UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-54192
REVA MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
33-0810505 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
|
|
5751 Copley Drive |
|
(858) 966-3000 |
(Address of principal executive offices, |
|
(Registrants telephone number |
including zip code) |
|
including area code) |
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
|
Accelerated filer o |
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Non-accelerated filer o |
|
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of November 1, 2014, a total of 33,529,778 shares of the registrants Common Stock, $0.0001 par value per share, were outstanding.
REVA MEDICAL, INC.
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended September 30, 2014
REFERENCES
Corporate Information
We incorporated in Delaware in October 2010. Our principal executive offices are located at 5751 Copley Drive, San Diego, California 92111 USA. Our telephone number is (858) 966-3000 and our website address is www.revamedical.com. The information on, or accessible through, our website is not part of this report. Unless the context implies otherwise, references in this report and the information incorporated herein by reference to REVA Medical, REVA, the Company, we, us, and our refer to REVA Medical, Inc.
Currency
Unless indicated otherwise in this report, all references to $ or dollars refer to United States dollars, the lawful currency of the United States of America. References to A$ refer to Australian dollars, the lawful currency of the Commonwealth of Australia.
Trademarks
The names ReZolve® and FantomTM are trademarked by us. All other trademarks, trade names, and service marks appearing in this report are the property of their respective owners. Use or display by us of other parties trademarks, trade dress, or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of, us by the trademark or trade dress owner.
Item 1. Unaudited Consolidated Financial Statements
REVA Medical, Inc.
(a development stage company)
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
|
December 31, |
|
September 30, |
| ||
|
|
2013 |
|
2014 |
| ||
|
|
|
|
(Unaudited) |
| ||
Assets |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
19,229 |
|
$ |
6,297 |
|
Short-term investments |
|
1,492 |
|
|
| ||
Prepaid expenses and other current assets |
|
415 |
|
180 |
| ||
|
|
|
|
|
| ||
Total Current Assets |
|
21,136 |
|
6,477 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
3,589 |
|
2,999 |
| ||
Other non-current assets |
|
60 |
|
463 |
| ||
|
|
|
|
|
| ||
Total Assets |
|
$ |
24,785 |
|
$ |
9,939 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
1,400 |
|
$ |
623 |
|
Accrued expenses and other current liabilities |
|
2,080 |
|
1,433 |
| ||
|
|
|
|
|
| ||
Total Current Liabilities |
|
3,480 |
|
2,056 |
| ||
|
|
|
|
|
| ||
Long-term liabilities |
|
480 |
|
402 |
| ||
|
|
|
|
|
| ||
Total Liabilities |
|
3,960 |
|
2,458 |
| ||
|
|
|
|
|
| ||
Commitments and Contingencies (Note 5) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders Equity: |
|
|
|
|
| ||
Common stock $0.0001 par value; 100,000,000 shares authorized; 33,270,053 and 33,505,278 shares issued and outstanding at December 31, 2013 and September 30, 2014 respectively |
|
3 |
|
3 |
| ||
Class B common stock $0.0001 par value; 25,000,000 shares authorized; no shares issued or outstanding |
|
|
|
|
| ||
Undesignated preferred stock $0.0001 par value; 5,000,000 shares authorized; no shares issued or outstanding |
|
|
|
|
| ||
Additional paid-in capital |
|
222,331 |
|
225,493 |
| ||
Deficit accumulated during the development stage |
|
(201,509 |
) |
(218,015 |
) | ||
|
|
|
|
|
| ||
Total Stockholders Equity |
|
20,825 |
|
7,481 |
| ||
|
|
|
|
|
| ||
Total Liabilities and Stockholders Equity |
|
$ |
24,785 |
|
$ |
9,939 |
|
The accompanying notes are an integral part of these financial statements.
REVA Medical, Inc.
(a development stage company)
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
Period from |
| |||||
|
|
|
|
|
|
|
|
|
|
June 3, 1998 |
| |||||
|
|
Three Months Ended |
|
Nine Months Ended |
|
(inception) to |
| |||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
| |||||||||
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
2014 |
| |||||
Operating Expense: |
|
|
|
|
|
|
|
|
|
|
| |||||
Research and development |
|
$ |
5,088 |
|
$ |
2,930 |
|
$ |
13,867 |
|
$ |
10,782 |
|
$ |
133,538 |
|
General and administrative |
|
2,094 |
|
1,516 |
|
6,324 |
|
5,768 |
|
50,429 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss from operations |
|
(7,182 |
) |
(4,446 |
) |
(20,191 |
) |
(16,550 |
) |
(183,967 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
7 |
|
1 |
|
26 |
|
6 |
|
1,411 |
| |||||
Related party interest expense |
|
|
|
|
|
|
|
|
|
(21,113 |
) | |||||
Interest expense |
|
|
|
|
|
|
|
|
|
(952 |
) | |||||
Interest from amortization of notes payable premium |
|
|
|
|
|
|
|
|
|
2,283 |
| |||||
Change in fair value of preferred stock rights and warrant liabilities |
|
|
|
|
|
|
|
|
|
1,795 |
| |||||
Loss on extinguishment of notes payable |
|
|
|
|
|
|
|
|
|
(13,285 |
) | |||||
Other income (expense) |
|
(16 |
) |
48 |
|
(4 |
) |
38 |
|
(14 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net Loss |
|
(7,191 |
) |
(4,397 |
) |
(20,169 |
) |
(16,506 |
) |
(213,842 |
) | |||||
Cumulative dividends and deemed dividends on Series H convertible preferred stock |
|
|
|
|
|
|
|
|
|
(10,695 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net Loss Attributable to Common Stockholders |
|
$ |
(7,191 |
) |
$ |
(4,397 |
) |
$ |
(20,169 |
) |
$ |
(16,506 |
) |
$ |
(224,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net Loss Per Common Share: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss per share, basic and diluted |
|
$ |
(0.22 |
) |
$ |
(0.13 |
) |
$ |
(0.61 |
) |
$ |
(0.49 |
) |
|
| |
Shares used to compute net loss per share, basic and diluted |
|
33,136,368 |
|
33,383,894 |
|
33,116,561 |
|
33,361,805 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss |
|
$ |
(7,191 |
) |
$ |
(4,397 |
) |
$ |
(20,169 |
) |
$ |
(16,506 |
) |
$ |
(213,842 |
) |
Cumulative dividends and deemed dividends on Series H convertible preferred stock |
|
|
|
|
|
|
|
|
|
(10,695 |
) | |||||
Comprehensive Loss Attributable to Common Stockholders |
|
$ |
(7,191 |
) |
$ |
(4,397 |
) |
$ |
(20,169 |
) |
$ |
(16,506 |
) |
$ |
(224,537 |
) |
The accompanying notes are an integral part of these financial statements.
REVA Medical, Inc.
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
Period from |
| |||
|
|
|
|
|
|
June 3, 1998 |
| |||
|
|
Nine Months Ended |
|
(inception) to |
| |||||
|
|
September 30, |
|
September 30, |
| |||||
|
|
2013 |
|
2014 |
|
2014 |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
| |||
Net loss |
|
$ |
(20,169 |
) |
$ |
(16,506 |
) |
$ |
(213,842 |
) |
Non-cash adjustments to reconcile net loss to net cash used for operating activities: |
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
635 |
|
780 |
|
5,642 |
| |||
Loss on property and equipment disposal and impairment |
|
1 |
|
|
|
586 |
| |||
Stock-based compensation |
|
3,031 |
|
2,940 |
|
15,645 |
| |||
Interest on notes payable |
|
|
|
|
|
8,562 |
| |||
Repayment premium on notes payable |
|
|
|
|
|
11,100 |
| |||
Loss on change in fair value of preferred stock warrant liability |
|
|
|
|
|
970 |
| |||
Gain on change in fair value of preferred stock rights liability |
|
|
|
|
|
(2,765 |
) | |||
Loss on extinguishment of notes payable |
|
|
|
|
|
13,285 |
| |||
Other non-cash expenses |
|
13 |
|
14 |
|
182 |
| |||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
| |||
Prepaid expenses and other current assets |
|
129 |
|
235 |
|
(180 |
) | |||
Other non-current assets |
|
|
|
|
|
(60 |
) | |||
Accounts payable |
|
297 |
|
(647 |
) |
558 |
| |||
Accrued expenses and other current liabilities |
|
365 |
|
(858 |
) |
1,124 |
| |||
Long-term liabilities |
|
(64 |
) |
(78 |
) |
343 |
| |||
|
|
|
|
|
|
|
| |||
Net cash used for operating activities |
|
(15,762 |
) |
(14,120 |
) |
(158,850 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
| |||
Purchases of property and equipment |
|
(1,147 |
) |
(383 |
) |
(9,392 |
) | |||
Sales of property and equipment |
|
|
|
|
|
167 |
| |||
Purchases of investments |
|
(1,243 |
) |
|
|
(26,593 |
) | |||
Maturities of investments |
|
5,223 |
|
1,492 |
|
26,593 |
| |||
|
|
|
|
|
|
|
| |||
Net cash provided by (used for) investing activities |
|
2,833 |
|
1,109 |
|
(9,225 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
| |||
Proceeds from issuances of convertible preferred stock, net of costs |
|
|
|
|
|
68,917 |
| |||
Proceeds from issuances of common stock |
|
19 |
|
222 |
|
85,541 |
| |||
Initial public offering costs |
|
|
|
|
|
(8,068 |
) | |||
Proceeds from exercises of warrants |
|
|
|
|
|
263 |
| |||
Repurchases of stock |
|
|
|
|
|
(638 |
) | |||
Proceeds from issuances of notes payable |
|
|
|
|
|
28,600 |
| |||
Deferred notes payable financing costs |
|
|
|
(143 |
) |
(143 |
) | |||
Repayments of notes payable |
|
|
|
|
|
(100 |
) | |||
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
19 |
|
79 |
|
174,372 |
| |||
|
|
|
|
|
|
|
| |||
Net increase (decrease) in cash and cash equivalents |
|
(12,910 |
) |
(12,932 |
) |
6,297 |
| |||
Cash and cash equivalents at beginning of period |
|
38,876 |
|
19,229 |
|
|
| |||
|
|
|
|
|
|
|
| |||
Cash and cash equivalents at the end of period |
|
$ |
25,966 |
|
$ |
6,297 |
|
$ |
6,297 |
|
|
|
|
|
|
|
|
| |||
Supplemental Cash and Non-Cash information |
|
|
|
|
|
|
| |||
Cash paid for interest |
|
$ |
|
|
$ |
|
|
$ |
126 |
|
Non-cash conversions of notes payable, accrued interest, note premiums and discounts, preferred stock, non-voting common stock, preferred warrants, and common warrants upon initial public offering in December 2010 |
|
$ |
|
|
$ |
|
|
$ |
120,349 |
|
|
|
|
|
|
|
|
| |||
Property and equipment purchases in accounts payable at end of period |
|
$ |
267 |
|
$ |
2 |
|
$ |
2 |
|
The accompanying notes are an integral part of these financial statements
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
1. Background, Basis of Presentation, and Going Concern
Background: REVA Medical, Inc. (REVA or the Company) was incorporated in California in 1998 under the name MD3, Inc. In March 2002, we changed our name to REVA Medical, Inc. In October 2010, we reincorporated in Delaware. We established a non-operating wholly owned subsidiary, REVA Germany GmbH, in 2007. In these notes the terms us, we, or our refer to REVA and our consolidated subsidiary unless context dictates otherwise. Our stock is traded in the form of CHESS Depository Interests (CDIs) on the Australian Securities Exchange; each share of our common stock is equivalent to ten CDIs. Our trading symbol is RVA.AX.
We are currently developing and testing a bioresorbable stent to treat vascular disease in humans. We do not yet have a product available for sale; our product(s) will become available following completion of required clinical studies with acceptable data and when, and if, we receive regulatory approval. We initiated the first human clinical trial of our bioresorbable stent during 2007, enrolled 26 patients in a second clinical trial between December 2011 and July 2012, and enrolled 112 patients in a third trial between March 2013 and January 2014.
During the first quarter of 2014, we announced our plans to focus on a stent with a unibody design that is made from our proprietary bioresorbable polymer, which we have named the FantomTM scaffold (bioresorbable stents are commonly referred to as scaffolds). Our development and testing are progressing as planned and we anticipate initiating a clinical trial with Fantom by the end of 2014. Concurrent with the first quarter announcement, we made an approximate 45 percent reduction in headcount on March 26, 2014 and reduced other overhead costs. The offers of severance we made in connection with the reductions approximated $415,000 including related payroll taxes, of which $237,000 was recorded as research and development and $178,000 as general and administrative expense during the first quarter of 2014. The payouts of severances were made during the second quarter of 2014. We did not incur any other expenses in connection with the change in development focus and headcount reductions.
Basis of Presentation: We have prepared the accompanying consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for reporting of interim financial information and, therefore, certain information and footnote disclosures normally included in annual financial statements have been omitted. Accordingly, these interim financial statements should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations contained in this report and with the audited financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Our consolidated financial statements include the accounts of REVA and our wholly owned subsidiary. All intercompany transactions and balances, if any, have been eliminated in consolidation. The consolidated balance sheet as of September 30, 2014, the consolidated statements of operations and comprehensive loss and of cash flows for the three and nine months ended September 30, 2013 and 2014 and the period from June 3, 1998 (inception) through September 30, 2014 are unaudited. The interim financial statements have been prepared on the same basis as our annual financial statements and, in our opinion, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair statement of the results of these interim periods have been included. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other interim period.
Development Stage: We are considered a development stage enterprise, as we have not yet generated revenue from the sale of products. Although we have been researching and developing new technologies and product applications and are conducting clinical trials of our bioresorbable stents, we do not anticipate having a product available for sale until we receive regulatory approval to commercialize in Europe (CE Marking) or other regulatory approval, which we expect will be mid-2016 at the earliest. Until revenue is generated from a saleable product, we expect to continue to incur substantial operating losses and experience significant net cash outflows.
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
1. Background, Basis of Presentation, and Going Concern (continued)
Capital Resources: We had cash and investments totaling $6,297,000 as of September 30, 2014, which we believe will be sufficient to fund our operating and capital needs into the first quarter of 2015. On September 25, 2014, we entered into a Convertible Note Deed (the Deed) that, if finalized on the terms agreed, would provide funding for our ongoing operating, clinical, and capital needs. While the Deed contemplates completion of the funding by December 31, 2014, there can be no assurance that it will be completed successfully and, if it is not completed, that we would be successful in raising additional capital on terms that are acceptable to us, if at all. If we are unable to raise sufficient additional capital, we may be compelled to further reduce the scope of our operations and planned capital expenditures or sell certain assets, including our intellectual property assets.
Going Concern: The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Given our current cash and investment balances and our planned operating activities, our recurring losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern. Even if we are able to raise additional capital, we may never become profitable, or if we do attain profitable operations, we may not be able to sustain profitability and positive cash flows on a recurring basis.
Use of Estimates: In order to prepare our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Our most significant estimates relate to operating expense accruals, including preclinical and clinical expenses, and stock-based compensation. Actual results could differ from our estimates.
Reclassifications: Certain prior year amounts within the consolidated statements of cash flows have been reclassified to conform to the current year presentation. These reclassifications had no impact on the net decreases in cash and cash equivalents as previously reported.
Recent Accounting Pronouncements: Effective January 1, 2014, we adopted Accounting Standards Update No. 2013-11 (ASU 2013-11), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The adoption of ASU 2013-11 did not have an effect on our financial position, results of operations, or related financial statement disclosures.
In April 2014, ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, was issued and in June 2014 ASU 2014-10, Development Stage Entities: Elimination of Certain Financial Reporting Requirements was issued. ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-10 removes financial reporting distinction between development stage entities and other reporting entities. Both these ASUs are effective for REVA beginning January 1, 2015; we do not expect their implementations to have an effect on our financial position or results of operations, but do expect that upon implementation of ASU 2014-10 we will no longer provide inception to date disclosures in our financial statements and the related notes thereto.
In August 2014, ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, was issued. ASU 2014-15 requires management to assess an entitys ability to continue as a going concern and to provide related footnote disclosure in certain circumstances. This ASU is effective for annual and interim periods ending after December 15, 2016. We are currently evaluating the provisions of ASU 2014-15 and assessing the impact, if any, it may have on our financial position, results of operations, and cash flows.
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
2. Balance Sheet Details
Investments: We invest excess cash in high-quality marketable securities. Our investments are classified as either short- or long-term based on their maturity dates; investments with a maturity of less than one year are classified as short-term and all others are classified as long-term. We have categorized the investments as held-to-maturity based on our intent and ability to hold to maturity. Our investments are stated at cost; their fair value is determined each reporting period through quoted market prices of similar instruments in active markets, which is a Level 2 category in the fair value hierarchy according to GAAP. During the reporting period there were no declines in fair value that were deemed to be other than temporary and no transfers between hierarchy levels.
Our marketable security investment balances, consisting only of time deposits as of December 31, 2013, were as follows. We had no time deposits as of September 30, 2014.
|
|
Cost |
|
Gross |
|
Fair Value |
| |||
|
|
(in thousands) |
| |||||||
As of December 31, 2013: |
|
|
|
|
|
|
| |||
Time deposits due in one year or less |
|
$ |
1,492 |
|
$ |
(4 |
) |
$ |
1,488 |
|
Property and Equipment, Other Non-Current Assets, and Accrued Expenses: Components of our property and equipment, other non-current assets, and accrued expenses and other current liabilities are as follows:
|
|
December 31, |
|
September 30, |
| ||
|
|
2013 |
|
2014 |
| ||
|
|
(in thousands) |
| ||||
Property and equipment: |
|
|
|
|
| ||
Furniture, office equipment, and software |
|
$ |
656 |
|
$ |
666 |
|
Laboratory equipment |
|
4,896 |
|
5,036 |
| ||
Leasehold improvements |
|
2,305 |
|
2,344 |
| ||
|
|
7,857 |
|
8,046 |
| ||
Accumulated depreciation and amortization |
|
(4,268 |
) |
(5,047 |
) | ||
|
|
$ |
3,589 |
|
$ |
2,999 |
|
|
|
|
|
|
| ||
Other non-current assets: |
|
|
|
|
| ||
Deferred financing costs and fees |
|
$ |
|
|
$ |
403 |
|
Security deposits |
|
60 |
|
60 |
| ||
|
|
$ |
60 |
|
$ |
463 |
|
|
|
|
|
|
| ||
Accrued expenses and other current liabilities: |
|
|
|
|
| ||
Accrued salaries and other employee costs |
|
$ |
1,371 |
|
$ |
448 |
|
Accrued operating expenses |
|
560 |
|
869 |
| ||
Accrued use taxes and other |
|
149 |
|
116 |
| ||
|
|
$ |
2,080 |
|
$ |
1,433 |
|
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
3. Income Taxes
We have reported net losses for all periods through September 30, 2014; therefore, no provision for income taxes has been recorded since our inception. The net operating loss carryforwards arising from our net losses may be available to offset future taxable income for income tax purposes; however, under Internal Revenue Code (IRC) Sections 382 and 383, use of the net operating loss carryforwards, as well as our research tax credit carryforwards, may be limited based on cumulative changes in ownership. We have established a valuation allowance against our net deferred tax assets due to the uncertainty surrounding the realization of those assets and we, therefore, have no deferred asset or liability balance for any reporting period. We periodically evaluate the recoverability of the deferred tax assets and, when it is determined that it is more-likely-than-not that the deferred tax assets are realizable, the valuation allowance will be reduced. Due to our valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
4. Stock-Based Compensation
The Plan: Our 2010 Equity Incentive Plan, as amended, was a follow-on to our 2001 Stock Option/Stock Issuance Plan and the two plans are collectively referred to as the Plan. The Plan provides for restricted stock awards as well as for grants of incentive and non-qualified stock options for purchase of our common stock at a price per share equal to the closing market price on the date of grant. The number of shares reserved for issuance under the Plan may be increased annually by up to three percent of the outstanding stock of the Company and on January 1, 2014, an additional 998,101 shares were reserved for issuance under the Plan. An aggregate of 7,305,760 shares are reserved for issuance under the Plan as of September 30, 2014. The term of options granted under the Plan may not exceed ten years. Options granted prior to 2010 generally vested over five years, with 20 percent vesting on each annual anniversary of the vesting commencement date. Beginning in 2010, a majority of the options granted vest over four years, with 25 percent vesting on the one-year anniversary of the vesting commencement date and 75 percent in equal monthly installments thereafter. A total of 75,000 options granted in May 2014 provide for vesting over a one-year period, with 25 percent vesting on each three-month anniversary from date of grant. All vesting is subject to continued service to the Company. All of our stock options are exercisable at any time but, if exercised, are subject to a lapsing right of repurchase by us until fully vested, at the exercise price.
Option activity under the Plan is as follows:
|
|
|
|
Weighted |
| |
|
|
|
|
Average |
| |
|
|
Options |
|
Exercise |
| |
|
|
Outstanding |
|
Price |
| |
Balance at December 31, 2012 |
|
3,550,000 |
|
$ |
7.30 |
|
Granted |
|
589,500 |
|
$ |
5.36 |
|
Cancelled |
|
(42,500 |
) |
$ |
2.00 |
|
Exercised |
|
(50,350 |
) |
$ |
0.61 |
|
Balance at December 31, 2013 |
|
4,046,650 |
|
$ |
7.15 |
|
Granted |
|
637,000 |
|
$ |
3.53 |
|
Cancelled |
|
(87,375 |
) |
$ |
5.39 |
|
Exercised |
|
(235,225 |
) |
$ |
0.95 |
|
Balance at September 30, 2014 |
|
4,361,050 |
|
$ |
6.99 |
|
During July 2012, January 2013, and May 2013 we awarded 33,000 shares, 40,000 shares, and 47,500 shares, respectively, of restricted stock; 25 percent of each award vests on each annual anniversary date of the award.
No tax benefits arising from stock-based compensation have been recognized in the consolidated statements of operations and comprehensive loss through September 30, 2014.
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
4. Stock-Based Compensation (continued)
Stock Options and Restricted Stock to Employees: We account for option grants and restricted stock awards to employees based on their estimated fair values on the date of grant or award, with the resulting stock-based compensation recorded over the vesting period on a straight-line basis. We include non-employee directors as employees for this purpose. Stock-based compensation arising from employee options and awards under the Plan is as follows (dollars in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
| ||||
Research and development |
|
$ |
267 |
|
$ |
282 |
|
$ |
801 |
|
$ |
855 |
|
General and administrative |
|
747 |
|
465 |
|
2,217 |
|
2,026 |
| ||||
Total stock-based compensation |
|
$ |
1,014 |
|
$ |
747 |
|
$ |
3,018 |
|
$ |
2,881 |
|
The fair values of options granted were estimated using the following weighted average assumptions:
|
|
Nine Months Ended |
| ||
|
|
September 30, |
| ||
|
|
2013 |
|
2014 |
|
Risk-free interest rate |
|
1.38 |
% |
2.33 |
% |
Expected volatility of common stock |
|
60.1 |
% |
59.3 |
% |
Expected life years |
|
6.25 |
|
6.14 |
|
Dividend yield |
|
0.0 |
% |
0.0 |
% |
The assumed risk-free interest rate was based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option. The assumed volatility was calculated from the historical market prices of a selected group of publicly traded companies considered to be our peers; we use peer group data due to the fact that we have limited historical trading data. The expected option life was calculated using the simplified method under the accounting standard for stock compensation and a ten-year option expiration; we use the simplified method because we do not yet have adequate history as a public company to establish a reasonable expected life. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future. The options granted to employees during the nine months ended September 30, 2014 had a weighted average grant date fair value of $1.98.
The fair value of our restricted stock awards is calculated using the closing market price on the date of award.
The aggregate intrinsic value of options exercised during the nine months ended September 30, 2013 and 2014 was $142,000 and $561,000, respectively.
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
4. Stock-Based Compensation (continued)
Stock Options to Consultants: We account for stock options granted to consultants at their fair value. Under this method, the fair value is estimated at each reporting date during the vesting period using the Black-Scholes option-pricing model. The resulting stock-based compensation expense, or income if the fair value declines in a reporting period, is recorded over the consultants service period. Options to purchase 110,000 shares of common stock were granted to consultants during the nine months ended September 30, 2014. No options were granted to consultants during the nine months ended September 30, 2013. Stock-based compensation expense or (income) arising from consultant options granted under the Plan is as follows (dollars in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
| ||||
Research and development |
|
$ |
9 |
|
$ |
(6 |
) |
$ |
13 |
|
$ |
67 |
|
General and administrative |
|
|
|
16 |
|
|
|
(8 |
) | ||||
Total stock-based compensation |
|
$ |
9 |
|
$ |
10 |
|
$ |
13 |
|
$ |
59 |
|
The weighted-average fair value of unvested consultant options at September 30, 2013 and 2014 was estimated to be $4.21 and $1.15 per share, respectively, based on the following weighted-average assumptions:
|
|
Nine Months Ended |
| ||
|
|
September 30, |
| ||
|
|
2013 |
|
2014 |
|
Risk-free interest rate |
|
1.71 |
% |
2.47 |
% |
Expected volatility of common stock |
|
60.1 |
% |
58.7 |
% |
Expected life years |
|
5.96 |
|
9.19 |
|
Dividend yield |
|
0.0 |
% |
0.0 |
% |
The assumed risk-free interest rate was based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option. The assumed volatility was calculated from the historical market prices of a selected group of publicly traded companies considered to be our peers; we use peer group data due to the fact that we have limited historical trading data. The expected option life is the remaining term of the option. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future.
5. Commitments and Contingencies
We have licensed certain patents and other intellectual property rights related to the composition and coating of our bioresorbable stent and our other biomaterial products. Terms of these licenses include provisions for royalty payments on any future sales of products, if any, utilizing this technology, with provisions for minimum royalties once product sales begin. The amount of royalties varies depending upon type of product, use of product, stage of product, location of sale, and ultimate sales volume, and ranges from a minimum of approximately $25 per unit to a maximum of approximately $100 per unit sold, with license provisions for escalating minimum royalties that could be as high as $2.2 million per year. Additionally, in the event we sublicense the technology and receive certain milestone payments, the licenses require that up to 40 percent of the milestone amount be paid to the licensors. Additional terms of the technology licenses include annual licensing payments of $175,000 until the underlying technology has been commercialized; the $175,000 for 2014 was paid and recorded to research and development expense during the first quarter of 2014. Terms of the licenses also include other payments to occur during commercialization that could total $950,000, payment of $350,000 upon a change in control of ownership, payments of up to $300,000 annually to extend filing periods related to certain technology, and payment of patent filing, maintenance, and defense fees. The license terms remain in effect until the last patent expires.
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
6. Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method, as applicable. For purpose of this calculation, common stock options and restricted stock subject to forfeiture are considered to be common stock equivalents and are included in the calculation of diluted net loss per share only when their effect is dilutive. For the nine months ended September 30, 2013 and 2014, common stock options totaling 3,856,955 and 4,384,484 shares, respectively, and restricted stock subject to forfeiture totaling 90,987 and 94,992 shares, respectively, were excluded from the computation of diluted net loss per share because including them would have been antidilutive.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q and with our consolidated financial statements and the related notes thereto that are contained in our Annual Report on Form 10-K for the year ended December 31, 2013. In addition to historical information, the following discussion and analysis includes forward-looking statements that involve risks, uncertainties, and assumptions. Forward-looking statements are all statements other than statements of historical facts, such as those statements regarding the projected timing and plans to complete development and testing and clinical and regulatory evaluations, projected timing of our receipt of regulatory approvals and commencement of commercial sales, projected timing and plans to develop pipeline products, anticipated future net losses from operations, projected timing and objectives for current and future financing transactions, and anticipated cash and capital requirements.
We caution readers that forward-looking statements are not guarantees of future performance and actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under Risk Factors in our Form 10-K for the year ended December 31, 2013. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made. Further, we may make changes to our business plans that could or will affect our results. We caution investors that we do not intend to update our forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no obligation to update any forward-looking statements.
Overview
We are a development stage medical device company working toward commercialization of our proprietary technologies to provide minimally invasive medical devices for treatment of conditions in the human body. Since the inception of our company in 1998, our efforts have been concentrated on the development of a stent for use in coronary applications. We currently are in the later stages of developing and clinically testing bioresorbable drug-eluting coronary stents. We refer to bioresorbable stents as scaffolds because they are not permanent devices like metal stents. In a clinical use, a scaffold is implanted by an interventional cardiologist during a minimally invasive surgery to a coronary artery location with a delivery catheter system. Our scaffolds are designed to offer full x-ray visibility, clinically relevant sizing, and a controlled and safe resorption rate.
Our stent products have not yet been approved for sale and will require extensive clinical testing and regulatory approval before they can be sold and generate any revenue. In 2007, we enrolled patients in a small clinical study that proved the viability of our stent technology while confirming the areas needing further development. We have been developing and advancing our technology in both its design and polymer composition since that study and have undertaken significant laboratory and preclinical testing that has shown the technology to be safe and effective across various models. Between December 2011 and July 2012, we enrolled 26 patients in Brazil and Europe in a clinical study of our ReZolve scaffold to evaluate its safety and performance; primary evaluations occurred at one, six, and 12 months following implant and we will follow the patients for a total of five years. Between March 2013 and January 2014, we enrolled 112 patients in Australia, Brazil, Europe, and New Zealand in a clinical study of our ReZolve2 scaffold; primary patient evaluations are occurring at one, six, nine, and/or 12 months following implant and we will follow these patients for a total of five years.
While we have ongoing clinical studies with our ReZolve family of scaffolds, we have continued to develop our next generation scaffolds. In March 2014 we announced that our efforts for the remainder of 2014 would be focused on our FantomTM scaffold, including developing, testing, and preparing it for human clinical studies. Fantom combines our proprietary polymer with a unibody design to produce a bioresorbable scaffold that will have the benefits of a metal stent, but that will be metabolized and completely cleared from the body over time. Fantom continues all the desired features of ReZolve, including radiopacity, drug-elution, and standard resorption, but is made from a modified polymer formulation, does not employ the Companys proprietary slide and lock design, and results in a more streamlined manufacturing process. We currently plan to initiate a clinical study with Fantom during the fourth quarter of 2014. We will enroll up to 125 patients in Brazil and Europe in a definitive clinical study, plan primary evaluations to occur at one and six months following implant, and will follow the patients for a total of five years. Following receipt of data from the primary evaluations, we plan to apply for regulatory approval to commercialize Fantom in Europe (or CE Marking), which we expect will be mid-2016. Concurrent with our decision in March 2014 to focus on Fantom and its eventual commercialization, we decided to forego commercialization efforts with our ReZolve family of scaffolds and ceased all work related to them, other than planned clinical follow-ups to the five-year timepoint.
Concurrent with, and as a result of, our announcement to focus on Fantom, we made an approximate 45 percent reduction in headcount and reduced other overhead costs. As of March 31, 2014, we had 47 continuing employees and as of September 30, 2014 we had 46 employees, a significant number of whom are degreed professionals and six of whom are PhDs. We leverage our internal expertise with contract research and preclinical laboratories, catheter manufacturing, and other outside services as needed.
In order to produce quantities of our scaffolds large enough to accommodate commercial needs, when, and if, that time arrives, we will need to scale-up our manufacturing processes and expand our capabilities to allow for such things as additional scaffold sizes. Additionally, we will need to develop and establish a sales and distribution network to facilitate sales of our scaffold. We have developed strategies and detailed plans for commercial manufacturing and for sales and marketing and will implement such plans as we approach our application for CE Marking.
We perform all of our research and development activities from our location in San Diego, California. We have three clean rooms and multiple engineering and chemistry labs at our facility, which is also our corporate and administrative office. We are ISO certified to the medical device standard 13485:2012 and intend to maintain the certification to support our commercialization plans. We have invented, co-invented, and in-licensed a portfolio of proprietary technologies. Our design-related technologies have been invented by our employees and consultants and our materials-related technologies have been either invented by our employees or licensed from, or co-invented with, Rutgers, The State University of New Jersey. We consider our patent portfolio to be significant and have invested considerable time and funds to develop and maintain it. We intend to continue to maintain and add to our patent portfolio.
We have not yet developed a product to a saleable stage and we have not, therefore, generated any product or other revenues. Our development efforts have been funded with a variety of capital received from angel investors, venture capitalists, strategic partners, hedge funds, and the proceeds from our IPO completed in December 2010. Since our inception, we have received approximately $154.1 million in equity proceeds and $28.5 million from issuance of notes payable (such notes payable were converted to common stock upon our IPO in December 2010). As of September 30, 2014, we had approximately $6.3 million in cash available for operations. We have incurred substantial losses since our inception; as of September 30, 2014, we had accumulated a deficit of approximately $218.0 million. We believe our existing cash at September 30, 2014 will be sufficient to meet our anticipated cash requirements into the first quarter of 2015, but not beyond.
The above circumstances raise substantial doubt about our ability to continue as a going concern. We are placing significant effort into completing a financing during the fourth quarter of 2014 that would provide adequate capital resources to allow us to obtain data from our clinical trials and apply for the CE Marking. We have committed to an issuance of convertible notes and options pursuant to a Convertible Note Deed (the Deed) entered into on September 25, 2014, which, if finalized on the terms agreed, would provide $25.0 million cash, before deducting fees and expenses, to the Company by December 31, 2014. While we have a committed transaction, there can be no assurance that it will be completed successfully and, if it is not completed, that we would be successful in raising additional capital on terms that are acceptable to us, if at all. If we are unable to raise sufficient additional capital, we may be compelled to further reduce the scope of our operations and planned capital expenditures or sell certain assets, including our intellectual property assets.
We expect our losses to continue for the next several years as we continue our development work, clinical studies, and preparations for commercialization and, if these efforts are successful and we are able to obtain approval to sell our products, we expect to commence product sales thereafter. In order to successfully transition to profitable operations, we will need to achieve a level of revenues and product margins to support the Companys cost structure. Until such time as we generate positive cash flow, we plan to continue to fund our losses from operations and capital needs by utilizing our current cash and investments and by raising additional capital through equity or debt financings.
Our company was founded in California in June 1998 and named MD3, Inc. We changed our name to REVA Medical, Inc. in March 2002. We reincorporated from the State of California to the State of Delaware in October 2010; as a result, the rights of our stockholders are governed by the Delaware General Corporation Law. We formed a wholly owned subsidiary in Germany in 2007 to facilitate our clinical trials and our planned commercialization of products; we have not used this subsidiary yet for any operating activities.
Key Components of our Results of Operations
Since we are still in a pre-revenue stage and our activities are focused on further developing and testing our bioresorbable coronary scaffolds with the goal of commercially selling them, as well as performing ongoing research and tests to determine the feasibility of other product possibilities and other related development activities, our operating results primarily consist of research and development expenses and general and administrative expenses.
Research and Development Expenses: Our research and development expenses arise from a combination of internal and external costs. Our internal costs primarily consist of employee salaries and benefits, facility and other overhead expenses, and engineering and other supplies that we use in our labs for prototyping, testing, and producing our stents and other product possibilities. Our external costs primarily consist of contract research, engineering and polymer consulting, polymer lasing costs, catheter system and anti-restenotic drug purchases, preclinical and clinical study expenses, and license fees paid for the technology underlying our polymer materials. All research and development costs are expensed when incurred. Through September 30, 2014, we have incurred approximately $133.5 million in research and development expenses since our inception, which represents approximately 73 percent of our cumulative operating expenses.
The level of our research and development activities increased in 2013 and the first quarter of 2014 as we initiated and completed enrollment in our ReZolve2 human clinical study, developed commercialization plans for ReZolve2 and began initial scale-up activities, and began development of our Fantom scaffolds. Following our announcement in March 2014 to move forward with only the Fantom program, which resulted in a reduction in research and development personnel of approximately 46 percent at the end of our first fiscal quarter, our research and development expenses decreased in the second and third quarters of 2014. We expect these expenses to remain at a comparatively decreased level through the end of 2014, with a slight increase in the fourth quarter of 2014 and a significant increase in 2015 as we enroll patients in our next clinical study and prepare for commercialization of Fantom. We currently plan to initiate the clinical studies of Fantom in late 2014 and anticipate a majority of the patients will be enrolled by mid-2015.
General and Administrative Expenses: Our general and administrative expenses consist primarily of salaries and benefits for our executive officers and administrative staff, corporate office and other overhead expenses, legal expenses including patent filing and maintenance costs, audit and tax fees, investor relations and other public company costs, travel expenses, and the costs of our International Managing Director who provided full-time services in between July 2013 and June 2014 related to planning the sales and marketing launch of our products. Although our patent portfolio is one of our most valuable assets, we record legal costs related to patent development, filing, and maintenance as expense when the costs are incurred since the underlying technology associated with these assets is purchased or incurred in connection with our research and development efforts and the future realizable value cannot be determined. Through September 30, 2014, we have incurred approximately $50.4 million in general and administrative expenses since our inception, which represents approximately 27 percent of our cumulative operating expenses. We anticipate that we will continue to invest in patents at similar levels as we have in the past. Following our announcement in March 2014 to focus on Fantom, which included a reduction of general and administrative personnel of approximately 44 percent, our general and administrative expenses decreased in the second and third quarters, as compared to the first quarter, of 2014, and we expect this comparative decrease to continue for the remainder of 2014. We expect to expand our corporate infrastructure in 2015 to prepare for commercial sales of our products, which will increase our selling, marketing, general and administrative expenses accordingly.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, stockholders equity, and expenses and the presentation and disclosures related to those items. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis; changes in our estimates and assumptions are reasonably likely to occur from period to period. Additionally, actual results could differ significantly from the estimates we make. To the extent there are material changes in our estimates or material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
While we have other key accounting policies that are less subjective and their application would not have a material impact on our reported results, we believe the following accounting policies involve a greater degree of judgment and complexity than our other accounting policies and, therefore, are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Preclinical and Clinical Study Costs: We expense research and development costs as incurred. Our preclinical and clinical study costs are incurred on a contract basis and generally span several accounting periods. Our preclinical studies generally range from 30 days to six months, with certain studies lasting up to six years. The majority of expenses for our preclinical studies occur upon study initiation, with maintenance, interim evaluation, post-mortem, and pathological analysis expenses occurring during the remainder of the study. Our clinical studies call for patient follow-up during a five-year period.
A majority of expenses associated with our clinical studies occur upon patient enrollment and the primary measurement point (generally a 6-month to one-year follow-up that includes imaging); unless there is a medical complication, immaterial expenses will also occur upon other periodic follow-up procedures. We record costs incurred under these preclinical and clinical study contracts as the work occurs and make payments according to contractual terms. Until a contract is completed, we estimate the amount of work performed and accrue for estimated costs that have been incurred but not paid. As actual costs become known, we adjust our accruals. We expect our preclinical study activity to increase during the remainder of 2014 and into early 2015, and expect our clinical expense to increase when we begin enrolling patients in clinical studies with our Fantom scaffold. We expect to make estimates as to the work performed throughout the terms of these studies. As these costs increase, if our estimates are inaccurate, possible material changes to our accruals could be required, which could materially affect our results of operations within any fiscal period. To date, there have been no material changes in our preclinical and clinical study expense estimates, including our estimates for accrued clinical costs.
Stock-Based Compensation: We recognize stock-based compensation expense in connection with stock option grants to employees, directors, and consultants and restricted stock awards to employees. For grants and awards to employees and directors, we determine the amount of compensation expense by estimating the fair value of the option or stock on the date of grant or award, and then amortize that fair value on a straight-line basis over the period the recipient provides service, which generally is four or five years, and record the expense as either research and development expense or general and administrative expense based on the recipients work classification. We estimate the fair value by using the Black-Scholes option pricing model. For the model inputs, we use the fair value of the underlying common stock, a risk-free interest rate that corresponds to the expected life of the option, an expected option life of 5.5 to 6.25 years, and an estimate of volatility based on the market trading prices of comparative peer companies. Additionally, we reduce the amount of recorded compensation expense to allow for potential forfeitures of the options; the forfeiture rate is based on our actual historical forfeitures and has ranged from approximately 2.4 percent to 5.3 percent. For options granted to consultants, we estimate the fair value at the date of grant and at each subsequent accounting date and record compensation expense based on the fair value during the service period of the consultant, which is generally a four- or five-year vesting period. We estimate the fair value by using the Black-Scholes option pricing model with the same approach to inputs and assumptions as we use to estimate the fair value of options granted to employees, except we use the remaining term as the expected life of the option. As a result of our use of estimates, if factors change and we use different assumptions, the amount of our stock-based compensation expense could be materially different in the future. We expect to continue granting options at levels similar to our grants over the past two years. While we awarded restricted stock in 2012 and 2013, we have not awarded any in 2014 and do not plan to do so for the remainder of the year. Accordingly, we do not expect a significant change in the amount of our stock-based compensation.
Results of Operations
During 2013, our operating activities focused on testing, preparing, and enrolling patients with our ReZolve2 scaffold. During the first quarter of 2014, our activities primarily related to validation of the ReZolve2 scaffold and initial development of our Fantom scaffolds. During the second and third quarters of 2014, our activities primarily related to development and testing of Fantom and ReZolve2 clinical study patient follow-up. Additionally, in 2013 we developed our ReZolve2 commercialization plan and initiated production scale-up, including testing of advanced polymers, designs, and delivery systems. In late March 2014 we announced that our efforts for the remainder of 2014 would be focused on our Fantom program and, in connection with that announcement, we made an approximate 45 percent reduction in headcount on March 26, 2014.
Following are discussions of our 2014 operating results as compared to our 2013 operating results for our third quarter and nine-month periods.
Comparison of the Three Months Ended September 30, 2013 and September 30, 2014
Our operating results for the three-month periods indicated are as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Change |
| |||||||
|
|
2013 |
|
2014 |
|
$ |
|
% |
| |||
Research and development expense |
|
$ |
5,088 |
|
$ |
2,930 |
|
$ |
(2,158 |
) |
(42 |
)% |
General and administrative expense |
|
$ |
2,094 |
|
$ |
1,516 |
|
$ |
(578 |
) |
(28 |
)% |
Interest income |
|
$ |
7 |
|
$ |
1 |
|
$ |
(6 |
) |
(86 |
)% |
Other income (expense) |
|
$ |
(16 |
) |
$ |
48 |
|
$ |
64 |
|
>100 |
% |
Research and development expense decreased $2,158,000, or 42 percent, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013, primarily as a result of our change in product development from ReZolve2 to Fantom in late March 2014 and the completion of patient enrollment in the ReZolve2 clinical study in January 2014. Personnel costs decreased $633,000 in the third quarter of 2014 as compared to the third quarter of 2013 primarily as a result of the reduction in headcount on March 26, 2014. Direct materials, including purchased catheters and polymer lasing costs, decreased $510,000 and engineering consulting costs decreased $224,000 as a result of our change from ReZolve2 clinical and commercialization activities to Fantom development activities in late March 2014. Clinical costs decreased $392,000 since there were no new enrollments of clinical patients in the third quarter of 2014. Preclinical costs decreased $237,000 as we worked to complete ReZolve2 studies initiated prior to 2014 and did not initiate a similar number of new studies in 2014. We paid a one-time license fee of $100,000 for certain polymer technology during the third quarter of 2013; we had no corresponding expense during the third quarter of 2014. The remainder of the change in research and development expense between periods is due to other individually immaterial items.
General and administrative expense decreased $578,000, or 28 percent, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013, primarily as a result of our reduction in headcount on March 26, 2014. Personnel costs decreased $408,000 and costs related to our International Managing Director decreased $79,000 in the third quarter of 2014 as compared to the third quarter of 2013. Legal fees decreased $77,000, primarily due to the timing of patent work and corporate matters. Travel and entertainment expenses decreased $66,000 from a combination of the headcount reduction and reduced clinical travel following completion of patient enrollments in the ReZolve2 study. Trade show costs increased $86,000 for the third quarter of 2014 compared to the third quarter of 2013 due to timing of a significant US trade show we attend annually. The remainder of the change in general and administrative expenses between periods resulted from other individually immaterial items.
Interest income decreased $6,000 for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 primarily as a result of lower cash and investable balances on which interest is earned.
Our other income and expense primarily arises from foreign currency exchange rate fluctuations following purchases of goods or services from foreign suppliers; the third quarter change between years reflects the strengthening U.S. dollar in 2014.
Comparison of the Nine Months Ended September 30, 2013 and September 30, 2014
Our operating results for the nine-month periods indicated are as follows (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Change |
| |||||||
|
|
2013 |
|
2014 |
|
$ |
|
% |
| |||
Research and development expense |
|
$ |
13,867 |
|
$ |
10,782 |
|
$ |
(3,085 |
) |
(22 |
)% |
General and administrative expense |
|
$ |
6,324 |
|
$ |
5,768 |
|
$ |
(556 |
) |
(9 |
)% |
Interest income |
|
$ |
26 |
|
$ |
6 |
|
$ |
(20 |
) |
(77 |
)% |
Other income (expense) |
|
$ |
(4 |
) |
$ |
38 |
|
$ |
42 |
|
>100 |
% |
Comparison of the Nine Months Ended September 30, 2013 and September 30, 2014 (continued)
Research and development expense decreased $3,085,000, or 22 percent, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, primarily as a result of our change in product development from ReZolve2 to Fantom in late March 2014, the related reduction in headcount on March 26, 2014, and the completion of patient enrollment in the ReZolve2 clinical study in January 2014. Personnel costs decreased $991,000 through the third quarter of 2014 as compared the 2013; these reductions were offset by $237,000 in severance benefits and related payroll taxes recorded during the first quarter of 2014 as a result of the headcount reduction, for a net decrease of $754,000. Direct materials, including purchased catheters and polymer lasing costs, decreased $928,000 and engineering consulting costs decreased $543,000 in 2014 as compared to 2013, primarily as a result of the change in our scaffold programs. During 2013 and the first quarter of 2014 our costs arose from ReZolve2 clinical and commercialization preparation activities and in the second and third quarters of 2014 they arose primarily from Fantom development activities, including polymer formulation, process development, and bench testing. Clinical costs decreased $569,000; we enrolled patients in the ReZolve2 clinical study from March 2013 to January 2014 and have not initiated any new clinical studies since then. Preclinical costs decreased $307,000 between years as a result of the timing of preclinical studies; ReZolve2 costs decreased as we moved to the clinical stage and Fantom preclinical studies have been minimal to-date. We paid a one-time license fee of $100,000 for certain polymer technology in 2013 for which we had no corresponding expense in 2014. Depreciation expense increased $147,000 primarily due to the addition of lab space, production equipment, and a back-up generator in 2013. The remainder of the change between periods is due to other individually immaterial items.
General and administrative expense decreased $556,000, or nine percent, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. Personnel costs decreased $490,000 in 2014 as compared to 2013; these reductions were offset by $178,000 in severance benefits and related payroll taxes recorded during the first quarter of 2014 as a result of the headcount reduction, for a net decrease of $312,000. Travel and entertainment expenses decreased $225,000 from a combination of the headcount reduction and reduced clinical travel following completion of patient enrollments in the ReZolve2 study. Other decreases included $74,000 in non-recurring ASX fees and investor relations advice and $59,000 in legal fees, primarily due to the timing of patent work and corporate matters. Increases between years included $139,000 in trade show costs, due to timing of a significant U.S. trade show we attend annually combined with increased costs, and $48,000 in insurance costs. The remainder of the change in general and administrative expenses between periods resulted from other individually immaterial items.
Interest income decreased $20,000 for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily as a result of lower cash and investable balances on which interest is earned.
Our other income and expense primarily arises from foreign currency exchange rate fluctuations following purchases of goods or services from foreign suppliers; the change between years reflects the strengthening U.S. dollar in 2014.
Liquidity and Capital Resources
Sources of Liquidity
We are considered a development stage enterprise since we have not yet generated revenues from the sale of products. Our development efforts have been funded with a variety of capital received from angel investors, venture capitalists, strategic partners, hedge funds, and our IPO that was completed in December 2010. Since our inception, we have received approximately $154.1 million in equity proceeds and $28.5 million from issuance of notes payable (such notes payable were converted to common stock upon our IPO in December 2010). As of September 30, 2014, we had approximately $6.3 million in cash and investments, which we believe will be sufficient to fund our operating and capital needs into the first quarter of 2015 but not beyond. We have incurred substantial losses since our inception; as of September 30, 2014, we had accumulated a deficit of approximately $218.0 million.
Sources of Liquidity (continued)
The above circumstances raise substantial doubt about our ability to continue as a going concern. We are placing significant effort into completing a financing during the fourth quarter of 2014 that would provide adequate capital resources to allow us to obtain data from our clinical trials and apply for the CE Marking. We have committed to an issuance of convertible notes and options pursuant to the Deed, which, if finalized on the terms agreed, would provide $25.0 million cash, before deducting fees and expenses, to the Company by December 31, 2014. While we have a committed transaction, there can be no assurance that it will be completed successfully and, if it is not completed, that we would be successful in raising additional capital on terms that are acceptable to us, if at all. If we are unable to raise sufficient additional capital, we may be compelled to further reduce the scope of our operations and planned capital expenditures or sell certain assets, including our intellectual property assets.
We expect our losses to continue for the next several years as we continue our development work, clinical studies, and preparations for commercialization and, if these efforts are successful and we are able to obtain approval to sell our products, we expect to commence product sales thereafter. In order to successfully transition to profitable operations, we will need to achieve a level of revenues and product margins to support the Companys cost structure. Until such time as we generate positive cash flow, we plan to continue to fund our losses from operations and capital needs by utilizing our current cash and investments and by raising additional capital through equity or debt financings.
Cash Flows
Our cash flows for the periods indicated are as follows (dollars in thousands):
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2013 |
|
2014 |
| ||
Net cash used for operating activities |
|
$ |
(15,762 |
) |
$ |
(14,120 |
) |
Net cash provided by investing activities |
|
2,833 |
|
1,109 |
| ||
Net cash provided by financing activities |
|
19 |
|
79 |
| ||
Net decrease in cash and cash equivalents |
|
$ |
(12,910 |
) |
$ |
(12,932 |
) |
Net Cash Flow from Operating Activities
Net cash used for operating activities during the first nine months of 2013 primarily comprises the net loss of $20,169,000. A total of $727,000 was provided by the net changes in operating assets and liabilities. Non-cash expenses included $635,000 of depreciation and amortization and $3,031,000 of stock-based compensation.
Net cash used for operating activities during the first nine months of 2014 primarily comprises the net loss of $16,506,000. A total of $1,348,000 was used for the net changes in operating assets and liabilities. Non-cash expenses included $780,000 of depreciation and amortization and $2,940,000 of stock-based compensation.
Net Cash Flow from Investing Activities
Net cash used in investing activities during the first nine months of 2013 consisted of $1,243,000 in purchases of investment securities and $1,147,000 in purchases of lab and other equipment and leasehold improvements. These purchases were offset by $5,223,000 in receipts upon the maturity of short-term investments.
Net cash provided by investing activities during the first nine months of 2014 consisted of $1,492,000 in receipts upon the maturity of short-term investments, offset by $383,000 in purchases of lab and other equipment and leasehold improvements.
Net Cash Flow from Financing Activities
Cash provided by financing activities during the first nine months of 2013 and 2014 resulted solely from issuances of common stock upon the exercise of employee stock options. In 2014, the receipts were offset by $143,000 in costs associated with our pending financing transaction to issue convertible notes and options.
Operating Capital and Capital Expenditure Requirements
To date, we have not commercialized any products. We do not anticipate generating any revenue unless and until we successfully receive CE Marking or other regulatory approval for and begin selling, or licensing, one of our products. We anticipate that we will continue to incur substantial net losses until at least through 2015 as we continue our development work, conduct and complete preclinical and clinical trials, expand our corporate infrastructure, and prepare for the potential commercial launch of our products.
We believe our existing cash and investments at September 30, 2014 will be sufficient to meet our anticipated cash requirements into the first quarter of 2015, but not beyond. Accordingly, we have placed significant efforts into completing a financing during 2014 that would provide adequate capital to allow us to obtain data from our clinical trials and apply for a CE Mark on our Fantom scaffold. As of September 30, 2014, we have committed to an issuance of convertible notes and options pursuant to the Deed, which, if finalized on the terms agreed, would provide $25.0 million cash, before deducting fees and expenses, to the Company by December 31, 2014. While we have a committed transaction, there can be no assurance that it will be completed successfully and, if it is not completed, that we would be successful in raising additional capital on terms that are acceptable to us, if at all. If we are unable to raise sufficient additional capital, we may be compelled to further reduce the scope of our operations and planned capital expenditures or sell certain assets, including our intellectual property assets.
The sale of additional debt or equity securities may result in additional dilution to our stockholders. If we are successful in completing the contemplated issuance of convertible notes and options, the notes will have certain rights senior to those of our common stock and the notes will contain covenants that restrict certain operating and corporate activities, including our ability to issue further debt. We may require additional capital beyond our currently forecasted amounts. For example, we will need to raise additional funds in order to build a sales force and commercialize our products or to perform clinical trials under FDA guidelines in preparation for commercialization in the U.S. Any such additional capital, if and when needed, may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay, or eliminate some or all of our planned clinical trials, research, development, and commercialization activities, which could materially harm our business.
Our forecasts for the period of time through which our financial resources will be adequate to support our operations and the costs to complete development of products are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong. Additionally, we could utilize our available and planned capital resources sooner than we currently expect.
Because of the numerous risks and uncertainties associated with the development of medical devices, such as our Fantom scaffolds, we are unable to estimate the exact amounts of, or timing of, capital outlays and operating expenditures necessary to complete development, continue ongoing preclinical studies, conduct human clinical trials, and successfully deliver a commercial product to market. Our current financing efforts are based on current requirements; any future funding requirements will depend on many factors, including, but not limited to:
· the time and effort it will take to successfully complete development and testing of our Fantom scaffold;
· the scope, enrollment rate, and costs of the Fantom human clinical trials;
· the time and effort it will take to identify, develop, and scale-up manufacturing processes;
· the time and effort needed to develop and implement infrastructure to support commercial operations;
· the cost to file and prosecute, as well as defend and enforce, our patents and intellectual property rights;
· the scope of research and development for any of our other product opportunities;
· the terms and timing of any collaborative, licensing, or other arrangements that we may establish;
· the requirements, cost, and timing of regulatory approvals;
· the cost and timing of establishing sales, marketing, and distribution capabilities;
· the cost to establish clinical and commercial supplies of our products;
· the availability of reimbursement or private pay (or other) options for commercial sales;
· the amount of time needed to collect accounts receivables following sales; and,
· the effect of competing technological and market developments.
Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products, and technologies, although we currently have no plans or commitments relating to any of these types of transactions.
Contractual Obligations, Commitments, and Contingencies
The following table summarizes our outstanding contractual obligations as of September 30, 2014 (dollars in thousands):
|
|
Payments Due by Period |
| ||||||||||
|
|
< 1 Year |
|
1-3 Years |
|
3-5 Years |
|
Total |
| ||||
Operating lease obligations |
|
$ |
639 |
|
$ |
1,390 |
|
$ |
242 |
|
$ |
2,271 |
|
Purchase obligations |
|
107 |
|
18 |
|
|
|
125 |
| ||||
Total contractual obligations |
|
$ |
746 |
|
$ |
1,408 |
|
$ |
242 |
|
$ |
2,396 |
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2014, the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2014 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We may from time to time become subject to various claims and legal actions during the ordinary course of our business. We are not party to any legal proceedings at the date of filing of this Quarterly Report on Form 10-Q.
Our business is subject to various risks, including those described in Item 1A Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which we strongly encourage you to review. In addition to those risk factors, we identified the following risk factor related to the contemplated issuance of convertible notes and options; we expect to complete such issuance of securities during the fourth quarter of 2014.
The issue of convertible notes and options, or other transactions that occur with respect to the Companys issued securities, could cause an impairment of the Companys tax loss carryforwards, which could be a significant asset to the Company when, and if, the Company generates taxable income in the future
The contemplated issuance of convertible notes and options pursuant to the Convertible Note Deed dated September 25, 2014, or the purchase or sale of shares (traded on the ASX in the form of CDIs) by any of the Companys current significant securityholders, may increase the chance that we would have, or cause, a cumulative ownership change exceeding 50 percent, as defined under U.S. tax regulations. If such a cumulative ownership change occurs before our market capitalization rises significantly from its current level, our tax loss carryforwards, which were approximately $158.9 million for U.S. federal income tax purposes as of December 31, 2013, could be significantly impaired and we would lose the ability to utilize such impaired carryforwards to offset future taxable income.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
In December 2010, we closed our initial public offering, in which we sold 77,272,730 CDIs, representing 7,727,273 shares of our common stock, at a price to the public of A$1.10 per CDI or A$11.00 per share. The aggregate offering price for CDIs sold in the offering was A$85.0 million (which equated to approximately US$84.3 million). The offer and sale of all of the CDIs in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-168852). We raised approximately $76.2 million in net proceeds after deducting placement agent fees and other offering expenses. Of the net proceeds received in the initial public offering, we had expected to use approximately:
· $40.0 million for research and development activities, including continuing development of our ReZolve scaffold;
· $10.0 million for clinical trials;
· $4.0 million for building commercial infrastructure, including manufacturing capacity expansion; and,
· the balance for working capital and other general corporate purposes.
We continue to operate our Company generally within these expected amounts, with actual expenditures for research and development activities through September 30, 2014 being proportionally higher and clinical trial expenses proportionally lower than that projected in 2010. We plan to commence clinical trials in the U.S. after we commercialize our product under a European CE Marking. Due to the regulatory requirements in the U.S. that require a study with a large number of patients, we anticipate needing additional funding in order to carry out the U.S. clinical trials.
Pending its use, we invest excess cash in accordance with our investment policy, which allows short- and long-term interest-bearing obligations, investment grade instruments, certificates of deposit, or guaranteed obligations of the U.S. government.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
|
REVA Medical, Inc. |
|
|
|
|
Date: November 6, 2014 |
/s/ Robert B. Stockman |
|
Robert B. Stockman |
|
Chairman of the Board and Chief Executive Officer |
|
(Principal Executive Officer) |
|
|
|
|
Date: November 6, 2014 |
/s/ Katrina L. Thompson |
|
Katrina L. Thompson |
|
Chief Financial Officer and Secretary |
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
Filed |
|
|
|
|
|
|
|
|
|
|
|
with |
|
|
|
|
|
|
|
|
|
|
|
this |
|
|
|
|
|
|
|
Exhibit |
|
|
|
Form |
|
Incorporated by Reference |
| ||||
Number |
|
Description of Exhibits |
|
10-Q |
|
Form |
|
File No. |
|
Date Filed |
|
3.1 |
|
Amended and Restated Certificate of Incorporation |
|
|
|
S-1/A |
|
333-168852 |
|
10/22/2010 |
|
3.2 |
|
Amended and Restated Bylaws |
|
|
|
S-1/A |
|
333-168852 |
|
10/22/2010 |
|
3.3 |
|
Amendment No. 1 to the Amended and Restated Bylaws |
|
|
|
8-K |
|
000-54192 |
|
9/12/2014 |
|
4.1 |
|
Form of Stock Certificate |
|
|
|
S-1/A |
|
333-168852 |
|
11/12/2010 |
|
4.2 |
|
Form of Amended and Restated Investors Rights Agreement, by and among REVA Medical, Inc. and the holders of our preferred stock set forth therein |
|
|
|
S-1/A |
|
333-168852 |
|
11/12/2010 |
|
4.3 |
|
Convertible Note Deed dated September 25, 2014, by and between REVA Medical, Inc., Goldman Sachs International, and Senrigan Master Fund |
|
|
|
8-K |
|
000-54192 |
|
9/26/2014 |
|
10.1 |
|
Amendment #2 to Exclusive License Agreement Number 2 between Rutgers, The State University of New Jersey and REVA Medical, Inc. effective July 1, 2010 ** |
|
X |
|
|
|
|
|
|
|
31.1 |
|
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended |
|
X |
|
|
|
|
|
|
|
31.2 |
|
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended |
|
X |
|
|
|
|
|
|
|
32.1 * |
|
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350 |
|
X |
|
|
|
|
|
|
|
99.1 |
|
Section 13 of the ASX Settlement Rules |
|
|
|
S-1/A |
|
333-168852 |
|
10/22/2010 |
|
101.INS |
|
XBRL Instance Document |
|
X |
|
|
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
X |
|
|
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
X |
|
|
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
X |
|
|
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
X |
|
|
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
X |
|
|
|
|
|
|
|
* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of REVA Medical, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
** Confidential treatment has been requested with respect to certain portions of this exhibit.
Exhibit 10.1
AMENDMENT #2
to Exclusive License Agreement Number 2
Whereas Reva Medical, Inc.(REVA) and Rutgers, The State University Of New Jersey (Rutgers), referred to collectively herein as the Parties, entered into an EXCLUSIVE LICENSE AGREEMENT NUMBER 2 (License No. 2) effective July 1, 2010;
Whereas Section 6(3)(ii)(b) of License No. 2 required a $*** fee to be paid as of July 25, 2014 to extend the Non-Stent Product commercialization milestone; and,
Whereas the Parties wish to amend License No. 2 to reflect an agreed change to the payment dates of the extension fees for Non-Stent Product commercialization milestones;
Now, Therefore, the parties hereby mutually agree that the first paragraph of Section 6(3)(ii)(b) of License No. 2, which sets forth the terms for extensions to the commercialization milestones for Non-Stent Products, shall be replaced with the following:
Section 6.3(ii)
(b) Licensee or its Sublicensees shall file with the USFDA or with a comparable agency in another Major Market Country, product specific applications to initiate human trials that are intended to lead to market approval of a Licensed Product. Such filing shall occur no later than three (3) years from the date of execution of this Agreement. If such filing does not occur within three years, Licensee may elect to extend the filing period by an additional year by payment of a $*** extension fee.
Since Licensee has already elected such an extension, and since such filing did not occur by the fourth anniversary, Licensor agrees to provide further extension of the filing date with payment of a $*** extension fee. Licensor agrees to defer payment of the $*** extension fee to July 25, 2015, at which time payment will be due even if a filing occurs prior to July 25, 2015. If additional extensions are required, Licensee may obtain them by paying $*** annually thereafter if the necessary filing has not occurred prior to the date the extension fee is due.
and the remainder of the terms of License No.2 shall remain unaffected by this Amendment #2 to License No. 2.
*** Portions of this page have been omitted pursuant to a request for Confidential Treatment filed separately with the Commission.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.
RUTGERS, THE STATE UNIVERSITY |
|
REVA MEDICAL, INC. | ||
OF NEW JERSEY |
|
| ||
|
|
| ||
|
|
| ||
/s/ Richard Mammone |
|
/s/ Robert K. Schultz | ||
Signature |
|
Signature | ||
|
|
| ||
Richard Mammone |
|
Robert K. Schultz | ||
Name |
|
Name | ||
|
|
| ||
Assoc VP Innova. Partnersh. |
|
President & COO | ||
Title |
|
Title | ||
|
|
| ||
Date: |
8/26/14 |
|
Date: |
8/20/14 |
Exhibit 31.1
CERTIFICATION
I, Robert B. Stockman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of REVA Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
|
/s/ Robert B. Stockman |
|
Robert B. Stockman |
|
Chairman and Chief Executive Officer |
|
(principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, Katrina L. Thompson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of REVA Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
|
/s/ Katrina L. Thompson |
|
Katrina L. Thompson |
|
Chief Financial Officer |
|
(principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of REVA Medical, Inc. (the Company) for the quarterly period ended September 30, 2014, as filed with the Securities and Exchange Commission (the Report), Robert B. Stockman, Chairman and Chief Executive Officer of the Company, and Katrina L. Thompson, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
· The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
· The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2014
|
/s/ Robert B. Stockman |
|
Robert B. Stockman |
|
Chairman and Chief Executive Officer |
|
(principal executive officer) |
|
/s/ Katrina L. Thompson |
|
Katrina L. Thompson |
|
Chief Financial Officer |
|
(principal financial officer) |
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Commitments and Contingencies (Details) (USD $)
|
9 Months Ended |
---|---|
Sep. 30, 2014
|
|
Commitment and Contingencies | |
License provisions for escalating minimum royalties | $ 2,200,000 |
Annual licensing payment | 175,000 |
Other payments of royalty agreement occur during commercialization | 950,000 |
Payment due to change in control of ownership | 350,000 |
Minimum [Member]
|
|
Commitment and Contingencies | |
Royalty payment per unit (in dollar per unit) | 25 |
Maximum [Member]
|
|
Commitment and Contingencies | |
Royalty payment per unit (in dollar per unit) | 100 |
Milestone amounts paid to the licensors (as a percent) | 40.00% |
Annual payments to extend filing periods related to certain technology | $ 300,000 |
Stock-Based Compensation
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Sep. 30, 2014
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Stock-Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 4. Stock-Based Compensation
The Plan: Our 2010 Equity Incentive Plan, as amended, was a follow-on to our 2001 Stock Option/Stock Issuance Plan and the two plans are collectively referred to as the “Plan.” The Plan provides for restricted stock awards as well as for grants of incentive and non-qualified stock options for purchase of our common stock at a price per share equal to the closing market price on the date of grant. The number of shares reserved for issuance under the Plan may be increased annually by up to three percent of the outstanding stock of the Company and on January 1, 2014, an additional 998,101 shares were reserved for issuance under the Plan. An aggregate of 7,305,760 shares are reserved for issuance under the Plan as of September 30, 2014. The term of options granted under the Plan may not exceed ten years. Options granted prior to 2010 generally vested over five years, with 20 percent vesting on each annual anniversary of the vesting commencement date. Beginning in 2010, a majority of the options granted vest over four years, with 25 percent vesting on the one-year anniversary of the vesting commencement date and 75 percent in equal monthly installments thereafter. A total of 75,000 options granted in May 2014 provide for vesting over a one-year period, with 25 percent vesting on each three-month anniversary from date of grant. All vesting is subject to continued service to the Company. All of our stock options are exercisable at any time but, if exercised, are subject to a lapsing right of repurchase by us until fully vested, at the exercise price.
Option activity under the Plan is as follows:
During July 2012, January 2013, and May 2013 we awarded 33,000 shares, 40,000 shares, and 47,500 shares, respectively, of restricted stock; 25 percent of each award vests on each annual anniversary date of the award.
No tax benefits arising from stock-based compensation have been recognized in the consolidated statements of operations and comprehensive loss through September 30, 2014.
Stock Options and Restricted Stock to Employees: We account for option grants and restricted stock awards to employees based on their estimated fair values on the date of grant or award, with the resulting stock-based compensation recorded over the vesting period on a straight-line basis. We include non-employee directors as employees for this purpose. Stock-based compensation arising from employee options and awards under the Plan is as follows (dollars in thousands):
The fair values of options granted were estimated using the following weighted average assumptions:
The assumed risk-free interest rate was based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option. The assumed volatility was calculated from the historical market prices of a selected group of publicly traded companies considered to be our peers; we use peer group data due to the fact that we have limited historical trading data. The expected option life was calculated using the simplified method under the accounting standard for stock compensation and a ten-year option expiration; we use the simplified method because we do not yet have adequate history as a public company to establish a reasonable expected life. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future. The options granted to employees during the nine months ended September 30, 2014 had a weighted average grant date fair value of $1.98.
The fair value of our restricted stock awards is calculated using the closing market price on the date of award.
The aggregate intrinsic value of options exercised during the nine months ended September 30, 2013 and 2014 was $142,000 and $561,000, respectively.
Stock Options to Consultants: We account for stock options granted to consultants at their fair value. Under this method, the fair value is estimated at each reporting date during the vesting period using the Black-Scholes option-pricing model. The resulting stock-based compensation expense, or income if the fair value declines in a reporting period, is recorded over the consultant’s service period. Options to purchase 110,000 shares of common stock were granted to consultants during the nine months ended September 30, 2014. No options were granted to consultants during the nine months ended September 30, 2013. Stock-based compensation expense or (income) arising from consultant options granted under the Plan is as follows (dollars in thousands):
The weighted-average fair value of unvested consultant options at September 30, 2013 and 2014 was estimated to be $4.21 and $1.15 per share, respectively, based on the following weighted-average assumptions:
The assumed risk-free interest rate was based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option. The assumed volatility was calculated from the historical market prices of a selected group of publicly traded companies considered to be our peers; we use peer group data due to the fact that we have limited historical trading data. The expected option life is the remaining term of the option. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future.
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