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EX-31.1 - EXHIBIT 31.1 - Lipocine Inc.v416338_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - Lipocine Inc.v416338_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Lipocine Inc.v416338_ex32-1.htm
EX-10.1 - EXHIBIT 10.1 - Lipocine Inc.v416338_ex10-1.htm
EX-31.2 - EXHIBIT 31.2 - Lipocine Inc.v416338_ex31-2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

  

 

 

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For Quarterly Period ended June 30, 2015

 

¨Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act.

 

For the transition period from                      to                      .

 

Commission File Number: 001-36357

 

 

 

LIPOCINE INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 99-0370688

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

   

675 Arapeen Drive, Suite 202,

Salt Lake City, Utah

84108
(Address of Principal Executive Offices) (Zip Code)

 

801-994-7383

(Registrant’s telephone number, 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 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  ¨

 

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 (§220.405 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  ¨

 

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 ¨ Accelerated filer ¨
       
Non-accelerated filer ¨   Smaller reporting company x

 

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

 

Outstanding Shares

 

As of August 10, 2015, the registrant had 18,244,656 shares of common stock outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
   
PART I—FINANCIAL INFORMATION  
     
Item 1. Financial Statements (unaudited) 3
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risks 24
     
Item 4. Controls and Procedures 24
   
PART II—OTHER INFORMATION  
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 3. Defaults Upon Senior Securities 27
     
Item 4. Mine Safety Disclosures 27
     
Item 5. Other Information 28
     
Item 6. Exhibits 28

 

 2 

 

 

 

PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)

 

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

   March 31,   December 31, 
   2015   2014 
Assets          
Current assets:          
Cash and cash equivalents  $38,297,243   $27,666,055 
Marketable investment securities   5,571,535    - 
Accrued interest income   99,451    - 
Prepaid and other current assets   181,275    229,912 
Total current assets   44,149,504    27,895,967 
           
Property and equipment, net of accumulated depreciation of $1,042,746 and $1,034,029, respectively   79,864    73,782 
Long-term marketable investment securities   9,543,570    - 
Other assets   23,753    23,753 
Total assets  $53,796,691   $27,993,502 
           

Liabilities and Stockholders' Equity

          
Current liabilities:          
Accounts payable  $398,817   $306,276 
Accrued expenses   1,266,188    1,327,256 
Total current liabilities   1,665,005    1,633,532 
Total liabilities   1,665,005    1,633,532 
           
Commitments and contingencies (notes 7 and 9)          
           
Stockholders' equity:          
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; zero issued and outstanding   -    - 
Common stock, par value $0.0001 per share, 100,000,000 shares authorized; 18,205,740 and 12,800,382 issued and 18,200,030 and 12,794,672 outstanding   1,820    1,280 
Additional paid-in capital   127,619,992    94,636,479 
Treasury stock at cost, 5,710 shares   (40,712)   (40,712)
Accumulated other comprehensive loss   (10,085)   - 
Accumulated deficit   (75,439,329)   (68,237,077)
Total stockholders' equity   52,131,686    26,359,970 
           
Total liabilities and stockholders' equity  $53,796,691   $27,993,502 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 3 

 

 

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

   Three Months Ending June 30,   Six Months Ending June 30, 
   2015   2014   2015   2014 
                 
Operating expenses:                    
Research and development  $3,161,908   $5,973,829   $5,080,603   $9,342,829 
General and administrative   1,115,835    1,035,733    2,171,379    2,959,356 
Total operating expenses   4,277,743    7,009,562    7,251,982    12,302,185 
Operating loss   (4,277,743)   (7,009,562)   (7,251,982)   (12,302,185)
Other income, net   31,297    37,935    49,930    63,401 
Loss before income tax expense   (4,246,446)   (6,971,627)   (7,202,052)   (12,238,784)
Income tax expense   -    -    (200)   - 
Net loss  $(4,246,446)  $(6,971,627)  $(7,202,252)  $(12,238,784)
                     
Basic loss per share attributable to common stock  $(0.26)  $(0.55)  $(0.49)  $(0.96)
Weighted average common shares outstanding, basic   16,496,239    12,770,391    14,667,943    12,749,355 
                     
Diluted loss per share attributable to common stock  $(0.26)  $(0.55)  $(0.49)  $(0.96)
                     
Weighted average common shares outstanding, diluted   16,496,239    12,770,391    14,667,943    12,749,355 
                     
Comprehensive loss:                    
Net loss  $(4,246,446)  $(6,971,627)  $(7,202,252)  $(12,238,784)
Unrealized loss on available-for-sale securities   (10,085)   -    (10,085)   - 
Comprehensive loss  $(4,256,531)  $(6,971,627)  $(7,212,337)  $(12,238,784)

 

See accompanying notes to unaudited condensed consolidated financial statements

  

 4 

 

  

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ending June 30, 
   2015   2014 
         
Cash flows from operating activities:          
Net loss  $(7,202,252)  $(12,238,784)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation and amortization   8,717    6,058 
Stock-based compensation expense   387,779    1,214,126 
Accretion of premium on marketable investment securities   754    - 
Changes in operating assets and liabilities:          
Accrued interest income   (99,451)   - 
Prepaid and other current assets   48,637    (503,133)
Accounts payable   30,104    (114,037)
Accrued expenses   (61,068)   771,816 
Cash used in operating activities   (6,886,780)   (10,863,954)
           
Cash flows from investing activities:          
Refund of long-term rental deposit   -    21,247 
Purchases of property and equipment   (14,799)   (1,866)
Purchases of marketable investment securities   (15,125,944)   - 
Cash provided by (used in) investing activities   (15,140,743)   19,381 
           
Cash flows from financing activities:          
Proceeds from stock option exercises   156,961    16,064 
Payment of accrued common stock offering costs   -    (271,183)
Net proceeds from common stock offering   32,501,750    - 
Cash provided by (used in) financing activities   32,658,711    (255,119)
           
Net increase (decrease) in cash and cash equivalents   10,631,188    (11,099,692)
           
Cash and cash equivalents at beginning of period   27,666,055    45,263,698 
Cash and cash equivalents at end of period  $38,297,243   $34,164,006 
           
Supplemental disclosure of non-cash investing and financing activities:          
Accrued common stock offering costs  $62,437   $- 
Stock received as consideration for stock option exercises and recognized as treasury stock   -    40,712 
Unrealized loss on marketable investment securities   (10,085)   - 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 5 

 

 

LIPOCINE INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1)Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Lipocine Inc. (“Lipocine” or the “Company”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries collectively referred to as the Company. In management's opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2015.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2014.

 

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions relating to reporting of the assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period in conformity with U.S. generally accepted accounting principles. Actual results could differ from these estimates.

 

While preparing its 2014 financial statements, the Company identified a misclassification of payments in the statement of cash flows for the six months ended June 30, 2014. The misclassification resulted in an overstatement of cash used in operating activities and an understatement of cash used in financing activities of $271,000 but did not affect total operating expenses, operating loss, net loss or stockholders' equity of the Company. The misclassification has been corrected in the June 30, 2014 amounts presented in the statements of cash flows.

  

(2)Earnings (Loss) per Share

 

Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Net income (loss) available to common shareholders for the three and six months ended June 30, 2015 and 2014 was calculated using the two-class method, which is an earnings (loss) allocation method for computing earnings (loss) per share when an entity’s capital structure includes common stock and participating securities. The two-class method determines earnings (losses) per share based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation rights of participating securities in any undistributed earnings (loss). The application of the two-class method was required since the Company’s unvested restricted stock contains non-forfeitable rights to dividends or dividend equivalents. However, unvested restricted stock grants are not included in computing basic earnings (loss) per share for periods where the Company has losses as these securities are not contractually obligated to share in losses of the Company.

 

Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding plus, where applicable, the additional potential common shares that would have been outstanding related to dilutive options, warrants, unvested restricted stock units and unvested restricted stock to the extent such shares are dilutive.

 

 6 

 

 

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three and six months ended June 30, 2015 and 2014.

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2015   2014   2015   2014 
Basic loss per share attributable to common stock:                    
Numerator                    
Net loss  $(4,246,446)  $(6,971,627)  $(7,202,252)  $(12,238,784)
Denominator                    
Weighted avg. common shares outstanding   16,496,239    12,770,391    14,667,943    12,749,355 
                     
Basic loss per share attributable to  common stock  $(0.26)  $(0.55)  $(0.49)  $(0.96)
                     
Diluted loss per share attributable to common stock:                    
Numerator                    
Net loss  $(4,246,446)  $(6,971,627)  $(7,202,252)  $(12,238,784)
Denominator                    
Weighted avg. common shares outstanding   16,496,239    12,770,391    14,667,943    12,749,355 
                     
Diluted loss per share attributable to common stock  $(0.26)  $(0.55)  $(0.49)  $(0.96)

 

The computation of diluted loss per share for the three and six months ended June 30, 2015 and 2014 does not include the following stock options, unvested restricted stock, unvested restricted stock units and warrants to purchase shares in the computation of diluted loss per share because these instruments were antidilutive:

 

   June 30, 
   2015   2014 
Stock options   1,660,823    1,276,907 
Unvested restricted stock   5,000    12,000 
Unvested restricted stock units   -    15,000 
Warrants   20,467    20,467 

  

(3)Marketable Investment Securities

 

The Company has classified its marketable investment securities as available-for-sale securities. These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at June 30, 2015 were as follows:

 

   Amortized
cost
   Gross
unrealized
holding
gains
   Gross
unrealized
holding
losses
   Aggregate
fair value
 
At June 30, 2015:                    
Corporate bonds and notes   15,125,190    4,699    (14,784)   15,115,105 

 

 7 

 

 

There were no marketable investment securities held as of December 31, 2014. Maturities of debt securities classified as available-for-sale securities at June 30, 2015 are as follows:

 

   Amortized
cost
   Aggregate
fair value
 
Due within one year   5,574,248    5,571,535 
Due after one year through five years   9,550,942    9,543,570 
Due after five years        
   $15,125,190   $15,115,105 

 

The Company determined there were no other-than-temporary impairments for the three and six month periods ended June 30, 2015.

 

(4)Fair Value

 

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

 

Level 1 Inputs: Quoted prices for identical instruments in active markets.

 

Level 2 Inputs: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets.

 

Level 3 Inputs: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For prepaid and other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. At December 31, 2014, the Company did not have any assets and liabilities that were measured at fair value on a recurring basis. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at June 30, 2015:

 

       Fair value measurements at reporting date using 
   June 30, 2015   Level 1 inputs   Level 2 inputs   Level 3 inputs 
                 
Assets:                    
Cash equivalents - money market funds  $9,776,373   $9,776,373   $-   $- 
Corporate bonds and notes   15,115,105    -    15,115,105    - 
                     
   $24,891,478   $9,776,373   $15,115,105   $- 

 

The following methods and assumptions were used to determine the fair value of each class of assets and liabilities recorded at fair value in the balance sheets:

 

Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with original maturities to the Company of three months or less, and are purchased daily at par value with specified yield rates. The fair values are based on quoted market prices in active markets with no valuation adjustment.

 

Corporate bonds and notes: The Company uses a third-party pricing service to value these investments. The pricing service utilizes reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs.

 

 8 

 

 

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1 or Level 2 for the six months ended June 30, 2015.

 

(5)Income Taxes

 

The tax provision for interim periods is determined using an estimate of the Company’s effective tax rate for the full year adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment.

 

At June 30, 2015 and December 31, 2014, the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized.

 

(6)Collaborative Agreements

 

(a)Abbott Products, Inc.

 

On March 29, 2012, the Company terminated its collaborative agreement with Solvay Pharmaceuticals, Inc. (later acquired by Abbott Products, Inc.) for LPCN 1021. As part of the termination, the Company reacquired the rights to the intellectual property from Abbott. All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1.0 million in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. The Company did not incur any royalties during the three and six months ended June 30, 2015 and 2014.

 

(b)Contract Research and Development

 

The Company has entered into agreements with various contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of the Company as well as a number of independent contractors, primarily clinical researchers, who serve as advisors to the Company. The Company incurred expenses of $2.6 million and $5.4 million for the three months ended June 30, 2015 and 2014, and $3.9 million and $8.1 million for the six months ended June 30, 2015 and 2014 under these agreements and has recorded these expenses in research and development expenses.

 

(7)Leases

 

On August 6, 2004, the Company assumed a noncancelable operating lease for office space and laboratory facilities. On May 6, 2014, the Company modified and extended the lease through February 28, 2018. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2015 are:

 

   Operating 
   leases 
Year ending December 31:     
2015   143,237 
2016   294,373 
2017   303,119 
2018   51,903 
      
Total minimum lease payments  $792,632 

 

The Company’s rent expense was $73,000 and $77,000 for the three months ended June 30, 2015 and 2014 and $147,000 and $177,000 for the six months ended June 30, 2015 and 2014.

 

 9 

 

 

(8)Stockholders’ Equity

 

(a)Issuance of Common Stock

 

On April 29, 2015, the Company sold 5,347,500 shares of common stock in an underwritten offering. Net proceeds to the Company from the sale totaled approximately $32.4 million, after deducting the direct and incremental expenses of the offering and the commissions in connection with the offering paid by the Company of $2.3 million.

 

(b)Share-Based Payments

 

The Company recognizes stock-based compensation expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. In addition, the Company grants performance-based stock option awards and restricted stock grants, which vest based upon the Company satisfying certain performance conditions. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, the Company estimates that these options will vest, which is based on whether the Company considers the options’ performance conditions to be probable of attainment. The Company’s estimates of the number of performance-based options that will vest will be revised, if necessary, in subsequent periods. In addition, the Company grants stock options to nonemployee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to nonemployees are subject to periodic measurement revaluation over their vesting terms.

 

During November 2014, the Company modified 149,498 existing time-vested options of two terminated executives by extending the exercise period to three years from the date of modification under the terms of the executive's respective employment and severance agreements. Compensation expense of $166,000 was recorded as a result of the modification. On January 6, 2014, the Company modified 366,126 existing time-vested and performance options as well as restricted stock awards of two retiring board of directors by fully vesting all unvested equity awards and extending the exercise period to three years from the date of modification. Compensation expense of $836,000 was recorded as a result of the modification. Additionally on January 31, 2013, the Company modified 907,336 existing time-vested and performance stock options by lowering the exercise price to $2.81. Additionally, the Company modified the vesting terms for its unvested performance stock options and unvested restricted stock to vest on the earlier of the first dosing in the pivotal clinical study for its lead drug candidate, or 50% on January 31, 2014 and 50% on January 31, 2015. Compensation expense of $422,000 was recorded as a result of the modifications. In August 2013, the Company determined that it was probable that the performance milestone related to these unvested stock options and restricted stock awards would occur. As a result, the remaining compensation expense between the date the milestone became probable and the expected milestone date of February 2014 was recognized ratably over that period.

 

The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend yield on the Common Stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in the statements of operations amounted to $209,000 and $169,000 for the three months ended June 30, 2015 and 2014 and $388,000 and $1.2 million for the six months ended June 30, 2015 and 2014, allocated as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2015   2014   2015   2014 
                 
Research and development  $40,582   $55,249   $107,544   $270,664 
General and administrative   168,155    113,491    280,235    943,462 
                     
   $208,737   $168,740   $387,779   $1,214,126 

 

The Company issued 188,500 and 6,000 stock options during the three months ended June 30, 2015 and 2014 and 188,500 and 37,500 stock options during the six months ended June 30, 2015 and 2014.

 

 10 

 

 

Key assumptions used in the determination of the fair value of stock options granted are as follows:

 

Expected Term: The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards, the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment, for awards with stated or implied service periods. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions, and that have the contractual term to satisfy the performance condition, the contractual term was used.

 

Risk-Free Interest Rate: The risk-free interest rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.

 

Expected Dividend: The expected dividend assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company does not anticipate declaring dividends in the foreseeable future.

 

Expected Volatility: Since the Company does not have sufficient trading history, the volatility factor was based on a combination of the Company's volatility since being listed on the NASDAQ Capital Market and the average of eleven similar public companies. When selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage.

 

For options granted during the six months ended June 30, 2015 and 2014, the Company calculated the fair value of each option grant on the respective dates of grant using the following weighted average assumptions:

 

   2015   2014 
Expected term   5.70 years    6.04 years 
Risk-free interest rate   1.66%   1.93%
Expected dividend yield        
Expected volatility   80.95%   73.09%

 

FASB ASC 718, Stock Compensation requires the Company to recognize compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

 

As of June 30, 2015, there was $2.2 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s stock option plan. That cost is expected to be recognized over a weighted average period of 2.02 years and will be adjusted for subsequent changes in estimated forfeitures. The weighted average fair value of share-based compensation awards granted during the six months ended June 30, 2015 and 2014, was approximately $5.06 and $5.20, respectively.

 

(c)Stock Option Plan

 

In April 2014, the board of directors adopted the 2014 Stock and Incentive Plan ("2014 Plan") subject to shareholder approval which was received in June 2014. The 2014 Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units, restricted stock and dividend equivalents. An aggregate of 1,000,000 shares are authorized for issuance under the 2014 Plan. Additionally, 271,906 remaining authorized shares under the 2011 Equity Incentive Plan ("2011 Plan") were issuable under the 2014 Plan in June 2014. In January 2011, the board of directors adopted the 2011 Plan that provides for the granting of nonqualified and incentive stock options, restricted stock units and restricted stock. The 2011 Plan assumed all of the obligations, which existed under the previous 2000 Stock Option Plan. Under the 2011 Plan, the Company has granted nonqualified and incentive stock options for the purchase of common stock to directors, employees and nonemployees providing services to the Company. The board of directors, on an option-by-option basis, determines the number of shares, exercise price, term, and vesting period. Options granted generally have a ten-year contractual life. The Company issues shares of common stock upon the exercise of options with the source of those shares of common stock being either newly issued shares or shares held in treasury. An aggregate of 1,271,906 shares are authorized for issuance under the 2014 Plan with 832,132 shares remaining available for grant as of June 30, 2015.

 

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A summary of stock option activity is as follows:

 

   Outstanding stock options 
   Number of
shares
   Weighted average
exercise price
 
Balance at December 31, 2014   1,528,737   $4.20 
Options granted   188,500    7.43 
Options exercised   (55,858)   2.81 
Options forfeited   -    - 
Options cancelled   (556)   18.34 
Balance at June 30, 2015   1,660,823    4.61 
           
Options exercisable at June 30, 2015   1,130,513    3.21 

 

The following table summarizes information about stock options outstanding and exercisable at June 30, 2015:

 

Options outstanding   Options exercisable 
Number
outstanding
   Weighted
average
remaining
contractual
life
(Years)
   Weighted
average
exercise
price
   Aggregate intrinsic
value
   Number
exerciseable
   Weighted
average
remaining
contractual
life
(Years)
   Weighted
average
exercise
price
   Aggregate
intrinsic value
 
                                      
 1,660,823    6.58   $4.61   $6,600,341    1,130,513    5.32   $3.21   $6,068,782 

 

The intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The total intrinsic value of 55,858 stock options exercised during the six months ended June 30, 2015 was $230,000. The total intrinsic value of 20,205 stock options exercised during the six months ended June 30, 2014 was $87,000.

 

(d)Restricted Common Stock

 

In 2010, the Company issued 112,720 shares of restricted common stock to employees. Ten percent of the issued restricted common stock vested on December 31, 2011. The remaining ninety percent of the restricted shares were modified on January 31, 2013 to vest on the earlier of the first dosing in the pivotal clinical study for its lead drug candidate, or 50% on January 31, 2014 and 50% on January 31, 2015. All shares of restricted common stock related to this issuance became fully vested on February 10, 2014.

 

In September 2013, the Company issued 12,000 shares of restricted common stock to an employee. These shares vest over time with one-third vesting on the one-year anniversary of award, with the balance vesting monthly on a pro-rata basis over the subsequent two years.

 

Additionally, restricted shares issued to two members of the board of directors were further modified upon their retirement on January 6, 2014 to fully vest unvested restricted shares. Compensation expense was recorded as a result of the modifications (see note 8(b)). The grant date fair value of these shares when issued was $5.75 per share.

 

The Company includes unvested restricted stock in outstanding shares for financial reporting purposes when the awards vest.

 

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A summary of restricted common stock activity is as follows:

 

   Number of
unvested restricted
shares
 
     
Balance at December 31, 2014   7,000 
Granted   - 
Vested   (2,000)
Cancelled   - 
Balance at June 30, 2015   5,000 

 

(e)Restricted Stock Units

 

On December 10, 2013, the Company issued 15,000 shares of restricted stock units to employees. These units cliff vested on December 31, 2014, and there were no unvested restricted stock units as of June 30, 2015.

 

(f)Warrants

 

For charitable purposes, on December 23, 2003, the Company granted warrants to a local university for 20,467 shares of common stock at a price of $12.21 per share with an original expiration date of December 31, 2010. In January 2011, the Company extended the term to December 31, 2015 at the same price. As of June 30, 2015, all warrants remain outstanding.

 

(9)Commitments and Contingencies

 

Guarantees and Indemnifications

 

In the ordinary course of business, the Company enters into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements, containing standard guarantee and / or indemnifications provisions. Additionally, the Company has indemnified its directors and officers to the maximum extent permitted under the laws of the State of Delaware.

 

(10)Spriaso, LLC

 

On July 23, 2013, the Company entered into an assignment/license and a services agreement with Spriaso, a related-party that is majority-owned by certain current and former directors of Lipocine Inc. and their affiliates. Under the license agreement, the Company assigned and transferred to Spriaso all of the Company’s rights, title and interest in its intellectual property to develop products for the cough and cold field. In addition, Spriaso received all rights and obligations under the Company’s product development agreement with a third-party . In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $10.0 million. Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside of the cough and cold field. Under the service agreement, the Company provided facilities and up to 10 percent of the services of certain employees to Spriaso for a period of 18 months which expired January 23, 2015. Effective January 23, 2015, the Company entered into an amended services agreement with Spriaso in which the Company agreed to continue providing up to 10 percent of the services of certain employees to Spriaso at a rate of $230/hour for a period of six months and was further amended on July 23, 2015 to continue providing services for an additional six months. The agreement may be extended upon written agreement of Spriaso and the Company. Spriaso filed its first NDA and as an affiliated entity of the Company it used up the one-time waiver for user fees for a small business submitting its first human drug application to the FDA. Spriaso is considered a variable interest entity under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810-10, Consolidations, however the Company is not the primary beneficiary and has therefore not consolidated Spriaso.

 

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(11)Accounting Pronouncements Not Yet Adopted

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In July 2015, the FASB voted to approve the deferral of the effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company in the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, but not earlier than the first quarter of the Company's fiscal year ending December 31, 2017. The ASU allows for either full retrospective or modified retrospective adoption. The Company has not yet selected a transition method, and the Company is currently evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures.

 

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern. ASU 2014-15 provides guidance regarding management’s responsibility to evaluate whether there exists substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods thereafter. The Company does not believe this pronouncement will have a material effect on the Company's financial position or results of operations.

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto and other financial information included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the management’s discussion and analysis included in our Form 10-K, filed with the SEC on March 11, 2015 as well as the financial statements and related notes contained therein.

 

On July 24, 2013, Marathon Bar Corp. (“Marathon Bar”), a Delaware corporation and MBAR Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Marathon Bar, and Lipocine Operating Inc. (“Lipocine Operating”), a privately held company incorporated in Delaware, executed an Agreement and Plan of Merger (“Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub merged with and into Lipocine Operating and Lipocine Operating was the surviving entity. Additionally pursuant to the Merger Agreement, Marathon Bar changed its name to Lipocine Inc. The Merger is accounted for as a reverse-merger and recapitalization. Lipocine Operating is the acquirer for financial reporting purposes and Marathon Bar is the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of Lipocine Operating and are recorded at the historical cost basis of Lipocine Operating, and the consolidated financial statements after completion of the Merger include the assets, liabilities and operations of Marathon Bar and Lipocine Operating (“Combined Company”), from the closing date of the Merger. Additionally all historical equity accounts of Lipocine Operating, including par value per share, share and per share numbers , have been adjusted to reflect the number of shares received in the Merger.

 

As used in the discussion below, “we,” “our,” and “us” refers to the historical financial results of Lipocine.

 

Forward Looking Statements

 

This section and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements may refer to such matters as products, product benefits, pre-clinical and clinical development timelines, clinical and regulatory expectations and plans, regulatory developments and requirements, the receipt of regulatory approvals, the results of clinical trials, patient acceptance of Lipocine’s products, manufacturing and commercialization of Lipocine’s products, anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance, future expectations for liquidity and capital resources needs and similar matters. Such words as “may”, “will”, “expect”, “continue”, “estimate”, “project”, and “intend” and similar terms and expressions are intended to identify forward looking statements. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A (Risk Factors) of this Form 10-Q, in Part II, Item 1A (Risk Factors) of our Form 10-Q for the quarter ended March 31, 2015 filed with the SEC on May 7, 2015, or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the SEC on March 11, 2015. Except as required by applicable law, we assume no obligation to revise or update any forward-looking statements for any reason.

 

Overview of Our Business

 

We are a specialty pharmaceutical company focused on applying our oral drug delivery technology for the development of pharmaceutical products in the area of men’s and women’s health. Our proprietary delivery technologies are designed to improve patient compliance and safety through orally available treatment options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs. We have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic characteristics and facilitate lower dosing requirements, bypass first-pass metabolism, reduce side effects, and eliminate gastrointestinal interactions that limit bioavailability. Our lead product candidate, LPCN 1021, is an oral testosterone replacement therapy (“TRT”) designed for convenient twice-a-day dosing that has completed Phase 3 testing, demonstrating positive top-line efficacy and safety results, and was well tolerated during 52 weeks of treatment. Additional pipeline candidates include LPCN 1111, a next generation oral testosterone therapy product targeted for once daily dosing, that is currently in Phase 2 testing, and LPCN 1107, which has the potential to become the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth, and is currently in Phase 1 testing.

 

To date, we have funded our operations primarily through the sale of equity securities and convertible debt and through up-front payments, research funding and milestone payments from our license and collaboration arrangements. We have not generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of LPCN 1021 or other products.

 

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We have incurred losses in most years since our inception. As of June 30, 2015, we had an accumulated deficit of $75.4 million. Income and losses fluctuate year to year. Our net loss was $7.2 million for the six months ended June 30, 2015, compared to $12.2 million for the six months ended June 30, 2014. Substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. In the near term, we anticipate that our expenses will increase as we:

 

prepare for commercial manufacturing agreement for LPCN 1021;

 

prepare and file our NDA for LPCN 1021;

 

conduct market research, market analytics and other activities in preparation of commercial launch of LPCN 1021;

 

conduct further development of our other product candidates, including LPCN 1111 and LPCN 1107;

 

continue our research efforts;

 

maintain, expand and protect our intellectual property portfolio; and

 

provide general and administrative support for our operations.

 

To fund future long-term operations we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including capital market conditions, the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential license and collaboration agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our license and collaboration agreements and public and private equity securities offerings, there can be no assurance that we will be able to do so in the future.

 

Our Product Candidates

 

Our current portfolio, shown below, includes our lead product candidate LPCN 1021, a twice-a-day oral testosterone replacement therapy, which recently completed a pivotal Phase 3 clinical study. Additionally, we are currently in the process of establishing our pipeline of early clinical candidates including a next generation once-a-day oral testosterone replacement therapy, LPCN 1111, and an oral therapy for the prevention of preterm birth, LPCN 1107.

 

Our Development Pipeline

 

Product Candidate   Indication   Status   Next Expected Milestone(s)
Men’s Health            
LPCN 1021   Testosterone Replacement   Phase 3   File NDA (2H 2015)
LPCN 1111   Testosterone Replacement   Phase 2   Commence Phase 2b PK dose finding study (4Q 2015)
Women’s Health            
LPCN 1107   Prevention of Preterm Birth   Phase 1   Commence PK dose finding study (4Q 2015)

 

These products are based on our proprietary Lip’ral promicellar drug delivery technology platform. Lip’ral promicellar technology is a patented technology based on lipidic compositions which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble drugs. The drug loaded dispersed phase presents the solubilized drug efficiently at the absorption site (gastrointestinal tract membrane) thus improving the absorption process and making the drug less dependent on physiological variables such as dilution, gastro-intestinal pH and food effects for absorption. Lip’ral based formulation enables improved solubilization and higher drug-loading capacity, which can lead to improved bioavailability, reduced dose, faster and more consistent absorption, reduced variability, reduced sensitivity to food effects, improved patient compliance, and targeted lymphatic delivery.

 

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LPCN 1021: An Oral Product Candidate for Testosterone Replacement Therapy

 

Our lead product, LPCN 1021, is an oral formulation of the chemical testosterone undecanoate ("TU"), an eleven carbon side chain attached to testosterone. TU is an ester prodrug of testosterone. An ester is a chemical formed by bonding between an acid and a alcohol. Upon the cleavage, or breaking, of the ester bond, testosterone is formed. TU has been approved for use outside the United States for many years for delivery via intra-muscular injection and in oral dosage form and TU recently received approval in the United States for delivery via intra-muscular injection. However, the oral dosage form which is approved outside the United States provides sub-therapeutic serum testosterone levels at the approved dose. We are using our Lip’ral technology to facilitate steady gastrointestinal solubilization and absorption of TU for twice daily dosing of TU. Proof of concept was initially established in 2006, and subsequently LPCN 1021 was licensed to Solvay Pharmaceuticals, Inc. ("Solvay") which was then acquired by Abbott Products, Inc. ("Abbott") in 2009. Following a portfolio review associated with the spin-off of AbbVie by Abbott in 2011, the rights to LPCN 1021 were reacquired by us. All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1 million in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%.  

 

Top Line Results From SOAR

 

We recently completed our Study of Oral Androgen Replacement ("SOAR") pivotal Phase 3 clinical study evaluating efficacy and safety of LPCN 1021 and have received top-line efficacy results and 52-week top-line safety results. SOAR is a randomized, open-label, parallel-group, active-controlled, Phase 3 clinical study of oral TRT in hypogonadal males with low testosterone (< 300 ng/dL). In total, 315 subjects at 40 active sites were assigned, such that 210 were randomized to LPCN 1021 and 105 were randomized to the active control, for 52 weeks of treatment. The active control is included for safety assessment. LPCN 1021 subjects were started at 225 mg TU (equivalent to ~ 142 mg of T) twice daily (“BID”) with a standard meal and then dose titrated, if needed, up to 300 mg TU BID or down to 150 mg TU BID based on serum testosterone measured during weeks 3 and 7. The mean age of the subjects in the trial is ~53 yrs with ~91% of the patients < 65 yrs of age.

 

Primary statistical analysis was conducted using the Efficacy Population Set ("EPS"). The EPS is defined as subjects randomized into the study with at least one PK profile and no significant protocol deviations and includes imputed missing data by last observation carried forward, N=152. Further analysis was performed using the full analysis set ("FAS") (any subject randomized into the study with at least one post-baseline efficacy variable response, N=192) and the safety set (“SS”) (any subject that was randomized into the study and took at least one dose, N=210).

 

Efficacy

 

The primary efficacy end point is the percentage of subjects with an average 24 hour serum testosterone concentration (“Cavg”) within the normal range, which is defined as 300-1140 ng/dL, after 13 weeks of treatment. The FDA guidelines for primary efficacy success is that at least 75% of the subjects on active treatment achieve a testosterone Cavg within the normal range; and the lower bound of the 95% confidence interval (“CI”) must be greater than or equal to 65%.

 

LPCN 1021 successfully met the FDA primary efficacy guideline. In the EPS analysis, 88% of the subjects on active treatment achieved testosterone Cavg within the normal range with lower bound CI of 82%. Additionally, sensitivity analysis using the FAS and SS reaffirmed the finding that LPCN 1021 successfully met the FDA primary efficacy guideline as 88% and 80%, respectively, of the subjects on active treatment achieved testosterone Cavg within the normal range with lower bound CI of 82% and 74%, respectively.

 

Other top-line highlights from the efficacy results include:

 

·Mean Cavg was 447 ng/dL with coefficient of variance of 37%;

 

·Less than 12% of the subjects were outside the tesosterone Cavg normal range at final dose;

 

·85% of subjects arrived at final dose with no more than one titration; and

 

·51% of subjects were on final dose of 225 mg BID which was also the starting dose.

 

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In the EPS analysis, Cmax ≤1500 ng/dL was 83%, Cmax between 1800 and 2500 ng/dL was 4.6% and Cmax > 2500 ng/dL was 2%. Three patients had a Cmax >2500 ng/dL which were transient, isolated and sporadic. Moreover, none of these subjects reported any adverse events, or AE’s. Results were generally consistent with those of approved TRT products.

 

Safety

 

The safety component of the SOAR trial was completed the last week of April 2015. The safety extension phase was designed to assess safety based on information such as metabolites, biomarkers, laboratory values, serious adverse events, or SAEs, and AEs, with subjects on their stable dose regimen in both the treatment arm and the active control arm. LPCN 1021 treatment was well tolerated in that there were no hepatic, cardiac or drug related serious adverse events.

 

Top-line LPCN 1021 safety highlights include:

 

·LPCN 1021 was well tolerated during 52 weeks of dosing;
·Overall AE profile for LPCN 1021 was comparable to the active control, Androgel® 1.62%;
·The only AEs occurring in more than 5% of subjects with either LPCN 1021 or the active control were upper respiratory tract infection (5.2% with LPCN 1021 and 5.8% with active control) and fatigue (2.4% with LPCN 1021 and 6.7% with active control);
·Cardiac AE profiles were consistent between treatment groups and none of the observed cardiac AEs occurred in greater than 1.0% of the subjects in the LPCN 1021 arm and none were classified as severe;
·Drug-related AEs, or ADRs, occurring in more than 2% of subjects with either LPCN 1021 or active control were headache (0.5% with LPCN 1021 and 3.9% with active control), acne (2.9% with LPCN 1021 and 2.9% with active control) and patient reported perceived weight increase (2.4% with LPCN 1021 and 0% with active control);
·The overall mean weight change as compared to baseline was not significantly different between the treatment groups (Weight changes greater than 10% from baseline over 52 weeks occurred in 2.3% of subjects with LPCN 1021 and 3.8% of subjects with the active control);
·All observed ADRs were classified as mild or moderate in severity and no serious ADRs occurred during the 52-week treatment period;
·ADRs, such as peripheral edema, polycythemia, and thrombocytopenia, occurred in 1% or fewer subjects with LPCN 1021;
·There were no significant changes in mean systolic and diastolic blood pressure from baseline in either treatment arm;
·Mean values for the lipid parameters, except high density lipoprotein levels (“HDL”), were not significantly different from baseline;
·Mean HDL levels following LPCN 1021 treatment decreased slightly from baseline but were not significantly different from the active control after 52 weeks of exposure;
·Mean values for cardio biomarkers were not significantly different from baseline;
·Mean values for liver enzymes remained within the normal range;
·Mean values for hematocrit, hemoglobin, platelet count, prothrombin time and prostate specific antigen, were not significantly different from baseline; and
·Mean dihydrotestosterone levels increased from baseline following LPCN 1021treatment, but were comparable to changes seen with the active control.

 

On March 19, 2015, we had our pre-NDA meeting with the FDA. The purpose of the meeting was to discuss and obtain concurrence regarding adequacy for submission of the proposed NDA package for LPCN 1021 and to receive guidance on the 505(b) (2) filing and approval. Based on the FDA’s preliminary response, we do not expect to conduct any additional clinical studies other than the labeling “food effect” study which was completed in May 2015. Top-line results from the labeling "food effect" study indicate that bioavailability of testosterone from LPCN 1021 is not affected by changes in meal fat content. The results demonstrate comparable testosterone levels between the standard fat meal (similar to the meal instruction provided in the Phase 3 clinical study) and both the low and high fat meals. The labeling “food effect” study was conducted per the FDA requirement and we submitted preliminary results from this study to the FDA in the second quarter of 2015 prior to submitting the NDA. Based on our meeting with the FDA, we do not expect to be required to conduct a heart attack and stroke risk study or any additional safety studies prior to filing the NDA for LPCN 1021. Additionally, prior to our pre-NDA meeting with the FDA, the FDA highlighted the need to ensure our efficacy data was robust to sensitivity analyses with various data sets, including the FAS.

 

We expect an NDA filing to occur during the second half of 2015.

 

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LPCN 1111: A Next-Generation Oral Product Candidate for TRT

 

LPCN 1111 is a next-generation, novel ester prodrug of testosterone which uses the Lip’ral technology to enhance solubility and improve systemic absorption. In October 2014, we successfully completed a Phase 2a proof-of-concept study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple dose study enrolled 12 males. These subjects had serum total testosterone < 300 ng/dL based on two blood draws on two separate days. Subjects received doses of LPCN 1111 as a single dose of 330 mg, 550 mg, 770 mg, followed by once daily administration of 550 mg for 28 days in 10 subjects, and once daily administration of 770 mg for 28 days in eight subjects. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with LPCN 1111 in hypogonadal men and a good dose response. Additionally, the study confirmed that steady state is achieved by day 14 with consistent inter-day performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during the 28 day dosing period on multi-dose exposure. Overall, LPCN 1111 was well tolerated with no serious adverse events. We expect to initiate a Phase 2b dose finding study in hypogonadal men in the fourth quarter of 2015.

 

LPCN 1107: An Oral Product Candidate for the Prevention of Preterm Birth

 

We believe LPCN 1107 has the potential to become the first oral hydroxyprogesterone caproate (“HPC”) product indicated for the prevention of preterm birth in women with a prior history of at least one preterm birth. We successfully completed a proof-of-concept Phase 1b clinical study of LPCN 1107 in healthy pregnant women in January 2015 and a proof-of-concept Phase 1a clinical study of LPCN 1107 in healthy non-pregnant women in May 2014. These studies were designed to determine the pharmacokinetics and bioavailability of LPCN 1107 relative to an intramuscular ("IM") HPC, as well as safety and tolerability. The Phase 1b open-label study enrolled eight healthy, pregnant women at 16 to 18 weeks gestation. All subjects received three treatments in sequence. In period one, subjects received two doses of 400 mg oral LPCN 1107, administered 12 hours apart. In period two, subjects received two doses of 800 mg oral LPCN 1107, administered 12 hours apart. In period three, subjects were given a single dose of 250 mg of HPC via intramuscular injection (marketed product Makena®). Blood samples were collected periodically over 24 hours following oral dosing and over 28 days following the IM dose. Results of these studies confirmed our pre-clinical data and suggest meaningful drug levels of HPC can be obtained after oral administration in both pregnant and non-pregnant women. We recently completed a Type C meeting with the FDA to discuss next steps in the development of LPCN 1107. Based on the FDA feedback, Lipocine intends to commence a pharmacokinetic ("PK") dose selection study in pregnant women in the fourth quarter of 2015. The objective of the multi-dose PK selection study will be to assess HPC blood levels in order to identify the appropriate LPCN 1107 Phase 3 dose. At the completion of the PK dose selection study, Lipocine will schedule an End-of-Phase 2 meeting with the FDA to agree on a Phase 3 development plan for LPCN 1107. There are multiple potential development plans for LPCN 1107 with no assurances which, if any, will be acceptable to the FDA. Each potential development plan has a different timeline, cost and risk profile.

 

Recently the FDA granted orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for various development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user fee when we file our NDA.

 

Financial Operations Overview

 

Revenue

 

To date, we have not generated any revenues from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to date have been generated substantially from license fees, milestone payments and research support from our licensees. Since our inception through June 30, 2015, we have generated $27.5 million in revenue under our various license and collaboration arrangements and from government grants. We may never generate revenues from LPCN 1021 or any of our other clinical or preclinical development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these product candidates.

 

Research and Development Expenses

 

Research and development expenses consist primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development, clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred. Since our inception, we have spent approximately $70.6 million in research and development expenses through June 30, 2015.

 

We expect to incur approximately $4.5 million in additional research and developments costs for LPCN 1021 as we prepare for and file an NDA. However, these expenditures are subject to numerous uncertainties regarding timing and cost to completion.

 

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Completion of our NDA with LPCN1021 may take longer than currently estimated or the FDA may require additional clinical trials or non-clinical studies. The cost of clinical trials may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others:

 

the number of sites included in the trials;

 

the length of time required to enroll suitable subjects;

 

the duration of subject follow-ups;

 

the length of time required to collect, analyze and report trial results;

 

the cost, timing and outcome of regulatory review; and

 

potential changes by the FDA in clinical trial and NDA filing requirements for testosterone replacement therapies.

 

We also expect to incur significant manufacturing costs to prepare validation batches of finished product and customary regulatory costs associated with the preparation and filing of our NDA, if and when submitted, which will be significant. However, these expenditures are subject to numerous uncertainties regarding timing and cost to completion, including, among others:

 

our dependence on third-party manufacturers for the production of clinical trial materials and satisfactory finished product for registration;

 

the costs and timing of regulatory submission for LPCN 1021 and the outcome of regulatory reviews;

 

the potential for future license arrangements for LPCN 1021, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our future plans and capital requirements; and

 

the effect on our product development activities of action taken by the FDA or other regulatory authorities.

 

A change of outcome for any of these variables with respect to the development of LPCN 1021 could mean a significant change in the costs and timing associated with these efforts.

 

Summary of Research and Development Expense

 

Since the beginning of 2014, we have conducted on-going clinical trials with all three of our product candidates. Additionally, we incur costs for our other research programs. The following table summarizes our research and development expenses:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2015   2014   2015   2014 
External service provider costs:                    
LPCN 1021  $2,497,768   $4,468,895   $3,743,974   $6,852,195 
LPCN 1111   38,322    772,785    125,927    886,571 
LPCN 1107   7,725    179,378    35,150    332,280 
Other product candidates   7,500    7,500    15,000    15,000 
Total external service provider costs   2,551,315    5,428,558    3,920,051    8,086,046 
Internal personnel costs   506,145    413,726    935,906    1,005,777 
Other research and development costs   104,448    131,545    224,646    251,006 
Total research and development  $3,161,908   $5,973,829   $5,080,603   $9,342,829 

 

Given the early stage of clinical development and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process, we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1111, LPCN 1107 and other product candidates. Clinical development timelines, the probability of success and development costs can differ materially from expectations and results from our clinical trials may not be favorable. If we are successful in progressing LPCN 1111, LPCN 1107 or other product candidates into later stage development, we will require additional capital. The amount and timing of our future research and development expenses for these product candidates will depend on the preclinical and clinical success of both our current development activities and potential development of new product candidates, as well as ongoing assessments of the commercial potential of such activities.

 

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General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development and support functions. Other general and administrative expenses include rent and utilities, travel expenses and professional fees for auditing, tax and legal services.

 

They also include expenses for the cost of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims.

 

We expect that general and administrative expenses will increase materially as we mature as a public company. These increases will likely include salaries and related expenses, legal and consulting fees, accounting and audit fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business and accounting systems and other costs. In addition as we prepare and file our NDA for LPCN 1021, we expect general and administrative expenses to increase as we incur costs of pre-commercialization and, potentially, commercialization activities.

 

Other Income, Net

 

Other income, net consists primarily of interest earned on our cash, cash equivalents and marketable investment securities.

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the three months ended June 30, 2015 and 2014:

 

   Three Months Ended June 30,     
   2015   2014   Variance 
Research and development expenses  $3,161,908   $5,973,829    (2,811,921)
General and administrative expenses   1,115,835    1,035,733    80,102 
Other income, net   31,297    37,935    (6,638)
Income tax expense   -    -    - 

 

Research and Development Expenses

 

The decrease in research and development expenses in the three months ended June 30, 2015 was primarily due to a decrease in external service provider costs of $2.9 million, partially offset by an increase of $92,000 in internal personnel costs. The decrease in external service provider costs was primarily due to a decrease of $2.4 million in clinical research and consultant costs and a decrease of $482,000 in contract manufacturing and drug purchase costs. The increase in personnel costs was primarily due to hiring costs and compensation for new personnel.

 

General and Administrative Expenses

 

The increase in general and administrative expenses in the three months ended June 30, 2015 was primarily due to an increase in personnel costs of $216,000, partially offset by a decrease in professional fees and other costs of approximately $136,000. The increase in personnel costs was primarily due to hiring costs and compensation of $161,000 for new personnel, including our new Chief Business Officer (CBO), and equity compensation expense of $55,000 primarily for the grant of options to our outside directors and new CBO.

 

Other Income, Net

 

The decrease in other income, net, primarily reflects decreased interest earned on average lower balances in cash and cash equivalents in 2015 as compared to 2014.

 

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Comparison of the Six Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the six months ended June 30, 2015 and 2014:

 

   Six months ended June 30,     
   2015   2014   Variance 
Research and development expenses   5,080,603    9,342,829    (4,262,226)
General and administrative expenses   2,171,379    2,959,356    (787,977)
Other income, net   49,930    63,401    (13,471)
Income tax expense   (200)   -    (200)

 

Research and Development Expenses

 

The decrease in research and development expenses in the six months ended June 30, 2015 was primarily due to a decrease in external service provider costs of $4.2 million and a decrease of $70,000 in internal personnel costs. The decrease in external service provider costs was primarily due to a decrease of $3.6 million in clinical research and consultant costs and a decrease of $600,000 in contract manufacturing and drug purchase costs. The decrease in personnel costs was primarily due to one-time equity compensation expenses of $162,000 incurred in 2014 and not repeated in 2015, partially offset by one-time hiring costs and other compensation increases of $92,000 in 2015

 

General and Administrative Expenses

 

The decrease in general and administrative expenses in the six months ended June 30, 2015 was primarily due to a decrease in personnel costs of $419,000 and a decrease in professional fees and other costs of approximately $369,000. The decrease in personnel costs was primarily due to a decrease in equity compensation of $663,000, including $535,000 due to accelerated vesting and extension of exercise dates for retiring directors in 2014 which were not repeated in 2015. This decrease was partially offset by an increase of $244,000 due primarily to hiring costs and compensation for new personnel, including our CBO.

 

Other Income, Net

 

The decrease in other income, net, primarily reflects decreased interest earned on average lower balances in cash and cash equivalents in 2015 as compared to 2014.  

 

Liquidity and Capital Resources

 

Since our inception, our operations have been primarily financed through sales of our equity and payments received under our license and collaboration arrangements. We have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities. We have incurred operating losses in most years since our inception and we expect to continue to incur operating losses into the foreseeable future as we advance the ongoing development of our lead product candidate LPCN 1021 and further clinical development of LPCN 1111, LPCN 1107 and our other programs and continued research efforts.

 

As of June 30, 2015, we had $53.4 million of cash, cash equivalents and marketable investment securities compared to $27.7 million at December 31, 2014. We believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected operating requirements for at least the next twelve months. While we believe we have sufficient liquidity and capital resources to fund our projected operating requirements beyond June 30, 2016, we may need to raise additional capital at some point, either before or after June 30, 2016, to support our operations, long-term research and development and commercialization of our products. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and our ability to enter into collaborations with third parties to participate in the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our anticipated clinical studies and ongoing development and commercialization efforts. To fund future operations, we will need to raise additional capital and our requirements will depend on many factors, including the following:

 

 22 

 

 

the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities;

 

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;

 

the number and characteristics of product candidates that we pursue;

 

the cost, timing and outcomes of regulatory approvals;

 

the cost and timing of establishing sales, marketing and distribution capabilities;

 

the terms and timing of any collaborative, licensing and other arrangements that we may establish;

 

the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;

 

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions; and

 

the extent to which we grow significantly in the number of employees or the scope of our operations.

 

Funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable, for any reason, to raise needed capital, we will have to delay research and development programs, liquidate assets, dispose of rights, commercialize products or product candidates earlier than planned or on less favorable terms than desired or reduce or cease operations.

 

   Six months ended June 30, 
   2015   2014 
Cash used in operating activities  $(6,886,780)  $(10,863,954)
Cash provided by (used in) investing activities   (15,140,743)   19,381 
Cash provided by (used in) financing activities   32,658,711    (255,119)

 

Operating Activities

 

Cash used in operating activities was $6.9 million for the six months ended June 30, 2015, and $10.9 million for the six months ended June 30, 2014, a decrease of $4.0 million. Included in the decrease was a $5.0 million decrease in net loss, a $551,000 decrease in prepaid expenses and other current assets and a $144,000 increase in accounts payable which were partially offset by a $826,000 decrease in stock-based compensation, a $99,000 increase in accrued interest income and a $833,000 decrease in accrued expenses.

 

Investing Activities

 

Investing activities consist primarily of purchases of marketable investment securities and property and equipment. We purchased $15.1 million of marketable investment securities in the six months ended June 30, 2015. Additionally, we acquired $15,000 of property and equipment in the six months ended June 30, 2015 compared to $2,000 in the six months ended June 30, 2014.

 

Financing Activities

 

Financing activities consist primarily of the receipt of net proceeds from the sale of common stock and proceeds from the exercise of stock options as well as the payment of accrued common stock offering costs. Cash provided by (used in) financing activities was $32.7 million and ($255,000), respectively, during the six months ended June 30, 2015 and 2014. During six months ended June 30, 2015, we received $32.5 million from the sale of common stock in an underwritten transaction in April 2015 and $157,000 from the exercise of stock options. Additionally during the six months ended June 30, 2014, we paid accrued common stock offering costs of $271,000 related to the sale of common stock in an underwritten transaction in November and December 2013 and received $16,000 from the exercise of stock options.

 

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Contractual Commitments and Contingencies

 

Operating Leases

 

In August 2004, we entered into an agreement to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters. On May 6, 2014, the Company agreed to modify and extend the lease through February 28, 2018. Our aggregate remaining commitment through 2018 under this lease is $793,000.

 

Other Contractual Obligations

 

We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and are cancellable obligations.

 

JOBS Act Accounting Election

 

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the six months ended June 30, 2015, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates” in our Form 10-K filed March 11, 2015.

 

New Accounting Standards

 

Refer to Note 11, in “Notes to Unaudited Condensed Consolidated Financial Statements” for a discussion of accounting standards not yet adopted.

 

Off-Balance Sheet Arrangements

 

None.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain "disclosure controls and procedures" within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures, or Disclosure Controls, are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Our Disclosure Controls include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

 24 

 

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated the effectiveness of the design and operation of our Disclosure Controls, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the date of their evaluation, our Disclosure Controls were effective as of June 30, 2015.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

We are not currently a party to any material legal proceedings.

 

ITEM 1A.RISK FACTORS

 

In addition to the other information set forth in this Report, consider the risk factors discussed in Part 1, "Item 1A. Risk Factors" in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 11, 2015, and the risk factors discussed in Part II, “Item 1A. Risk Factors” of our Form 10-Q for the quarter ended March 31, 2015 filed with the SEC on May 7, 2015, which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be not material also may materially adversely affect the Company's business, financial condition and or operating results.

 

The following are the risk factors that have materially changed from our risk factors included in our Form 10-K for the year ended December 31, 2014 filed with the SEC on March 11, 2015 and from our risk factors included in our Form 10-Q for the quarter ended March 31, 2015 filed with the SEC on May 7, 2015:

 

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

 

We depend primarily on the success of our lead product candidate, LPCN 1021, which is still under clinical development and may not receive regulatory approval or be successfully commercialized.

 

LPCN 1021 is currently our only product candidate that has completed Phase 3 clinical trials, and our business currently depends primarily on its successful development, regulatory approval and commercialization. We are not permitted to market LPCN 1021 in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. We have not scaled up the pivotal study formulation to commercial scale, if required. We have not submitted an NDA to the FDA or comparable applications to other regulatory authorities.

 

Although we have completed our pivotal Phase 3 trial of LPCN 1021 and released positive top-line efficacy and safety results, approval from the FDA is not guaranteed. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving positive results in early stage development. We may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials, or even terminate further development.

 

If the FDA clarifies, modifies or restricts the indicated population for T-replacement in the "class" label, the market for T-replacement products may shrink and our ability to sell and be reimbursed for LPCN 1021and LPCN 1111 could be materially adversely affected and our business could be harmed.

 

On September 17, 2014, the FDA held a T-class Advisory Committee meeting. The Advisory Committee discussed (i) the identification of the appropriate patient population for whom T-replacement therapy should be indicated and (ii) the potential risk of major adverse cardiovascular events, defined as non-fatal stroke, non-fatal myocardial infarction and cardiovascular death associated with T-replacement therapy. At the meeting, 20 of the 21 members of the Advisory Committee voted that the FDA should revise the currently indicated population for T-replacement therapy and recommended changing the label language to restrict the intended uses of the products, particularly in relation to age-related low testosterone. The Committee also supported adding language to the label to guide physicians in better diagnosis of eligible patients for treatment. On March 3, 2015, the FDA issued a safety announcement addressing the Advisory Committees recommendations.

 

 25 

 

 

The FDA's safety assessment recommended the following label modifications/restrictions in the indicated population for T-replacement therapy:

 

·limiting use of T-replacement products to men who have low testosterone caused by certain medical conditions;

 

·prior to initiating use of T-replacement products, confirm diagnosis of hypogonadism by ensuring that serum testosterone has been measured in the morning on at least two separate days and that these concentrations are below the normal range;

 

·adding cautionary language stating that the safety and efficacy of TRT products with age-related hypogonadism have not been established; and

 

·adding cautionary language stating that some studies have shown an increased risk of myocardial infarction and stroke associated with use of T-replacement products.

 

The actual TRT label revisions have been finalized between the FDA and sponsors with approved T-replacement therapy products. The revised labels are consistent with the FDA's recommendations on March 3, 2015.

 

Additionally, the FDA stated that they will require manufacturers of approved T-replacement products to conduct a well-designed clinical trial to more clearly address the question of whether an increased risk of heart attack or stroke exists among users of T-replacement products. The FDA encouraged manufacturers to work together on conducting a clinical trial, although the FDA will allow manufacturers to work separately if they so choose. The FDA did not address whether it would require sponsors without an approved T-replacement product to conduct a cardiovascular trial prior to being able to file an NDA. However, on March 19, 2015 we had a pre-NDA meeting with the FDA concerning our pivotal Phase 3 trial for LPCN 1021. Based on this meeting with the FDA, we do not expect to be required to conduct a heart attack and stroke risk study or any additional safety studies prior to filing or approval of the NDA for LPCN 1021. If the FDA changes its position, however, and concludes that a cardiovascular trial is required prior to filing an NDA for LPCN 1021, such trial would require substantial financial resources, would delay the regulatory process for LPCN 1021 and our entry into the marketplace, all of which would have a materially adverse impact on our business. Further, if LPCN 1021 receives FDA approval, it is unclear what our post-approval obligations may be, if any, in relation to a heart attack and stroke risk study. We may be required to contribute to an on-going industry-led heart attack and stroke risk study or to conduct our own long-term heart attack and stroke risk study, either of which would require substantial financial resources and would have a materially adverse impact on our business.

 

LPCN 1111 is in a very early stage of development and may not be further developed for a variety of reasons.

 

LPCN 1111 is in a very early stage of development. We have preliminary data demonstrating absorption of LPCN 1111 in dogs and in postmenopausal females. Additionally, we recently completed a Phase 2a study in hypogonadal men. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with LPCN 1111in hypogonadal men and a good dose response. Future studies may not have similar clinical results.

 

In addition, the active ingredient in LPCN 1111 has only been manufactured on a small scale. Scaling up into larger batches could be challenging and our ability to procure adequate material in a timely manner to further develop LPCN 1111 is uncertain. We also may not be able to engage a manufacturer who can supply adequate quantities of the drug substance in compliance with Current Good Manufacturing Practices ("cGMP").

 

We plan to initiate a Phase 2b PK dose finding study in the fourth quarter of 2015. Several factors could significantly affect the prospects for LPCN 1111, including factors relating to the regulatory approval and clinical development challenges for LPCN 1111 discussed above. Assuming a successful Phase 2b study, the Phase 3 programs for an NDA filing for LPCN 1111 could be very long and expensive.

 

 26 

 

 

We will need to grow our company and we may encounter difficulties in managing this growth, which could disrupt our operations.

 

As of June 30, 2015, we had only 17 employees, and we currently expect to experience significant growth in the number of employees and the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of LPCN 1021. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

 

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

 

Our management and directors will be able to exert control over our affairs.

 

As of June 30, 2015, our executive officers and directors beneficially owned approximately 10.9% of our common stock. These stockholders, if they act together, may be able to control our management and affairs and all matters requiring stockholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock.

 

Risks Relating to Our Financial Position and Capital Requirements

 

We have incurred significant operating losses in most years since our inception, and anticipate that we will incur continued losses for the foreseeable future.

 

We have focused a significant portion of our efforts on developing LPCN 1021. We have funded our operations to date through proceeds from sales of common stock, preferred stock and convertible debt and from license and milestone revenues and research revenue from license and collaboration agreements with corporate partners. We have incurred losses in most years since our inception. As of June 30, 2015, we had an accumulated deficit of $75.4 million. Substantially all of our operating losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to incur additional and increasing operating losses over the next couple of years. These losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect our research and development expenses to significantly increase in connection with our pivotal Phase 3 trial of LPCN 1021 and other clinical trials associated with LPCN 1111 and LPCN 1107. In addition, if we obtain marketing approval for LPCN 1021, we may incur significant sales, marketing and outsourced manufacturing expenses. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. 

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

As previously disclosed, on November 25, 2013, the SEC declared effective our Registration Statement on Form S-1 (File No. 333-192069) relating to our public offering. There have not been any material changes in the use of proceeds from what has previously been disclosed relating to such offering.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

None.

 

 27 

 

 

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6.EXHIBITS

 

See the Exhibit Index immediately following the signature page of this report.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Lipocine Inc.
  (Registrant)
   
Dated: August 11, 2015 /s/ Mahesh V. Patel
 

Mahesh V. Patel, President and Chief

Executive Officer

(Principal Executive Officer)

   
Dated: August 11, 2015 /s/ Morgan R. Brown
 

Morgan R. Brown, Executive Vice President

and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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INDEX TO EXHIBITS

 

Exhibit       Incorporation By Reference
Number    Exhibit Description   Form   SEC File No.   Exhibit   Filing Date  
                       
10.1*   Executive Employment Agreement, dated May 15, 2015, by and between Lipocine Inc. and Jyrki Mattila.                  
                       
31.1*   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                  
                       
31.2*   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                  
                       
32.1*   Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (1)                  
                       
32.2*   Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (1)                  
                       
101.INS*   XBRL Instance Document                  
                       
101.SCH*   XBRL Taxonomy Extension Schema Document                  
                       
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document                  
                       
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document                  
                       
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document                  
                       
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document                  
                       
*   Filed herewith                  
(1)  

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

 

                 

 

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