SEC Filing | PhaseBio Pharmaceuticals, Inc.

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phas-10q_20190930.htm

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 September 30, 2019

☐	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 001-38697

PhaseBio Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

03-0375697

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1 Great Valley Parkway, Suite 30

Malvern, Pennsylvania 19355

(Address including zip code of principal executive offices)

(610) 981-6500

(Registrant’s telephone number, including area code)

Securities registered or to be 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

PHAS

The Nasdaq Stock Market LLC

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

Class of Common Stock		Outstanding Shares as of November 8, 2019
Common Stock, $0.001 par value		28,766,332

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Condensed Financial Statements (Unaudited)	2
	Condensed Balance Sheets	2
	Condensed Statements of Operations	3
	Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	4
	Condensed Statements of Cash Flows	5
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	30
Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Recent Sales of Unregistered Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	67
	Signatures	69

PART 1. FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	81,771		$	61,031
Restricted cash		—			20
Other receivable		583			233
Prepaid expenses and other assets		1,015			1,344
Total current assets		83,369			62,628
Property and equipment, net		1,022			355
Operating lease right-of-use assets		1,780			—
Other assets		32			43
Total assets	$	86,203		$	63,026
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt	$	1,990		$	—
Accounts payable		1,659			1,806
Accrued expenses and other current liabilities		2,313			2,771
Total current liabilities		5,962			4,577
Long-term debt		7,740			7,500
Operating lease liabilities		1,577			—
Other long-term liabilities		120			—
Deferred rent		—			22
Total liabilities		15,399			12,099
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2019 and December 31, 2018; zero shares issued and outstanding at September 30, 2019 and December 31, 2018		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 28,782,811 shares issued and 28,752,844 shares outstanding at September 30, 2019; 24,528,242 shares issued and 24,498,275 shares outstanding at December 31, 2018		29			25
Treasury stock, at cost, 29,967 shares as of September 30, 2019 and December 31, 2018		(24	)		(24	)
Additional paid-in capital		221,626			173,837
Accumulated deficit		(150,827	)		(122,911	)
Total stockholders’ equity		70,804			50,927
Total liabilities and stockholders' equity	$	86,203		$	63,026

See accompanying notes to unaudited condensed financial statements.

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue:
Grant revenue	$	241		$	411		$	1,097		$	411
Revenue under collaborative agreement		—			—			500			—
Total revenue		241			411			1,597			411
Operating expenses:
Research and development		9,028			4,354			22,530			9,779
General and administrative		2,803			1,056			7,523			2,616
Total operating expenses		11,831			5,410			30,053			12,395
Loss from operations		(11,590	)		(4,999	)		(28,456	)		(11,984	)
Other income (expense):
Interest income		451			60			1,259			132
Interest expense		(266	)		(890	)		(711	)		(3,741	)
Foreign exchange gain (loss)		14			—			(8	)		—
Change in fair value of warrant liability		—			(1,713	)		—			(2,709	)
Change in fair value of derivative liability		—			(359	)		—			(676	)
Total other income (expense)		199			(2,902	)		540			(6,994	)
Net loss	$	(11,391	)	$	(7,901	)	$	(27,916	)	$	(18,978	)
Net loss per common share, basic and diluted	$	(0.40	)	$	(10.45	)	$	(1.03	)	$	(25.33	)
Weighted average common shares outstanding, basic and diluted		28,719,932			755,908			27,065,774			749,198

See accompanying notes to unaudited condensed financial statements.

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

(unaudited)

					Stockholders' Equity (Deficit)
	Redeemable Convertible														Additional						Total Stockholders'
	Preferred Stock				Common Stock				Treasury Stock						Paid-in			Accumulated			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Deficit			(Deficit)
Balance at December 31, 2018		—	$	—		24,528,242	$	25		(29,967	)	$	(24	)	$	173,837		$	(122,911	)	$	50,927
Issuance of common stock warrants		—		—		—		—		—			—			210			—			210
Exercises of stock options		—		—		150		—		—			—			—			—			—
Stock-based compensation		—		—		—		—		—			—			238			—			238
Net loss		—		—		—		—		—			—			—			(7,293	)		(7,293	)
Balance at March 31, 2019		—		—		24,528,392		25		(29,967	)		(24	)		174,285			(130,204	)		44,082
Issuance of common stock warrants		—		—		—		—		—			—			86			—			86
Issuance of common stock in public offering, net		—		—		4,124,475		4		—			—			46,273			—			46,277
Exercises of stock options		—		—		74,740		—		—			—			126			—			126
Stock-based compensation		—		—		—		—		—			—			270			—			270
Net loss		—		—		—		—		—			—			—			(9,232	)		(9,232	)
Balance at June 30, 2019		—		—		28,727,607		29		(29,967	)		(24	)		221,040			(139,436	)		81,609
Exercises of stock options		—		—		55,204		—		—			—			95			—			95
Stock-based compensation		—		—		—		—		—			—			491			—			491
Net loss		—		—		—		—		—			—			—			(11,391	)		(11,391	)
Balance at September 30, 2019		—	$	—		28,782,811	$	29		(29,967	)	$	(24	)	$	221,626		$	(150,827	)	$	70,804

Balance at December 31, 2017		9,131,999	$	89,634		775,755	$	1		(29,967	)	$	(24	)	$	1,672		$	(99,065	)	$	(97,416	)
Stock-based compensation		—		—		—		—		—			—			104			—			104
Accretion of redeemable preferred stock to redemption value		—		16		—		—		—			—			(16	)		—			(16	)
Net loss		—		—		—		—		—			—			—			(4,403	)		(4,403	)
Balance at March 31, 2018		9,131,999		89,650		775,755		1		(29,967	)		(24	)		1,760			(103,468	)		(101,731	)
Stock-based compensation		—		—		—		—		—			—			62			—			62
Accretion of redeemable preferred stock to redemption value		—		17		—		—		—			—			(17	)		—			(17	)
Net loss		—		—		—		—		—			—			—			(6,674	)		(6,674	)
Balance at June 30, 2018		9,131,999		89,667		775,755		1		(29,967	)		(24	)		1,805			(110,142	)		(108,360	)
Issuance of redeemable preferred stock		1,842,959		14,890		—		—		—			—			—			—			—
Issuance of redeemable preferred stock upon conversion of promissory notes		2,080,209		19,778		—		—		—			—			—			—			—
Exercises of warrants		144,948		1,212		—		—		—			—			—			—			—
Exercises of stock options		—		—		19,885		—		—			—			53			—			53
Stock-based compensation		—		—		—		—		—			—			96			—			96
Accretion of redeemable preferred stock to redemption value		—		62		—		—		—			—			(62	)		—			(62	)
Net loss		—		—		—		—		—			—			—			(7,901	)		(7,901	)
Balance at September 30, 2018		13,200,115	$	125,609		795,640	$	1		(29,967	)	$	(24	)	$	1,892		$	(118,043	)	$	(116,174	)

See accompanying notes to unaudited condensed financial statements.

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2019			2018
Operating activities
Net loss	$	(27,916	)	$	(18,978	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		124			82
Stock-based compensation		999			262
Non-cash interest expense		354			3,580
Change in fair value warrant liability		—			2,709
Change in fair value derivative liability		—			676
Changes in operating assets and liabilities:
Other receivable		(350	)		(411	)
Prepaid expenses and other assets		340			130
Accounts payable		(114	)		558
Accrued expenses		(556	)		1,182
Deferred rent		14			(5	)
Net cash used in operating activities		(27,105	)		(10,215	)
Investing activities
Purchases of property and equipment		(824	)		(31	)
Net cash used in investing activities		(824	)		(31	)
Financing activities
Proceeds from issuance of redeemable convertible preferred stock, net		—			17,712
Proceeds from issuance of common stock in public offering, net		46,277			—
Long-term borrowings, net		3,089			3,995
Payments of initial public offering costs		—			(595	)
Proceeds from exercise of stock options		221			53
Proceeds from exercise of warrants		—			16
Repayments of long-term debt		(938	)		—
Net cash provided by financing activities		48,649			21,181
Net increase in cash and cash equivalents		20,720			10,935
Cash, cash equivalents and restricted cash at the beginning of the period		61,051			13,406
Cash, cash equivalents and restricted cash at the end of the period	$	81,771		$	24,341
Supplemental disclosure for cash flow
Cash paid for interest	$	357		$	161
Supplemental disclosure of non-cash investing and financing activities
Accrued interest on term loan refinanced to principal	$	308		$	—
Conversion of convertible promissory notes into redeemable convertible preferred stock	$	—		$	19,778
Issuance of warrants in conjunction with debt	$	296		$	2,822
Debt refinanced with new term loan	$	6,563		$	—
Initial recognition of operating lease right-of-use assets and operating lease liabilities	$	1,991		$	—
Accretion of redeemable convertible preferred stock	$	—		$	95
Warrant liability converted to redeemable convertible preferred stock upon the exercise of warrants	$	—		$	1,196
Deferred initial public offering costs included in accounts payable and accrued expenses	$	—		$	1,623
Purchases of property and equipment included in accounts payable	$	6		$	—

See accompanying notes to unaudited condensed financial statements.

PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

1.	Organization and Description of Business

Description of Business

PhaseBio Pharmaceuticals, Inc. (the “Company”) was incorporated as a Delaware corporation on January 10, 2002. The Company is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat orphan diseases, with an initial focus on cardiopulmonary indications. The Company’s lead product candidate, PB2452, is a novel reversal agent for the antiplatelet drug ticagrelor, which the Company is developing for the treatment of patients on ticagrelor who are experiencing a major bleeding event or those who require urgent surgery. The Company’s second product candidate, PB1046, is a once-weekly fusion protein currently in a Phase 2b clinical trial for the treatment of pulmonary arterial hypertension. PB1046 utilizes the Company’s proprietary half-life extending elastin-like polypeptide technology, which also serves as an engine for the Company’s preclinical pipeline.

Reverse Stock Split

In October 2018, in connection with its initial public offering (“IPO”), the Company effected a 11.0634-for-1 reverse split of its outstanding common stock and redeemable convertible preferred stock. No fractional shares were issued in connection with the stock split, and the par value and other terms of the common stock were not affected by the stock split. All share and per share amounts, including stock options, have been retroactively adjusted in these condensed financial statements for all periods presented to reflect the reverse stock split. Further, exercise prices of stock options have been retroactively adjusted in these condensed financial statements for all periods presented to reflect the reverse stock split.

Liquidity

The Company has experienced net losses and negative cash flows from operations since its inception and, as of September 30, 2019, had an accumulated deficit of $150.8 million. The Company expects to continue to incur net losses for at least the next several years. As of September 30, 2019, the Company had cash and cash equivalents of $81.8 million and working capital of $77.4 million. Management believes that its cash and cash equivalents as of September 30, 2019, in addition to $5.0 million of proceeds from the October 2019 borrowing under its term loan (see Note 14), are sufficient to fund the Company’s operating expenses and capital requirements into the first quarter of 2021.

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying condensed financial statements have been made. Although these interim condensed financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the full year. The unaudited interim condensed financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 26, 2019, wherein a more complete discussion of significant accounting policies and certain other information can be found.

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”) promulgated by the Financial Accounting Standards Board (“FASB”). Certain non-significant reclassifications have been made to conform the prior period presentation.

The Company manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions.

PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

2.	Significant Accounting Policies

Use of Estimates

The preparation of the Company’s condensed financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed financial statements and accompanying notes. The most significant estimates in the Company’s condensed financial statements relate to the valuation of redeemable convertible preferred stock warrants prior to the IPO, the conversion option on the convertible notes prior to conversion and clinical trial accruals. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains certain deposit accounts and money market funds in federally insured financial institutions in excess of federally insured limits. The Company could experience losses on the money market funds in the future.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

The Company had restricted cash of $20,000 as of December 31, 2018, which was held in a certificate of deposit at the Company’s bank to secure the Company’s corporate credit card. The restriction was removed in June 2019.

Fair Value of Financial Instruments

The carrying amounts of other receivable, prepaid expenses and other assets, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair value because of the short maturity of these items. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair values of the term loan and operating lease liabilities and corresponding right-of-use assets approximate their respective carrying values.

Property and Equipment

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