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The accompanying interim unaudited consolidated financial statements of Opexa Therapeutics, Inc. (Opexa or the Company), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC) and should be read in conjunction with the audited financial statements and notes thereto contained in Opexas latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements that would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.
The accompanying consolidated financial statements include the accounts of Opexa and its wholly owned subsidiary, Opexa Hong Kong Limited (Opexa Hong Kong). All intercompany balances and transactions have been eliminated in the consolidation.
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Revenue Recognition. Opexa recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB ASC) 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) consideration is fixed or determinable; and (4) collectability is reasonably assured.
On February 4, 2013, Opexa entered into an Option and License Agreement (the Merck Serono Agreement) with Ares Trading SA (Merck Serono), a wholly owned subsidiary of Merck Serono S.A. Pursuant to the terms, Merck Serono has an option to acquire an exclusive, worldwide (excluding Japan) license of Opexas Tcelna® program for the treatment of multiple sclerosis (MS). Tcelna is currently in a Phase IIb clinical trial (Abili-T) in patients with Secondary Progressive MS (SPMS). The option may be exercised by Merck Serono prior to or upon Opexas completion of the Phase IIb Trial.
Opexa received an upfront payment of $5 million for granting the option. Opexa recognized revenues from nonrefundable, up-front $5 million option fees related to the Merck Serono Agreement on a straight-line basis over the estimated option exercise period. If the option is exercised, Merck Serono would pay the Company an upfront license fee of $25 million unless Merck Serono is unable to advance directly into a Phase III clinical trial of Tcelna for SPMS without a further Phase II clinical trial (as determined by Merck Serono), in which event the upfront license fee would be $15 million. After exercising the option, Merck Serono would be solely responsible for funding development, regulatory and commercialization activities for Tcelna in MS, although the Company would retain an option to co-fund certain development in exchange for increased royalty rates. The Company would also retain rights to Tcelna in Japan, certain rights with respect to the manufacture of Tcelna, and rights outside of MS.
On March 9, 2015 Opexa entered into a First Amendment of Option and License Agreement with Merck Serono, to amend the Merck Serono Agreement (the Merck Serono Amendment). Opexa received $3 million in consideration for the following:
(i) Creating a detailed plan for potential Phase III development of Tcelna (the Pre-Phase III Plan), including documenting all of the activities necessary for laboratory facilities both in the U.S. and Europe to reach operational readiness by the end of December 2016. The Joint Steering Committee (JSC) established pursuant to the Merck Serono Agreement will be responsible for reviewing, approving and ultimately overseeing Opexas completion of the Pre-Phase III Plan. In the event the JSC has not approved the Pre-Phase III Plan prior to the end of the period in the Merck Serono Agreement within which Merck Serono may exercise its option, such period will be extended for 60 days following approval of the Pre Phase III Plan by the JSC.
(ii) Providing Merck Serono with updates and analysis on a blinded basis, grouped in patient batches according to Opexas analysis timetable, on the progress of Opexas immune monitoring program being conducted in conjunction with the ongoing Abili-T clinical trial.
Opexa evaluated the Merck Serono Amendment and determined that the $3 million payment from Merck Serono has stand-alone value. Opexas continuing performance obligations in connection with the $3 million payment include the creation of the Pre-Phase III Plan and delivery of updates and analysis relating to Opexas immune monitoring program. As a stand-alone value term in the Merck Serono Amendment, the $3 million payment is determined to be a single unit of accounting, and is recognized as revenue on a straight-line basis over the period equivalent to the expected completion of the Pre-Phase III Plan in December 2016. Opexa includes the unrecognized portion of the $5 million option payment and the $3 million amendment payment as deferred revenue on its consolidated balance sheets.
Cash and Cash Equivalents. Opexa considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Investments with maturities in excess of three months but less than one year are classified as short-term investments and are stated at fair market value.
Opexa primarily maintains cash balances on deposit in accounts at a U.S.-based financial institution. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. Opexas cash balances on deposit in these accounts may, at times, exceed the federally insured limits. Opexa has not experienced any losses in such accounts.
At June 30, 2015, Opexa had approximately $17.2 million in a savings account. For the six months ended June 30, 2015, the savings account recognized an average market yield of 0.1%. Interest income of $4,103 was recognized for the six months ended June 30, 2015 in the consolidated statements of operations.
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Other current assets consisted of the following at June 30, 2015 and December 31, 2014:
Description | June 30, 2015 | December 31, 2014 | ||||||
Deferred offering costs | $ | 21,835 | $ | 259,989 | ||||
Prepaid expenses | 381,799 | 498,954 | ||||||
$ | 403,634 | $ | 758,943 | |||||
Prepaid expenses at June 30, 2015 and December 31, 2014 include advance payments totaling $92,240 and $131,289, respectively, made to vendors and consultants for the conduct of the Phase IIb clinical trial in SPMS.
Prepaid expenses at June 30, 2015 and December 31, 2014 also include costs incurred from third parties in connection with the Merck Serono Agreement (see Note 2). As of June 30, 2015 and December 31, 2014, the remaining costs of $38,938 in connection with the Merck Serono Agreement that are expected to be amortized over the upcoming 12-month period are capitalized and included in other current assets in the consolidated balance sheets. The remaining costs of $19,469 in connection with the Merck Serono Agreement that are expected to be amortized beyond the upcoming 12-month period are capitalized and included in other long term assets in the consolidated balance sheets (see Note 4).
Deferred offering costs at June 30, 2015 and December 31, 2014 include costs incurred from third parties in connection with the implementation of an at-the-market program (ATM Agreement) in March 2014 pursuant to which Opexa may sell shares of its common stock from time to time depending upon market demand through a sales agent in transactions deemed to be an at-the-market offering as defined in Rule 415 of the Securities Act of 1933. As of June 30, 2015, the remaining costs of $21,835 in connection with the implementation of the ATM Agreement remained capitalized and are included in other current assets in the consolidated balance sheets. Upon the sales of shares of common stock under the ATM Agreement, the remaining capitalized costs are offset against the proceeds of such sales of shares of common stock.
Deferred offering costs at December 31, 2014 also included costs of $238,154 incurred from third parties in connection with the implementation of $1.5 million and $15.0 million purchase agreements in November 2012 pursuant to which Opexa had and has the right to sell to Lincoln Park Capital Fund, LLC (Lincoln Park) up to $16.5 million in shares of its common stock, subject to certain conditions and limitations for a period of 30 months from the commencement date of the respective agreements. The $1.5 million purchase agreement expired in June 2015, and the $15.0 million purchase agreement expires on November 1, 2015. The remaining costs were expensed in the quarter ended June 30, 2015.
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Other long term assets at June 30, 2015 and December 31, 2014 include costs incurred from third parties in connection with the Merck Serono Agreement (see Note 2), amounting to $19,469 and $38,939, respectively, that are expected to be amortized beyond the upcoming 12-month period.
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For the six months ended June 30, 2015, equity related transactions were as follows:
● | Opexa recognized stock-based compensation expense of $33,213 related to vested shares of restricted common stock issued to certain members of Opexas management and non-employee directors on February 28, 2014. |
● | On April 9, 2015, Opexa issued 25,098,437 shares of stock and Series M warrants for a like number of shares upon the closing of a rights offering. Opexa raised $13,804,140 in gross proceeds, before expenses, through subscriptions for 25,098,437 units at a price of $0.55 per unit. Net proceeds were $12,095,294 after deduction of related fees and expenses, including dealer-manager fees, totaling $1,708,846. |
● | On March 31, 2015, 20,454 shares of restricted common stock with an aggregate fair value of $11,250 were issued to certain non-employee directors for service on Opexas Board. Opexa recognized stock-based compensation of $11,250 related to these shares. The shares vested immediately upon grant. |
● | In June 2015, Opexa issued 7,620 shares of common stock and received gross proceeds of $3,810 upon the exercise of 7,620 Series M warrants. |
● | On June 30, 2015, 25,281 shares of restricted common stock with an aggregate fair value of $11,250 were issued to certain non-employee directors for service on Opexas Board. Opexa recognized stock-based compensation of $11,250 related to these shares. The shares vested immediately upon grant. |
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Stock Options
The Board of Directors initially adopted the 2010 Stock Incentive Plan on September 2, 2010 for the granting of equity incentive awards to employees, directors and consultants of Opexa, and the Plan was initially approved by the Companys shareholders on October 19, 2010. On September 25, 2013, the Board approved the Amended and Restated 2010 Stock Incentive Plan (the 2010 Plan), and the Companys shareholders approved the amended 2010 Plan on November 8, 2013, in order to (i) increase the number of shares of common stock reserved for issuance by 3,000,000 shares and (ii) reset the number of stock-based awards issuable to a participant in any calendar year to align with the increase in the shares reserved. The 2010 Plan is the successor to and continuation of Opexas June 2004 Compensatory Stock Option Plan (the 2004 Plan).
The 2010 Plan reserves a maximum of 3,625,000 shares of common stock for issuance plus the number of shares subject to stock options outstanding under the 2004 Plan that are forfeited or terminate prior to exercise and would otherwise be returned to the share reserves under the 2004 Plan and any reserved shares not issued or subject to outstanding grants, up to a maximum of 513,220 shares. The 2010 Plan provides for the grant of incentive stock options or nonqualified stock options, as well as restricted stock, stock appreciation rights, restricted stock units and performance awards that may be settled in cash, stock or other property. The Board of Directors or Compensation Committee, as applicable, administers the 2010 Plan and has discretion to determine the recipients, the number and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to a limitation on repricing without shareholder approval, the Board or Compensation Committee, as applicable, may also determine the exercise price of options granted under the 2010 Plan. As of June 30, 2015, options to purchase an aggregate of 3,346,592 shares were issued and outstanding under the 2004 Plan and the 2010 Plan, and 553,730 shares remained available for the grant of options under the 2010 Plan.
Opexa accounts for stock-based compensation, including options and nonvested shares, according to the provisions of FASB ASC 718, "Share Based Payment. During the six months ended June 30, 2015, Opexa recognized stock-based compensation expense of $472,350. Unamortized stock-based compensation expense as of June 30, 2015 amounted to $2,268,973.
Stock Option Activity
A summary of stock option activity for the six months ended June 30, 2015 is presented below:
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at January 1, 2015 | 2,423,253 | $ | 2.92 | |||||||||||||
Granted | 1,008,026 | 0.67 | ||||||||||||||
Exercised | - | - | ||||||||||||||
Forfeited and canceled | (84,687 | ) | 1.28 | |||||||||||||
Outstanding at June 30, 2015 | 3,346,592 | $ | 2.28 | 8.2 | $ | - | ||||||||||
Exercisable at June 30, 2015 | 1,546,201 | $ | 3.35 | 7.1 | $ | - |
Employee Options:
Option awards are granted with an exercise price equal to the market price of Opexas stock at the date of issuance, generally have a ten-year life, and have various vesting dates that range from no vesting or partial vesting upon date of grant to full vesting on a specified date. Opexa estimates the fair value of stock options using the Black-Scholes option-pricing model and records the compensation expense ratably over the service period.
During the six months ended June 30, 2015, time-based options to purchase an aggregate of 496,250 shares at exercise prices ranging from $.53 to $.82 were granted to employees. These options have a term of ten years and have a vesting schedule of the earlier of four years or termination of employment without cause following a change of control. Fair value of $380,537 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate range of 1.948% to 2.05%, (2) expected term of 6.25 years, (3) expected volatility range of 141.07% to 143.46% and (4) zero expected dividends.
During the six months ended June 30, 2015, options to purchase 84,687 shares were forfeited and cancelled.
Opexa recognized stock based compensation expense of $329,615 and $445,212 for grants made to employees during the six months ended June 30, 2015 and June 30, 2014 respectively.
Non-Employee Options:
During the six months ended June 30, 2015, options to purchase an aggregate of 511,776 shares at an exercise price of $0.53 were granted to non-employee directors for service on Opexas Board. Options to purchase an aggregate of 357,050 shares will expire on the earlier of 10 years or a change in control of Opexa, with 50% of the shares vesting immediately and 50% vesting on December 31, 2015. Options to purchase an aggregate of 119,020 shares have terms of 10 years, with 50% of the shares vesting immediately and 50% vesting on March 30, 2016. An option to purchase 35,706 shares will expire on the earlier of 10 years or a change in control of Opexa, with vesting in four quarterly increments beginning on June 30, 2015. Fair value of $214,844 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 2.05%, (2) expected term of 5.25 years, (3) expected volatility of 143.46% and (4) zero expected dividends.
Opexa recognized stock based compensation expense of $142,735 and $146,410 for grants made to non-employee directors during the six months ended June 30, 2015 and June 30, 2014 respectively.
Restricted Stock
See Note 5 for a description of restricted stock awards made to non-employee directors under the 2010 Plan during the six months ended June 30, 2015.
Warrant Activity
A summary of warrant activity for the six months ended June 30, 2015 is presented below:
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at January 1, 2015 | 3,046,801 | $ | 4.08 | |||||||||||||
Granted | 25,579,935 | 0.52 | ||||||||||||||
Exercised | (7,620 | ) | 0.50 | |||||||||||||
Forfeited and canceled | (223,119 | ) | 9.37 | |||||||||||||
Outstanding at June 30, 2015 | 28,395,997 | $ | 0.80 | 2.68 | $ | - | ||||||||||
Exercisable at June 30, 2015 | 28,395,997 | $ | 0.80 | 2.68 | $ | - |
On April 9, 2015, the Company issued 25,098,437 Series M warrants upon the closing of a rights offering. The Series M warrants entitle the holder to purchase one share of Opexas common stock at an exercise price of (i) $0.50 per share from the date of issuance (April 9, 2015) through June 30, 2016 and (ii) $1.50 per share from July 1, 2016 through their expiration three years from the date of issuance. Pursuant to the anti-dilution provisions of certain of the Companys outstanding warrants and as a result of the rights offering (i) the per share exercise prices of the Series A, J, K and L warrants were adjusted to $9.37, $1.03, $1.00 and $1.59, respectively, and (ii) an aggregate of an additional 481,498 Series L warrants were issued. The Series A warrants expired on June 15, 2015.
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Subsequent to June 30, 2015, an aggregate of 1,200 Series M warrants were exercised and a like number of shares of common stock were issued for gross proceeds of $600.
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Revenue Recognition. Opexa recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB ASC) 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) consideration is fixed or determinable; and (4) collectability is reasonably assured.
On February 4, 2013, Opexa entered into an Option and License Agreement (the Merck Serono Agreement) with Ares Trading SA (Merck Serono), a wholly owned subsidiary of Merck Serono S.A. Pursuant to the terms, Merck Serono has an option to acquire an exclusive, worldwide (excluding Japan) license of Opexas Tcelna® program for the treatment of multiple sclerosis (MS). Tcelna is currently in a Phase IIb clinical trial (Abili-T) in patients with Secondary Progressive MS (SPMS). The option may be exercised by Merck Serono prior to or upon Opexas completion of the Phase IIb Trial.
Opexa received an upfront payment of $5 million for granting the option. Opexa recognized revenues from nonrefundable, up-front $5 million option fees related to the Merck Serono Agreement on a straight-line basis over the estimated option exercise period. If the option is exercised, Merck Serono would pay the Company an upfront license fee of $25 million unless Merck Serono is unable to advance directly into a Phase III clinical trial of Tcelna for SPMS without a further Phase II clinical trial (as determined by Merck Serono), in which event the upfront license fee would be $15 million. After exercising the option, Merck Serono would be solely responsible for funding development, regulatory and commercialization activities for Tcelna in MS, although the Company would retain an option to co-fund certain development in exchange for increased royalty rates. The Company would also retain rights to Tcelna in Japan, certain rights with respect to the manufacture of Tcelna, and rights outside of MS.
On March 9, 2015 Opexa entered into a First Amendment of Option and License Agreement with Merck Serono, to amend the Merck Serono Agreement (the Merck Serono Amendment). Opexa received $3 million in consideration for the following:
(i) Creating a detailed plan for potential Phase III development of Tcelna (the Pre-Phase III Plan), including documenting all of the activities necessary for laboratory facilities both in the U.S. and Europe to reach operational readiness by the end of December 2016. The Joint Steering Committee (JSC) established pursuant to the Merck Serono Agreement will be responsible for reviewing, approving and ultimately overseeing Opexas completion of the Pre-Phase III Plan. In the event the JSC has not approved the Pre-Phase III Plan prior to the end of the period in the Merck Serono Agreement within which Merck Serono may exercise its option, such period will be extended for 60 days following approval of the Pre Phase III Plan by the JSC.
(ii) Providing Merck Serono with updates and analysis on a blinded basis, grouped in patient batches according to Opexas analysis timetable, on the progress of Opexas immune monitoring program being conducted in conjunction with the ongoing Abili-T clinical trial.
Opexa evaluated the Merck Serono Amendment and determined that the $3 million payment from Merck Serono has stand-alone value. Opexas continuing performance obligations in connection with the $3 million payment include the creation of the Pre-Phase III Plan and delivery of updates and analysis relating to Opexas immune monitoring program. As a stand-alone value term in the Merck Serono Amendment, the $3 million payment is determined to be a single unit of accounting, and is recognized as revenue on a straight-line basis over the period equivalent to the expected completion of the Pre-Phase III Plan in December 2016. Opexa includes the unrecognized portion of the $5 million option payment and the $3 million amendment payment as deferred revenue on its consolidated balance sheets.
Cash and Cash Equivalents. Opexa considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Investments with maturities in excess of three months but less than one year are classified as short-term investments and are stated at fair market value.
Opexa primarily maintains cash balances on deposit in accounts at a U.S.-based financial institution. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. Opexas cash balances on deposit in these accounts may, at times, exceed the federally insured limits. Opexa has not experienced any losses in such accounts.
At June 30, 2015, Opexa had approximately $17.2 million in a savings account. For the six months ended June 30, 2015, the savings account recognized an average market yield of 0.1%. Interest income of $4,103 was recognized for the six months ended June 30, 2015 in the consolidated statements of operations.
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Description | June 30, 2015 | December 31, 2014 | ||||||
Deferred offering costs | $ | 21,835 | $ | 259,989 | ||||
Prepaid expenses | 381,799 | 498,954 | ||||||
$ | 403,634 | $ | 758,943 | |||||
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Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at January 1, 2015 | 2,423,253 | $ | 2.92 | |||||||||||||
Granted | 1,008,026 | 0.67 | ||||||||||||||
Exercised | - | - | ||||||||||||||
Forfeited and canceled | (84,687 | ) | 1.28 | |||||||||||||
Outstanding at June 30, 2015 | 3,346,592 | $ | 2.28 | 8.2 | $ | - | ||||||||||
Exercisable at June 30, 2015 | 1,546,201 | $ | 3.35 | 7.1 | $ | - |
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at January 1, 2015 | 3,046,801 | $ | 4.08 | |||||||||||||
Granted | 25,579,935 | 0.52 | ||||||||||||||
Exercised | (7,620 | ) | 0.50 | |||||||||||||
Forfeited and canceled | (223,119 | ) | 9.37 | |||||||||||||
Outstanding at June 30, 2015 | 28,395,997 | $ | 0.80 | 2.68 | $ | - | ||||||||||
Exercisable at June 30, 2015 | 28,395,997 | $ | 0.80 | 2.68 | $ | - |
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