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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

or

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

Commission File Number 000-50549

 

Oncternal Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

62-1715807

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

12230 El Camino Real, Suite 300
San Diego, CA 92130
(858434-1113

(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 Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

ONCT

The Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of July 28, 2021, the registrant had 49,385,247 shares of common stock outstanding.

 

 

 

 

 

 


 

 

Oncternal Therapeutics, Inc.

FORM 10-Q

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

 

 

 

Signatures

32

 

 

 

 


 

 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Oncternal Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103,663

 

 

$

116,737

 

Prepaid and other

 

 

3,936

 

 

 

1,266

 

Total current assets

 

 

107,599

 

 

 

118,003

 

Right-of-use asset

 

 

162

 

 

 

40

 

Other assets

 

 

658

 

 

 

766

 

Total assets

 

$

108,419

 

 

$

118,809

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,009

 

 

$

1,143

 

Accrued liabilities

 

 

2,493

 

 

 

3,042

 

Deferred grant revenue

 

 

2,236

 

 

 

1,633

 

Lease liability

 

 

162

 

 

 

40

 

Total current liabilities

 

 

5,900

 

 

 

5,858

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized shares – 5,000; issued and outstanding shares – none

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares – 120,000; issued and outstanding shares – 49,385 and 48,802 at June 30, 2021 and December 31, 2020, respectively

 

 

49

 

 

 

49

 

Additional paid-in capital

 

 

198,897

 

 

 

195,699

 

Accumulated deficit

 

 

(96,427

)

 

 

(82,797

)

Total stockholders’ equity

 

 

102,519

 

 

 

112,951

 

Total liabilities and stockholders’ equity

 

$

108,419

 

 

$

118,809

 

 

See accompanying notes.

3


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Grant revenue

 

$

 

883

 

 

$

 

623

 

 

$

 

1,631

 

 

$

 

1,201

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

5,192

 

 

 

 

3,815

 

 

 

 

9,105

 

 

 

 

6,510

 

General and administrative

 

 

 

3,381

 

 

 

 

2,343

 

 

 

 

6,174

 

 

 

 

4,977

 

Total operating expenses

 

 

 

8,573

 

 

 

 

6,158

 

 

 

 

15,279

 

 

 

 

11,487

 

Loss from operations

 

 

 

(7,690

)

 

 

 

(5,535

)

 

 

 

(13,648

)

 

 

 

(10,286

)

Interest income

 

 

 

8

 

 

 

 

 

 

 

 

18

 

 

 

 

13

 

Net loss

 

$

 

(7,682

)

 

$

 

(5,535

)

 

$

 

(13,630

)

 

$

 

(10,273

)

Net loss per share, basic and diluted

 

$

 

(0.16

)

 

$

 

(0.34

)

 

$

 

(0.28

)

 

$

 

(0.65

)

Weighted-average shares outstanding, basic and diluted

 

 

 

49,364

 

 

 

 

16,241

 

 

 

 

49,230

 

 

 

 

15,798

 

 

See accompanying notes.

4


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

 

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(13,630

)

 

$

(10,273

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,674

 

 

 

742

 

Non-cash lease expense

 

 

82

 

 

 

73

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other

 

 

(2,562

)

 

 

(662

)

Accounts payable

 

 

(134

)

 

 

494

 

Accrued liabilities

 

 

(544

)

 

 

1,275

 

Change in lease liability

 

 

(82

)

 

 

(73

)

Deferred grant revenue

 

 

603

 

 

 

167

 

Net cash used in operating activities

 

 

(13,593

)

 

 

(8,257

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from payroll protection program loan payable

 

 

 

 

 

301

 

Proceeds from exercise of stock options

 

 

414

 

 

 

4

 

Proceeds from issuance of common stock and common stock warrants, net

 

 

 

 

 

4,518

 

Proceeds from the exercise of common stock warrants

 

 

105

 

 

 

 

Net cash provided by financing activities

 

 

519

 

 

 

4,823

 

Net decrease in cash and cash equivalents

 

 

(13,074

)

 

 

(3,434

)

Cash and cash equivalents at beginning of period

 

 

116,737

 

 

 

20,051

 

Cash and cash equivalents at end of period

 

$

103,663

 

 

$

16,617

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Cashless exercise of warrants

 

$

1,836

 

 

$

 

Payment of 2019 bonus awards with stock options in lieu of cash

 

$

 

 

$

415

 

Deferred financing costs included in accrued liabilities

 

$

 

 

$

126

 

Fair value of warrants issued to placement agent

 

$

 

 

$

238

 

 

See accompanying notes.

 

5


 

 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Three Months Ended June 30, 2021

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2021

 

49,366

 

 

$

49

 

 

$

196,999

 

 

$

(88,745

)

 

$

108,303

 

Exercise of stock options for cash

 

18

 

 

 

 

 

 

56

 

 

 

 

 

 

56

 

Exercise of warrants for cash

 

1

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

1,836

 

 

 

 

 

 

1,836

 

Net loss

 

 

 

 

 

 

 

 

 

 

(7,682

)

 

 

(7,682

)

Balance at June 30, 2021

 

49,385

 

 

$

49

 

 

$

198,897

 

 

$

(96,427

)

 

$

102,519

 

 

 

Three Months Ended June 30, 2020

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2020

 

15,392

 

 

$

15

 

 

$

80,690

 

 

$

(70,310

)

 

$

10,395

 

Issuance of common stock and common stock warrants, net of issuance costs of $602

 

1,944

 

 

 

2

 

 

 

4,390

 

 

 

 

 

 

4,392

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

 

 

 

 

 

343

 

 

 

 

 

 

343

 

Net loss

 

 

 

 

 

 

 

 

 

 

(5,535

)

 

 

(5,535

)

Balance at June 30, 2020

 

17,336

 

 

$

17

 

 

$

85,426

 

 

$

(75,845

)

 

$

9,598

 

 

See accompanying notes.

 

 


6


 

 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Six Months Ended June 30, 2021

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

48,802

 

 

$

49

 

 

$

195,699

 

 

$

(82,797

)

 

$

112,951

 

Exercise of stock options for cash

 

106

 

 

 

 

 

 

414

 

 

 

 

 

 

414

 

Exercise of warrants for cash

 

18

 

 

 

 

 

 

105

 

 

 

 

 

 

105

 

Cashless exercise of warrants

 

459

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Stock-based compensation

 

 

 

 

 

 

 

2,674

 

 

 

 

 

 

2,674

 

Net loss

 

 

 

 

 

 

 

 

 

 

(13,630

)

 

 

(13,630

)

Balance at June 30, 2021

 

49,385

 

 

$

49

 

 

$

198,897

 

 

$

(96,427

)

 

$

102,519

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2019

 

15,387

 

 

$

15

 

 

$

79,869

 

 

$

(65,572

)

 

$

14,312

 

Exercise of stock options for cash

 

5

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Issuance of common stock and common stock warrants, net of issuance costs of $602

 

1,944

 

 

 

2

 

 

 

4,390

 

 

 

 

 

 

4,392

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Stock-based compensation

 

 

 

 

 

 

 

742

 

 

 

 

 

 

742

 

Payment of 2019 bonus awards with stock options in lieu of cash

 

 

 

 

 

 

 

415

 

 

 

 

 

 

415

 

Net loss

 

 

 

 

 

 

 

 

 

 

(10,273

)

 

 

(10,273

)

Balance at June 30, 2020

 

17,336

 

 

$

17

 

 

$

85,426

 

 

$

(75,845

)

 

$

9,598

 

 

See accompanying notes.

 

 

 

7


 

 

Oncternal Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Oncternal Therapeutics, Inc. (“Oncternal” or the “Company”), formerly known as GTx, Inc., was incorporated in Tennessee in September 1997 and reincorporated in Delaware in 2003 and is based in San Diego, California. Oncternal is a clinical-stage biopharmaceutical company focused on the development of novel oncology therapies for the treatment of cancers with critical unmet medical need. The Company’s clinical pipeline includes cirmtuzumab, a humanized monoclonal antibody that binds to ROR1 (Receptor-tyrosine kinase-like Orphan Receptor 1), and TK216, a small molecule inhibiting the biological activity of ETS-family transcription factor oncoproteins. The Company is also developing a CAR-T (chimeric antigen receptor T-cells) product candidate that targets ROR1.

Merger

On June 7, 2019, the Company, then operating as GTx, Inc. (“GTx”), completed the merger contemplated by its Agreement and Plan of Merger and Reorganization, as amended (the “Merger Agreement”), with privately-held Oncternal Therapeutics, Inc. (“Private Oncternal”) and Grizzly Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), dated March 6, 2019. Under the Merger Agreement, Merger Sub merged with and into Private Oncternal, with Private Oncternal surviving as a wholly-owned subsidiary of the Company (the “Merger”). GTx changed its name to Oncternal Therapeutics, Inc., and Private Oncternal, which remains a wholly-owned subsidiary of the Company, changed its name to Oncternal Oncology, Inc. On June 10, 2019, the Company’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “ONCT.”

Except as otherwise indicated, references herein to “Oncternal,” and “the Company,” refer to Oncternal Therapeutics, Inc. on a post-Merger basis, and the term “Private Oncternal” refers to the business of privately-held Oncternal Therapeutics, Inc., prior to completion of the Merger.  References to GTx refer to GTx, Inc. prior to completion of the Merger.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Oncternal Oncology, Inc. and Oncternal, Inc. All intercompany accounts and transactions have been eliminated in the preparation of the condensed consolidated financial statements.

Liquidity and Going Concern

The Company follows Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires that management evaluate whether there are relevant conditions and events that in the aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As of June 30, 2021, the Company had $103.7 million in cash and cash equivalents. The Company believes it has sufficient cash to fund its projected operating requirements for at least twelve months from the filing date of this Quarterly Report.

From inception, the Company has devoted substantially all of its efforts to drug discovery and development and conducting preclinical studies and clinical trials. The Company has a limited operating history and the sales and income potential of the Company’s business and market are unproven. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.  The Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $96.4 million as of June 30, 2021. The Company expects to continue to incur net losses for the foreseeable future and believes it will need to raise substantial additional capital to accomplish its business plan over the next several years. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings or other sources, including potential collaborations, licenses and other similar arrangements. If the Company is unable to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. 

8


 

Basis of Presentation

The accompanying interim condensed financial statements are unaudited.  The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and with generally accepted accounting principles in the United States of America (“GAAP”). These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited, consolidated financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020, filed with the SEC on its Annual Report on Form 10-K/A on March 12, 2021. The results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of the Company’s condensed consolidated financial statements and accompanying notes requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates consist of those used to determine the fair value of the Company’s stock-based awards and those used to determine grant revenue and accruals for research and development costs. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market accounts.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institution in which those deposits are held. Additionally, the Company established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Research and Development Expenses and Accruals

Research and development expenses consist of costs incurred for the Company’s own and for sponsored and collaborative research and development activities. Research and development costs are expensed as incurred and include manufacturing process development costs, manufacturing costs, costs associated with preclinical studies and clinical trials, regulatory and medical affairs activities, quality assurance activities, salaries and benefits, including stock-based compensation, fees paid to third-party consultants, license fees and overhead.

The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses and other assets or accrued liabilities. The Company records accruals for estimated costs incurred for ongoing research and development activities and all clinical trial expenses are included in research and development expenses. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. At June 30, 2021, the Company’s clinical trial accrual balance of $0.6 million is included in accrued liabilities.

9


 

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s current financial assets and liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. The Company has no current financial assets or liabilities measured at fair value on a recurring basis and no transfers between levels have occurred during the periods presented.

Revenue Recognition

The Company currently generates revenue from the California Institute for Regenerative Medicine (“CIRM”) pursuant to a research subaward agreement (see Note 4), which provides the Company with payments in return for certain research and development activities over a contractually defined period. Revenue from such subaward is recognized in the period during which the related qualifying services are rendered and costs are incurred, provided that the applicable conditions under the subaward agreement have been met.

The subaward agreement is on a best-effort basis and does not require scientific achievement as a performance obligation. All fees received under the agreement are non-refundable. The costs associated with the agreement are expensed as incurred and reflected as a component of research and development expense in the accompanying condensed consolidated statements of operations.

Funds received from the subaward agreement are recorded as revenue as the Company is the principal participant in the arrangement because the activities under the subaward are part of the Company’s development programs. In those instances where the Company first receives consideration in advance of providing underlying services, the Company classifies such consideration as deferred revenue until (or as) the Company provides the underlying services. In those instances where the Company first provides the underlying services prior to its receipt of consideration, the Company records a grant receivable. At June 30, 2021, and December 31, 2020, the Company had deferred grant revenue of $2.2 million and $1.6 million, respectively.

Stock-Based Compensation

Stock-based compensation expense represents the fair value of equity awards, on the grant date, recognized in the period using the Black-Scholes option pricing model. The Company recognizes expense for awards with graded vesting schedules over the requisite service period of the awards (usually the vesting period) on a straight-line basis. For equity awards for which vesting is subject to performance-based milestones, the expense is recorded over the remaining service period after the point when the achievement of the milestone is deemed probable. The Company recognizes forfeitures for all awards as such forfeitures occur.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

10


 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment in the United States.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities and adjusted for the weighted-average number of common shares outstanding that are subject to repurchase. The Company has excluded weighted-average shares subject to repurchase of 8,000 shares and 27,000 shares from the weighted-average number of common shares outstanding for the three months ended June 30, 2021 and 2020, respectively. The Company has excluded weighted-average shares subject to repurchase of 11,000 shares and 30,000 shares from the weighted-average number of common shares outstanding for the six months ended June 30, 2021 and 2020, respectively. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.

Potentially dilutive securities not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows (in common stock equivalent shares; in thousands):

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Warrants to purchase common stock

 

 

4,277

 

 

 

1,930

 

Common stock options

 

 

5,140

 

 

 

2,191

 

Common stock subject to repurchase

 

 

7

 

 

 

25

 

 

 

 

9,424

 

 

 

4,146

 

 

 

2.

Balance Sheet Details

Accrued liabilities consist of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

723

 

 

$

412

 

Clinical trials

 

 

594

 

 

 

980

 

Legal fees

 

 

182

 

 

 

77

 

Compensation

 

 

988

 

 

 

1,528

 

Other

 

 

6

 

 

 

45

 

 

 

$

2,493

 

 

$

3,042

 

 

3.

Commitments, Contingencies and Related Party Transactions

Lease Liability

Rent expense was $46,000 and $41,000 for the three months ended June 30, 2021 and 2020, respectively. Rent expense was $87,000 and $83,000 for the six months ended June 30, 2021 and 2020, respectively.

11


 

On May 22, 2019, the Company entered into a sublease agreement for office space of 4,677 square feet in San Diego, California which expired on March 31, 2021. On March 17, 2021, the Company entered into a lease directly with the landlord for the same facility (the “San Diego Lease”) which expires on May 31, 2022. Base rent under the San Diego Lease is approximately $184,000 annually and the monthly rent expense is being recognized on a straight-line basis over the term of the lease.

The San Diego Lease is included in the accompanying condensed consolidated balance sheet at the present value of the lease payments. As the San Diego Lease does not have an implicit interest rate, the present value reflects a 10.0% discount rate which is the estimated rate of interest that the Company would have to pay in order to borrow an amount equal to the lease payments on a collateralized basis over a similar term and in a similar economic environment. The Company recognized a net operating lease right-of-use asset and an aggregate lease liability of $162,000 as of June 30, 2021. The weighted average remaining lease term was 0.9 years.

Maturities of the lease liability due under this lease agreement as of June 30, 2021, are as follows (in thousands):

 

Maturity of lease liability

 

Operating

Lease

 

2021

 

$

92

 

2022

 

 

77

 

Total lease payments

 

 

169

 

Less imputed interest

 

 

(7

)

Lease liability

 

$

162

 

 

Related Party Transactions 

In January 2019, the Company engaged Newfront Insurance as its primary insurance broker. The son of Richard Vincent, the Company’s Chief Financial Officer, is the Company’s agent at Newfront Insurance. During the three and six months ended June 30, 2021 and 2020, the Company paid insurance premiums of approximately $1.8 million and $1.4 million, for which the son earned commission of $79,000 and $57,000, respectively.

Effective in September 2019, the Company and Shanghai Pharmaceutical (USA) Inc. (“SPH USA”), the Company’s largest stockholder and an affiliate of two of the Company’s directors entered into a Materials and Supply and Services Agreement (“SPH USA Services Agreement”). Pursuant to the SPH USA Services Agreement, the Company and SPH USA have executed and expect to continue to execute various statements of work for the transfer to SPH USA of key reagents and other materials, and for the supply of certain services by the Company to SPH USA, as contemplated under and in furtherance of a license and distribution agreement between the parties (see Note 4). The Company recorded amounts receivable from SPH USA related to statements of work totaling $0.4 million and $0.3 million as of June 30, 2021 and December 31, 2020, respectively. The Company has an agreement with SPH USA for certain rights to the greater China area (see Note 4).

In connection with the securities purchase agreements and underwritten offerings described in Note 5, other investors included individuals or entities affiliated with David F. Hale, SPH USA, Daniel L. Kisner, Hazel M. Aker, and Michael G. Carter.

4.

License, Collaboration and Research Subaward Agreements

Georgetown University (“Georgetown”)

In March 2014, the Company entered into an Exclusive License Agreement (the “Georgetown License Agreement”) with Georgetown, pursuant to which the Company: (i) licensed the exclusive worldwide right to patents and technologies for the development and commercialization of certain product candidates targeting EWS-FLI1 as an anti-tumor therapy for therapeutic, diagnostics, or research tool purposes, (ii) is solely responsible for all development and commercialization activities and costs, and (iii) is responsible for all costs related to the filing, prosecution and maintenance of the licensed patent rights.

Under the terms of the Georgetown License Agreement, commencing in 2015, the Company: (i) shall pay and has paid an annual license maintenance fee of $10,000 until the first commercial sale occurs, (ii) is required to make up to $0.2 million in aggregate milestone payments upon the achievement of certain regulatory milestones, and (iii) will be required to pay low single digit royalties based on annual net product sales. The Company accounted for the licensed technology as an asset acquisition because it did not meet the definition of a business. All milestone payments under the Georgetown License Agreement will be recognized as research and development expense upon completion of the required events, as the triggering events are not considered to be probable until they are achieved. As of June 30, 2021, the Company had not triggered or made any milestone payments under the Georgetown License Agreement.

12


 

The Georgetown License Agreement may be terminated by either party upon material breach or may be terminated by the Company as to one or more countries with 90 days written notice of termination. The term of the Georgetown License Agreement will continue until the expiration of the last valid claim within the patent rights covering the product. Georgetown may terminate the agreement in the event: (i) the Company fails to pay any amount and fails to cure such failure within 30 days after receipt of notice, (ii) the Company defaults in its obligation to obtain and maintain insurance and fails to remedy such breach within 60 days after receipt of notice, or (iii) the Company declares insolvency or bankruptcy. The Company may terminate the Georgetown License Agreement at any time upon at least 60 days’ written notice.

The University of Texas MD Anderson Cancer Center (“MD Anderson”)

In December 2014, the Company entered into a collaboration agreement (as amended, the “Collaboration”) with MD Anderson, which provides for the conduct of preclinical and clinical research for TK216 in exchange for certain program payments. If MD Anderson successfully completes all the requirements of the Collaboration in full and the program is successfully commercialized, the Company will be required to pay aggregate milestone payments of $1.0 million based on net product sales. In July 2020, the Company entered into a research agreement with MD Anderson for certain services up to an aggregate cost of $293,000. The Company recorded research and development expense of none and $0.1 million for the three and six months ended June 30, 2021 and a nominal amount for the three and six months ended June 30, 2020.  

Agreements with the Regents of the University of California (the “Regents”)

In March 2016, and as amended and restated in August 2018, and as amended in March and May 2019, the Company entered into a license agreement (as amended, the “Regents License Agreement”) for the development, manufacturing and distribution rights related to the development and commercialization of ROR1 related naked antibodies, antibody fragments or synthetic antibodies, and genetically engineered cellular therapy. The Regents License Agreement provides for the following: (i) in May 2016, an upfront license fee of $0.5 million was paid and 107,108 shares of common stock were issued, (ii) $25,000 in annual license maintenance fees commencing in 2017, (iii) reimbursement of certain annual patent costs, (iv) certain development and regulatory milestones aggregating from $10.0 million to $12.5 million, on a per product basis, (v) certain worldwide sales milestones based on achievement of tiered revenue levels aggregating $75.0 million, (vi) low single-digit royalties, including potential future minimum annual royalties, on net sales of each target, and (vii) minimum diligence to advance licensed assets consisting of at least $1.0 million in development spend annually through 2021. Under the Regents License Agreement, the Company recorded: (i) none and $25,000 in license maintenance fees as research and development expense for the three and six months ended June 30, 2021 and none for the three and six months ended June 30, 2020, and (ii) a nominal amount and $47,000 in patent costs as general and administrative expense for the three months ended June 30, 2021 and 2020, respectively, and $0.2 million and $1.0 million for six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the Company believes it has met its obligations under the Regents License Agreement.

In July 2016, and as modified by the amended and restated Regents License Agreement in August 2018, the Company entered into a Research Agreement (the “Research Agreement”) with the Regents for further research on a ROR1 therapeutic development program. Under this five-year agreement, the Regents will have an aggregate budget of $3.6 million, with $125,000 payable quarterly. The Company recorded $0.1 million in research and development expense under this agreement for each of the three months ended June 30, 2021 and 2020, and $0.3 million for each of the six months ended June 30, 2021 and 2020. Such costs are includable as part of the Company’s annual diligence obligations under the Regents License Agreement. The Regents License Agreement will expire upon the later of the expiration date of the longest-lived patent rights or the fifteenth anniversary of the first commercial sale of a licensed product.

The Regents may terminate the Regents License Agreement if: (i) a material breach by the Company is not cured within a reasonable time, (ii) the Company files a claim asserting the Regents licensed patent rights are invalid or unenforceable and (iii) the Company files for bankruptcy. The Company may terminate the agreement at any time upon at least 60 days’ written notice.

The University of Tennessee Research Foundation (“UTRF”)

In March 2015, and as amended, the Company and UTRF entered into a license agreement (the “SARD License Agreement”) pursuant to which the Company was granted exclusive worldwide rights in all existing selective androgen receptor degrader (“SARD”) technologies owned or controlled by UTRF, including all improvements thereto.  Under the SARD License Agreement, the Company is obligated to employ active, diligent efforts to conduct preclinical research and development activities for the SARD program to advance one or more lead compounds into clinical development.  The Company is also obligated to pay UTRF annual license maintenance fees, low single-digit royalties on net sales of products and additional royalties on sublicense revenues, depending on the state of development of a clinical product candidate at the time it is sublicensed. The Company recorded research and development expense under this agreement of $0.1 million and $10,000 for each of the three months ended June 30, 2021 and 2020, respectively, and $0.1 million for each of the six months ended June 30, 2021 and 2020. As of June 30, 2021, the Company believes it has met its obligations under the SARD License Agreement.

13


 

The California Institute for Regenerative Medicine (“CIRM”) Awards

In August 2017, and as amended and restated in December 2020, CIRM awarded an $18.3 million grant to researchers at UC San Diego to advance the Company’s Phase 1/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib for the treatment of patients with B-cell lymphoid malignancies, including chronic lymphocytic leukemia and mantle cell lymphoma. The Company: (i) is conducting this study in collaboration with UC San Diego, (ii) estimates it will receive approximately $14.0 million in development milestones under research subaward agreements during the award project period, estimated to be from October 1, 2017 to March 31, 2022, (iii) is committed to certain co-funding requirements, (iv) received subaward payments of $2.2 million for the three and six months ended June 30, 2021 and $1.4 million for the three and six months ended June 30, 2020, and (v) is required to provide UC San Diego progress and financial update reports throughout the award period. The subaward does not bear a royalty payment commitment, nor is the subaward otherwise refundable. For the three months ended June 30, 2021 and 2020, the Company recorded revenue of $0.9 million and $0.6 million, respectively, and recorded revenue of $1.6 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively. Related qualifying subaward costs for the three months ended June 30, 2021 and 2020 were $1.8 million and $1.5 million, respectively, and $3.3 million and $2.8 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the Company believes it has met its obligations under the CIRM award and UC San Diego subawards.

In October 2017, CIRM awarded a $5.8 million grant to the researchers at UC San Diego to develop a novel anti-cancer stem cell targeted therapy for patients with advanced solid and hematological malignancies. In connection with such CIRM award, the Company agreed to provide up to $1.0 million in contingency funds if required during the grant period, which expired in April 2020. The Company recorded no research and development expense, and no contingency funds have been provided under such CIRM award for each of the three and six months ended June 30, 2021 and 2020.

Clinical Trial and Supply Agreement

In April 2018, and as amended, the Company entered into a Clinical Trial and Supply Agreement with Pharmacyclics, LLC, an AbbVie Company, to supply ibrutinib for the Company’s Phase 1/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib. Such agreement does not bear any upfront costs, inventory purchase costs, milestone or royalty payment commitments or other financial obligations.

SPH USA, a Related Party

License and Development Agreement (“LDA”)

In November 2018, and as amended, the Company entered into the LDA with SPH USA for: (i) the territory of the People’s Republic of China, Hong Kong, Macau, and Taiwan (“Greater China”), and (ii) rights to manufacture, develop, market, distribute and sell all of the Company’s product candidates under the Georgetown License Agreement and the Regents License Agreement (exclusive to Greater China only). Under the LDA, SPH USA is solely responsible for: (a) all preclinical and clinical development activities required in order to obtain regulatory approval in Greater China for such product candidates, (b) any third-party license milestone or royalty payments owed under the Georgetown License Agreement and the Regents License Agreement, and (c) paying the Company a low single digit royalty on net sales in the territory.

The LDA will expire upon the expiration of the last royalty term for the last licensed product. The LDA may be terminated by: (i) SPH USA on a country by country or product by product basis with 180 days written notice, (ii) either party upon material breach that is not cured within 90 days, and (iii) either party in the event the other party declares insolvency or bankruptcy.

 

 

5.

Stockholders’ Equity

Securities Purchase Agreements and Underwritten Offering

In May 2020, the Company entered into a Securities Purchase Agreement (the “May Purchase Agreement”) with several institutional and individual investors for the concurrent sale of: (i) 1,943,636 shares of the Company’s common stock in a registered direct offering, resulting in net proceeds of $4.4 million, after deducting the placement agent’s cash commissions and other offering expenses, and excluding the proceeds, if any, from the exercise of the warrants, and (ii) unregistered warrants to purchase up to an aggregate of 971,818 shares of common stock. The combined purchase price for one share and one warrant to purchase half of a share of common stock was $2.5725. In addition, the Company issued warrants to purchase 116,618 shares of common stock at an exercise price of $3.2156 per share to the placement agent, H.C. Wainwright & Co., LLC (“Wainwright” or the “placement agent”) as part of its compensation, which warrants were immediately exercisable and expire on May 21, 2025. An investor participating in the transaction included an entity affiliated with David F. Hale, the chairman of the Company’s board of directors.

14


 

In July 2020, the Company entered into a Securities Purchase Agreement (the “July Purchase Agreement”) with several institutional and individual investors for the concurrent sale of: (i) 2,581,867 shares of the Company’s common stock in a registered direct offering, resulting in net proceeds of $5.7 million, after deducting the placement agent’s cash commissions and other offering expenses, and excluding the proceeds, if any, from the exercise of the warrants, and (ii) unregistered warrants to purchase up to an aggregate of 1,290,933 shares of common stock. The combined purchase price for one share and one warrant to purchase half of a share of common stock was $2.3825. The warrants issued to investors were, subject to certain ownership limitations, immediately exercisable at an exercise price equal to $2.32 per share and expire on January 21, 2026. In addition, the Company issued warrants to purchase 154,912 shares of common stock at an exercise price of $2.9781 per share to the placement agent as part of its compensation, which warrants were immediately exercisable upon issuance and terminate on July 21, 2025. Other investors participating in the July Purchase Agreement included an entity affiliated with SPH USA, the Company’s largest stockholder, Daniel L. Kisner, a member of the Company’s board of directors, and Hazel M. Aker, the Company’s then General Counsel.

In August 2020, the Company entered into an underwriting agreement (as amended and restated, the “August Underwriting Agreement”) with Wainwright for the sale of 2,428,886 shares of the Company’s common stock at a price to the public of $2.10 per share, resulting in net proceeds of $4.4 million, after deducting the underwriter’s discounts, commissions and other offering expenses.  In addition, the Company issued warrants to purchase 145,733 shares of common stock at an exercise price of $2.625 per share to Wainwright as part of its compensation, which warrants were immediately exercisable upon issuance and terminate on August 27, 2025. An investor participating in the transaction included Michael G. Carter, a member of the Company’s board of directors.

In November 2020, the Company entered into an underwriting agreement (as amended and restated, the “November Underwriting Agreement”) with Wainwright for the sale of 7,258,065 shares of the Company’s common stock at a price to the public of $3.10 per share, resulting in net proceeds of $20.4 million, after deducting the underwriter’s discounts, commissions and other offering expenses. In addition, the Company issued warrants to purchase 435,484 shares of common stock at an exercise price of $3.875 per share to Wainwright as part of its compensation, which warrants were immediately exercisable upon issuance and terminate on November 17, 2025.

In December 2020, the Company entered into an underwriting agreement (as amended and restated, the “December Underwriting Agreement”) with Wainwright for the sale of 19,161,667 shares of the Company’s common stock at a price to the public of $4.50 per share, resulting in net proceeds of $79.0 million, after deducting the underwriter’s discounts, commissions and other offering expenses In addition, the Company issued warrants to purchase 1,149,700 shares of common stock at an exercise price of $5.625 per share to Wainwright as part of its compensation, which warrants were immediately exercisable upon issuance and terminate on December 9, 2025.

Common Stock Warrants

 

A summary of warrant activity and changes in warrants outstanding is presented below:

 

 

 

Number of Shares Underlying Warrants

 

 

Weighted-Average Exercise Price Per Share

 

 

Weighted-Average Remaining Contractual Term (in years)

 

Balance at December 31, 2020

 

 

5,031,841

 

 

$

9.25

 

 

 

4.40

 

Granted

 

 

 

 

$

 

 

 

 

Cancelled

 

 

 

 

$

 

 

 

 

Exercised

 

 

(754,958

)

 

$

2.57

 

 

 

4.34

 

Balance at June 30, 2021

 

 

4,276,883

 

 

$

10.42

 

 

 

3.83

 

 

As of June 30, 2021, all warrants met the criteria for classification in stockholders’ equity.

 

15


 

 

Equity Incentive Plans

Contemporaneous with the Merger closing: (i) Private Oncternal’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”) was assumed by the Company, and (ii) the Company adopted the 2019 Incentive Award Plan (“2019 Plan”) under which the sum of: (a) 1,678,571 shares of common stock, (b)  up to 275,579 shares of common stock which were subject to outstanding awards under the GTx 2013 Equity Incentive Plan (the “2013 Plan”) as of June 7, 2019, that upon cancellation will become available for issuance under the 2019 Plan, and (c) an annual increase on the first day of each calendar year beginning January 1, 2020, and ending on and including January 1, 2029, equal to the lesser of (A) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares of common stock as is determined by the Board, are reserved for issuance. At June 30, 2021, 2,400,691 shares remain available for future issuance under the 2019 Plan and Inducement Plan (as defined below).

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

Number of

 

 

Exercise Price

 

 

Term

 

 

Intrinsic

 

 

 

Shares

 

 

Per Share

 

 

(in years)

 

 

Value

 

Options outstanding

 

 

5,140,153

 

 

$

5.53

 

 

 

8.85

 

 

$

2,250,390

 

Options vested and expected to vest

 

 

5,140,153

 

 

$

5.53

 

 

 

8.85

 

 

$

2,250,390

 

Options exercisable