ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial
condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes
thereto and other financial information included elsewhere in this report.
As used in the discussion below, “we,”
“our,” and “us” refers to the historical financial results of Lipocine.
Forward Looking Statements
This section and other parts of this report
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical
or current fact. Forward-looking statements may refer to such matters as products, product benefits, pre-clinical and clinical
development timelines, clinical and regulatory expectations and plans, anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated market performance, future expectations for liquidity
and capital resources needs and similar matters. Such words as “may”, “will”, “expect”, “continue”,
“estimate”, “project”, and “intend” and similar terms and expressions are intended to identify
forward looking statements. Forward-looking statements are not guarantees of future performance and our actual results may differ
significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in Part I, Item 1A (Risk Factors) of this Form 10-K. Except as required by applicable
law, we assume no obligation to revise or update any forward-looking statements for any reason.
Overview of Our Business
We are a clinical-stage biopharmaceutical
company focused on applying our oral drug delivery technology for the development of pharmaceutical products focusing on metabolic
and endocrine disorders. Our proprietary delivery technologies are designed to improve patient compliance and safety through orally
available treatment options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs.
We have a portfolio of proprietary product candidates designed to produce favorable PK characteristics and facilitate lower dosing
requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal interactions
that limit bioavailability.
Our
most advanced product candidate, TLANDOTM, is an oral TRT comprised of TU. On December 8, 2020, we received tentative
approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT in adult males for conditions associated with
a deficiency of endogenous testosterone, also known as hypogonadism. In granting tentative approval, the FDA concluded that TLANDO
has met all required quality, safety and efficacy standards necessary for approval. However, TLANDO has not received final approval
and is not eligible for final approval to market in the U.S. until the expiration of the exclusivity period previously granted
to Clarus with respect to Jatenzo®, which expires on March 27, 2022. We are currently reviewing the FDA’s tentative
approval of TLANDO and remain committed to taking appropriate actions with the goal of receiving final approval to permit the
launch of TLANDO. The FDA has also required us to conduct certain post-marketing studies to (i) assess patient understanding of
key risks relating to TLANDO and (ii) evaluate development of adrenal insufficiency with chronic TLANDO therapy.
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Additional pipeline candidates include
LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU for the treatment of NASH which is currently in Phase
2 testing, TLANDO XR, a next generation oral TRT product comprised of TT with the potential for once daily dosing which has completed
Phase 2 testing, LPCN 1148, an oral prodrug of bioidentical testosterone for the treatment of NASH cirrhosis, and LPCN 1107, potentially
the first oral HPC product indicated for the prevention of recurrent PTB, which has completed a dose finding Phase 2 clinical
study and has been granted orphan drug designation by the FDA.
LPCN 1144 is currently being tested
in the LiFT Phase 2 clinical study, a paired-biopsy study in confirmed non-cirrhotic NASH subjects. Study enrollment has
been completed and positive top-line primary endpoint results after 12 weeks of treatment were released in January 2021. Treatments
with LPCN 1144 resulted in robust liver fat reduction, assessed by MRI-PDFF technique, and showed improvement of liver injury
markers with no observed tolerability issues.
To date, we have funded our operations
primarily through the sale of equity securities, debt and convertible debt and through up-front payments, research funding and
royalty and milestone payments from our license and collaboration arrangements. We have not generated any revenues from product
sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of TLANDO or
other products.
We have incurred losses in most years since
our inception. As of December 31, 2020, we had an accumulated deficit of $172.0 million. Income and losses fluctuate year to year,
primarily depending on the nature and timing of research and development occurring on our product candidates. Our net loss was
$21.0 million for the year ended December 31, 2020, compared to $13.0 million for the year ended December 31, 2019. Substantially
all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our
research activities and general and administrative costs, including on-going litigation, associated with our operations.
We expect to continue to incur significant
expenses and operating losses for the foreseeable future as we:
· continue our research efforts;
· research new products or new uses for our existing products;
· maintain, expand and protect our intellectual property portfolio; and
To fund future long-term operations, including
the potential commercialization of TLANDO or other products, we will need to raise additional capital. The amount and timing of
future funding requirements will depend on many factors, including capital market conditions, regulatory requirements and outcomes
related to TLANDO, regulatory requirements related to our other product development programs, the timing and results of our ongoing
development efforts, the potential expansion of our current development programs, potential new development programs, our ability
to license our products to third parties, the pursuit of various potential commercial activities and strategies associated with
our development programs and related general and administrative support. We anticipate that we will seek to fund our operations
through public or private equity or debt financings or other sources, such as potential license, partnering and collaboration
agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, in amounts
sufficient to fund our operations (including the commercialization of TLANDO if we receive FDA approval), or at all. Although
we have previously been successful in obtaining financing through public and private equity securities offerings and our license
and collaboration agreements, there can be no assurance that we will be able to do so in the future.
Our Product Candidates
Our current portfolio includes
our most advanced product candidate, TLANDO, an oral TRT product candidate, which received tentative approval from the FDA on
December 8, 2020. Additionally, we are in the process of establishing our pipeline of other clinical candidates including an oral
androgen therapy for the treatment of non-cirrhotic NASH, LPCN 1144, a next-generation potential once daily oral TRT, TLANDO XR,
an androgen therapy for the treatment of NASH cirrhosis, LPCN 1148, and an oral therapy for the prevention of PTB, LPCN 1107.
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These products are based on our proprietary
Lip’ral drug delivery technology platform. Lip’ral technology is a patented technology based on lipidic compositions
which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble drugs. The drug
loaded dispersed phase presents the solubilized drug efficiently at the absorption site (gastrointestinal tract membrane) thus
improving the absorption process and making the drug less dependent on physiological variables such as dilution, gastro-intestinal
pH and food effects for absorption. Lip’ral based formulation enables improved solubilization and higher drug-loading capacity,
which can lead to improved bioavailability, reduced dose, faster and more consistent absorption, reduced variability, reduced
sensitivity to food effects, improved patient compliance, and targeted lymphatic delivery where appropriate.
Our Development Pipeline
TLANDO: An Oral Product Candidate for Testosterone Replacement
Therapy
Our most advanced product, TLANDO, is
an oral formulation of the chemical, TU, which is an eleven carbon side chain attached to T. TU is an ester prodrug of T. An ester
is chemically formed by bonding an acid and an alcohol. Upon the cleavage, or breaking, of the ester bond, T is formed. TU has
been approved for use outside the United States for many years for delivery via intra-muscular injection and in oral dosage form
and more recently TU has received regulatory approval in the United States for delivery via intra-muscular injection and in oral
dosage form. We are using our proprietary technology to facilitate steady gastrointestinal solubilization and absorption of TU.
Proof of concept was initially established in 2006, and subsequently TLANDO was licensed in 2009 to Solvay Pharmaceuticals, Inc.
which was then acquired by Abbott. Following a portfolio review associated with the spin-off of AbbVie by Abbott in 2011, the
rights to TLANDO were reacquired by us. All obligations under the prior license agreement have been completed except that Lipocine
will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1 million in the first two calendar years
following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions
of any such product are introduced, then royalties are reduced by 50%.
NDA PDUFA Outcome
On
December 8, 2020 we received tentative approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT
in adult males for conditions associated with a deficiency of endogenous testosterone, also known as hypogonadism. In granting
tentative approval, the FDA concluded that TLANDO has met all required quality, safety and efficacy standards necessary for approval.
However, TLANDO has not received final approval and is not eligible for final approval to market in the U.S. until the expiration
of the exclusivity period previously granted to Clarus with respect to Jatenzo®, which expires on March 27, 2022. We are currently
reviewing the FDA’s tentative approval of TLANDO and remain committed to taking appropriate actions with the goal of receiving
final approval to permit the launch of TLANDO.
Under the Pediatric Research Equity Act
(“PREA”), if TLANDO receives full approval, we will need to address the PREA requirement to assess the safety and
effectiveness of TLANDO in pediatric patients. The FDA has also required us to conduct certain post-marketing studies including:
(i) conduct an appropriately designed label comprehension and knowledge study that assesses patient understanding of key risk
messages in the Medication Guide for TLANDO and (ii) conduct an appropriately designed one-year trial to evaluate development
of adrenal insufficiency with chronic TLANDO therapy. The timetables for these post-marketing requirements will be established
at the time of full approval of TLANDO.We are currently evaluating multiple commercial alternatives with TLANDO, should it receive
FDA approval, including out-licensing TLANDO to a third-party, launching TLANDO on our own, or launching TLANDO on our own with
the assistance from a “risk share” partner.
Recent Competition Update
On
March 27, 2019, Clarus’ product JATENZO®, an oral TU product, was approved by the FDA and also received three years
of data exclusivity. On February 10, 2020, Clarus announced that JATENZO® has been launched and is commercially available.
Based on the FDA’s tentative approval of TLANDO, we will not be able to begin marketing TLANDO until March 27, 2022, the
expiration of the exclusivity period granted to Clarus with respect to JATENZO®.
Additionally, our competitors may introduce
other T-replacement therapies. For example, on January 5, 2021 Marius submitted a NDA to the FDA seeking approval of KYZATREX®,
its novel oral TU soft gelatin capsule for the treatment of primary and secondary hypogonadism in adult men.
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We are also aware of other pharmaceutical
companies that have T-replacement therapies or testosterone therapies in development that may be approved for marketing in the
United States or outside of the United States.
Based on publicly available information,
we believe that several other T-replacement therapies that would be competitive with TLANDO are in varying stages of development,
some of which may be approved, marketed and/or commercialized prior to TLANDO. These therapies include T-gels, oral-T, an aromatase
inhibitor, a new class of drugs called Selective Androgen Receptor Modulators and hydroalcoholic gel formulations of DHT.
LPCN 1144: An Oral Prodrug of Bioidentical Testosterone
Product Candidate for the Treatment of NASH
We
are currently evaluating LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU, for the treatment of non-cirrhotic
NASH. NASH is a more advanced state of NAFLD and can progress to a cirrhotic liver and eventually hepatocellular carcinoma/ liver
cancer. Twenty to thirty percent of the U.S. population is estimated to suffer from NAFLD and fifteen to twenty percent of this
group progress to NASH, which is a substantially large population that lacks effective therapy. Currently, there are no FDA approved
treatments for NASH, a silent killer that affects ~30 million Americans. Approximately 50% of NASH patients are in adult
males and the number of NASH cases is projected to increase 63% from 16.5 million cases in 2015 to 27.0 million cases in 2030.
NAFLD/NASH is becoming more common due to its strong correlation with obesity and metabolic syndrome, including components of
metabolic syndrome such as diabetes, cardiovascular disease and high blood pressure. In men, especially with comorbidities associated
with NAFLD/NASH, testosterone deficiency has been associated with an increased accumulation of visceral adipose tissue and insulin
resistance, which could be factors contributing to NAFLD/NASH.
History of Liver Disease
The liver is the largest internal
organ in the human body and its proper function is indispensable for many critical metabolic functions, including the regulation
of lipid and sugar metabolism, the production of important proteins, including those involved in blood clotting, and purification
of blood. There are over 100 described diseases of the liver, and because of its many functions, these can be highly debilitating
and life-threatening unless effectively treated. Liver diseases can result from injury to the liver caused by a variety of insults,
including HCV, HBV, obesity, chronic excessive alcohol use or autoimmune diseases. Regardless of the underlying cause of the disease,
there are important similarities in the disease progression including increased inflammatory activity and excessive liver cell
apoptosis, which if unresolved leads to fibrosis. Fibrosis, if allowed to progress, will lead to cirrhosis, or excessive scarring
of the liver, and eventually reduced liver function. Some patients with liver cirrhosis have a partially functioning liver and
may appear asymptomatic for long periods of time, which is referred to as decompensated liver disease. Decompensated liver disease
is when the liver is unable to perform its normal functions. Many people with active liver disease remain undiagnosed largely
because liver disease patients are often asymptomatic for many years.
Markers of Liver Cell Death
ALT is an enzyme that is produced
in liver cells and is naturally found in the blood of healthy individuals. In liver disease, liver cells are damaged and as a
consequence, ALT is released into the blood, increasing ALT levels above the normal range. Physicians routinely test blood levels
of ALT to monitor the health of a patient's liver. ALT level is a clinically important biochemical marker of the severity of liver
inflammation and ongoing liver disease. Elevated levels of ALT represent general markers of liver cell death and inflammation
without regard to any specific mechanism. AST is a second enzyme found in the blood that is produced in the liver and routinely
measured by physicians along with ALT. As with ALT, AST is often elevated in liver disease and, like ALT, is considered an overall
marker of liver inflammation.
Relationship between Hypogonadism and NAFLD
Preclinical and clinical studies
in the NAFLD/NASH literature have shown the prevalence of testosterone deficiency across the NAFLD/NASH histological spectrum
wherein low testosterone was independently associated with NAFLD/NASH with an inverse relationship between testosterone and NAFLD/NASH
symptom severity. A recent NIDDK report suggests that 75% of biopsy confirmed NASH subjects have less than 372 ng/dL of total
testosterone and that the degree of fibrosis severity is inversely related to free testosterone levels; thus, providing a good
rationale for testing LPCN 1144 in adult NASH patients regardless of their hypogonadal status. We have received clearance from
the FDA to clinically investigate LPCN 1144 in an expanded target population of adult male NASH patients. Specifically, the FDA
waived the limitation of only testing LPCN 1144 in NASH subjects with total testosterone levels below 300 ng/dL (threshold for
hypogonadism).
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Post hoc analyses of our existing
clinical trials in subjects with comorbidities typically associated with NASH comorbidities indicate that testosterone therapy
significantly and consistently reduced elevated levels of key serum biomarkers (liver function enzymes and serum triglyceride)
generally associated with NAFLD/NASH.
Current Status
We have initiated the LiFT Phase
2 clinical study in confirmed non-cirrhotic NASH subjects. The LiFT clinical study is a prospective, multi-center, randomized,
double-blind, placebo-controlled multiple-arm study in biopsy-confirmed hypogonadal or eugonadal male NASH subjects with grade
F1/F3 fibrosis and a NAFLD Activity Score ≥ 4 with a 36-week treatment period. The LiFT clinical study enrolled 56
biopsy confirmed NASH male subjects. Subjects were randomized 1:1:1 to one of three arms (Treatment A is a twice daily oral dose
of 142 mg testosterone equivalent, Treatment B is a twice daily oral dose of 142 mg testosterone equivalent formulated with 217
mg of d-alpha tocopherol equivalent, and the third arm is twice daily matching placebo). We currently expect 36-week biopsy data
in the third quarter of 2021.
The primary endpoint of the LiFT
clinical study is change in hepatic fat fraction via MRI-PDFF and exploratory liver fat/marker end points post 12 weeks of treatment.
Additionally, key secondary endpoints post 36 weeks of treatment include assessment of histological change for NASH resolution
and/or fibrosis improvement as well as liver fat data.
Additionally, subjects will have access
to LPCN 1144 through an open label extension study. The extension study will enable the collection of additional data on LPCN
1144 for up to a total of 72 weeks of therapy
Treatments with LPCN 1144 post 12 weeks
of treatment resulted in robust liver fat reduction, assessed by MRI-PDFF, and showed improvement of liver injury markers with
no observed tolerability issues. Inclusion of d-alpha tocopherol formulated with the testosterone prodrug resulted in additional
liver benefits, notably improved key liver markers without compromising tolerability.
Key results are presented in the following tables:
Table 1. Mean absolute liver fat using MRI-PDFF in all subjects
(n=56)* at Week 12.
Treatment Change from baseline (CBL) Placebo-adjusted CBL
% p-value % p value
Placebo (n = 19) -1.7 NS n/a n/a
* Missing data was obtained using Multiple Imputation
NS: Not significant (p > 0.05)
Table
2. Mean relative liver fat using MRI-PDFF at Week 12 in subjects (n=52) with liver fat ≥ 5% at baseline.*
Treatment Change from baseline (CBL) Placebo-adjusted CBL
% p value % p value
Placebo (n = 18) -9.9 NS n/a n/a
* Based on available data.
Table 3. Responders with > 30% Relative Reduction in Liver
Fat at Week 12, Intent to Treat Dataset (n=56)*.
Treatment Responder (% of subjects) p value vs Placebo
* Subjects with missing data are considered non-responders
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Table 4.
Average changes in key serum liver injury markers ALT and AST at Week 12 (n=52)*.
ALT (U/L) AST (U/L)
Treatment Absolute Placebo-Adjusted Absolute Absolute Placebo-Adjusted Absolute
Placebo (n = 17) 1.8 NS n/a n/a 2.8 NS n/a n/a
* All available data
During
the 12 weeks of treatment, the observed rate and severity of Treatment Emergent Adverse Events (“TEAEs”) in both the
LPCN 1144 treatment arms were comparable to the placebo arm. Three subjects in the placebo group and one subject in the combined
treatment arms discontinued study drug due to TEAEs. We currently expect 36-week biopsy data mid-2021.
Previous to the LiFT clinical study,
we completed a 16-week POC liver imaging clinical study to assess liver fat changes in hypogonadal men at risk of developing NASH
using MRI-PDFF technique. Treatment results from the POC liver imaging study demonstrated that 48% of the treated NAFLD subjects,
defined as baseline liver fat of at least 5%, had NAFLD resolution, defined as liver fat <5% post treatment. Additionally,
100% of the subjects experiencing NAFLD resolution had at least a 35% relative liver fat reduction from baseline with a relative
mean liver fat reduction of 55% in this group.
TLANDO XR: A Next-Generation Long-Acting Oral Product Candidate
for TRT
TLANDO XR is a next-generation,
novel ester prodrug of testosterone comprised of TT which uses the Lip’ral technology to enhance solubility and improve
systemic absorption. We completed a Phase 2b dose finding study in hypogonadal men in the third quarter of 2016. The primary objectives
of the Phase 2b clinical study were to determine the starting Phase 3 dose of TLANDO XR along with safety and tolerability of
TLANDO XR and its metabolites following oral administration of single and multiple doses in hypogonadal men. The Phase 2b clinical
trial was a randomized, open label, two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups.
Each of the 12 subjects in a group received treatment for 14 days. Results of the Phase 2b study suggest that the primary objectives
were met, including identifying the dose expected to be tested in a Phase 3 study. Good dose-response relationship was observed
over the tested dose range in the Phase 2b study. Additionally, the target Phase 3 dose met primary and secondary end points.
Overall, TLANDO XR was well tolerated with no drug-related severe or serious adverse events reported in the Phase 2b study.
Additionally in October 2014,
we completed a Phase 2a POC study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple dose study
enrolled 12 males. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with TLANDO XR
in hypogonadal men and a good dose response. Additionally, the study confirmed that steady state is achieved by day 14 with consistent
inter-day performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during the 28-day dosing
period on multi-dose exposure. Overall, TLANDO XR was well tolerated with no serious AE’s reported.
We have also completed a preclinical toxicology study
with TLANDO XR in dogs.
In February 2018 we had a meeting
with the FDA to discuss these pre-clinical results and to discuss the Phase 3 clinical study and path forward for TLANDO XR. Based
on the results of the FDA meeting and additional pre-clinical trials conducted after the FDA meeting, we have proposed a Phase
3 protocol for TLANDO XR and have solicited FDA feedback. Based on initial FDA feedback, we expect the Phase 3 clinical trial
design to follow the ICH guidelines and will include a three-month efficacy treatment period and a one-year safety component for
up to 100 subjects. We continue to refine the Phase 3 protocol and plan to request FDA approval of the protocol once it is finalized.
Additionally, the FDA previously requested that a food effect study needs to be completed, and that ambulatory blood pressure
monitoring (“ABPM”) be included as part of the Phase 3 clinical study. We anticipate the next steps in developing
TLANDO XR will be to scale up the formulation and conduct a food effect study with TLANDO XR. We are also exploring the possibility
of licensing TLANDO XR to a third party, although no licensing agreement has been entered into by us.
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LPCN 1148: An Oral Prodrug of Bioidentical Testosterone
Product Candidate for the Treatment of Cirrhosis
Cirrhosis is end-stage NAFLD for which
there is no FDA approved drug treatment. Liver cirrhosis is estimated to affect in excess of 600,000 Americans, with men affected
at twice the rate of women, and results in approximately 45,000 deaths every year. Due to a lack of available organs, only a third
of waitlisted patients are getting liver transplants, and patients that do receive a transplant are increasingly being described
as frail. Low testosterone affects up to 90% of cirrhotic men, and is a predictor of mortality and increased adverse events including
ascites, hepatic encephalopathy, and clinically significant portal hypertension.
We are currently formulating plans
to conduct a POC study in male cirrhotic subjects through consultations with the FDA and key opinion leaders to evaluate the therapeutic
potential of LPCN 1148 for the treatment of cirrhotic subjects. On May 5, 2020 the FDA accepted our IND to initiate a Phase 2
POC study to evaluate the therapeutic potential of LPCN 1148 for the treatment of liver cirrhosis in adult male cirrhotic patients.
The planned Phase 2 clinical study is a prospective, multi-center, randomized, placebo-controlled 52-week study in male cirrhotic
patients that are on the liver transplant list.
LPCN 1107: An Oral Product Candidate for the Prevention
of Preterm Birth
We believe
LPCN 1107 has the potential to become the first oral HPC product indicated for the reduction of risk of PTB (delivery less than
37 weeks) in women with singleton pregnancy who have a history of singleton spontaneous PTB. Prevention of PTB is a significant
unmet need as approximately 11.7% of all U.S. pregnancies result in PTB, a leading cause of neonatal mortality and morbidity.
We have completed a multi-dose PK dose
selection study in pregnant women. The objective of the multi-dose PK selection study was to assess HPC blood levels in order
to identify the appropriate LPCN 1107 Phase 3 dose. The multi-dose PK dose selection study was an open-label, four-period, four-treatment,
randomized, single and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the IM HPC (Makena®).
The study enrolled 12 healthy pregnant women (average age of 27 years) with a gestational age of approximately 16 to 19 weeks.
Subjects received three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID) in a randomized, crossover manner during
the first three treatment periods and then received five weekly injections of HPC during the fourth treatment period. During each
of the LPCN 1107 treatment periods, subjects received a single dose of LPCN 1107 on Day 1 followed by twice daily administration
from Day 2 to Day 8. Following completion of the three LPCN 1107 treatment periods and a washout period, all subjects received
five weekly injections of HPC. Results from this study demonstrated that average steady state HPC levels (Cavg0-24) were comparable
or higher for all three LPCN 1107 doses than for injectable HPC. Additionally, HPC levels as a function of daily dose were linear
for the three LPCN 1107 doses. Also, unlike the injectable HPC, steady state exposure was achieved for all three LPCN 1107 doses
within seven days. We have also completed a proof-of-concept Phase 1b clinical study of LPCN 1107 in healthy pregnant women in
January 2015 and a POC Phase 1a clinical study of LPCN 1107 in healthy non-pregnant women in May 2014. These studies were designed
to determine the PK and bioavailability of LPCN 1107 relative to an IM HPC, as well as safety and tolerability.
A traditional PK/PD based Phase 2 clinical
study in the intended patient population is not expected to be required prior to entering into Phase 3. Therefore, based on the
results of our multi-dose PK study we had an End-of-Phase 2 meeting and subsequent guidance meetings with the FDA to define a
pivotal Phase 2b/3 development plan for LPCN 1107. However, these discussions will need to be updated based on recent developments
with Covis’ Makena®. We plan to resume our interactions with the FDA to discuss our pivotal Phase 2b/3 clinical trial
design and better understand next steps to advance LPCN 1107. Additionally, a pivotal Phase 2b/3 study will not occur until the
results from a planned food-effect study with LPCN 1107 are reviewed by the FDA, though manufacturing scale-up work for LPCN 1107
has been completed.
Based on our capital resources and the
clinical status of our product candidates, we plan to primarily focus our efforts in 2021 on LPCN 1144. We do not anticipate the
initiation of a pivotal Phase 2b/3 study with LPCN 1107 to occur in 2021until additional clarity from the FDA is obtained with
regards to Makena or the product candidate is out-licensed. We may conduct the required food effect clinical study in advance
of receiving clarity on Makena. We are exploring the possibility of licensing LPCN 1107 to a third party, although no licensing
agreement has been entered into by the Company. No assurance can be given that any license agreement will be completed, or, if
an agreement is completed, that such an agreement would be on acceptable terms.
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The FDA has granted
orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for
various development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user
fee when we file our NDA.
Recent Competition Update
On
October 5, 2020, the FDA’s CDER proposed that Makena be withdrawn from the market because the PROLONG trial failed
to verify the clinical benefit of Makena and concluded that the available evidence does not show Makena is effective for its approved
use.
CDER issued AMAG, the NDA holder at the
time, an NOOH to withdraw approval of Makena, for which AMAG Pharmaceuticals responded by requesting a hearing and providing
detail on the company’s position, recognizing clinicians’ decade-long use of Makena’s treatment and the public
health implications of withdrawing approval. The FDA Commissioner granted a hearing, and the process is expected to take
months. During this time, Makena and the approved generics of Makena will remain on the market until the FDA makes a final decision
about these products.
Currently, Makena and the approved generics
of Makena are the only products approved for the prevention of recurrent preterm birth.
The FDA also indicated that it intends
to hold a meeting with experts in obstetrics, neonatal care, and clinical trial design to discuss how to facilitate development
of effective and safe therapies to treat preterm birth.
Financial Operations Overview
Revenue
To date, we have not generated any revenues
from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to
date have been generated substantially from license fees, royalty and milestone payments and research support from our licensees.
Since our inception through December 31, 2020, we have generated $28.1 million in revenue under our various license and collaboration
arrangements and from government grants. We may never generate revenues from TLANDO or any of our other clinical or preclinical
development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these
product candidates.
Research and Development Expenses
Research and development expenses consist
primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers
such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development,
clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses
associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as
those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research
and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred.
Since our inception, we have spent approximately $120.8 million in research and development expenses through December 31, 2020.
On
December 8, 2020 we received tentative approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT
in adult males for conditions associated with a deficiency of endogenous testosterone, also known as hypogonadism. In granting
tentative approval, the FDA concluded that TLANDO has met all required quality, safety and efficacy standards necessary for approval.
However, TLANDO has not received final approval and is not eligible for final approval to market in the U.S. until the expiration
of the exclusivity period previously granted to Clarus with respect to Jatenzo®, which expires on March 27, 2022. As a result,
we are uncertain as to whether we will incur additional research and developments costs for TLANDO. Any further expenditures,
if needed, are subject to numerous uncertainties regarding timing and cost to completion.
We expect to continue to incur significant
costs as we develop our other product candidates, including the ongoing LiFT Phase 2 clinical study with LPCN 1144.
In general, the cost of clinical trials
may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others:
· the number of sites included in the trials;
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· the length of time required to enroll suitable subjects;
· the duration of subject follow-ups;
· the length of time required to collect, analyze and report trial results;
· the cost, timing and outcome of regulatory review; and
We have also incurred significant manufacturing
costs to prepare launch supplies for TLANDO and additional expenditures will be required to prepare for a commercial launch of
TLANDO, should it be approved. However, future expenditures are subject to numerous uncertainties regarding timing and cost to
completion, including, among others:
A change of outcome for any of these variables
with respect to the development of TLANDO and our other product development candidates could mean a substantial change in the
costs and timing associated with these efforts, will require us to raise additional capital, and may require us to reduce operations.
Given the stage of clinical development
and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process,
we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1144, TLANDO XR, LPCN 1148,
LPCN 1107 and other product candidates. Clinical development timelines, the probability of success and development costs
can differ materially from expectations and results from our clinical trials may not be favorable. If we are successful in
progressing LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 or other product candidates into later stage development, we will require
additional capital. The amount and timing of our future research and development expenses for these product candidates will depend
on the preclinical and clinical success of both our current development activities and potential development of new product candidates,
as well as ongoing assessments of the commercial potential of such activities.
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Summary of Research and Development Expense
We are conducting on-going clinical and
regulatory activities with most of our product candidates. Additionally, we incur costs for our other research programs. The following
table summarizes our research and development expenses:
Years Ended December 31,
External service provider costs:
We expect research and development expenses
to increase in the future as we complete on-going clinical studies, including the LiFT Phase 2 clinical study with LPCN
1144, as we conduct future clinical studies, including when and if we conduct Phase 2 clinical studies with LPCN 1148 and Phase
3 clinical studies with TLANDO XR and LPCN 1107, and as we manufacture commercial supplies of TLANDO pre-approval. However, if
we are unable to raise additional capital, we may need to reduce research and development expenses in order to extend our ability
to continue as a going concern.
Summary of General and Administrative Expenses
General and administrative expenses consist
primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development,
marketing, sales and support functions. Other general and administrative expenses include rent and utilities, travel expenses,
professional fees for auditing, tax and legal services, litigation settlement and market research and market analytics.
General and administrative expenses also
include expenses for the cost of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending
intellectual property-related claims, including our on-going patent interference and patent infringement lawsuits against Clarus.
We expect that general and administrative
expenses will increase in the future as we incur additional legal fees in the on-going court cases with Clarus. Additional areas
that may see increases as we mature as a public company include legal and consulting fees, accounting and audit fees, director
fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business
and accounting systems, litigation costs, professional fees and other costs. If TLANDO is approved by the FDA, we expect we will
incur significant additional expenses relating to the commercialization of TLANDO, including, among other things, expenses relating
to building out sales and marketing teams, manufacturing expenses, expenses relating to licensing TLANDO to third parties, and
other expenses. However, if we are unable to raise additional capital, we may need to reduce general and administrative expenses
in order to extend our ability to continue as a going concern. If we are unable to raise additional capital, we may be unable
to effectively commercialize TLANDO after receiving FDA approval.
Summary of Other Expense (Income), Net
Other expense (income), net consists primarily
of interest income earned on our cash, cash equivalents and marketable investment securities and interest expense incurred on
our outstanding Loan and Security Agreement and losses (gains) on our warrant liability.
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Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results
of operations for the years ended December 31, 2020 and 2019:
Years Ended December 31,
Revenue
We recognized no license revenue during
the year ended December 31, 2020, compared to license revenue of $165,000 during the year ended December 31, 2019. License revenue
in 2019 related to royalty payments received from Spriaso under a licensing agreement in the cough and cold field.
Research and Development Expenses
The
increase in research and development expenses during the year ended December 31, 2020 was primarily due to a $2.7 million increase
in contract research organization and outside consulting and manufacturing costs related to the LPCN 1144 LiFT Phase
2 clinical study in NASH subjects, a $820,000 increase in commercial manufacturing costs related to TLANDO, a $685,000 increase
in personnel expense mainly due to stock compensation expense on performance based RSU’s and increased bonus expense, as
well as a net increase in other R&D programs and expenses of $101,000. Additionally, other costs related to TLANDO had a net
decrease of $2.0 million which was the result of a decrease in contract research organization expenses of $2.1 million, offset
by increases in other TLANDO expenses of $73,000.
General and Administrative Expenses
The increase in general and administrative
expenses during the year ended December 31, 2020 was primarily due to a $2.3 million increase in legal costs associated with the
following activities: lawsuit filed against Clarus for patent infringement in April 2019, patent interference cases filed against
Clarus and the on-going class action lawsuit defense. In addition, there was a $522,000 increase in personnel costs mainly due
to stock compensation expense on performance based RSU’s and increased bonus expense, and a $41,000 increase in other general
and administrative expenses. These increases were offset by a $94,000 decrease in administrative travel expenses and a $68,000
decrease in marketing expense.
Interest and Investment Income
The decrease in interest and investment
income during the year ended December 31, 2020 was due to lower interest rates and lower average balances of marketable securities
in 2020 compared to 2019.
Interest Expense
The decrease in interest expense during
the year ended December 31, 2020 was due to a decrease in interest expense on our Loan and Security Agreement with SVB, as a result
of lower principal balances and lower interest rates in 2020 compared to 2019.
Unrealized Loss (Gain) on Warrant Liability
We
recorded a $2.9 million loss and a $236,000 gain, respectively, on warrant liability during the years ended December 31, 2020
and 2019 related to the change in the fair value of outstanding common stock warrants issued in the November 2019 Offering. The
loss in 2020 was mainly attributable to an increase in the value of both warrants exercised during the year and warrants outstanding
as of December 31, 2020 as compared to December 31, 2019 due to an increase in our stock price. There were 10,895,970 common stock
warrants from the November 2019 Offering exercised during the year ended December 31, 2020. The gain in 2019 was attributable
to a decrease in the stock price of our common stock and a decrease in the remaining term of the warrants from the November 2019
Offering to December 31, 2019. The warrants are classified as a liability due to a provision contained within the warrant agreement
which allows the warrant holder the option to elect to receive an amount of cash equal to the value of the warrants as determined
in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a change of control. The warrant
liability will continue to fluctuate in the future based on inputs to the Black-Scholes model including our current stock price,
the remaining life of the warrants, the volatility of our stock price, the risk-free interest rate and the number of common stock
warrants outstanding.
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Liquidity and Capital Resources
Since our inception, our operations have
been primarily financed through sales of our equity securities, debt and payments received under our license and collaboration
arrangements. We have devoted our resources to funding research and development programs, including discovery research, preclinical
and clinical development activities. We have incurred operating losses in most years since our inception and we expect to continue
to incur operating losses into the foreseeable future as we evaluate our options related to TLANDO should it receive final approval
and as we advance clinical development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and any other product candidate, including
continued research efforts.
As
of December 31, 2020, we had $19.7 million of unrestricted cash, cash equivalents and marketable investment securities compared
to $14.1 million at December 31, 2019. Additionally, as of December 31, 2020 and December 31, 2019 we had $5.0 million of
restricted cash, which was required to be maintained as cash collateral under the SVB Loan and Security Agreement until TLANDO
is approved by the FDA. However on February 16, 2021, we and SVB (as defined below) amended the Loan and Security Agreement
to, among other things, remove the cash collateral requirement.
On January 28, 2021, we completed a public
offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended
(“January 2021 Offering”). The gross proceeds from the January 2021 Offering were approximately $28.7 million, before
deducting underwriter fees and other offering expenses of $1.9 million. In the January 2021 Offering, we sold 16,428,571 shares
of our common stock.
On April 21, 2020, we
entered into a loan (the “Loan”) from SVB in the aggregate amount of $234,000, pursuant to the Paycheck Protection
Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which
was in the form of a note dated April 21, 2020, originally matured on April 21, 2022 and bears interest at a rate of 1.0% per
annum, payable monthly commencing on November 21, 2020. Under the terms of the PPP, certain amounts of the Loan may be forgiven
if they are used for qualifying expenses as described in the CARES Act. On November 2, 2020, we were notified by the Small Business
Administration that our PPP Loan had been forgiven.
On February 27, 2020, we completed a registered
direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933,
as amended (“February 2020 Offering”). The gross proceeds from the February 2020 Offering were approximately $6.0
million, before deducting placement agent fees and other offering expenses of $347,000. In the February 2020 Offering, the Company
sold 10,084,034 Class A Units, with each Class A Unit consisting of one share of common stock and a one-half of one common warrant
to purchase one share of common stock, at a price of $0.595 per Class A Unit. The common stock warrants were immediately exercisable
at an exercise price of $0.53 per share, subject to adjustment, and expire on February 27, 2025. By their terms, however, the
common stock warrants cannot be exercised at any time that the common stock warrant holder would beneficially own, after such
exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving
effect to such exercise.
On November 18, 2019, we completed the
“November 2019 Offering. The gross proceeds from the November 2019 Offering were approximately $6.0 million, before deducting
placement agent fees and other offering expenses of $404,000. In the November 2019 Offering, the Company sold (i) 10,450,000 Class
A Units, with each Class A Unit consisting of one share of common stock and a common warrant to purchase one share of common stock,
and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of common
stock and one common warrant to purchase one share of common stock, at a price of $0.50 per Class A Unit and $0.4999 per Class
B Unit. The pre-funded warrants, which were exercised for common stock in December 2019, were issued in lieu of common stock in
order to ensure the purchaser did not exceed certain beneficial ownership limitations. The pre-funded warrants were immediately
exercisable at an exercise price of $.0001 per share, subject to adjustment. Additionally, the common stock warrants were immediately
exercisable at an exercise price of $0.50 per share, subject to adjustment, and expire on November 17, 2024. By their terms, however,
neither the pre-funded warrants nor the common stock warrants can be exercised at any time that the pre-funded warrant holder
or the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder,
9.99%) of the shares of common stock then outstanding after giving effect to such exercise.
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On January 5, 2018, we entered into the
Loan and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan
and Security Agreement bears interest at a rate equal to the Prime Rate, as reported in money rates section of The Wall Street
Journal or any successor publication representing the rate of interest per annum then in effect, plus one percent per annum, which
interest is payable monthly. Additionally on April 1, 2020, we and SVB entered into a Deferral Agreement. Under the Deferral Agreement,
principal repayments are deferred by six months and we are only required to make monthly interest payments during the deferral
period. The Loan matures on June 1, 2022. Previously, we were only required to make monthly interest payments until December 31,
2018, following which we also made equal monthly payments of principal and interest until the signing of the Deferral Agreement.
We will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).
At our option, we may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest
and the Final Payment Charge). In connection with the Loan and Security Agreement, we granted to SVB a security interest in substantially
all of our assets now owned or hereafter acquired, excluding intellectual property and certain other assets. In addition, as TLANDO
was not approved by the FDA by May 31, 2018, we are required to maintain $5.0 million of cash collateral at SVB until such time
as TLANDO is approved by the FDA. However on February 16, 2021, we and SVB amended the Loan and Security Agreement to amend, among
other things, the removal the financial trigger and financial trigger release event provisions requiring us to maintain a minimum
cash collateral value and collateral pledge thereof. While any amounts are outstanding under the Loan and Security Agreement,
we are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, business
combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants.
The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged
at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies
against us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities,
including its cash. These events of default include, among other things, any failure by us to pay principal or interest due under
the credit facility, a breach of certain covenants under the credit facility, the Company’s insolvency, a material adverse
change, and one or more judgments against us in an amount greater than $100,000 individually or in the aggregate.
On March 6, 2017, we entered into the
Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which we may issue and sell, from time to
time, shares of our common stock having an aggregate offering price of up to the amount we have registered on an effective registration
statement pursuant to which the offering is being made. We currently have registered up to $50.0 million for sale under the Sales
Agreement, pursuant to our Registration Statement on Form S-3 (File No. 333-250072), through Cantor as our sales agent. Cantor
may sell our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule
415(a)(4) of the Securities Act, including sales made directly on or through the NASDAQ Capital Market or any other existing trade
market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to
prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts consistent with
its normal trading and sales practices and applicable law and regulations to sell these shares. We pay Cantor 3.0% of the aggregate
gross proceeds from each sale of shares under the Sales Agreement. We have also provided Cantor with customary indemnification
rights.
The
shares of our common stock sold under the Sales Agreement are sold and issued pursuant to our Registration Statement on Form S-3
(File No. 333-250072) (the “Form S-3”), which was previously declared effective by the Securities and Exchange Commission,
and the related prospectus and one or more prospectus supplements.
We are not obligated to make any sales
of our common stock under the 2020 Sales Agreement. The offering of our common stock pursuant to the 2020 Sales Agreement will
terminate upon the termination of the 2020 Sales Agreement as permitted therein. We and Cantor may each terminate the 2020 Sales
Agreement at any time upon ten days’ prior notice.
During the year ended December 31, 2020,
we sold 3,746,300 shares of our common stock pursuant to our current Registration Statement on Form S-3 (File No. 333-250072),
resulting in net proceeds of approximately $5.1 million under the Sales Agreement which is net of $148,000 in expenses consisting
of commissions paid to Cantor in connection with these sales and other offering and accounting costs. Also during the year ended
December 31, 2020, we sold 2,830,000 shares of our common stock pursuant to our prior Registration Statement on Form S-3 (File
No. 333-220942), resulting in net proceeds of approximately $3.9 million under the Sales Agreement which is net of $165,000 in
expenses consisting of commissions paid to Cantor in connection with these sales and other offering and accounting costs. As of
December 31, 2020, we had $44.7 million available for sale under the Sales Agreement.
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We believe that our existing capital resources,
together with interest thereon, will be sufficient to meet our projected operating requirements through at least March 31, 2022
which includes an on-going clinical study for LPCN 1144, compliance with regulatory requirements, and on-going litigation activities.
We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner
than we currently expect if additional activities are performed by us including pre-commercial and commercial activities for TLANDO
and new clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107. While we believe we have sufficient liquidity and
capital resources to fund our projected operating requirements through at least March 31, 2022, we will need to raise additional
capital at some point through the equity or debt markets or through out-licensing activities, either before or after March 31,
2022, to support our operations, including, if FDA approval is received, potential commercialization activities for TLANDO. If
we are unsuccessful in raising additional capital, our ability to continue as a going concern will be limited. Further, our operating