supplemental studies. The Company identified two performance obligations; (1) the combined performance obligation of the License, initial know-how transfer and license to the Company’s product trademarks; and (2) the sharing of data gathered through the execution of the Global Development Plan (as defined in the Agreement) for the Initial Indications. The Company determined that the license and initial know-how transfer were not distinct from another in the context of the contract, as initial know-how transfer is highly interrelated to the license and Kaken would incur significant costs to re-create the know-how of the Company. The Company determined that the election to use the product trademarks license contributes to the exclusivity of the license and, therefore, is combined with the license. The PMDA-required supplemental study is a contingent promise although not a performance obligation as the promise does not provide Kaken with a material right.

 

Under the Agreement, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of $27,000,000 constituted the entirety of the consideration to be included in the transaction price at the outset of the arrangement, which was allocated to the two performance obligations. The potential milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone payments are fully constrained based on the probability of achievement. The Company will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

 

The Company estimated the stand-alone selling price of each performance obligation using a market approach and allocated the transaction price on a relative basis. This allocation resulted in a de minimis value attributable the obligation to sharing of data gathered through the execution of the Global Development Plan for the Initial Indications and effectively all of the value to the combined license, initial know-how transfer and license to product trademarks. Therefore, the full upfront payment of $27,000,000 is allocated to the combined performance obligation of the license, initial technology transfer and license to the product trademarks.

 

The Company received the upfront payment of $27,000,000 in March 2019 and, as the performance obligations were not yet satisfied at that time, the payment was recorded in deferred revenue as of March 31, 2019. The Company satisfied the combined performance obligation by June 30, 2019, upon which the Company recognized the $27,000,000 upfront payment as revenue in the second quarter of 2019.

 

The Company was required to make a $2,700,000 royalty payment to CFF within 60 days of receipt of the upfront cash payment from Kaken pursuant to the 2018 CFF Award. This obligation was paid by the Company to CFF in May 2019.

 

 

2018 CFF Award

 

On January 26, 2018, the Company entered into the Cystic Fibrosis Program Related Investment Agreement with the CFF (“Investment Agreement”), a non-profit drug discovery and development corporation, pursuant to which the Company received an award for up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis, of which the Company has received $17,500,000 in the aggregate through June 30, 2020 upon the Company’s achievement of milestones related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. In June 2020, the Company became entitled to receive $5,000,000 upon the Company’s achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. The Company received the $5,000,000 payment from the CFF for this milestone achievement in July 2020. The Company expects that the remainder of the 2018 CFF Award will be paid incrementally upon the Company’s achievement of the remaining milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement, and the Company expects to receive the remainder before the end of the fourth quarter of 2020.

 

Pursuant to the terms of the Investment Agreement, the Company is obligated to make certain royalty payments to CFF, including a royalty payment of one and one-half times the amount of the 2018 CFF Award, payable in cash within sixty days upon the first receipt of approval of lenabasum in the United States and a second royalty payment of one and one-half times the amount of the 2018 CFF Award upon approval in another major market, as set forth in the Investment Agreement (the “Approval Royalty”). At the Company’s election, the Company may satisfy the first of the two Approval Royalties in registered shares of the Company’s common stock.

 

Additionally, the Company is obligated to make (i) royalty payments to CFF of two and one-half percent of net sales from lenabasum due within sixty days after any quarter in which such net sales occur in the Field, as defined in the Investment Agreement, (ii) royalty payments to CFF of one percent of net sales of Non-Field Products, as defined in the Investment Agreement due within sixty days after any quarter in which such net sales occur, and (iii) royalty payments to CFF of ten percent of any amount the Company and its stockholders receive in connection with the license, sale, or other transfer to a third party of lenabasum, if indicated for the treatment or prevention of CF, or a change of control transaction, except that such payment shall not exceed five times the amount of the 2018 CFF Award, with such payments to be credited against any other net sales royalty payments due. Accordingly, the Company will owe to CFF a royalty payment equal to 10% of any amounts the Company receives as payment under the collaboration agreement with Kaken, provided that the total royalties that the Company will be required to pay under the Investment Agreement resulting from income from licenses or sales subject to the Investment Agreement are capped at five times the total amount of the 2018 CFF Award, and the Company may credit such royalties against any royalties on net sales otherwise owed to CFF under the Investment Agreement. Accordingly, the Company was required to pay CFF $2,700,000 in May 2019 as a result of its receipt of the $27,000,000 upfront cash payment from Kaken.

 

Either CFF or the Company may terminate the Investment Agreement for cause, which includes the Company’s material failure to achieve certain commercialization and development milestones. The Company’s payment obligations survive the termination of the Investment Agreement.

 

Pursuant to the terms of the Investment Agreement, the Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement, the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered and subject to a one-year lock-up.

 

 

Under the Investment Agreement, the Company recorded $286,346 and $2,094,583 of revenue during the three months ended June 30, 2020 and 2019, respectively, and recorded $2,048,405 and $3,980,265 of revenue during the six months ended June 30, 2020 and 2019, respectively. The Company concluded that the contract counterparty, CFF, is a customer. The Company identified the following material promise under the arrangement: research and development activities and related services under the Phase 2b Clinical Trial. Based on these assessments, the Company identified one performance obligation at the outset of the Investment Agreement, which consists of: Phase 2b Clinical Trial research and development activities and related services.

 

To determine the transaction price, the Company included the total aggregate payments under the Investment Agreement which amount to $25,000,000 and reduced the revenue to be recognized by the payment to the customer of $6,215,225 in the form of the CFF Warrant representing its fair value, leaving the remaining $18,784,775 as the transaction price as of the outset of the arrangement, which will be recognized as revenue over the performance period as discussed below. The $6,215,225 fair value of the warrant was also recorded as an increase to additional paid in capital.

 

The Company has billed and received $22,500,000 so far in milestone payments including $12,500,000 in 2018, $5,000,000 in 2019 and $5,000,000 was billed in the second quarter of 2020 and received in July 2020. A roll forward of deferred revenue related to the Investment Agreement for the six months ended June 30, 2020 is presented below.

 

   June 30, 2020 
Beginning balance, December 31, 2019  $ 
Billing to CFF upon achievement of milestone   5,000,000 
Recognition of revenue   (2,048,405)

Reverse to contract asset (unbilled revenue)

   (2,681,065)
Ending balance  $270,530 

 

The CFF Warrant is accounted for as a payment to the customer under ASC 606. See Note 12 for further information related to the CFF Warrant. The Company notes that the Investment Agreement contains an initial payment that was received upon contract execution and subsequent milestone payments, which are a form of variable consideration that require evaluation for constraint considerations. The Company concluded that the related performance milestones are generally within the Company’s control and as result are considered probable. Revenue associated with the performance obligation is being recognized as revenue as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The research and development services related to this performance obligation are expected to be performed over approximately 2.75 years and is expected to be completed in the fourth quarter of 2020. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue and the amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets on the Company’s condensed consolidated balance sheet.

v3.20.2
COMMON STOCK
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
COMMON STOCK

 

10. COMMON STOCK

 

The Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 80,655,848 shares, and 64,672,893 shares were issued and outstanding as of June 30, 2020, and December 31, 2019, respectively.

 

On January 30, 2019, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the Company sold an aggregate of 6,198,500 shares of its common stock, including 808,500 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a purchase price of $6.50 per share with gross proceeds to the Company totaling $40,290,250, less issuance costs incurred of approximately $2,572,000.

 

 

On February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the Company sold an aggregate of 7,666,667 shares of its common stock, including 1,000,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a purchase price of $6.00 per share with gross proceeds to the Company totaling $46,000,000, less estimated issuance costs incurred of approximately $3,147,000.

 

On April 7, 2020, the Company entered into the April 2020 Sale Agreement with Jefferies pursuant to which Jefferies is serving as the Company’s sales agent to sell up to $75,000,000 of shares of the Company’s common stock through an “at the market offering.” Sales of common stock under the April 2020 Sale Agreement were made pursuant to an effective registration statement for an aggregate offering of up to $75,000,000. During the second quarter of 2020, the Company sold 8,113,794 shares of its common stock under the April 2020 Sale Agreement for which the Company received net proceeds of approximately $43,702,000 through June 30, 2020 and had stock subscriptions receivable as of June 30, 2020 for approximately $16,676,000, for which the Company received the proceeds in July 2020. In July 2020, the Company sold an additional 1,053,286 shares of its common stock under the April 2020 Sale Agreement for net proceeds of approximately $8,148,000.

 

During the three and six months ended June 30, 2020, the Company issued 51,605 and 202,494 shares of common stock upon the exercise of stock options to purchase common stock and the Company received proceeds of $286,310 and $302,305 from these exercises, respectively. During the three and six months ended June 30, 2019, the Company issued 16,458 and 78,229 shares of common stock upon the exercise of stock options to purchase common stock and the Company received proceeds of $102,708 and $306,711 from these exercises, respectively.

 

During the three and six months ended June 30, 2019, warrants to purchase 200,000 shares and 1,283,500 shares of common stock were exercised on a cashless basis resulting in the issuance of 172,414 and 1,119,868 shares of common stock, respectively. No warrants were exercised during the three and six months ended June 30, 2020.

v3.20.2
STOCK OPTIONS
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [Abstract]  
STOCK OPTIONS

 

11. STOCK OPTIONS

 

In April 2014, the Company adopted the Corbus Pharmaceuticals Holdings, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). Pursuant to the 2014 Plan, the Company’s Board of Directors may grant incentive and nonqualified stock options and restricted stock to employees, officers, directors, consultants and advisors. Options issued under the 2014 Plan generally vest over 4 years from the date of grant in multiple tranches and are exercisable for up to 10 years from the date of issuance.

 

Pursuant to the terms of an annual evergreen provision in the 2014 Plan, the number of shares of common stock available for issuance under the 2014 Plan shall automatically increase on January 1 of each year by at least seven percent (7%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, or, pursuant to the terms of the 2014 Plan, in any year, the Board of Directors may determine that such increase will provide for a lesser number of shares.

 

In accordance with the terms of the 2014 Plan, effective as of January 1, 2019, the number of shares of common stock available for issuance under the 2014 Plan increased by 3,000,000 shares, which was less than seven percent (7%) of the outstanding shares of common stock on December 31, 2018. As of January 1, 2019, the 2014 Plan had a total reserve of 18,543,739 shares and there were 8,072,241 shares available for future grants. As of June 30, 2019, there were 5,200,795 shares available for future grants.

 

In accordance with the terms of the 2014 Plan, effective as of January 1, 2020, the number of shares of common stock available for issuance under the 2014 Plan increased by 4,527,103 shares, which was seven percent (7%) of the outstanding shares of common stock on December 31, 2019. As of January 1, 2020, the 2014 Plan had a total reserve of 23,070,842 shares and there were 8,840,939 shares available for future grants. As of June 30, 2020 there were 5,512,150 shares available for future grants.

 

 

Stock-based Compensation

 

For stock options issued and outstanding for the three months ended June 30, 2020 and 2019, respectively, the Company recorded non-cash, stock-based compensation expense of $3,348,360 and $2,817,488, net of estimated forfeitures. For stock options issued and outstanding for the six months ended June 30, 2020 and 2019, respectively, the Company recorded non-cash, stock-based compensation expense of $6,485,779 and $5,906,427, respectively, net of estimated forfeitures.

 

The fair value of each option award for employees is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Due to its limited operating history, the Company estimates its volatility including the volatility of comparable public companies and its own common stock, taking into account the expected life of the option. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises and employee terminations in order to estimate its forfeiture rate. The expected term of options granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined based on the simplified method due to the Company’s limited operating history, and is 6.25 years based on the average between the vesting period and the contractual life of the option. For non-employee options, the expected term is the contractual term. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

 

The weighted average assumptions used principally in determining the fair value of options granted to employees were as follows:

 

   Six Months Ended June 30, 
   2020   2019 
Risk free interest rate   0.62%    2.56%
Expected dividend yield   0%    0% 
Expected term in years   6.25    6.25 
Expected volatility   82.89%    87.65% 
Estimated forfeiture rate   5.98%    4.75% 

 

A summary of option activity for the six months ended June 30, 2020 and is presented below:

 

Options  Shares   Weighted
Average
Exercise
Price
  

Weighted
Average
Remaining

Contractual
Term in
Years

   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019   13,245,366   $5.19           
Granted   3,883,600    4.87           
Exercised   (202,494)   1.49           
Forfeited   (554,811)   5.93           
Outstanding at June 30, 2020   16,371,661   $5.14    7.27   $54,044,121 
Vested at June 30, 2020   9,148,866   $4.50    5.86   $36,271,485 
Vested and expected to vest at June 30, 2020   15,775,432   $5.13    7.20   $52,286,782 

 

 

The weighted average grant-date fair value of options granted during the six months ended June 30, 2020 and 2019 was $3.44 and $5.41 per share, respectively. The aggregate intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was approximately $1,030,994 and $233,095, respectively. The total fair value of options that were vested as of June 30, 2020 and 2019 was $31,198,928 and $19,252,762, respectively. As of June 30, 2020, there was approximately $26,300,051 of total unrecognized compensation expense, related to non-vested share-based option compensation arrangements. The unrecognized compensation expense is estimated to be recognized over a period of 2.69 years as of June 30, 2020.

v3.20.2
WARRANTS
6 Months Ended
Jun. 30, 2020
Warrants  
WARRANTS

 

12. WARRANTS

 

During the three and six months ended June 30, 2019, warrants to purchase 200,000 shares and 1,283,500 shares of common stock were exercised on a cashless basis resulting in the issuance of 172,414 shares and 1,119,868 shares of common stock, respectively. No warrants were exercised during the three and six months ended June 30, 2020.

 

At June 30, 2020, there were warrants outstanding to purchase 1,000,000 shares of common stock with a weighted average exercise price of $13.20 and a weighted average remaining life of 4.58 years, related only to the warrant issued to CFF pursuant to the terms of the Investment Agreement (Note 8). The Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement, the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered and subject to a one-year lock-up. The CFF Warrant is classified as equity as it meets all the conditions under GAAP for equity classification. In accordance with GAAP, the Company has calculated the fair value of the warrant for initial measurement and will reassess whether equity classification for the warrant is appropriate upon any changes to the warrants or capital structure, at each balance sheet date. The weighted average assumptions used in determining the $6,215,225 fair value of the CFF Warrant were as follows:

 

Risk free interest rate   2.60%
Expected dividend yield   0%
Expected term in years   7.00 
Expected volatility   83.5%

 

On July 28, 2020, the Company entered into the Loan Agreement with K2HV pursuant to which K2HV may provide the Company with term loans in an aggregate principal amount of up to a $50,000,000. On July 28, 2020, in connection with the funding of the first $20,000,000 tranche, the Company issued a warrant exercisable for 86,206 shares of the Company’s common stock at an exercise price of $6.96 per share. (See Note 13).

 

v3.20.2
SUSBSEQUENT EVENTS
6 Months Ended
Jun. 30, 2020
Subsequent Events [Abstract]  
SUSBSEQUENT EVENTS

 

13. SUSBSEQUENT EVENTS

 

Loan Agreement with K2 HealthVentures LLC

 

On July 28, 2020, the Company, with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, entered into a $50,000,000 secured Loan and Security Agreement with K2HV, an unrelated third party (the “Loan Agreement”) and received the first $20,000,000 tranche upon signing. The second tranche of $20,000,000 and the third tranche of $10,000,000 will be made available at the Company’s option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and the Company is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche. K2HV may elect to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share. At closing, the Company issued a warrant to K2HV exercisable for 86,206 shares of the Company’s common stock at an exercise price of $6.96 per share. The Company granted registration rights to the lenders in connection with the Loan Agreement and the Warrant.

 

August 2020 Sale Agreement

 

On August 6, 2020, the Company entered into an Open Market Sale AgreementSM (the “August 2020 Sale Agreement”) with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company may issue and sell, from time to time, through Jefferies, shares of its common stock, and pursuant to which Jefferies may sell its common stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. The Company will pay Jefferies a commission of 3.0% of the aggregate gross proceeds from each sale of common stock and have agreed to provide Jefferies with customary indemnification and contribution rights. The Company has also agreed to reimburse Jefferies for certain specified expenses. As of August 6, 2020, the Company is authorized to offer and sell up to $150 million of its common stock pursuant to the August 2020 Sale Agreement.

v3.20.2
SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Use of Estimates

Use of Estimates

 

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur. The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical obligations, the recognition of revenue under the Investment Agreement (See Note 9), and the valuation of the CFF Warrant discussed in Note 12.

 

 

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months. At June 30, 2020 and December 31, 2019, cash equivalents were comprised of money market funds. The Company had no marketable investments at June 30, 2020 and December 31, 2019.

 

Cash and cash equivalents consists of the following:

 

 

   June 30,
2020
   December 31,
2019
 
Cash  $764,791   $884,115 
Money market fund   62,703,978    30,864,571 
Total cash and cash equivalents  $63,468,769   $31,748,686 

 

As of June 30, 2020, all of the Company’s cash and cash equivalents was held in the United States, except for approximately $556,000 of cash which was held in our subsidiaries in the United Kingdom and Australia. As of December 31, 2019, all of the Company’s cash was held in the United States, except for approximately $466,000 of cash which was held in our subsidiaries in the United Kingdom and Australia.

 

Financial Instruments

Financial Instruments

 

The carrying values of the notes payable approximate their fair value due to the fact that they are at market terms.

 

Property and Equipment

Property and Equipment

 

The estimated life for the Company's property and equipment is as follows: three years for computer hardware and software and three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease are amortized over the shorter of their useful lives or the respective leases. See Note 5 for details of property and equipment and Note 6 for operating and capital lease commitments.

 

Research and Development Expenses

Research and Development Expenses

 

Costs incurred for research and development are expensed as incurred.

 

Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.

 

 

Accruals for Research and Development Expenses and Clinical Trials

Accruals for Research and Development Expenses and Clinical Trials

 

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the three and six months ended June 30, 2020 and 2019, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

 

Leases

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Concentrations of Credit Risk

Concentrations of Credit Risk

 

The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.

 

 

Segment Information

Segment Information

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing therapeutics to treat rare life-threatening, inflammatory fibrotic diseases. As of June 30, 2020 all of the Company’s assets were located in the United States, except for approximately $556,000 of cash, $1,713,000 of prepaid expenses, $13,000 of other assets, and $37,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom. As of December 31, 2019, all of the Company’s assets were located in the United States, except for approximately $466,000 of cash, $1,606,000 of prepaid expenses, $23,000 of other assets, and $52,000 of property and equipment, net which were held outside of the United States, principally in our subsidiary in the United Kingdom.

 

Income Taxes

Income Taxes

 

For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly, given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax assets in order to eliminate the deferred tax assets amounts.

 

Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial statements as of June 30, 2020 or December 31, 2019.

 

Impairment of Long-lived Assets

Impairment of Long-lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value of the asset may not be recoverable. No impairment charges were recorded during the three and six months ended June 30, 2020 and 2019.

 

Stock-based Payments

Stock-based Payments

 

The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model, net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

 

 

Foreign Currency

Foreign Currency

 

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

 

Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share

 

Net income (loss) per share was computed as follows:

 

 

                 
  

Three Months Ended

June 30

  

Six Months Ended

June 30

 
   2020   2019   2020   2019 
                 
Net income (loss)  $(38,105,323)  $2,152,653   $(67,762,123)  $(24,082,156)
Weighted average number of common shares-basic   73,885,548    64,546,628    71,578,975    63,119,196 
Effect of dilutive securities       3,964,959         
Weighted average number of common shares-diluted   73,885,548    68,511,587    71,578,975    63,119,196 
Net income (loss) per share of common stock-basic  $(0.52)  $0.03   $(0.95)  $(0.38)
Net income (loss) per share of common stock-diluted  $(0.52)  $0.03   $(0.95)  $(0.38)
Antidilutive awards (1)       281,132        317,945 

 

(1) Certain stock-based compensation awards were not included in the calculation of net income per common share for the three months ended June 30, 2019 because their effect would have been antidilutive. For the three months ended June 30, 2020 and the six months ended June 30, 2020 and 2019, the effect of dilutive shares was not included in the computation of net loss per share because the Company had a net loss.

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

Accounting for Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. The Company is currently evaluating the timing of the adoption of ASU 2019-12 and the expected impact it could have on the Company’s financial statements and related disclosures.

 

 

Collaborative Arrangements

 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). ASU 2018-18 clarifies the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company’s adoption of ASU 2018-18 as of January 1, 2020 had no impact on the Company’s financial statements and related disclosures.

 

v3.20.2
SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Schedule of Cash and Cash Equivalents

Cash and cash equivalents consists of the following:

 

 

   June 30,
2020
   December 31,
2019
 
Cash  $764,791   $884,115 
Money market fund   62,703,978    30,864,571 
Total cash and cash equivalents  $63,468,769   $31,748,686 
Schedule of Computation of Net Income (Loss) Per Share

Net income (loss) per share was computed as follows:

 

 

                 
  

Three Months Ended

June 30

  

Six Months Ended

June 30

 
   2020   2019   2020   2019 
                 
Net income (loss)  $(38,105,323)  $2,152,653   $(67,762,123)  $(24,082,156)
Weighted average number of common shares-basic   73,885,548    64,546,628    71,578,975    63,119,196 
Effect of dilutive securities       3,964,959         
Weighted average number of common shares-diluted   73,885,548    68,511,587    71,578,975    63,119,196 
Net income (loss) per share of common stock-basic  $(0.52)  $0.03   $(0.95)  $(0.38)
Net income (loss) per share of common stock-diluted  $(0.52)  $0.03   $(0.95)  $(0.38)
Antidilutive awards (1)       281,132        317,945 

 

(1) Certain stock-based compensation awards were not included in the calculation of net income per common share for the three months ended June 30, 2019 because their effect would have been antidilutive. For the three months ended June 30, 2020 and the six months ended June 30, 2020 and 2019, the effect of dilutive shares was not included in the computation of net loss per share because the Company had a net loss.
v3.20.2
PROPERTY AND EQUIPMENT (Tables)
6 Months Ended
Jun. 30, 2020
Property, Plant and Equipment [Abstract]  
Summary of Property and Equipment

Property and equipment consisted of the following:

Summary of Property and Equipment 

 

  

June 30,

2020

   December 31,
2019
 
Computer hardware and software  $794,749   $711,442 
Office furniture and equipment   1,638,396    1,627,896 
Leasehold improvements   4,159,795    4,150,488 
Property and equipment, gross   6,592,940    6,489,826 
Less: accumulated depreciation   (2,045,637)   (1,405,961)
Property and equipment, net  $4,547,303   $5,083,865 
v3.20.2
COMMITMENTS AND CONTINGENCIES (Tables)
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Lease Costs

The following table contains a summary of the lease costs recognized and other information pertaining to the Company’s operating leases for the year ended December 31, 2019:

 

 

Lease cost     
Operating lease cost  $1,025,899 
Total lease cost  $1,025,899 
      
Other information     
Operating cash flows received for operating leases  $338,435 
Weighted average remaining lease term   6.9 years 
Weighted average discount rate   8.00%
Schedule of Maturities of Operating Lease Liabilities

Pursuant to the terms of our non-cancelable lease agreements in effect at June 30, 2020, the following table summarizes our maturities of operating lease liabilities as of June 30, 2020:

 

 

    June 30, 2020 
2020 (Remainder of year)  $714,603 
2021   1,605,121 
2022   1,652,563 
2023   1,700,005 
2024   1,747,447 
Thereafter   3,483,034 
Total lease payments  $10,902,772 
      
Less: imputed interest   (2,420,027)
Total  $8,482,746 
v3.20.2
ACCRUED EXPENSES (Tables)
6 Months Ended
Jun. 30, 2020
Payables and Accruals [Abstract]  
Schedule of Accrued Expenses

Accrued expenses consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
         
Accrued clinical operations and trials costs  $16,901,307   $14,242,669 
Accrued product development costs   5,695,552    3,573,231 
Accrued compensation   3,842,249    3,673,111 
Accrued other   1,705,036    958,928 
Total  $28,144,144   $22,447,939 
v3.20.2
DEVELOPMENT AWARDS AND DEFERRED REVENUE (Tables)
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of Roll Forward of Deferred Revenue

 

   June 30, 2020 
Beginning balance, December 31, 2019  $ 
Billing to CFF upon achievement of milestone   5,000,000 
Recognition of revenue   (2,048,405)

Reverse to contract asset (unbilled revenue)

   (2,681,065)
Ending balance  $270,530 
v3.20.2
STOCK OPTIONS (Tables)
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [Abstract]  
Summary of Fair Value of Options Granted to Employees

The weighted average assumptions used principally in determining the fair value of options granted to employees were as follows:

 

   Six Months Ended June 30, 
   2020   2019 
Risk free interest rate   0.62%    2.56%
Expected dividend yield   0%    0% 
Expected term in years   6.25    6.25 
Expected volatility   82.89%    87.65% 
Estimated forfeiture rate   5.98%    4.75% 
Summary of Option Activity

A summary of option activity for the six months ended June 30, 2020 and is presented below:

 

Options  Shares   Weighted
Average
Exercise
Price
  

Weighted
Average
Remaining

Contractual
Term in
Years

   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019   13,245,366   $5.19           
Granted   3,883,600    4.87           
Exercised   (202,494)   1.49           
Forfeited   (554,811)   5.93           
Outstanding at June 30, 2020   16,371,661   $5.14    7.27   $54,044,121 
Vested at June 30, 2020   9,148,866   $4.50    5.86   $36,271,485 
Vested and expected to vest at June 30, 2020   15,775,432   $5.13    7.20   $52,286,782 
v3.20.2
WARRANTS (Tables)
6 Months Ended
Jun. 30, 2020
Warrants  
Schedule of Weighted Average Assumption of Warrants

 

Risk free interest rate   2.60%
Expected dividend yield   0%
Expected term in years   7.00 
Expected volatility   83.5%
v3.20.2
LIQUIDITY AND GOING CONCERN (Details Narrative) - USD ($)
6 Months Ended
Jul. 31, 2020
Apr. 07, 2020
Jun. 30, 2020
Jul. 28, 2020
Dec. 31, 2019
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Accumulated deficit     $ 260,586,081   $ 192,823,958
Cystic Fibrosis Program Related Investment Agreement [Member] | Phase 2 b Clinical trial [Member]          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Consideration payment milestone received     5,000,000    
Proceeds from investments on achieving milestones     $ 25,000,000    
Cystic Fibrosis Program Related Investment Agreement [Member] | Phase 2 b Clinical trial [Member] | Subsequent Event [Member]          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Consideration payment milestone received $ 5,000,000        
K2 HealthVentures LLC And Ankura Trust Company, LLC [Member] | Loan Agreement [Member] | Subsequent Event [Member]          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Debt face amount       $ 50,000,000  
Market Offering [Member] | Jefferies LLC [Member] | Maximum [Member]          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Number of common stock shares sold   75,000,000      
v3.20.2
Schedule of Cash and Cash Equivalents (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Cash $ 764,791 $ 884,115
Money market fund 62,703,978 30,864,571
Total cash and cash equivalents $ 63,468,769 $ 31,748,686
v3.20.2
Schedule of Computation of Net Income (Loss) Per Share (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Accounting Policies [Abstract]        
Net income (loss) $ (38,105,323) $ 2,152,653 $ (67,762,123) $ (24,082,156)
Weighted average number of common shares-basic 73,885,548 64,546,628 71,578,975 63,119,196
Effect of dilutive securities 3,964,959
Weighted average number of common shares-diluted 73,885,548 68,511,587 71,578,975 63,119,196
Net income (loss) per share of common stock-basic $ (0.52) $ 0.03 $ (0.95) $ (0.38)
Net income (loss) per share of common stock-diluted $ (0.52) $ 0.03 $ (0.95) $ (0.38)
Antidilutive awards (1) [1] 281,132 317,945
[1] Certain stock-based compensation awards were not included in the calculation of net income per common share for the three months ended June 30, 2019 because their effect would have been antidilutive. For the three months ended June 30, 2020 and the six months ended June 30, 2020 and 2019, the effect of dilutive shares was not included in the computation of net loss per share because the Company had a net loss.
v3.20.2
SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]      
Marketable investments $ 0   $ 0
Property and equipment, estimated useful lives The estimated life for the Company's property and equipment is as follows: three years for computer hardware and software and three to five years for office furniture and equipment.    
Number of operating segment one    
Cash $ 764,791   884,115
Prepaid expenses and other current assets 2,872,275   3,724,932
Property and equipment, net 4,547,303   5,083,865
Uncertain tax positions 0   0
Impairment charges $ 0 $ 0  
Deferred Tax Assets [Member]      
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]      
Valuation allowance 100.00%    
United Kingdom and Australia [Member]      
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]      
Cash held in subsidiary $ 556,000   466,000
UNITED KINGDOM      
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]      
Cash 556,000   466,000
Prepaid expenses and other current assets 1,713,000   1,606,000
Other assets 13,000   23,000
Property and equipment, net $ 37,000   $ 52,000
v3.20.2
LICENSE AGREEMENT (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Sep. 20, 2018
Sep. 30, 2018
Jun. 30, 2020
Research and Development Expense [Member]      
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]      
Upfront cash payment   $ 250,000  
Potential milestone payments     $ 18,400,000
Jenrin Agreement [Member]      
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]      
Upfront cash payment $ 250,000    
Potential milestone payments $ 18,400,000    
v3.20.2
Summary of Property and Equipment (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 6,592,940 $ 6,489,826
Less: accumulated depreciation (2,045,637) (1,405,961)
Property and equipment, net 4,547,303 5,083,865
Computer Hardware and Software [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 794,749 711,442
Office Furniture and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 1,638,396 1,627,896
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 4,159,795 $ 4,150,488
v3.20.2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Property, Plant and Equipment [Abstract]        
Depreciation expense $ 320,188 $ 155,709 $ 639,676 $ 308,331
v3.20.2
Schedule of Lease Costs (Details)
12 Months Ended
Dec. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Operating lease cost $ 1,025,899
Total lease cost 1,025,899
Operating cash flows received for operating leases $ 338,435
Weighted average remaining lease term 6 years 10 months 24 days
Weighted average discount rate 8.00%
v3.20.2
Schedule of Maturities of Operating Lease Liabilities (Details)
Jun. 30, 2020
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2020 (Remainder of year) $ 714,603
2021 1,605,121
2022 1,652,563
2023 1,700,005
2024 1,747,447
Thereafter 3,483,034
Total lease payments 10,902,772
Less: imputed interest (2,420,027)
Total $ 8,482,746
v3.20.2
COMMITMENTS AND CONTINGENCIES (Details Narrative)
3 Months Ended 6 Months Ended
Oct. 25, 2019
ft²
Feb. 26, 2019
USD ($)
ft²
Aug. 21, 2017
USD ($)
ft²
Jun. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jan. 02, 2019
USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Operating lease liability       $ 8,482,746     $ 8,482,746    
Operating lease, right of use asset       5,539,677 $ 5,818,983   5,539,677    
Increase in operating lease liabilities             (210,227) $ 279,063  
Lease expenses       $ 310,119   $ 307,182 $ 620,237 $ 507,344  
Accounting Standards Update 2016-02 [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Operating lease liability                 $ 3,811,000
Operating lease, right of use asset                 $ 2,400,000
August 2017 Lease Agreement [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Area of office space | ft²     32,733            
Operating lease, term     seven years            
Leasehold improvements     $ 1,080,189            
Irrevocable letter of credit     400,000            
Unsecured letter of credit     400,000            
August 2017 Lease Agreement [Member] | First Year [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Rent expense     470,000            
August 2017 Lease Agreement [Member] | Seventh Year [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Rent expense     908,000            
August 2017 Lease Agreement [Member] | Third Anniversary [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Irrevocable letter of credit     300,000            
August 2017 Lease Agreement [Member] | Fourth Anniversary [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Irrevocable letter of credit     $ 200,000            
February 2019 Lease Agreement [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Operating lease liability   $ 855,000              
Operating lease, right of use asset   $ 855,000              
Percentage of incremental borrowing rate from present value of lease   9.00%              
Operating lease, option to extend   Per ASC 842, the February 2019 Lease Agreement constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. Accordingly, the Company reassessed the classification of the Leased Premises and remeasured the lease liability on the basis of the extended lease term using the 20 additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 9%.              
February 2019 Lease Agreement [Member] | New Premises [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Area of office space | ft²   30,023              
Operating lease liability   $ 2,700,000              
Operating lease, right of use asset   $ 2,700,000              
February 2019 Lease Agreement [Member] | Total Premises [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Area of office space | ft²   62,756              
October 2019 Lease Amendment [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Percentage of incremental borrowing rate from present value of lease 8.00%                
Operating lease, option to extend The October 2019 Lease Amendment constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. The additional space did not result in a separate contract as the rent increase was determined not to be commensurate with the standalone price for the additional right of use. Accordingly, the Company reassessed the classification of the Amended Total Premises, which resulted in operating classification, and remeasured the lease liability on the basis of the extended lease term using the additional monthly rent payments and the incremental borrowing rate at the effective date of the modification of 8%.                
Increase in operating lease liabilities         $ 381,000        
October 2019 Lease Amendment [Member] | Total Premises [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Area of office space | ft² 63,256                
October 2019 Lease Amendment [Member] | Amended Premises [Member]                  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                  
Area of office space | ft² 500                
v3.20.2
NOTES PAYABLE (Details Narrative) - USD ($)
1 Months Ended
Nov. 30, 2019
Nov. 30, 2018
Jun. 30, 2020
Dec. 31, 2019
Insurance Policy [Member]        
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Prepaid expenses     $ 356,519 $ 923,292
Loan Agreement [Member]        
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Notes payable $ 963,514 $ 491,629    
Monthly principal and interest payments $ 109,413 $ 49,857    
Monthly loan payments term nine-month period ten-month period    
Annual interest rate 5.25% 3.07%    
Loan repayment term description   This loan was fully repaid in August 2019    
v3.20.2
Schedule of Accrued Expenses (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Payables and Accruals [Abstract]    
Accrued clinical operations and trials costs $ 16,901,307 $ 14,242,669
Accrued product development costs 5,695,552 3,573,231
Accrued compensation 3,842,249 3,673,111
Accrued other 1,705,036 958,928
Total $ 28,144,144 $ 22,447,939
v3.20.2
Schedule of Roll Forward of Deferred Revenue (Details)
6 Months Ended
Jun. 30, 2020
USD ($)
Revenue from Contract with Customer [Abstract]  
Beginning balance
Billing to CFF upon achievement of milestone 5,000,000
Recognition of revenue (2,048,405)
Reverse to contract asset (unbilled revenue) (2,681,065)
Ending balance $ 270,530
v3.20.2
DEVELOPMENT AWARDS AND DEFERRED REVENUE (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jan. 26, 2018
Jul. 31, 2020
Jun. 30, 2020
May 31, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Entity Listings [Line Items]                      
Revenue recognized               $ (2,048,405)      
Revenue           $ 286,346 $ 29,094,583 $ 2,048,405 $ 30,980,265    
CFF Warrant [Member]                      
Entity Listings [Line Items]                      
Warrant exercisable price per share     $ 13.20     $ 13.20   $ 13.20      
Cystic Fibrosis Foundation [Member]                      
Entity Listings [Line Items]                      
Payments for royalty       $ 2,700,000              
Cystic Fibrosis Foundation [Member] | Subsequent Event [Member]                      
Entity Listings [Line Items]                      
Payments for milestone achievement   $ 5,000,000                  
Collaboration and License Agreement [Member] | Kaken Pharmaceutical Co., Ltd. [Member]                      
Entity Listings [Line Items]                      
Upfront payment, received from related party         $ 27,000,000            
Consideration receivable on milestone payments         $ 173,000,000            
Royalty term description         the period beginning on the date of the first commercial sale of the Licensed Product in Japan and ends on the latest of (i) the expiration of the last valid claim of the royalty patents covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product for such Initial Indication in Japan, or (iii) ten (10) years after the first commercial sale of such Licensed Product for such Initial Indication in Japan. The Agreement may be terminated by either party for material breach, upon a party’s insolvency or bankruptcy or upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for a safety concern or clinical failure, or at its convenience following the second anniversary of the first commercial sale of a Licensed Product in either of the Initial Indications in the Territory, with 180 days’ notice.            
Revenue from related parties, recorded as deferred revenue         $ 27,000,000            
Revenue recognized           $ 27,000,000          
Royalty payable       $ 27,000,000     27,000,000   27,000,000    
Cystic Fibrosis Program Related Investment Agreement [Member] | Phase 2b Clinical Trial [Member]                      
Entity Listings [Line Items]                      
Proceeds from investments on achieving milestones                 17,500,000    
Cystic Fibrosis Program Related Investment Agreement [Member] | Maximum [Member]                      
Entity Listings [Line Items]                      
Development award received $ 25,000,000                    
Investment Agreement [Member]                      
Entity Listings [Line Items]                      
Payment of milestone related received     $ 5,000,000                
Revenue               $ 5,000,000   $ 5,000,000 $ 12,500,000
Investment Agreement [Member] | Subsequent Event [Member]                      
Entity Listings [Line Items]                      
Revenue   $ 22,500,000                  
Investment Agreement [Member] | Cystic Fibrosis Foundation Warrants [Member]                      
Entity Listings [Line Items]                      
Revenue               25,000,000      
Additional paid in capital, fair value of warrant issued               6,215,225      
Revenue to be recognized     $ 18,784,775     18,784,775   $ 18,784,775      
Research and development period               2 years 9 months      
Collaboration Agreement [Member] | Cystic Fibrosis Foundation [Member]                      
Entity Listings [Line Items]                      
Royalty payment percentage 10.00%                    
Investment Agreement [Member] | 2018 CFF Award [Member]                      
Entity Listings [Line Items]                      
Revenue           $ 286,346 $ 2,094,583 $ 2,048,405 $ 3,980,265    
Investment Agreement [Member] | CFF Warrant [Member]                      
Entity Listings [Line Items]                      
Warrant to purchase of common stock     1,000,000     1,000,000   1,000,000      
Warrant exercisable price per share     $ 13.20     $ 13.20   $ 13.20      
Warrants expiration term     Jan. 26, 2025     Jan. 26, 2025   Jan. 26, 2025      
Investment Agreement [Member] | CFF Warrant [Member] | Immediately Exercisable Warrants [Member]                      
Entity Listings [Line Items]                      
Warrant to purchase of common stock     500,000     500,000   500,000      
Investment Agreement [Member] | CFF Warrant [Member] | Warrants Exercisable On Completion Of Final Milestone [Member]                      
Entity Listings [Line Items]                      
Warrant to purchase of common stock     500,000     500,000   500,000      
v3.20.2
COMMON STOCK (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Apr. 07, 2020
Feb. 11, 2020
Jan. 30, 2019
Jul. 31, 2020
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Subsidiary, Sale of Stock [Line Items]                  
Common stock, shares authorized         150,000,000   150,000,000   150,000,000
Common stock, par value         $ 0.0001   $ 0.0001   $ 0.0001
Common stock, shares issued         80,655,848   80,655,848   64,672,893
Common stock, shares outstanding         80,655,848   80,655,848   64,672,893
Gross proceeds from sale of stock             $ 90,003,980 $ 40,596,961  
Stock issuance cost         $ 2,051,853   $ 5,014,643 $ 2,571,552  
Issuance of common stock upon exercise of stock options, shares             202,494    
Warrant [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Issuance of common stock upon exercise of stock options, shares         0 172,414 0 1,119,868  
Warrants to purchase shares of common stock, exercised           200,000   1,283,500  
Equity Option [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Issuance of common stock upon exercise of stock options, shares         51,605 16,458 202,494 78,229  
Proceeds from exercise of stock options         $ 286,310 $ 102,708 $ 302,305 $ 306,711  
April 2020 Sale Agreement [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Aggregate common stock sold, shares             8,113,794    
Gross proceeds from sale of stock             $ 43,702,000    
Stock subscriptions receivable         $ 16,676,000   $ 16,676,000    
April 2020 Sale Agreement [Member] | Subsequent Event [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Aggregate common stock sold, shares       1,053,286          
Gross proceeds from sale of stock       $ 8,148,000          
April 2020 Sale Agreement [Member] | Maximum [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Value of common stock to be sold $ 75,000,000                
April 2020 Sale Agreement [Member] | Jefferies LLC [Member] | Maximum [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Value of common stock to be sold $ 75,000,000                
IPO [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Aggregate common stock sold, shares   7,666,667 6,198,500            
Purchase price per share   $ 6.00 $ 6.50            
Gross proceeds from sale of stock   $ 46,000,000 $ 40,290,250            
Stock issuance cost   $ 3,147,000 $ 2,572,000            
IPO [Member] | Underwriters [Member]                  
Subsidiary, Sale of Stock [Line Items]                  
Aggregate common stock sold, shares   1,000,000 808,500            
v3.20.2
Summary of Fair Value of Options Granted to Employees (Details)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Option Indexed to Issuer's Equity [Line Items]    
Expected term in years 6 years 3 months  
Share-based Payment Arrangement, Option [Member]    
Option Indexed to Issuer's Equity [Line Items]    
Risk free interest rate 0.62% 2.56%
Expected dividend yield 0.00% 0.00%
Expected term in years 6 years 3 months 6 years 3 months
Expected volatility 82.89% 87.65%
Estimated forfeiture rate 5.98% 4.75%
v3.20.2
Summary of Option Activity (Details)
6 Months Ended
Jun. 30, 2020
USD ($)
$ / shares
shares
Share-based Payment Arrangement [Abstract]  
Shares, Outstanding, Beginning balance | shares 13,245,366
Weighted Average Exercise Price, Outstanding, Beginning balance | $ / shares $ 5.19
Shares, Granted | shares 3,883,600
Weighted Average Exercise Price, Granted | $ / shares $ 4.87
Shares, Exercised | shares (202,494)
Weighted Average Exercise Price, Exercised | $ / shares $ 1.49
Shares, Forfeited | shares (554,811)
Weighted Average Exercise Price, Forfeited | $ / shares $ 5.93
Shares, Outstanding, Ending balance | shares 16,371,661
Weighted Average Exercise Price, Outstanding, Ending balance | $ / shares $ 5.14
Weighted Average Remaining Contractual Term in Years, Outstanding 7 years 3 months 7 days
Average Intrinsic Value, Outstanding | $ $ 54,044,121
Shares, Vested | shares 9,148,866
Weighted Average Exercise Price, Vested | $ / shares $ 4.50
Weighted Average Remaining Contractual Term in Years, Vested 5 years 10 months 9 days
Average Intrinsic Value, Vested | $ $ 36,271,485
Shares, Vested and expected to vest | shares 15,775,432
Weighted Average Exercise Price, Vested and expected to vest | $ / shares $ 5.13
Weighted Average Remaining Contractual Term in Years, Vested and expected to vest 7 years 2 months 12 days
Average Intrinsic Value, Vested and expected to vest | $ $ 52,286,782
v3.20.2
STOCK OPTIONS (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jan. 02, 2020
Apr. 30, 2014
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2018
Jan. 02, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock-based compensation expense     $ 3,348,360 $ 2,817,488 $ 6,485,779 $ 5,906,427    
Option granted expected term         6 years 3 months      
Total fair value of options vested     54,044,121   $ 54,044,121      
Equity Option [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Weighted average grant-date fair value, options granted         $ 3.44 $ 5.41    
Average intrinsic value of options exercised         $ 1,030,994 $ 233,095    
Total fair value of options vested     31,198,928 $ 19,252,762 31,198,928 $ 19,252,762    
Total unrecognized compensation expense     $ 26,300,051   $ 26,300,051      
Share-based compensation expense, not yet recognized period of recognition         2 years 8 months 8 days      
Share-based Payment Arrangement, Option [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Option granted expected term         6 years 3 months 6 years 3 months    
2014 Equity Incentive Plan [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock option vesting term   4 years            
Stock option expiration period   10 years            
Percentage of outstanding common shares   7.00%         7.00%  
Increase in number of shares of common stock available for issuance             3,000,000  
2014 Equity Incentive Plan [Member] | Evergreen Provision [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Percentage of outstanding common shares 7.00%              
Increase in number of shares of common stock available for issuance 4,527,103              
Aggregate common stock available for stock options granted, shares 23,070,842              
Shares available for grant 8,840,939   5,512,150   5,512,150      
2014 Equity Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Shares available for grant       5,200,795   5,200,795   8,072,241
2014 Equity Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Aggregate common stock available for stock options granted, shares               18,543,739
v3.20.2
Schedule of Weighted Average Assumption of Warrants (Details) - Warrant [Member]
Jun. 30, 2020
ft²
Measurement Input, Risk Free Interest Rate [Member]  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Warrants outstanding measurement input, percentage 2.60
Measurement Input, Expected Dividend Rate [Member]  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Warrants outstanding measurement input, percentage 0
Measurement Input, Expected Term [Member]  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Warrants outstanding measurement input, term 7 years
Measurement Input, Price Volatility [Member]  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Warrants outstanding measurement input, percentage 83.5
v3.20.2
WARRANTS (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jul. 28, 2020
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 28, 2020
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Issuance of common stock upon exercise of stock options, shares       202,494    
Fair value of warrants issued       $ 6,215,225    
Subsequent Event [Member] | Share-based Payment Arrangement, Tranche One [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Debt face amount $ 20,000,000          
Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Subsequent Event [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Warrants to purchase shares of common stock, exercised 86,206          
Exercise price of warrants $ 6.96          
Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Maximum [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Debt face amount           $ 50,000,000
Warrant [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Warrants to purchase shares of common stock, exercised     200,000   1,283,500  
Issuance of common stock upon exercise of stock options, shares   0 172,414 0 1,119,868  
Warrant [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Subsequent Event [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Warrants to purchase shares of common stock, exercised 86,206          
Exercise price of warrants $ 6.96          
CFF Warrant [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Warrants outstanding to purchase of common stock shares   1,000,000   1,000,000    
Exercise price of warrants   $ 13.20   $ 13.20    
Number of warrants exercisable for common stock       500,000    
CFF Warrant [Member] | Investment Agreement [Member]            
New Accounting Pronouncements or Change in Accounting Principle [Line Items]            
Warrants outstanding to purchase of common stock shares   1,000,000   1,000,000    
Exercise price of warrants   $ 13.20   $ 13.20    
Weighted average remaining life of warrants       4 years 6 months 29 days    
Number of warrants exercisable for common stock       500,000    
Warrants expiration term   Jan. 26, 2025   Jan. 26, 2025    
v3.20.2
SUSBSEQUENT EVENTS (Details Narrative) - USD ($)
Jul. 28, 2020
Aug. 06, 2020
Nov. 30, 2019
Nov. 30, 2018
Loan Agreement [Member]        
Subsequent Event [Line Items]        
Interest rate     5.25% 3.07%
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member]        
Subsequent Event [Line Items]        
Secured debt $ 50,000,000      
Debt description The loan matures on August 1, 2024 and the Company is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche.      
Debt maturity date Aug. 01, 2024      
Interest rate 8.50%      
Debt conversion per share $ 9.40      
Warrants to purchase shares of common stock, exercised 86,206      
Exercise price of warrants $ 6.96      
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Maximum [Member]        
Subsequent Event [Line Items]        
Debt conversion amount $ 5,000,000      
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Prime Rate [Member]        
Subsequent Event [Line Items]        
Interest rate 5.25%      
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Share-based Payment Arrangement, Tranche One [Member]        
Subsequent Event [Line Items]        
Secured debt $ 20,000,000      
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Share-based Payment Arrangement, Tranche Two [Member]        
Subsequent Event [Line Items]        
Secured debt 20,000,000      
Subsequent Event [Member] | Loan Agreement [Member] | K2 HealthVentures LLC [Member] | Share-based Payment Arrangement, Tranche Three [Member]        
Subsequent Event [Line Items]        
Secured debt $ 10,000,000      
Subsequent Event [Member] | August 2020 Sale Agreement [Member] | Jefferies LLC [Member]        
Subsequent Event [Line Items]        
Commission percentage   3.00%    
Authorized to offer and sell up of common stock   $ 150,000,000