Quarterly report pursuant to Section 13 or 15(d)

Organization and Summary of Significant Accounting Policies (Policies)

v3.21.2
Organization and Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Business Activities and Organization

Business Activities and Organization 

 

We are a clinical-stage biopharmaceutical company focused on the development of drug products that are intended to provide treatment for patients who have a high unmet medical need condition that effects survival or the patient’s quality of life and for which few or no treatment options currently exist. We currently have five drugs: four in various stages of clinical development (PCS499, PCS12852, PCS3117 and PCS6422) and one in nonclinical development (PCS11T). We group our drugs into non-oncology (PCS499 and PCS12852) and oncology (PCS3117, PCS6422 and PCS11T). A summary of each of our five drugs is provided below:

 

  Our most advanced product candidate, PCS499, is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental®). We completed a Phase 2A trial for PCS499 in patients with ulcerative and non-ulcerative necrobiosis lipoidica (NL) in late 2020, and in May 2021 we enrolled the first patient in our Phase 2B trial for the treatment of ulcerative NL. We expect to complete our interim analysis of the Phase 2B trial in mid-2022; complete the trial in the second half of 2022; and, depending on the results, begin a pivotal Phase 3 trial in 2023.
      
  PCS12852 is a highly specific and potent 5HT4 agonist which has already been evaluated in clinical studies in South Korea for gastric emptying and gastrointestinal motility. In October 2021, the FDA cleared our IND application to proceed with a Phase 2A trial for the treatment of gastroparesis. We anticipate beginning to enroll patients in the first half of 2022, with expected completion in the first half of 2023.
     
  PCS3117, which we licensed in June 2021, is a cytosine analog, similar to gemcitabine (Gemzar®) but different enough in chemical structure that some patients are more likely to respond to PCS3117 than gemcitabine. We are developing potential biomarkers to predict which patients are more likely to respond to PCS3117 than gemcitabine and other chemotherapy agents to provide a more targeted, precision medicine approach to the treatment of pancreatic and/or non-small cell lung cancer. Over the next 6-12 months, we will be developing and refining these biomarker assays for use in our clinical trials, which should be completed in the first half of 2022. We anticipate validating our approach and confirming our hypothesis in a planned Phase 2B study expected to start in the second half of 2022 and, depending on the results, conducting a Phase 3 pivotal trial in 2023-2024.
     
  PCS6422 is an orally administered irreversible enzyme inhibitor administered in combination with capecitabine. When combining capecitabine with PCS6422 (the “Next Generation Capecitabine”), capecitabine becomes a more potent cancer chemotherapy agent than current FDA approved capecitabine. On August 2, 2021, we enrolled the first patient in our Phase 1B dose-escalation maximum tolerated dose trial in patients with advanced refractory gastrointestinal (GI) tract tumors and our interim analysis of Cohorts 1 and 2 found no dose-limiting toxicities (DLTs), no drug related adverse events greater than Grade 1, and no hand-foot syndrome. In addition, the interim analysis revealed when PCS6422 inhibits DPD enzyme activity, 5-FU metabolism is significantly decreased (< 10% metabolized to F-BAL compared to typically 80%) and the potency of capecitabine is significantly increased (at least 50 x greater 5-FU potency based on systemic exposure per mg of capecitabine administered). The single dose of PCS6422, however, does not sustain the DPD inhibition throughout 7 days of capecitabine dosing which is needed to maintain the improved potency of capecitabine. Therefore, we are modifying the existing protocol to obtain more data on DPD inhibition and de novo formation. We anticipate that this additional data will allow us to select PCS6422 dosage regimens that will maintain DPD inhibition for each patient treated with this Next Generation Capecitabine (i.e., combination of PCS6422 and capecitabine). After interacting with the FDA and making protocol modifications, we expect to restart the Phase 1B study in the middle of the first half of 2022 while defining the Next Generation Capecitabine regimen (i.e., the PCS6422 regimens and the corresponding capecitabine regimens) by the end of 2022. Although we are making modifications to the existing Phase 1B protocol, we expect that our overall timeline has not changed with a Phase 2B or 3 trial starting in 2023-2024 and NDA submission in 2027-2028.
     
  Our only nonclinical drug candidate is PCS11T, an analog of SN38 (SN38 being the active metabolite of irinotecan) and a next generation irinotecan drug for multiple types of cancers. PCS11T is presently in the IND pre-clinical toxicology stage. We hope to submit an IND in the first half of 2023, followed by a Phase 1B maximum tolerated dose trial.

 

Impact of COVID-19

Impact of COVID-19

 

The COVID-19 pandemic has created uncertainties in the expected timelines for clinical stage biopharmaceutical companies such as ours, including possible delays in clinical trials and disruptions in the supply chain for raw materials used in clinical trial work. Such delays could materially impact our business in future periods. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the economic impact brought by, and the duration of, COVID-19 is difficult to assess or predict, the COVID-19 pandemic and its resulting variants could result in further disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industries and economies as a whole. Whether this support continues is uncertain. Accordingly, the extent to which the COVID-19 global pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its resulting variants, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. For more information on the risks associated with COVID-19, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K.

 

 

Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions of the U.S. Securities and Exchange Commission (“SEC”) on Form 10-Q and Article 8 of Regulation S-X.

 

Accordingly, they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

 

Liquidity

Liquidity

 

We have incurred losses since inception, devoting substantially all of our efforts toward research and development, and have an accumulated deficit of approximately $33.6 million at September 30, 2021. During the nine months ended September 30, 2021, we generated a net loss of approximately $8.2 million and we expect to continue to generate operating losses and negative cash flow from operations for the foreseeable future. However, we believe our cash balance at September 30, 2021 is adequate to fund our budgeted operations into the middle of 2023. Our ability to execute our longer-term operating plans, including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding in the future when necessary.

 

We had no revenue during the nine months ended September 30, 2021 and do not have any revenue under contract or any immediate sales prospects. Our primary uses of cash are to fund our planned clinical trials, research and development expenditures and operating expenses. Cash used to fund operating expenses is impacted by the timing of when we incur and pay these expenses.

 

Use of Estimates

Use of Estimates

 

In preparing our condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC, we make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to preclinical and clinical trial expenses, stock-based compensation, intangible assets, future milestone payments and income taxes. These estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While we believe the estimates to be reasonable, actual results could differ materially from those estimates and could impact future results of operations and cash flows.

 

Intangible Assets

Intangible Assets

 

Intangible assets acquired individually or with a group of other assets from others (other than in a business combination) are recognized at cost, including transaction costs, and allocated to the individual assets acquired based on relative fair values and no goodwill is recognized. Cost is measured based on cash consideration paid. If consideration given is in the form of non-cash assets, liabilities incurred, or equity interests issued, measurement of cost is based on either the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and more reliably measurable. Costs of internally developing, maintaining or restoring intangible assets that are not specifically identifiable, have indeterminate lives or are inherent in a continuing business are expensed as incurred.

 

Intangible assets purchased from others for use in research and development activities and that have alternative future uses (in research and development projects or otherwise) are capitalized in accordance with ASC Topic 350, Intangibles – Goodwill and Other. Those that have no alternative future uses (in research and development projects or otherwise) and therefore no separate economic value are considered research and development costs and are expensed as incurred. Amortization of intangibles used in research and development activities is a research and development cost.

 

 

Intangibles with a finite useful life are amortized using the straight-line method unless the pattern in which the economic benefits of the intangible assets are consumed or used up are reliably determinable. The useful life is the best estimate of the period over which the asset is expected to contribute directly or indirectly to our future cash flows. The useful life is based on the duration of the expected use of the asset by us and the legal, regulatory or contractual provisions that constrain the useful life and future cash flows of the asset, including regulatory acceptance and approval, obsolescence, demand, competition and other economic factors. We evaluate the remaining useful life of intangible assets each reporting period to determine whether any revision to the remaining useful life is required. If the remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over the revised remaining useful life. If an income approach is used to measure the fair value of an intangible asset, we consider the period of expected cash flows used to measure the fair value of the intangible asset, adjusted as appropriate for company-specific factors discussed above, to determine the useful life for amortization purposes.

 

If no regulatory, contractual, competitive, economic or other factors limit the useful life of the intangible to us, the useful life is considered indefinite. Intangibles with an indefinite useful life are not amortized until its useful life is determined to be no longer indefinite. If the useful life is determined to be finite, the intangible is tested for impairment and the carrying amount is amortized over the remaining useful life in accordance with intangibles subject to amortization. Indefinite-lived intangibles are tested for impairment annually and more frequently if events or circumstances indicate that it is more-likely-than-not that the asset is impaired.

 

Impairment of Long-Lived Assets and Intangibles Other Than Goodwill

Impairment of Long-Lived Assets and Intangibles Other Than Goodwill

 

We account for the impairment of long-lived assets in accordance with ASC 360, Property, Plant and Equipment and ASC 350, Intangibles – Goodwill and Other, which require that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to its expected future undiscounted net cash flows generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amounts of the assets exceed the fair value of the assets based on the present value of the expected future cash flows associated with the use of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Based on management’s evaluation, there was no impairment loss recorded during the nine months ended September 30, 2021 or 2020.

 

Stock-based Compensation

Stock-based Compensation

 

Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718, Compensation-Stock Compensation. We expense stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. We value restricted stock awards (RSAs) and restricted stock units (RSUs) based on the closing share price on the date of grant. We estimate the fair value of stock option and warrant grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Stock-based compensation costs are recorded as general and administrative or research and development costs in the condensed consolidated statements of operations based upon the underlying individual’s or consultant’s role.

 

Stock-based compensation during the nine months ended September 30, 2021 consisted of the following:

 

         
Employee and Director stock-based compensation   $ 1,815,094  
Stock-based compensation paid to consultants for services rendered and to be rendered     549,962  
Stock-based compensation paid     2,365,056  
Total amount originally included in prepaid expenses     (410,908 )
Less amortization of prepaid expenses     303,715  
         
Total stock-based compensation for the nine months ended September 30, 2021   $ 2,257,863  

 

 

At September 30, 2021, $107,193 of stock-based compensation related to consultants for services is included in our prepaid expense and is being amortized over the contract period of one year as services are expected to be provided.

 

Net Loss Per Share

Net Loss Per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average common shares outstanding and vested RSUs. Diluted net loss per share is computed by dividing net loss by the diluted weighted average common shares outstanding. Since we experienced a net loss for both periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the nine months ended September 30, 2021 and 2020 excludes the impact of potentially dilutive common shares related to outstanding stock options, unvested restricted stock awards (RSAs), unvested restricted stock units (RSUs) and purchase warrants and, in 2020, the conversion of our 2019 Senior Notes and related party line of credit (LOC) since those shares would have an anti-dilutive effect on loss per share.

 

Our diluted net loss per share for the nine months ended September 30, 2021 and 2020 excluded 844,394 and 1,257,109, respectively, of potentially dilutive common shares, respectively, related to outstanding stock options, unvested RSAs, unvested RSUs and purchase warrants and, in 2020, the conversion of our Senior Notes and related party LOC since those shares would have had an anti-dilutive effect on loss per share during the periods then ended.

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.