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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 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: 001-38318

 

Odonate Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

82-2493065

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4747 Executive Drive, Suite 210

San Diego, CA 92121

(858) 731-8180

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share

ODT

Nasdaq Global Select 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 (the “Exchange Act”) 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 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 October 14, 2020, there were 38,525,561 shares of common stock outstanding.

 

 

 


TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

3

 

Condensed Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019

 

3

 

Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

 

4

 

Condensed Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

 

5

 

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

 

7

 

Notes to Condensed Financial Statements (Unaudited)

 

8

Item 2.

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

 

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

21

Item 4.

Controls and Procedures

 

21

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

23

Item 1A.

Risk Factors

 

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

Item 3.

Defaults upon Senior Securities

 

23

Item 4.

Mine Safety Disclosures

 

23

Item 5.

Other Information

 

23

Item 6.

Exhibits

 

24

 

SIGNATURES

 

25

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

ODONATE THERAPEUTICS, INC.

Condensed Balance Sheets

(in thousands, except par value and share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

188,258

 

 

$

180,460

 

Prepaid expenses and other current assets

 

 

2,469

 

 

 

3,468

 

Total current assets

 

 

190,727

 

 

 

183,928

 

Property and equipment, net

 

 

2,397

 

 

 

1,663

 

Right-of-use lease assets

 

 

4,160

 

 

 

1,581

 

Restricted cash

 

 

714

 

 

 

714

 

Other

 

 

994

 

 

 

941

 

Total assets

 

$

198,992

 

 

$

188,827

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,024

 

 

$

15,583

 

Accrued expenses

 

 

13,991

 

 

 

8,881

 

Lease liabilities, current portion

 

 

520

 

 

 

315

 

Total current liabilities

 

 

28,535

 

 

 

24,779

 

Lease liabilities, less current portion

 

 

4,856

 

 

 

1,748

 

Total liabilities

 

 

33,391

 

 

 

26,527

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value—100,000,000 shares authorized; 38,525,561 and 32,050,906 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

366

 

 

 

300

 

Additional paid-in capital

 

 

499,376

 

 

 

402,077

 

Accumulated deficit

 

 

(334,141

)

 

 

(240,077

)

Total stockholders' equity

 

 

165,601

 

 

 

162,300

 

Total liabilities and stockholders' equity

 

$

198,992

 

 

$

188,827

 

 

See accompanying notes.

3


ODONATE THERAPEUTICS, INC.

Condensed Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

28,242

 

 

$

25,097

 

 

$

86,966

 

 

$

78,181

 

General and administrative

 

 

2,408

 

 

 

2,666

 

 

 

8,033

 

 

 

8,040

 

Total operating expenses

 

 

30,650

 

 

 

27,763

 

 

 

94,999

 

 

 

86,221

 

Loss from operations

 

 

(30,650

)

 

 

(27,763

)

 

 

(94,999

)

 

 

(86,221

)

Other income, net

 

 

173

 

 

 

1,136

 

 

 

935

 

 

 

2,247

 

Net loss

 

$

(30,477

)

 

$

(26,627

)

 

$

(94,064

)

 

$

(83,974

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.93

)

 

$

(0.88

)

 

$

(3.00

)

 

$

(3.15

)

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

32,821,835

 

 

 

30,268,295

 

 

 

31,376,672

 

 

 

26,635,107

 

See accompanying notes.

4


ODONATE THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

32,050,906

 

 

$

300

 

 

$

402,077

 

 

$

(240,077

)

 

$

162,300

 

Issuance of common stock under employee stock plans

 

 

27,532

 

 

 

1

 

 

 

520

 

 

 

-

 

 

 

521

 

Forfeiture of common stock underlying incentive units

 

 

(2,343

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,586

 

 

 

-

 

 

 

2,586

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,163

)

 

 

(30,163

)

Balance at March 31, 2020

 

 

32,076,095

 

 

 

301

 

 

 

405,183

 

 

 

(270,240

)

 

 

135,244

 

Issuance of common stock under employee stock plans

 

 

58,412

 

 

 

-

 

 

 

1,133

 

 

 

-

 

 

 

1,133

 

Forfeiture of common stock underlying incentive units

 

 

(23,857

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,595

 

 

 

-

 

 

 

2,595

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(33,424

)

 

 

(33,424

)

Balance at June 30, 2020

 

 

32,110,650

 

 

 

301

 

 

 

408,911

 

 

 

(303,664

)

 

 

105,548

 

Issuance of common stock, net of issuance costs

 

 

6,456,141

 

 

 

65

 

 

 

87,319

 

 

 

-

 

 

 

87,384

 

Issuance of common stock under employee stock plans

 

 

50,041

 

 

 

-

 

 

 

805

 

 

 

-

 

 

 

805

 

Forfeiture of common stock underlying incentive units

 

 

(91,271

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,341

 

 

 

-

 

 

 

2,341

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,477

)

 

 

(30,477

)

Balance at September 30, 2020

 

 

38,525,561

 

 

$

366

 

 

$

499,376

 

 

$

(334,141

)

 

$

165,601

 

 

5


 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

26,747,438

 

 

$

244

 

 

$

252,012

 

 

$

(128,252

)

 

$

124,004

 

Issuance of common stock under employee stock plans

 

 

10,606

 

 

 

-

 

 

 

159

 

 

 

-

 

 

 

159

 

Forfeiture of common stock underlying incentive units

 

 

(5,618

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,925

 

 

 

-

 

 

 

2,925

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,645

)

 

 

(28,645

)

Balance at March 31, 2019

 

 

26,752,426

 

 

 

244

 

 

 

255,096

 

 

 

(156,897

)

 

 

98,443

 

Issuance of common stock, net of issuance costs

 

 

4,750,000

 

 

 

48

 

 

 

117,655

 

 

 

-

 

 

 

117,703

 

Issuance of common stock under employee stock plans

 

 

18,502

 

 

 

-

 

 

 

427

 

 

 

-

 

 

 

427

 

Forfeiture of common stock underlying incentive units

 

 

(45,938

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,990

 

 

 

-

 

 

 

2,990

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,702

)

 

 

(28,702

)

Balance at June 30, 2019

 

 

31,474,990

 

 

 

292

 

 

 

376,168

 

 

 

(185,599

)

 

 

190,861

 

Issuance of common stock, net of issuance costs

 

 

712,500

 

 

 

7

 

 

 

17,385

 

 

 

-

 

 

 

17,392

 

Issuance of common stock under employee stock plans

 

 

75,358

 

 

 

1

 

 

 

1,794

 

 

 

-

 

 

 

1,795

 

Forfeiture of common stock underlying incentive units

 

 

(178,857

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,780

 

 

 

-

 

 

 

2,780

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,627

)

 

 

(26,627

)

Balance at September 30, 2019

 

 

32,083,991

 

 

$

300

 

 

$

398,127

 

 

$

(212,226

)

 

$

186,201

 

See accompanying notes.

6


ODONATE THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(94,064

)

 

$

(83,974

)

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

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

7,522

 

 

 

8,695

 

Depreciation

 

 

318

 

 

 

318

 

Non-cash lease expense

 

 

282

 

 

 

456

 

Loss on disposal of property and equipment

 

 

83

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

904

 

 

 

(3,313

)

Accounts payable

 

 

(1,559

)

 

 

2,186

 

Accrued expenses

 

 

5,110

 

 

 

4,020

 

Lease liabilities

 

 

(225

)

 

 

(505

)

Net cash used in operating activities

 

 

(81,629

)

 

 

(72,117

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(416

)

 

 

(164

)

Net cash used in investing activities

 

 

(416

)

 

 

(164

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

87,384

 

 

 

135,095

 

Proceeds from issuance of common stock under employee stock plans

 

 

2,459

 

 

 

2,381

 

Net cash provided by financing activities

 

 

89,843

 

 

 

137,476

 

Net increase in cash and restricted cash

 

 

7,798

 

 

 

65,195

 

Cash and restricted cash, beginning of period

 

 

181,174

 

 

 

139,301

 

Cash and restricted cash, end of period

 

$

188,972

 

 

$

204,496

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Initial recognition of right-of-use lease assets

 

$

2,861

 

 

$

2,215

 

Tenant improvement allowance

 

$

719

 

 

$

-

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

-

 

 

$

1

 

See accompanying notes.

 

7


 

ODONATE THERAPEUTICS, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. Business

Odonate Therapeutics, Inc. (“Odonate” or the “Company”) is a pharmaceutical company dedicated to the development of best-in-class therapeutics that improve and extend the lives of patients with cancer. The Company’s initial focus is on the development of tesetaxel, an investigational, orally administered chemotherapy agent that belongs to a class of drugs known as taxanes, which are widely used in the treatment of cancer. Tesetaxel has several pharmacologic properties that make it unique among taxanes, including: oral administration with a low pill burden; a long (~8-day) terminal plasma half-life in humans, enabling the maintenance of adequate drug levels with relatively infrequent dosing; no history of hypersensitivity (allergic) reactions; and significant activity against chemotherapy-resistant tumors. In patients with metastatic breast cancer (“MBC”), tesetaxel was shown to have significant, single-agent antitumor activity in two multicenter, Phase 2 studies. The Company is currently conducting three studies in breast cancer. In August 2020, the Company announced positive top-line results from a multinational, multicenter, randomized, Phase 3 study of tesetaxel in MBC, known as CONTESSA. The Company’s goal for tesetaxel is to develop an effective chemotherapy choice for patients that provides quality-of-life advantages over current alternatives.

On September 1, 2020, the Company closed an underwritten public offering of 5,614,036 shares of common stock at a public offering price of $14.25 per share (collectively with the underwriters’ option, the “September 2020 Offering”). The underwriters exercised in full their option to purchase 842,105 additional shares of common stock. The aggregate gross proceeds from the September 2020 Offering were $92.0 million, and the net proceeds were $87.4 million after deducting underwriting discounts and commissions and offering costs.

As of September 30, 2020, the Company had $188.3 million in cash. The Company has incurred operating losses and negative cash flows from operations since inception. Management believes that the Company’s existing cash will be sufficient to meet the Company’s anticipated cash requirements through at least one year from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”).

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The Company’s condensed financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and disclosures required by GAAP for annual financial statements have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim financial results are not necessarily indicative of results anticipated for the full year. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of the Company’s condensed financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed financial statements and accompanying notes. The most significant estimates and assumptions in the Company’s condensed financial statements relate to accrued expenses and equity-based compensation expense. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these

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estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Summary of Significant Accounting Policies

During the nine months ended September 30, 2020, there were no changes to the Company’s significant accounting policies as described in Note 2 to the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

The Company has considered all recently issued accounting pronouncements and has concluded that there are no recently issued accounting pronouncements that may have a material impact on its results of operations, financial condition or cash flows based on current information.

3. Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period, without consideration of common stock equivalents. The basic net loss per share calculation excludes 1,245,685 and 1,550,643 outstanding shares of common stock held by Odonate Holdings, LLC (“Odonate Holdings”) as of September 30, 2020 and 2019, respectively, to be used to settle incentive units previously issued under the Odonate Management Holdings Equity Incentive Plan (the “Management Plan”). These shares of common stock are subject to transfer to the Company and cancellation until such incentive units are vested and exercised and, as such, are considered common stock equivalents. Therefore, the shares of common stock held by Odonate Holdings are excluded from the basic net loss per share calculation until the incentive units are exercised.

Diluted net loss per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. Common stock equivalents, which consist of shares of common stock underlying incentive units and vested stock options, were excluded from the calculation of diluted net loss per share because they were anti-dilutive.

4. Balance Sheet Details

Property and equipment consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Leasehold improvements

 

$

1,955

 

 

$

1,113

 

Office equipment

 

 

776

 

 

 

698

 

Furniture and fixtures

 

 

514

 

 

 

420

 

Software

 

 

130

 

 

 

130

 

Total gross property and equipment

 

 

3,375

 

 

 

2,361

 

Less accumulated depreciation

 

 

(978

)

 

 

(698

)

Property and equipment, net

 

$

2,397

 

 

$

1,663

 

Depreciation expense was $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively, and for the same periods in 2019.

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Accrued expenses consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued clinical development costs

 

$

8,191

 

 

$

6,667

 

Accrued compensation and related expenses

 

 

5,714

 

 

 

2,122

 

Other accrued expenses

 

 

86

 

 

 

92

 

Total accrued expenses

 

$

13,991

 

 

$

8,881

 

 

5. Commitments and Contingencies

Lease Commitments

In March 2018, the Company entered into an agreement to lease office space in San Diego, California (the “San Diego Lease”) with aggregate payments of approximately $0.8 million over the term of the lease. The San Diego Lease originally provided for expiration on December 31, 2019. In August 2019, the Company entered into a First Amendment to the San Diego Lease to extend the term of the lease through the commencement of the New San Diego Lease (defined below). The San Diego Lease is classified as an operating lease.

In October 2019, the Company entered into an agreement to lease office space in San Diego, California (the “New San Diego Lease”) with aggregate payments of approximately $4.1 million over the 7.5-year term of the lease. The New San Diego Lease commenced in July 2020. The Company has an option to extend the New San Diego Lease for an additional 5 years at the end of the initial term. Further, the Company provided a standby letter of credit of $0.5 million as a security deposit during the term of the lease, subject to certain reductions beginning 4 years after the lease commencement. As of September 30, 2020, $0.5 million was pledged as collateral for the letter of credit and recorded as restricted cash. The New San Diego Lease is classified as an operating lease.

In February 2018, the Company entered into an agreement to lease office space in New York, New York (the “New York Lease”) with aggregate payments of approximately $2.8 million over the 7-year term of the lease. The Company has an option to extend the New York Lease for an additional three years at the end of the initial term. Further, the Company provided a standby letter of credit of $0.3 million in lieu of a security deposit during the term of the lease, subject to a reduction 3.5 years after the lease commencement. As of September 30, 2020, $0.3 million was pledged as collateral for the letter of credit and recorded as restricted cash. The New York lease is classified as an operating lease.

The Company recorded lease liabilities and right-of-use lease assets for the operating leases based on the present value of lease payments over the expected lease term, discounted using the Company’s incremental borrowing rate. The options to extend the operating leases were not recognized as part of the Company’s lease liabilities and right-of-use lease assets. As of September 30, 2020, the weighted-average remaining lease term and the weighted-average discount rate for the operating leases was 6.6 years and 4.0%, respectively. Rent expense under leases was $0.2 million and $0.6 million for the three and nine months ended September 30, 2020, respectively, and for the same periods in 2019. Cash paid for amounts included in the measurement of lease liabilities was $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively, and for the same periods in 2019.

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Future minimum lease payments under operating leases as of September 30, 2020 are as follows (in thousands):

 

2020

 

$

96

 

2021

 

 

859

 

2022

 

 

935

 

2023

 

 

980

 

2024

 

 

1,010

 

Thereafter

 

 

2,252

 

Total future minimum lease payments

 

 

6,132

 

Less discount

 

 

(756

)

Total lease liabilities

 

$

5,376

 

Other Commitments

The Company enters into contracts in the normal course of business with third-party contract research organizations, contract development and manufacturing organizations and other service providers and vendors. These contracts generally provide for termination on notice and, therefore, are cancellable contracts and not considered contractual obligations and commitments.

Contingencies

From time to time, the Company may become subject to claims and litigation arising in the ordinary course of business. Other than as described below, the Company is not a party to any material legal proceedings, nor is it aware of any material pending or threatened litigation.

On September 16, 2020, a putative class action lawsuit was filed against the Company and the Company’s Chief Executive Officer, as well as the current and former Chief Financial Officers. The complaint was filed in the United States District Court for the Southern District of California and alleges that the Company made material misrepresentations and omissions regarding the safety and tolerability of tesetaxel in the Company’s public statements in violation of federal securities laws. The lawsuit seeks damages allegedly sustained by the class and an award of plaintiffs’ costs and attorney fees. The Company believes the complaint is without merit, and it has substantive defenses to the claims of liability and damages. The Company plans to respond accordingly. Due to the early stage of this matter, the Company is unable to estimate the possible loss or range of loss, if any, that may result from this matter.

6. Stockholders’ Equity

On September 1, 2020, the Company closed an underwritten public offering of 5,614,036 shares of common stock at a public offering price of $14.25 per share (collectively with the underwriters’ option, the “September 2020 Offering”). The underwriters exercised in full their option to purchase 842,105 additional shares of common stock. The aggregate gross proceeds from the September 2020 Offering were $92.0 million, and the net proceeds were $87.4 million after deducting underwriting discounts and commissions and offering costs.

On June 28, 2019, the Company closed an underwritten public offering of 4,750,000 shares of common stock at a public offering price of $26.00 per share (collectively with the underwriters’ option, the “June 2019 Offering”). On July 2, 2019, the underwriters exercised in full their option to purchase 712,500 additional shares of common stock. The aggregate gross proceeds from the June 2019 Offering were $142.0 million, and the net proceeds were $135.1 million after deducting underwriting discounts and commissions and offering costs.

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7. Equity Incentive Plans

2017 Stock Option Plan

A total of 6,300,000 shares of common stock have been reserved for issuance under the Odonate Therapeutics, Inc. 2017 Stock Option Plan (the “2017 Plan”). As of September 30, 2020, 1,763,645 shares of common stock remained available for future grants under the 2017 Plan.

2017 Employee Stock Purchase Plan

A total of 500,000 shares of common stock have been reserved for issuance under the Odonate Therapeutics, Inc. 2017 Employee Stock Purchase Plan (the “ESPP”). As of September 30, 2020, 430,650 shares of common stock remained available for future grants under the ESPP.

Management Plan

The Company issued an aggregate of 2,931,402 incentive units under the Management Plan. Following the Company’s initial public offering in December 2017, the Company has not granted, and will no longer grant, any incentive units. As of September 30, 2020, 1,245,685 outstanding shares of common stock were held by Odonate Holdings to be used to settle incentive units previously issued under the Management Plan.

Equity Awards

The activity related to equity awards, which are comprised of stock options and incentive units, during the nine months ended September 30, 2020 is summarized as follows:

 

 

Equity

Awards

 

 

Weighted- average

Exercise Price

per Share

 

 

Weighted- average

Remaining Contractual Term(1)

(years)

 

 

Aggregate Intrinsic Value(2)

(millions)

 

Outstanding at December 31, 2019

 

 

5,972,765

 

 

$

18.46

 

 

 

 

 

 

 

 

 

Granted

 

 

293,447

 

 

$

29.67

 

 

 

 

 

 

 

 

 

Exercised

 

 

(251,184

)

 

$

14.50

 

 

 

 

 

 

 

 

 

Cancelled/forfeited

 

 

(471,941

)

 

$

21.61

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2020

 

 

5,543,087

 

 

$

18.96

 

 

 

8.5

 

 

$

11.8

 

Exercisable at September 30, 2020

 

 

2,347,091

 

 

$

11.49

 

 

 

8.0

 

 

$

11.1

 

(1)     Represents the weighted-average remaining contractual term of stock options. The incentive units have no expiration.

(2)     Aggregate intrinsic value represents the product of the number of equity awards outstanding or equity awards exercisable multiplied by the difference between the Company’s closing stock price per share on the last trading day of the period, which was $13.43 as of September 30, 2020, and the exercise price.

 

The total intrinsic value of equity awards exercised during the nine months ended September 30, 2020 and 2019 was $4.6 million and $7.9 million, respectively. The total fair value of equity awards vested during the nine months ended September 30, 2020 and 2019 was $9.5 million and $9.1 million, respectively.

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Equity-based Compensation Expense

For the nine months ended September 30, 2020 and 2019, the weighted-average grant-date fair value per share was $24.02 and $17.67, respectively. The Company estimated the fair value of each stock option on the grant date using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Expected volatility

 

81–82%

 

 

74–77%

 

Expected life

 

10 years

 

 

6–10 years

 

Risk-free interest rate

 

0.6–1.9%

 

 

1.9–2.5%

 

Expected dividend yield

 

 

0%

 

 

 

0%

 

Under the ESPP, eligible employees may purchase shares of the Company’s common stock twice per month at a price equal to 85% of the closing price of shares of the Company’s common stock on the date of each purchase. The benefit received by the employees, which is equal to a 15% discount on the shares of the Company’s common stock purchased, is recognized as equity-based compensation expense on the date of each purchase.

The classification of equity-based compensation expense is summarized as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Equity-based compensation expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

2,059

 

 

$

2,421

 

 

$

6,672

 

 

$

7,494

 

General and administrative

 

 

282

 

 

 

359

 

 

 

850

 

 

 

1,201

 

Total equity-based compensation expense

 

$

2,341

 

 

$

2,780

 

 

$

7,522

 

 

$

8,695

 

 

As of September 30, 2020, total unrecognized compensation cost related to unvested equity awards was $54.9 million, which is estimated to be recognized over a weighted-average period of 2.7 years. As of September 30, 2020, there was no unrecognized compensation cost related to shares of common stock issued under the ESPP.

8. Income Taxes

For the three and nine months ended September 30, 2020 and 2019, the Company did not recognize a provision for income taxes due to having recorded a full valuation allowance against its deferred tax assets. As of September 30, 2020 and December 31, 2019, the Company established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. As of September 30, 2020 and December 31, 2019, the Company had no unrecognized tax benefits. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

9. License Agreement

In 2013, the Company licensed rights to tesetaxel in all major markets from Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), the original inventor of the product. Under the Daiichi Sankyo license agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize tesetaxel in the following countries: France, Germany, Italy, Spain, the United Kingdom and the U.S. The Company is required to make aggregate future milestone payments of up to $31.0 million, contingent on attainment of certain regulatory milestones. Additionally, the Company is obligated to pay Daiichi Sankyo a tiered royalty that ranges from the low- to high-single digits, depending on annual net sales of tesetaxel.

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Forward-looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, and such statements may involve substantial risks and uncertainties. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q, including, but not limited to, statements concerning: expectations regarding the outcome of CONTESSA, our Phase 3 study of tesetaxel in patients with metastatic breast cancer; expectations regarding the enrollment, completion and outcome of our other clinical studies; expectations regarding the timing for our planned New Drug Application submission for tesetaxel; expectations regarding our ability to obtain regulatory approval of tesetaxel; the unpredictable relationship between preclinical study results and clinical study results; our plans, objectives, goals, strategies, future events, future revenues or performance, future expenses, financing needs, plans or intentions relating to acquisitions, and business trends; and other information referred to under this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “target,” “forecast” or the negative of these terms and similar expressions intended to identify forward-looking statements. Forward-looking statements are not historical facts and reflect our current views with respect to future events. Forward-looking statements are also based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other factors are described under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and under “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q. We caution you that these risks, uncertainties and other factors may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

Company Overview

We are a pharmaceutical company dedicated to the development of best-in-class therapeutics that improve and extend the lives of patients with cancer. Our initial focus is on the development of tesetaxel, an investigational, orally administered chemotherapy agent that belongs to a class of drugs known as taxanes, which are widely used in the treatment of cancer. Tesetaxel has several pharmacologic properties that make it unique among taxanes, including: oral administration with a low pill burden; a long (~8-day) terminal plasma half-life in humans, enabling the maintenance of adequate drug levels with relatively infrequent dosing; no history of hypersensitivity (allergic) reactions; and significant activity against chemotherapy-resistant tumors. In patients with metastatic breast cancer (“MBC”), tesetaxel was shown to have significant, single-agent antitumor activity in two multicenter, Phase 2 studies. We are currently conducting three studies in breast cancer, as shown in the following table. In August 2020, we announced positive top-line results from a multinational, multicenter, randomized, Phase 3 study of

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tesetaxel in MBC, known as CONTESSA. We plan to submit a New Drug Application (“NDA”) for tesetaxel to the U.S. Food and Drug Administration (“FDA”) in mid-2021. Our goal for tesetaxel is to develop an effective chemotherapy choice for patients that provides quality-of-life advantages over current alternatives.

Ongoing Tesetaxel Clinical Studies

 

  HER2= human epidermal growth factor receptor 2; HR=hormone receptor; MBC=metastatic breast cancer;

  TNBC=triple-negative breast cancer

CONTESSA

CONTESSA is a multinational, multicenter, randomized, Phase 3 study of tesetaxel, an investigational, orally administered taxane, in patients with MBC. CONTESSA is comparing tesetaxel dosed orally at 27 mg/m2 on the first day of each 21 day cycle plus a reduced dose of capecitabine (1,650 mg/m2/day dosed orally for 14 days of each 21 day cycle) to the approved dose of capecitabine alone (2,500 mg/m2/day dosed orally for 14 days of each 21-day cycle) in 685 patients randomized 1:1 with human epidermal growth factor receptor 2 (“HER2”) negative, hormone receptor (“HR”) positive MBC previously treated with a taxane in the neoadjuvant or adjuvant setting. Capecitabine is an oral chemotherapy agent that is considered a standard of care treatment in MBC. Where indicated, patients must have received endocrine therapy with or without a cyclin dependent kinase (“CDK”) 4/6 inhibitor. The primary endpoint is progression-free survival (“PFS”) as assessed by an Independent Radiologic Review Committee (“IRC”). The secondary efficacy endpoints are overall survival (“OS”), objective response rate (“ORR”) as assessed by the IRC, and disease control rate (“DCR”) as assessed by the IRC.

In August 2020, we announced positive top-line results from CONTESSA. CONTESSA met the primary endpoint of improved PFS as assessed by the IRC. Median PFS was 9.8 months for tesetaxel plus a reduced dose of capecitabine versus 6.9 months for the approved dose of capecitabine alone, an improvement of 2.9 months. The risk of disease progression or death was reduced by 28.4% [hazard ratio=0.716 (95% confidence interval: 0.573-0.895); p=0.003] for patients who received tesetaxel plus a reduced dose of capecitabine versus patients who received the approved dose of capecitabine alone.

Tesetaxel plus capecitabine was associated with what we believe are manageable side effects consistent with findings from previous clinical studies. Grade ≥3 treatment-emergent adverse events (“TEAEs”) that occurred in ≥5% of patients were: neutropenia (71.2% for tesetaxel plus capecitabine vs. 8.3% for capecitabine alone); diarrhea (13.4% for tesetaxel plus capecitabine vs. 8.9% for capecitabine alone); hand foot syndrome (6.8% for tesetaxel plus capecitabine vs. 12.2% for capecitabine alone);

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febrile neutropenia (12.8% for tesetaxel plus capecitabine vs. 1.2% for capecitabine alone); fatigue (8.6% for tesetaxel plus capecitabine vs. 4.5% for capecitabine alone); hypokalemia (8.6% for tesetaxel plus capecitabine vs. 2.7% for capecitabine alone); leukopenia (10.1% for tesetaxel plus capecitabine vs. 0.9% for capecitabine alone); and anemia (8.0% for tesetaxel plus capecitabine vs. 2.1% for capecitabine alone).

Adverse events resulting in treatment discontinuation in ≥1% of patients were: neutropenia or febrile neutropenia (4.2% for tesetaxel plus capecitabine vs. 1.5% for capecitabine alone); neuropathy (3.6% for tesetaxel plus capecitabine vs. 0.3% for capecitabine alone); diarrhea (0.9% for tesetaxel plus capecitabine vs. 1.5% for capecitabine alone); and hand-foot syndrome (0.6% for tesetaxel plus capecitabine vs. 2.1% for capecitabine alone). Treatment discontinuation due to any adverse event occurred in 23.1% of patients treated with tesetaxel plus capecitabine versus 11.9% of patients treated with capecitabine alone.

Grade 2 alopecia (hair loss) occurred in 8.0% of patients treated with tesetaxel plus capecitabine versus 0.3% of patients treated with capecitabine alone. Grade ≥3 neuropathy occurred in 5.9% of patients treated with tesetaxel plus capecitabine versus 0.9% of patients treated with capecitabine alone.

While OS data are immature, a recent interim analysis indicated the absence of an adverse effect on OS for tesetaxel plus a reduced dose of capecitabine. A protocol-specified final analysis of OS is expected to occur in 2022.

The results of CONTESSA have been selected for an oral presentation at the 2020 San Antonio Breast Cancer Symposium, to be held virtually December 8-11, 2020.

CONTESSA 2

CONTESSA 2 is a multinational, multicenter, Phase 2 study of tesetaxel, an investigational, orally administered taxane, in patients with MBC. CONTESSA 2 is investigating tesetaxel dosed orally at 27 mg/m2 on the first day of each 21-day cycle plus a reduced dose of capecitabine (1,650 mg/m2/day dosed orally for 14 days of each 21-day cycle) in approximately 125 patients with HER2 negative, HR positive MBC not previously treated with a taxane. Capecitabine is an oral chemotherapy agent that is considered a standard-of-care treatment in MBC. Where indicated, patients must have received endocrine therapy with or without a CDK 4/6 inhibitor. The primary endpoint is ORR as assessed by an IRC. The secondary efficacy endpoints are duration of response (“DoR”) as assessed by the IRC, PFS as assessed by the IRC, DCR as assessed by the IRC and OS.

CONTESSA TRIO

CONTESSA TRIO is a multi-cohort, multicenter, Phase 2 study of tesetaxel, an investigational, orally administered taxane, in patients with MBC.

 

In Cohort 1, approximately 90 patients (with potential expansion to up to 150 patients) with locally advanced or metastatic triple-negative breast cancer (“TNBC”) who have not received prior chemotherapy for advanced disease will be randomized 1:1:1 to receive tesetaxel dosed orally at 27 mg/m2 on the first day of each 21-day cycle plus either: (1) nivolumab at 360 mg by intravenous infusion on the first day of each 21-day cycle; (2) pembrolizumab at 200 mg by intravenous infusion on the first day of each 21-day cycle; or (3) atezolizumab at 1,200 mg by intravenous infusion on the first day of each 21-day cycle. Nivolumab and pembrolizumab (PD-1 inhibitors) and atezolizumab (a PD-L1 inhibitor) are immuno-oncology (“IO”) agents approved for the treatment of multiple types of cancer. One of these agents, atezolizumab, in combination with the intravenously delivered taxane, nab-paclitaxel, was recently approved by the FDA as a first-line treatment for patients with metastatic TNBC. The dual primary endpoints for Cohort 1 are ORR and PFS. Secondary endpoints include DoR and OS. Efficacy results for each of the three PD-(L)1 inhibitor combinations will be assessed for correlation with the results of each of the three approved PD-L1 diagnostic assays.

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In Cohort 2, approximately 40 elderly patients (with potential expansion to up to 60 patients) with HER2 negative MBC will receive tesetaxel monotherapy dosed orally at 27 mg/m2 on the first day of each 21-day cycle. The primary endpoint for Cohort 2 is ORR. Secondary endpoints include PFS, DoR and OS.

Components of Our Results of Operations

Research and Development Expense

Research and development expense consists primarily of expense associated with the development of tesetaxel and includes non-personnel-related and personnel-related expense. Non-personnel-related expense includes expense related to: (i) clinical study site payments; (ii) acquiring clinical study materials and the clinical study supply chain; (iii) manufacturing development and scale-up, including manufacturing registration and validation batches of tesetaxel; (iv) clinical and quality systems; and (v) regulatory submissions. Personnel-related expense includes expense related to salaries, benefits and equity-based compensation for personnel engaged in research and development functions.

Research and development expense is charged to operations as incurred when the expenditures relate to our research and development efforts and have no alternative future use. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

All of our research and development expense incurred to date has been incurred in connection with the development of tesetaxel. We do not expect our research and development expense to change significantly in the near term.

General and Administrative Expense

General and administrative expense includes non-personnel and personnel-related expense. Non-personnel-related expense includes expense related to: (i) professional fees for legal, patent, consulting, accounting and audit services; (ii) facilities and information technology; and (iii) insurance. Personnel-related expense includes expense related to salaries, benefits and equity-based compensation for personnel engaged in finance and administrative functions. We do not expect our general and administrative expense to change significantly in the near term.

Other Income, Net

Other income, net consists primarily of interest income generated from cash held in savings accounts. Other income, net also includes losses on disposal of property and equipment and gains and losses on foreign currency transactions.

Results of Operations

The following table summarizes our results of operations for each of the periods below (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development expense

 

$

28,242

 

 

$

25,097

 

 

$

86,966

 

 

$

78,181

 

General and administrative expense

 

$

2,408

 

 

$

2,666

 

 

$

8,033