mlnd_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q


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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                      to                     

Commission File No. 001‑35890


Millendo Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware

    

45‑1472564

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

301 North Main Street, Suite 100
Ann Arbor, Michigan

 

48104

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (734) 845‑9000

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No ☐

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

 

 

 

 

 

 

 

Large accelerated filer

    

    

Accelerated filer

    

 

 

 

 

 

 

 

Non-accelerated filer

 

☒ 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

MLND

The Nasdaq Capital Market, LLC

The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of May 10, 2019 was 13,385,797.

 

 

 

 


 

Table of Contents

 

INDEX TO FORM 10‑Q

 

 

 

 

 

 

 

    

 

    

Page

 

 

PART I — FINANCIAL INFORMATION

 

4

 

 

 

 

 

Item 1. 

 

Financial Statements (unaudited)

 

4

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

4

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018  

 

5

 

 

Consolidated Statements of Convertible Preferred Stock, Redeemable Noncontrolling Interest and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2019 and 2018  

 

6

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018  

 

7

 

 

Notes to Interim Unaudited Consolidated Financial Statements  

 

8

Item 2. 

 

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

 

17

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4. 

 

Controls and Procedures

 

24

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

25

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

25

Item 1A. 

 

Risk Factors

 

26

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

67

Item 3. 

 

Defaults Upon Senior Securities

 

68

Item 4. 

 

Mine Safety Disclosures

 

68

Item 5. 

 

Other Information

 

68

Item 6. 

 

Exhibits

 

68

 

 

 

 

 

Signatures 

 

 

 

70

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context suggests otherwise, references in this Quarterly Report on Form 10‑Q, or Quarterly Report, to “Millendo,” “the Company,” “we,” “us,” and “our” refer to Millendo Therapeutics, Inc. and, where appropriate, its subsidiaries.

This Quarterly Report on Form 10‑Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our plans, estimates and beliefs and include, but are not limited to, statements about our plans to develop and commercialize our product candidates; the progress and timing of our ongoing and planned clinical trials for our product candidates, including our plans to amend the protocol for our Phase 2b classic congenital adrenal hyperplasia study and the timing of topline results from the Phase 2b portion of our Phase 2b/3 clinical trial of livoletide in Prader Willi syndrome (“PWS”) patients; the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; and our estimates regarding future revenue, if any, future expenses, the funding of our operations, including whether our existing cash, cash equivalents and marketable securities will be sufficient to fund our current operating plans into the second half of 2020 and through the topline results of the Phase 2b portion of our Phase 2b/3 clinical trial of livoletide in PWS patients, as well as our future capital requirements and needs for additional financing. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10‑Q under Part II, Item 1A, “Risk Factors.”

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

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PART I – Financial Information

Item 1 – Financial Statements

MILLENDO THERAPEUTICS, INC.

Consolidated Balance Sheets

(Unaudited)

(in thousands except share and per share amounts)

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

65,587

 

$

73,286

Short-term restricted cash

 

 

45

 

 

45

Marketable securities

 

 

1,400

 

 

4,385

Prepaid expenses and other current assets

 

 

4,174

 

 

3,373

Refundable tax credit

 

 

1,530

 

 

2,333

Total current assets

 

 

72,736

 

 

83,422

Long-term restricted cash

 

 

439

 

 

439

Operating lease right of use assets

 

 

797

 

 

 —

Other assets

 

 

333

 

 

213

Total assets

 

$

74,305

 

$

84,074

Liabilities and stockholders’ equity

 

 

 

 

 

  

Current liabilities:

 

 

 

 

 

  

Current portion of debt

 

$

191

 

$

189

Accounts payable

 

 

2,344

 

 

1,998

Accrued expenses

 

 

5,746

 

 

7,630

Operating lease liabilities — current

 

 

1,004

 

 

 —

Total current liabilities

 

 

9,285

 

 

9,817

Debt, net of current portion

 

 

325

 

 

383

Operating lease liabilities

 

 

817

 

 

 —

Other liabilities

 

 

192

 

 

752

Total liabilities

 

 

10,619

 

 

10,952

Commitments and contingencies (Note 6)

 

 

  

 

 

  

Stockholders’ equity:

 

 

  

 

 

  

Preferred stock, $0.001 par value: 5,000,000 shares authorized; no shares issued and outstanding

 

 

 —

 

 

 —

Common stock, $0.001 par value: 100,000,000 shares authorized; 13,357,999 shares issued and outstanding

 

 

13

 

 

13

Additional paid-in capital

 

 

235,815

 

 

234,876

Accumulated deficit

 

 

(174,452)

 

 

(164,086)

Accumulated other comprehensive income

 

 

139

 

 

148

Total stockholders’ equity attributable to Millendo Therapeutics, Inc.

 

 

61,515

 

 

70,951

Equity attributable to noncontrolling interests

 

 

2,171

 

 

2,171

Total stockholders’ equity

 

 

63,686

 

 

73,122

Total liabilities and stockholders’ equity

 

$

74,305

 

$

84,074

 

See accompanying notes to unaudited interim consolidated financial statements

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MILLENDO THERAPEUTICS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands except share and per share amounts)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Operating expenses:

 

 

  

 

 

  

Research and development

 

$

6,204

 

$

2,769

General and administrative

 

 

4,453

 

 

1,619

Loss from operations

 

 

10,657

 

 

4,388

Other expenses:

 

 

  

 

 

  

Interest expense (income), net

 

$

(315)

 

$

(9)

Other loss

 

 

24

 

 

 7

Net loss

 

$

(10,366)

 

$

(4,386)

Net loss attributable to noncontrolling interest

 

 

 —

 

 

125

Net loss attributable to common stockholders

 

$

(10,366)

 

$

(4,261)

Net loss per share of common stock, basic and diluted

 

$

(0.78)

 

$

(6.00)

Weighted‑average shares of common stock outstanding, basic and diluted

 

 

13,357,999

 

 

710,390

Other comprehensive income:

 

 

  

 

 

  

Foreign currency translation adjustment

 

$

(9)

 

$

19

Comprehensive loss

 

$

(10,375)

 

$

(4,242)

Comprehensive income attributable to noncontrolling interest

 

$

 —

 

$

 3

Comprehensive loss attributable to Millendo Therapeutics, Inc.

 

$

(10,375)

 

$

(4,245)

 

See accompanying notes to unaudited interim consolidated financial statements

 

 

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MILLENDO THERAPEUTICS, INC.

Consolidated statements of convertible preferred stock, redeemable noncontrolling interests and stockholders’

(deficit) equity

(Unaudited)

(in thousands except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

attributable

 

Total Equity

 

Total

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

to Millendo

 

Attributable to

 

Stockholders’

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Therapeutics,

 

Noncontrolling

 

(Deficit)

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Inc.

    

Interests

    

Equity

Balance at January 1, 2019

 

13,357,999

 

$

13

 

$

234,876

 

$

(164,086)

 

$

148

 

$

70,951

 

$

2,171

 

$

73,122

Stock-based compensation expense

 

 —

 

 

 —

 

 

939

 

 

 —

 

 

 —

 

 

939

 

 

 —

 

 

939

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9)

 

 

(9)

 

 

 —

 

 

(9)

Net income (loss)

 

 —

 

 

 —

 

 

 —

 

 

(10,366)

 

 

 —

 

 

(10,366)

 

 

 —

 

 

(10,366)

Balance at March 31, 2019

 

13,357,999

 

$

13

 

$

235,815

 

$

(174,452)

 

$

139

 

$

61,515

 

$

2,171

 

$

63,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit)

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

attributable

 

Total Equity

 

Total

 

 

Convertible

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

to Millendo

 

Attributable to

 

Stockholders’

 

 

Preferred Stock

 

Noncontrolling

 

 

Common Stock

 

Common-1 Stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Therapeutics,

 

Noncontrolling

 

(Deficit)

 

    

Shares

    

Amount

    

Interests

  

  

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Inc.

    

Interests

    

Equity

Balance at January 1, 2018

 

 90,848,515

 

$

132,922

 

$

10,584

  

  

246,347

 

$

 —

 

464,043

 

$

 —

 

$

6,192

 

$

(136,894)

 

$

 8

 

$

(130,694)

 

$

2,171

 

$

(128,523)

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

  

  

 —

 

 

 —

 

 —

 

 

 —

 

 

177

 

 

 —

 

 

 —

 

 

177

 

 

 —

 

 

177

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 3

  

  

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16

 

 

16

 

 

 —

 

 

16

Net income (loss)

 

 —

 

 

 —

 

 

(125)

  

  

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,261)

 

 

 —

 

 

(4,261)

 

 

 —

 

 

(4,261)

Balance at March 31, 2018

 

90,848,515

 

$

132,922

 

$

10,462

  

  

246,347

 

$

 —

 

464,043

 

$

 —

 

$

6,369

 

$

(141,155)

 

$

24

 

$

(134,762)

 

$

2,171

 

$

(132,591)

 

See accompanying notes to unaudited interim consolidated financial statements

 

 

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MILLENDO THERAPEUTICS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Operating activities:

 

 

  

 

 

  

Net loss

 

$

(10,366)

 

$

(4,386)

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

 

 

  

 

 

  

Depreciation

 

 

 8

 

 

 6

Stock‑based compensation expense

 

 

939

 

 

177

Amortization of operating lease right of use assets

 

 

(68)

 

 

 —

Unrealized foreign currency gain

 

 

 —

 

 

(3)

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other assets

 

 

(221)

 

 

(166)

Accounts payable

 

 

398

 

 

(202)

Accrued expenses and other liabilities

 

 

(1,291)

 

 

(423)

Cash used in operating activities

 

 

(10,601)

 

 

(4,997)

Investing activities:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(10)

 

 

(1)

Proceeds from sale of marketable securities

 

 

2,986

 

 

 —

Net cash paid in Alizé asset purchase

 

 

 —

 

 

(524)

Cash provided by (used in) investing activities

 

 

2,976

 

 

(525)

Financing activities:

 

 

  

 

 

  

Repayment of debt

 

 

(45)

 

 

(43)

Payment of financing costs

 

 

(15)

 

 

 —

Cash used in financing activities

 

 

(60)

 

 

(43)

Effect of foreign currency exchange rate changes on cash

 

 

(14)

 

 

30

Net decrease in cash, cash equivalents and restricted cash

 

 

(7,699)

 

 

(5,535)

Cash, cash equivalents and restricted cash at beginning of period

 

 

73,770

 

 

17,623

Cash, cash equivalents and restricted cash at end of period

 

$

66,071

 

$

12,088

Supplemental schedule of non‑cash financing activities:

 

 

  

 

 

  

Financing costs in accounts payable and accrued expenses

 

$

60

 

$

47

 

See accompanying notes to unaudited interim consolidated financial statements

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MILLENDO THERAPEUTICS, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. Organization and description of business

Description of Business

Millendo Therapeutics, Inc., a Delaware corporation, together with its subsidiaries, is a late‑stage biopharmaceutical company focused on developing novel treatments for orphan endocrine diseases where current therapies do not exist or are insufficient. The Company is currently advancing two product candidates for orphan endocrine diseases. The Company’s most advanced product candidate, livoletide (AZP‑531), is a potential treatment for Prader‑Willi syndrome (“PWS”), a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger. The Company is also developing nevanimibe (ATR‑101) as a potential treatment for patients with classic congenital adrenal hyperplasia (“CAH”), a rare, monogenic adrenal disease that requires lifelong treatment with exogenous cortisol, often at high doses. The Company is also investigating nevanimibe for the treatment of patients with endogenous Cushing’s syndrome (“CS”), a rare endocrine disease characterized by excessive cortisol production from the adrenal glands.

The Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring technology and assets, and conducting preclinical studies and clinical trials. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.

The Company is subject to a number of risks including, but not limited to, the need to obtain adequate additional funding for the ongoing and planned clinical development of its product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical products and development, the Company is unable to accurately predict the timing or amount of funds required to complete development of its product candidates, and costs could exceed the Company’s expectations for a number of reasons, including reasons beyond the Company’s control.

Merger with OvaScience

In December 2018, OvaScience, Inc., a Delaware corporation (“OvaScience”), now known as Millendo Therapeutics, Inc. (the “Company”), completed its merger (the “Merger”) with privately-held Millendo Therapeutics, Inc. (“Private Millendo”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated August 8, 2018, as amended on September 25, 2018 and November 1, 2018 (the “Merger Agreement”), whereby Orion Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of OvaScience (the “Merger Sub”), merged with and into Private Millendo, with Private Millendo continuing as a wholly owned subsidiary of OvaScience.

Under the terms of the Merger Agreement, OvaScience issued shares of its common stock to Private Millendo’s stockholders, at an exchange ratio of 0.0744 shares of OvaScience common stock, for each share of Private Millendo common stock outstanding immediately prior to the Merger. OvaScience also assumed all of the stock options outstanding under the Private Millendo 2012 Equity Incentive Plan, as amended (the “Private Millendo Plan”), with such stock options henceforth representing the right to purchase a number of shares of OvaScience’s common stock equal to 0.0744 multiplied by the number of shares of Private Millendo common stock previously represented by such options.

The Company’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on Friday, December 7, 2018 (the “Merger Date”) under the ticker symbol “OVAS,” commenced trading on The Nasdaq Capital Market, under the ticker symbol “MLND,” on Monday, December 10, 2018.

The Merger was accounted for as a reverse acquisition and recapitalization, with Private Millendo being treated as the accounting acquirer. As such, the results of operations and cash flows prior to the Merger Date, relate to Private Millendo and its subsidiaries. Subsequent to the Merger Date the information relates to the consolidated entities of Millendo Therapeutics, Inc. All share and per share amounts in the unaudited interim consolidated financial statements

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and related notes have been retroactively adjusted, where applicable, for all periods presented to give effect to the exchange ratio applied in connection with the Merger.

 

Liquidity

The Company has incurred net losses since inception and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates. As of March 31, 2019, the Company had cash, cash equivalents and marketable securities of $67.0 million and an accumulated deficit of $174.5 million.

In April 2019, the Company entered into an "at-the-market" ("ATM") equity distribution agreement with Citigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to $50.0 million which allows the Company to sell its common shares through the facilities of the Nasdaq Capital Market. Subject to the terms of the equity distribution agreement, the Company is able to determine, at its sole discretion, the timing and number of shares to be sold under this ATM facility.

The Company will likely require additional capital in the future through equity or debt financings, partnerships, collaborations, or other sources to carry out the Company’s planned development activities. If additional capital is not secured when required, the Company may need to delay or curtail its operations until such funding is received. Various internal and external factors will affect whether and when the Company’s product candidates become approved drugs. The regulatory approval and market acceptance of the Company’s proposed future products (if any), length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations. The Company believes its cash, cash equivalents and marketable securities at March 31, 2019 are sufficient to fund operations into the second half of 2020.

 

2. Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation principles

The accompanying unaudited interim consolidated financial statements include the accounts of Millendo Therapeutics, Inc. and its subsidiaries, and all intercompany amounts have been eliminated. The unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The unaudited interim consolidated financial statements include the accounts of the Company’s subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.

Unaudited interim financial statements

The Company has prepared the accompanying unaudited interim consolidated financial statements based on Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. These unaudited interim consolidated financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its consolidated financial position and results of operations for these periods. The Company’s historical results are not necessarily indicative of the results to be expected in the future and the Company’s operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosure required by GAAP. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10‑K filed with the SEC on April 1, 2019.

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Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies except as follows:

Leases

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), which requires the Company as the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right of use assets and lease obligations for those leases currently classified as operating leases. ASU 2016‑02 became effective for the Company on January 1, 2019.

The Company adopted ASU 2016‑02 using a modified retrospective transition approach as of January 1, 2019 and will not restate its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption. The Company has elected to adopt the package of transition practical expedients and, therefore, have not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized.  As a result of the adoption of ASC 842, the Company recognized an operating lease liability of $2.0 million based on the present value of the minimum rental payments of the leases and a corresponding operating lease right of use (“ROU”) asset of $0.9 million within the Company’s consolidated balance sheet.  The Company’s ROU asset is exclusive of any early lease termination obligations whereby future contractual lease payments exceed estimated sublease income.   

Under ASC 842, the Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset.

The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.  When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term.

 

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.  For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has noncancelable operating leases for office and laboratory space which have remaining lease terms between two and seven years. In connection with the Merger, the Company assumed a sublease agreement for office and laboratory space located in Waltham, Massachusetts. The term of the sublease expires in November 2020. In February 2019 and October 2018, the Company entered into two additional noncancelable operating leases for office space; one that the Company took possession of in April 2019, and the other that the Company will take possession of in July 2019.

 

As of March 31, 2019, the lease liabilities and the ROU asset are $1.8 million and $0.8 million, respectively. The discount rate used to account for the Company's operating leases under ASC 842 is the Company’s estimated incremental borrowing rate of 7.0%. The Company has options to extend certain of its leases for another five to nine years. These options to extend were not recognized as part of the Company’s measurement of the ROU assets and operating lease liabilities for the three months ended March 31, 2019 nor were the future payments related to the leases the Company entered into in February 2019 and October 2018. 

 

Rent expenses related to the Company's operating leases was approximately $67,000 and $48,000 for the three months ended March 31, 2019 and 2018, respectively. Cash paid for amounts included in the measurement of the lease liabilities was approximately $0.2 million and the Company received approximately $71,000 in sublease payments related to its Waltham, Massachusetts lease during the three months ended March 31, 2019.  The weighted average remaining term of

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the Company’s noncancelable operating leases is 2.45 years. Future minimum rental payments under the Company’s noncancelable operating leases at March 31, 2019 is as follows (amounts in thousands):

 

 

 

 

 

2019

    

$

773

2020

 

 

969

2021

 

 

45

2022

 

 

45

2023

 

 

45

Thereafter

 

 

90

Total

 

 

1,967

Present Value Adjustment

 

 

(146)

Lease liability at March 31, 2019

 

$

1,821

 

Future minimum rental payments under the Company’s noncancelable operating leases at December 31, 2018 is as follows (in thousands):

 

 

 

 

 

2019

    

$

1,208

2020

 

 

1,327

2021

 

 

414

2022

 

 

425

2023

 

 

436

Thereafter

 

 

293

 

 

$

4,103

 

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

Net loss per share

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted‑average number of shares of common stock (including shares of common‑1 stock during the three months ended March 31, 2018) outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, preferred stock warrants, restricted stock, and stock options, which would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted‑average number of shares of common stock remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti‑dilutive.

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The following potentially dilutive securities have been excluded from the computation of diluted weighted‑average shares of common stock outstanding, as they would be anti‑dilutive:

 

 

 

 

 

 

 

Three months ended March 31, 

 

 

2019

 

2018

Stock options

    

2,381,288

    

701,678

Convertible preferred stock

 

 —

 

6,759,109

Common stock warrants

 

17,125

 

 —

Preferred stock warrants

 

 —

 

17,125

BSA and BSPCE warrants

 

156,719

 

156,719

 

 

2,555,132

 

7,634,631

 

Recent accounting pronouncements

In August 2018, the FASB issued ASU No. 2018‑13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820). ASU 2018‑13 resulted in certain modifications to fair value measurement disclosures, primarily related to level 3 fair value measurements. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its disclosures.

In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This standard was effective January 1, 2019 and required adoption on a retrospective basis unless it was impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company adopted this standard which did not have a material impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments – Credit Losses (Topic 326), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Additionally, ASU 2016‑13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected through the use of an allowance of expected credit losses. ASU 2016‑13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and requires a modified retrospective approach. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

 

3. Fair value measurements

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

    

(Level 1)

 

(Level 2)

 

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Money market funds (included in cash and cash equivalents)

 

$

53,365

 

$

 —

 

$

 —

Marketable securities - U.S. government agency

 

$

 —

 

$

 —

 

$

 —

Marketable securities - Corporate debt securities

 

$

 —

 

$

1,400

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

    

(Level 1)

 

(Level 2)

 

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Money market funds (included in cash and cash equivalents)

 

$

25,145

 

$

 —

 

$

 —

Marketable securities - U.S. government agency

 

$

 —

 

$

2,994

 

$

 —

Marketable securities - Corporate debt securities

 

$

 —

 

$

1,391

 

$

 —

 

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Prior to the Merger in December 2018, the Company’s preferred stock warrants were liability classified and remeasured at each reporting period using level 3 inputs.  There were no changes in the fair value of the preferred stock warrant liability during the three months ended March 31, 2018.

 

 

4. Accrued expenses

Accrued expenses consist of (amounts in thousands):

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

Compensation and related benefits

$

2,064

 

$

3,537

Professional fees

 

1,598

 

 

1,140

Preclinical and clinical costs

 

1,524

 

 

1,811

Lease termination

 

 —

 

 

630

Other

 

560

 

 

512

Total

$

5,746

 

$

7,630

 

In connection with the adoption of ASC 842 on January 1, 2019, the lease termination balance as of December 31, 2018 was reclassified into the Company’s operating lease liability.

 

 

5. Debt

Bpifrance Reimbursable Advance

In December 2017, in connection with its acquisition of Alizé Pharma SAS (“Alizé”), the Company assumed €0.7 million of debt that Alizé had outstanding with Bpifrance Financing (“Bpifrance”). The original advance amount of €0.8 million (“the Bpifrance Advance”) was provided to Alizé as an innovation aid that required Alizé to carry out certain activities related to its livoletide clinical development program and incur a certain level of program expenditures. No interest is charged or accrued under the advance.

The Company is required to make quarterly principal payments, which began in December 2016 and continue through September 2021. The quarterly principal payments escalate over the repayment period beginning with €17,500 per quarter and increasing to €50,000 through maturity. In addition to the quarterly payments, beginning January 1, 2016, Bpifrance may require the Company to pay, by no later than March 31st of each year, a reimbursement annuity equal to 20% of the proceeds generated by the Company from license, assignment or use of livoletide. Under no circumstance, however, would the Company be required to reimburse to Bpifrance principal amounts greater than the original advance it received.

The Company is permitted to repay the Bpifrance Advance at any time, at which point it would be released from all commitments and obligations under the Bpifrance Advance agreement. The Bpifrance Advance Agreement does not contain any ongoing financial covenants.

During the three months ended March 31, 2019 and 2018, the Company made principal payments of $45,000 and $43,000, respectively.  At March 31, 2019, the balance outstanding was $0.5 million (€0.5 million).

6. Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

On November 9, 2016, a purported shareholder derivative action was filed in the Business Litigation Session of the Suffolk County Superior Court in the Commonwealth of Massachusetts (Cima v. Dipp, No. 16‑3443‑BLS1 (Mass. Sup. Ct.)) against certain former officers and directors of OvaScience and one current director of the Company (a former director of OvaScience) and OvaScience as a nominal defendant alleging breaches of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and corporate waste for purported actions related to OvaScience’s January 2015

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follow-on public offering. On February 22, 2017, the court approved the parties’ joint stipulation to stay all proceedings in the action until further notice. Following a status conference in December 2017, the stay was lifted. On January 25, 2018, at the parties’ request, the court entered a second order staying all proceedings in the action until further order of the court. The Company believes that the complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit.

On March 24, 2017, a purported shareholder class action lawsuit was filed in the U.S. District Court for the District of Massachusetts (Dahhan v. OvaScience, Inc., No. 1:17‑cv‑10511‑IT (D. Mass.)) against certain former officers and directors of OvaScience and one current director of the Company (a former director of OvaScience) alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the "Dahhan Action"). On July 5, 2017, the court entered an order approving the appointment of Freedman Family Investments LLC as lead plaintiff, the firm of Robins Geller Rudman & Dowd LLP as lead counsel and the Law Office of Alan L. Kovacs as local counsel. Plaintiff filed an amended complaint on August 25, 2017. The Company filed a motion to dismiss the amended complaint, which the court denied on July 31, 2018. On August 14, 2018, the Company answered the amended complaint. The parties presently are engaged in discovery. The Company believes that the amended complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. A resolution of this lawsuit adverse to the Company or the other defendants could have a material effect on the Company’s consolidated financial position and results of operations. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit.

On July 27, 2017, a purported shareholder derivative complaint was filed in the U.S. District Court for the District of Massachusetts (Chiu v. Dipp, No. 1:17‑cv‑11382‑IT (D. Mass.)) against certain former officers and directors of OvaScience and one current director of the Company (a former director of OvaScience) as a nominal defendant alleging breach of fiduciary duty, unjust enrichment and violations of Section 14(a) of the Exchange Act alleging that compensation awarded to the director defendants was excessive and seeking redress for purported actions related to OvaScience’s January 2015 follow-on public offering and other public statements. On September 26, 2017, the plaintiff filed an amended complaint which eliminated all claims regarding allegedly excessive director pay and additionally alleged claims of abuse of control and corporate waste. On October 27, 2017, the defendants filed a motion to dismiss the amended complaint. The court heard oral argument on the motion to dismiss on April 5, 2018. On April 13, 2018, the court granted the defendants’ motion to dismiss the amended complaint for failure to state a claim for relief under Section 14(a). The court also dismissed the plaintiffs’ pendent state law claims without prejudice, based on lack of subject matter jurisdiction. On April 25, 2018, the plaintiffs moved for leave to amend the complaint, and to stay this case pending the outcome of the Dahhan Action. The Company does not believe that the proposed amended complaint cures the defects in the current complaint, but informed plaintiffs’ counsel that, in the interest of judicial economy, defendants would not oppose the proposed amendment if the court would consider staying the case pending the resolution of the Dahhan Action. On April 27, 2018, the court granted the plaintiffs’ motion for leave to amend the complaint and for a stay. On April 30, 2018, the plaintiffs filed their second amended complaint. On May 23, 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. The Company believes that the complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit.

Between October 16, 2018 and November 21, 2018, five putative class action lawsuits were filed in various federal District Courts against OvaScience, Inc. and the OvaScience Board of Directors related to OvaScience’s proposed merger with Millendo Therapeutics, Inc.:  Cunningham v. Kroeger, et al., No. 1:18‑cv‑01595 (D. Del. filed Oct. 16, 2018); Adlard v. OvaScience, Inc., et al., No. 1:18‑cv‑12332 (D. Mass. filed Nov. 6, 2018); Wheby v. OvaScience, Inc., et al., No. 1:18‑cv‑1811 (D. Del. filed Nov. 16, 2018); Cuenca Aubets v. OvaScience, Inc., et al., No. 1:18‑cv‑10882 (S.D.N.Y. filed Nov. 20, 2018); and Kim v. OvaScience, Inc., et al., No. 1:18‑cv‑10939 (S.D.N.Y. filed Nov. 21, 2018). The Complaints each alleged violations of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a‑9 promulgated thereunder, and as against the individual defendants, violations of Section 20(a) of the Securities Exchange Act of 1934. The Cunningham plaintiff alleged that OvaScience’s Form S‑4 Registration Statement filed on September 26, 2018 omitted or misrepresented material information regarding OvaScience’s proposed merger with Millendo Therapeutics, Inc. The Adlard, Wheby, Cuenca Aubets and Kim plaintiffs alleged that OvaScience’s Definitive Proxy Statement on Schedule 14A filed on November 6, 2018, omitted or misrepresented material information regarding OvaScience’s proposed merger with Millendo Therapeutics, Inc. OvaScience subsequently supplemented its disclosures. The Cunningham plaintiff voluntarily dismissed his complaint on December 10, 2018, and the Wheby plaintiff

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voluntarily dismissed his complaint on February 28, 2019. On March 18, 2019, the court dismissed the Cuenca Aubets and Kim actions for failure to serve. The Company is in negotiations with counsel for the plaintiffs regarding their demands for attorneys’ fees. There can be no assurance that the negotiations will be successful. If the negotiations are not successful, the Company may be required to litigate the fee applications and/or the underlying actions.

In addition to the matters described above, the Company may be a party to litigation and subject to claims incident to the ordinary course of business from time to time. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

7. Stock‑based compensation

In December 2018, the Company assumed Private Millendo’s 2012 Stock Plan, as amended (the “Millendo Plan”). There were 1,494,431 authorized shares of common stock to be issued under the Millendo Plan. In addition, the Company’s 2012 Stock Incentive Plan, as amended (the “2012 Plan”) will continue. The number of shares of the Company’s common stock that are reserved for issuance under the 2012 Plan is equal to the sum of (1) 96,883 shares of common stock issuable under the 2012 Plan plus the number of shares of the Company’s common stock subject to outstanding awards under the 2011 Stock Incentive Plan (the “2011 Plan”), that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (up to 45,308 shares) plus (2) an annual increase, to be added on the first day of each year beginning in 2013 and each subsequent anniversary until the expiration of the 2012 Plan, equal to the lowest of 65,000 shares of its common stock, 4.0% of the number of shares of the Company’s common stock outstanding on the first day of the year and an amount determined by the Company’s board of directors.

The Millendo Plan and the 2012 Plan provide for the issuance of stock options, stock appreciation rights, restricted stock units and other stock-based or cash awards to purchase shares of common stock to eligible employees, officers, directors and consultants. As of March 31, 2019 there were 259,091 shares of common stock available for future issuance under both plans in the aggregate. The amount, terms of grants, and exercisability provisions are determined and set by the Company’s board of directors.

The Company measures employee and nonemployee stock‑based awards at grant‑date fair value and records compensation expense on a straight‑line basis over the vesting period of the award. Stock‑based awards issued to nonemployees are revalued until the award vests.

The Company recorded stock‑based compensation expense in the following expense categories of its accompanying consolidated statements of operations and comprehensive loss for the three months ended March 31, 2019 and 2018 (amounts in thousands):

 

 

 

 

 

 

 

 

 

Three months

 

 

ended

 

 

March 31, 

 

    

2019

    

2018

Research and development

 

$

423

 

$

71

General and administrative

 

 

516

 

 

106

Total

 

$

939

 

$

177

 

Stock options

Options issued under both plans may have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the board of directors. Vesting generally occurs over a period of not greater than four years.

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The following table summarizes the activity related to stock option grants to employees and nonemployees for the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

    

Weighted-average

 

 

 

 

average

 

remaining

 

 

 

 

exercise price

 

contractual

 

 

Shares

 

per share

 

life (years)

Outstanding at December 31, 2018

 

1,764,287

 

$

26.81

 

8.0

Granted

 

705,133

 

 

9.21

 

  

Forfeited

 

(88,132)

 

 

59.41

 

  

Outstanding at March 31, 2019

 

2,381,288

 

$

20.39

 

7.8

Vested and exercisable at March 31, 2019

 

891,961

 

$

34.63

 

5.1

Vested and expected to vest at March 31, 2019

 

2,381,288

 

$

20.39

 

7.8

 

As of March 31, 2019, the unrecognized compensation cost related to 1,489,327 unvested stock options expected to vest was $10.4 million. This unrecognized compensation will be recognized over an estimated weighted‑average amortization period of 3.3 years.  There were no options exercised during the three months ended March 31, 2019. The aggregate intrinsic value of options outstanding and options exercisable as of March 31, 2019 was $11.1 million and $5.6 million, respectively. The options granted during the three months ended March 31, 2019 had an estimated weighted average grant date fair value of $6.45.  There were no options granted during the three months ended March 31, 2018. The grant date fair value of each option grant was estimated during the three months ended March 31, 2019 using the following assumptions within the Black‑Scholes option‑pricing model:

 

 

 

 

 

 

    

Three months ended

 

 

 

March 31,

 

 

 

2019

 

Expected term (in years)

 

 

6.05

 

Expected volatility

 

 

80

%

Risk-free interest rate

 

 

2.55

%

Expected dividend yield

 

 

 0

%

 

At the time of the Alizé acquisition in December 2017, Alizé had 6,219 non‑employee (BSA) warrants and 5,360 employee (BSPCE) warrants outstanding, which have weighted‑average exercise prices of €80.06 and €83.40, respectively. As of March 31, 2019, all BSAs and BSPCEs were vested. As of March 31, 2019, there were an aggregate of 156,719 shares of common stock issuable upon the exercise of the warrants with a weighted‑average exercise price of $6.76 per share. These instruments are included in the equity attributable to noncontrolling interests.

8. Subsequent events

In April 2019, the Company entered into a lease agreement for office space in Lexington, Massachusetts to expand its operations.  Monthly rental payments will commence in May 2019 and continue through the lease term, which is scheduled to end in September 2020.  The Company has the right to terminate the lease at any time and upon prior written notice.  The lease does not provide for an extension or renewal.  The Company will make future rental payments of $74,000 and $96,000 in fiscal 2019 and 2020, respectively.

In May 2019, the Company funded an escrow totaling approximately $1.0 million in connection with a sublease agreement for office space located in Waltham, Massachusetts assumed in connection with the Merger. The escrowed amount represents the difference in the annual base rent payable under the sublease agreement and the annual base rent payable under the overlease for the remaining term of the sublease agreement.  The escrowed amount will be released on a monthly basis over the remaining lease term as the annual base rent payments are made by the Company.

Subsequent events were evaluated through the filing date of this Quarterly Report.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our interim unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10‑Q and with our annual audited consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on April 1, 2019. In addition to historical financial information, the following discussion contains forward‑looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report and in our Annual Report on Form 10‑K, particularly in Item 1A. “Risk Factors” and “Special Note Regarding Forward‑Looking Statements.”

Overview

We are a late-stage biopharmaceutical company focused on developing novel treatments for orphan endocrine diseases where current therapies do not exist or are insufficient. We are currently advancing two product candidates for orphan endocrine diseases. Our most advanced product candidate, livoletide (AZP‑531), is a potential treatment for Prader-Willi syndrome (“PWS”), a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger, that contributes to serious complications, a significant burden on patients and caregivers and early mortality. In a randomized, double-blind, placebo-controlled Phase 2 clinical trial in 47 patients with PWS, we observed that administration of livoletide once daily was associated with a clinically meaningful improvement in hyperphagia, as well as a reduction in appetite. In a pre-specified analysis of 38 home-resident PWS patients from the Phase 2 trial, we observed a larger and statistically significant decrease in hyperphagia following administration of livoletide as compared to placebo. In March 2019, we announced that we initiated a pivotal Phase 2b/3 clinical trial of livoletide in PWS patients, with topline results from the Phase 2b portion of the study expected in the first half of 2020.

We are also developing nevanimibe (ATR-101) with a primary focus on treating patients with classic congenital adrenal hyperplasia (“CAH”), a rare, monogenic adrenal disease that requires lifelong treatment with exogenous cortisol, often at high doses. These chronic high doses of cortisol can result in side effects that include diabetes, obesity, hypertension and psychological problems. When on suboptimal doses of cortisol, female CAH patients can experience hirsutism, infertility and menstrual irregularity, and male CAH patients can experience testicular atrophy, infertility and testicular tumors, making it difficult for physicians to appropriately treat CAH without causing adverse consequences. We reported results from our Phase 2 clinical trial of nevanimibe in patients with CAH in March 2018 and initiated a Phase 2b trial in the third quarter of 2018.  We are also investigating nevanimibe for the treatment of patients with endogenous Cushing’s syndrome (“CS”), a rare endocrine disease characterized by excessive cortisol production from the adrenal glands.

Since inception, we have incurred significant operating losses and negative operating cash flows and there is no assurance that we will ever achieve or sustain profitability. Our net losses were $10.4 million and $4.4 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had an accumulated deficit of $174.5 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.

Recent Developments

Livoletide (AZP-531) for the treatment of Prader-Willi syndrome (PWS)

We have initiated pre-clinical activities in support of the development of a multi-dose pen device to improve patient and caregiver convenience and further simplify administration of livoletide (AZP‑531), which we are developing as a potential treatment for PWS, a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger, that contributes to serious complications, a significant burden on patients and caregivers and early mortality.

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Nevanimibe for the treatment of classic congenital adrenal hyperplasia (CAH)

The nevanimibe Phase 2b CAH study began in the third quarter of 2018 and is ongoing.  Preliminary data with a starting dose of 1000 mg BID (twice per day) has demonstrated lower tolerability than expected based on prior clinical experience with nevanimibe. Three of six subjects in the Phase 2b CAH study discontinued the study after beginning treatment as a result of non-serious adverse events, primarily of rash, dysuria, or diarrhea.  Patients treated at 500 mg BID in previously completed studies tolerated nevanimibe well. We believe that dose escalation from a starting dose of 500 mg BID to higher planned doses may allow patients to better tolerate the therapy. We plan to amend the Phase 2b CAH protocol.  Enrollment will be paused while a protocol amendment is submitted to appropriate regulatory authorities and ethics committees. Patients currently enrolled in the study will continue per protocol and may dose escalate to 1500 mg BID and 2000 mg BID. To date, two subjects have received both 1500 mg BID and 2000 mg BID and have completed or are near completing the 12-week study duration.

 

Previous experience with nevanimibe includes a Phase 2 CAH study where patients started at 125 mg BID and dose escalated to 1000 mg BID, and a healthy volunteer drug-drug interaction study with nevanimibe at 500 mg BID for 11 days. In addition, the Phase 1 ACC study dosed subjects over 2.5 times above the highest dose being explored in the Phase 2b CAH study.

 

We are currently evaluating the timeline implications of the proposed protocol amendment.

 

Merger

On December 7, 2018, OvaScience, Inc., or OvaScience, now known as Millendo Therapeutics, Inc., completed its reverse merger or, the Merger, with what was then known as “Millendo Therapeutics, Inc.,” or Private Millendo, in accordance with the terms of the Agreement and Plan of Merger and Reorganization dated as of August 8, 2018, as amended on September 25, 2018 and November 1, 2018, or the Merger Agreement. OvaScience’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on Friday, December 7, 2018 under the ticker symbol “OVAS,” commenced trading on The Nasdaq Capital Market, under the ticker symbol “MLND,” on Monday, December 10, 2018.

Immediately following the Merger, Private Millendo became a wholly-owned subsidiary of OvaScience. Upon consummation of the Merger, or the Closing, OvaScience adopted the business plan of Private Millendo and discontinued the pursuit of OvaScience’s business plan pre-Closing. The Merger was accounted for as a reverse recapitalization with Private Millendo as the accounting acquirer. On the Merger date, the primary pre-combination assets of OvaScience was cash, cash equivalents and marketable securities. At the time of the Merger, OvaScience had net assets of $38.0 million, which were comprised primarily of cash, cash equivalents and marketable securities.

Components of Results of Operations

Research and development expense

Research and development expense consists primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include:

·

personnel expenses, including salaries, benefits and stock-based compensation expense;

·

costs of funding research performed by third parties, including pursuant to agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

·

expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;

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·

payments made under our third-party licensing agreements, other than amounts classified as acquired in-process research and development expenses;

·

consultant fees and expenses associated with outsourced professional scientific development services;

·

expenses for regulatory activities, including filing fees paid to regulatory agencies; and

·

allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.

Milestone payment obligations incurred prior to regulatory approval of a product candidate, which are accrued when the event requiring payment of the milestone occurs are included in research and development expense.

We typically use our employee, consultant and infrastructure resources across our development programs. We track certain outsourced development costs by product candidate, but do not allocate all personnel costs or other internal costs to specific product candidates.

The following table summarizes our research and development expenses by product candidate, personnel expense and other expenses for the three months ended March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

 

 

 

 

 

 

    

2019

    

2018

 

Change

 

 

 

(dollars in thousands)

 

Nevanimibe expenses

 

$

818

 

$

1,268

 

$

(450)

 

(35.5)

%

Livoletide expenses

 

 

3,003

 

 

438

 

 

2,565

 

585.6

 

Personnel expenses

 

 

1,879

 

 

929

 

 

950

 

102.3

 

Other expenses

 

 

504

 

 

134

 

 

370

 

276.1

 

Total

 

$

6,204

 

$

2,769

 

$

3,435

 

124.1

%

 

We expect our research and development expense will increase for the foreseeable future as we seek to advance development of our product candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of livoletide or nevanimibe. We are also unable to predict when, if ever, material net cash inflows may commence from sales of livoletide, nevanimibe or any future product candidates that we may develop due to the numerous risks and uncertainties associated with clinical development, including risks and uncertainties related to:

·

the number of clinical sites included in the trials;

·

the length of time required to enroll suitable patients;

·

the number of patients that ultimately participate in the trials;

·

the number of doses patients receive;

·

the duration of patient follow-up and number of patient visits;

·

the results of our clinical trials;

·

the establishment of commercial manufacturing capabilities;

·

the receipt of marketing approvals; and

·

the commercialization of product candidates.

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We may never succeed in obtaining regulatory approval for livoletide, nevanimibe or any future product candidates we may develop. Product candidates in later stages of clinical development, like livoletide, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

General and administrative expense

General and administrative expense consists primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees in executive, finance, accounting, business development, legal and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting, recruiting and consulting services.

We anticipate that our general and administrative expense will increase as a result of increased headcount, expanded infrastructure and higher accounting, legal, consulting and investor relations fees, as well as increased director and officer insurance premiums, associated with being a public company. We also anticipate that our general and administrative expense will increase as we support additional clinical trials for livoletide and nevanimibe. In addition, if and when we believe that regulatory approval of livoletide or nevanimibe appears likely, we anticipate an increase in headcount and expense as a result of our preparation for commercial operations.

Interest expense (income), net

Interest income represents amounts earned on our cash, cash equivalents and marketable securities balances.

Results of operations

Comparison of the three months ended March 31, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

 

 

 

 

 

 

    

2019

    

2018

 

Change

 

 

 

(dollars in thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

6,204

 

$

2,769

 

$

3,435

 

124.1

%

General and administrative

 

 

4,453

 

 

1,619

 

 

2,834