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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 which coincides with the expected completion term of the Abili-T clinical trial in SPMS. 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.
As of March 31, 2016, Opexa had approximately $9.3 million in a savings account. For the three months ended March 31, 2016, the savings account recognized an average market yield of 0.06%. Interest income of $1,479 was recognized for the three months ended March 31, 2016 in the consolidated statements of operations.
Reclassifications. Certain reclassifications of prior year reported amounts have been made for comparative purposes. Opexa does not consider such reclassifications to be material and they had no effect on net income.
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Other current assets consisted of the following at March 31, 2016 and December 31, 2015:
Description |
March 31, 2016 |
December 31, 2015 | ||||||
Custom reagents | $ | 496,269 | $ | 496,269 | ||||
Deferred offering costs | 64,783 | 28,876 | ||||||
Prepaid expense | 371,357 | 469,922 | ||||||
Total Other Current Assets | $ | 932,409 | $ | 995,067 |
Custom reagents include a single custom reagent that will be used primarily for the NMO program and other Pre-Phase III research activities. Upon consumption, the cost of this reagent will be amortized to research and development expenses in the consolidated statements of operations. No custom reagents were consumed during the three months ended March 31, 2016.
Deferred offering costs at March 31, 2016 and December 31, 2015 were $64,783 and $28,876 respectively. The March 31, 2016 balance includes costs incurred from third parties in connection with the March 25, 2016 implementation of a new Sales Agreement (ATM Agreement) with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.) as sales agent, pursuant to which Opexa can offer and sell shares of common stock from time to time depending upon market demand, in transactions deemed to be an at the market offering as defined in Rule 415 of the Securities Act of 1933. These are included in other current assets in the consolidated balance sheets. Upon the sales of shares of common stock under the ATM Agreement, these capitalized costs will be offset against the proceeds of such sales of shares of common stock and recorded in additional paid in capital.
Prepaid expenses at March 31, 2016 and December 31, 2015 include costs incurred from third parties in connection with the Merck Serono Agreement (see Note 2). As of March 31, 2016 and December 31, 2015, the remaining costs of $29,203 and $38,938, respectively, in connection with the Merck Serono Agreement are expected to be amortized over the upcoming 9-month period. Also included in prepaid expenses at March 31, 2016 and December 31, 2105 is an advance to Pharmaceutical Research Associates, Inc. (PRA), a contract research organization providing services to Opexa, in the amount of $45,365 and $45,365 respectively, as well as $18,750 and $31,250 remaining from a prior payment to PRA of $75,000 upon execution of an amendment to Opexas agreement with PRA. The remaining balance of Opexas NASDAQ Capital Market All-Inclusive Annual Fee is also in the March 31, 2016 balance. Prepaid insurance is included in prepaid expenses at March 31, 2016 and December 31, 2015 as well as the remaining balances attributable to various service and maintenance contracts.
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For the three months ended March 31, 2016, equity related transactions were as follows:
On March 14, 2016, Opexa entered into an amendment to the September 1, 2015 Stock Purchase Agreement with the purchasers party thereto, to extend by six months the original dates for the milestones relating to the subsequent tranches. As part of the amendment, the expiration date of the Series N warrants issued pursuant to the Stock Purchase Agreement was also extended from April 9, 2018 to October 9, 2018. The Company determined that there is no accounting impact to the modification of the Series N warrants since these are investor warrants.
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Stock Options
Opexa accounts for stock-based compensation, including options and nonvested shares, according to the provisions of FASB ASC 718, "Share Based Payment. During the three months ended March 31, 2016, Opexa recognized stock-based compensation expense of $153,853. Unamortized stock-based compensation expense as of March 31, 2015 amounted to $1,471,941.
Stock Option Activity
A summary of stock option activity for the three months ended March 31, 2016 is presented below:
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at December 31, 2015 | 417,404 | $ | 18.04 | |||||||||||||
Granted | | | ||||||||||||||
Exercised | | | ||||||||||||||
Forfeited and canceled | (22,063 | ) | 7.79 | |||||||||||||
Outstanding at March 31, 2016 | 395,341 | $ | 18.61 | 7.4 | $ | | ||||||||||
Exercisable at March 31, 2016 | 261,469 | $ | 21.81 | 6.9 | $ | |
Employee Options, Non-Employee Options and Restricted Stock Awards:
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.
No option or restricted stock awards were granted during the three months ended March 31, 2016. During the three months ended March 31, 2016, options to purchase 22,063 shares of common stock were forfeited and cancelled.
Opexa recognized stock based compensation expense of $153,853 and $266,954 during the three months ended March 31, 2016 and March 31, 2015, respectively, for grants made to employees in prior periods.
Warrant Activity
A summary of warrant activity for the three months ended March 31, 2016 is presented below:
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at December 31, 2015 | 3,662,954 | $ | 6.30 | |||||||||||||
Granted | | | ||||||||||||||
Exercised | | | ||||||||||||||
Forfeited and canceled | (51,823 | ) | 83.52 | |||||||||||||
Outstanding at March 31, 2016 | 3,611,131 | $ | 5.19 | 1.96 | $ | | ||||||||||
Exercisable at March 31, 2016 | 3,611,131 | $ | 5.19 | 1.96 | $ | |
In connection with the amended stock purchase agreement entered in on March 14, 2016 (See Note 4), the Company also amended and restated the Series N Warrants to purchase shares of the Companys common stock previously issued to the Purchasers, and extend the expiration date of the Series N Warrants by six months (i.e., from April 9, 2018 to October 9, 2018). The Company determined that there is no accounting impact to the modification of the Series N warrants since these are investor warrants.
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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 which coincides with the expected completion term of the Abili-T clinical trial in SPMS. 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.
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.
As of March 31, 2016, Opexa had approximately $9.3 million in a savings account. For the three months ended March 31, 2016, the savings account recognized an average market yield of 0.06%. Interest income of $1,479 was recognized for the three months ended March 31, 2016 in the consolidated statements of operations.
Certain reclassifications of prior year reported amounts have been made for comparative purposes. Opexa does not consider such reclassifications to be material and they had no effect on net income.
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Description |
March 31, 2016 |
December 31, 2015 | ||||||
Custom reagents | $ | 496,269 | $ | 496,269 | ||||
Deferred offering costs | 64,783 | 28,876 | ||||||
Prepaid expense | 371,357 | 469,922 | ||||||
Total Other Current Assets | $ | 932,409 | $ | 995,067 |
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Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at December 31, 2015 | 417,404 | $ | 18.04 | |||||||||||||
Granted | | | ||||||||||||||
Exercised | | | ||||||||||||||
Forfeited and canceled | (22,063 | ) | 7.79 | |||||||||||||
Outstanding at March 31, 2016 | 395,341 | $ | 18.61 | 7.4 | $ | | ||||||||||
Exercisable at March 31, 2016 | 261,469 | $ | 21.81 | 6.9 | $ | |
Number of Shares | Weighted Avg. Exercise Price |
Weighted Average Remaining Contract Term (# years) |
Intrinsic Value | |||||||||||||
Outstanding at December 31, 2015 | 3,662,954 | $ | 6.30 | |||||||||||||
Granted | | | ||||||||||||||
Exercised | | | ||||||||||||||
Forfeited and canceled | (51,823 | ) | 83.52 | |||||||||||||
Outstanding at March 31, 2016 | 3,611,131 | $ | 5.19 | 1.96 | $ | | ||||||||||
Exercisable at March 31, 2016 | 3,611,131 | $ | 5.19 | 1.96 | $ | |
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