CERU: Cerulean Pharma Analysis and Research Report

2018-09-18 - by Asif , Contributing Analyst - 86 views

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Business Overview

Cerulean Pharma is a clinical-stage biopharmaceutical company committed to the advancement of innovative products for women’s reproductive health. Cerulean Pharma is driven by a mission to identify, develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options, improve outcomes and facilitate convenience for women, primarily in the areas of contraception, vaginal health, sexual health and fertility. The company's business strategy is to license or otherwise acquire the rights to differentiated product candidates in such areas, some of which have existing clinical proof-of-concept data, and to take those candidates through advanced stages of clinical development.

Since July of 2017, Cerulean Pharma has assembled a portfolio of clinical-stage and preclinical-stage candidates addressing unmet needs in women’s reproductive health. Cerulean Pharma has used a variety of transaction structures to license, acquire, or obtain an option to acquire the rights to these assets.

The company's two clinical-stage assets were obtained through product license and development agreements:

  • Ovaprene, a non-hormonal monthly contraceptive candidate, was licensed in July of 2017 from ADVA-Tec, Inc.;
  • Topical 5% Sildenafil Citrate Cream, a potential treatment for Female Sexual Arousal Disorder, or FSAD, was licensed in February of 2018 from Strategic Science & Technologies-D, LLC and Strategic Science & Technologies, LLC, or referred to collectively as SST.

The company's preclinical candidates were obtained through the following agreements:

  • In March of 2018, the company entered into a collaboration and option agreement with Orbis Biosciences Inc., or Orbis, covering new injectable contraceptive product candidates;
  • in April of 2018, the company licensed the worldwide rights to a portfolio of preclinical intravaginal rings from Juniper Pharmaceuticals, Inc., or Juniper;
  • in May of 2018, the company acquired Pear Tree Pharmaceuticals, Inc., or Pear Tree, a company that owns the rights to a proprietary vaginal tamoxifen tablet for the treatment of vulvar and vaginal atrophy; and
  • in July of 2018, the company acquired certain assets from Hydra Bioscience, Inc., or Hydra, related to a novel target for non-hormonal contraceptives for both men and women.

The company expect that the bulk of its development expenses over the next two years will support the advancement of its two clinical-stage product candidates, Ovaprene and Topical 5% Sildenafil Citrate Cream. The company initiated a postcoital test, or PCT, clinical trial of Ovaprene in May 2018. The company intend to commence various clinical and other studies related to Topical 5% Sildenafil Citrate Cream in the second half of 2018. Cerulean Pharma is in the process of seeking guidance from the FDA regarding the design of its Phase 2b clinical trial for Topical 5% Sildenafil Citrate Cream. The timing of when the company initiate any clinical studies related to Topical 5% Sildenafil Citrate Cream, including its Phase 2b clinical trial, will be influenced by such guidance. In addition to its clinical-stage programs, the company also intend to fund a portion of the development expenses of its other preclinical stage assets. Any additional product candidates the company may obtain in the future will also require cash to fund their development.

The Ovaprene intravaginal ring, if approved for marketing, requires no intervention at the time of intercourse, does not use hormones and would be intended to provide protection over multiple weeks of use. Ovaprene consists of a silicone-reinforced ring with a soft, absorbable scaffolding that encircles a fluid-permeable barrier. A non-braided, multi-filament mesh in the center of the ring functions as a physical barrier to sperm. The silicone ring also releases two ingredients—ascorbic acid and ferrous gluconate—that act together to create a spermiostatic environment within the vagina.

Ovaprene is a combination product that previously underwent a request for designation process within the Office of Combination Products at the U.S. Food and Drug Administration, or FDA. The FDA designated Center for Devices and Radiological Health, or CDRH, as the lead agency FDA program center for premarket review and product regulation; it also provided notice that CDRH has determined that a Premarket Approval, or PMA, will be required. The company intend to develop Ovaprene based on PMA guidelines. If approved, Ovaprene would represent a new category of birth control. In a PCT pilot study conducted in 20 women and published in The Journal of Reproductive Medicine® in 2009, Ovaprene demonstrated the ability to immobilize sperm and prevent their progression into the cervical mucus.

The ongoing PCT clinical trial of Ovaprene is designed to assess general safety, acceptability, and effectiveness in preventing progressively motile sperm from reaching the cervical canal following intercourse. The study is enrolling 50 couples, with the woman to be evaluated over the course of five menstrual cycles, with a target of having at least 25 women complete a total of 21 visits. Each woman’s cervical mucus will be measured at several points during the study, including a baseline measurement at menstrual cycle 1 that excludes the use of any product. Subsequent cycles and visits will include the use of a diaphragm (menstrual cycle 2) and the Ovaprene non-hormonal vaginal ring (menstrual cycles 3, 4 and 5). Data from the PCT clinical trial is expected to be available in the second half of 2019. If there is demonstration of feasibility in the PCT clinical trial, the company intend to prepare and file an Investigational Device Exemption, or IDE, with the FDA to commence a pivotal clinical trial to support marketing approvals of Ovaprene in the United States, Europe and other countries worldwide.

The company's Topical 5% Sildenafil Citrate Cream, which incorporates sildenafil, the same active ingredient in male erectile dysfunction drug Viagra®, if approved, could be the first FDA-approved FSAD treatment option for women. FSAD is characterized primarily by an inability to attain or maintain sufficient physical sexual arousal, frequently resulting in distress or interpersonal difficulty. Topical 5% Sildenafil Citrate Cream is specifically designed to increase blood flow locally to the vulvar-vaginal tissue in women, leading to a potential improvement in genital arousal response and overall sexual experience.

The company plan to pursue the 505(b)(2) regulatory pathway for Topical 5% Sildenafil Citrate Cream in the U.S. to leverage the existing data and established safety profile of the Viagra® brand. The company intend to commence various clinical and other studies related to Topical 5% Sildenafil Citrate Cream in the second half of 2018. Cerulean Pharma is in the process of seeking guidance from the FDA regarding the design of its Phase 2b clinical trial for Topical 5% Sildenafil Citrate Cream. The timing of when the company initiate any clinical studies related to Topical 5% Sildenafil Citrate Cream, including its Phase 2b clinical trial, will be influenced by such guidance. Currently, the planned Phase 2b study is expected to evaluate the product candidate under real-life conditions in women with FSAD. Clinical endpoints are expected to include patient reported outcomes (PROs) using validated questionnaires, and Cerulean Pharma is seeking input from the FDA on the proposed PROs and questionnaire tools as well.

Financial Overview

The company incurred losses of approximately $11.5 million for the year ended December 31, 2017. As of December 31, 2017, the company had an accumulated deficit of approximately $12.2 million and cash and cash equivalents of $7.6 million. The company also had negative cash flow from operations of approximately $2.5 million for the year ended December 31, 2017. As of June 30, 2018, the company had (a) an accumulated deficit of approximately $23.5 million and (b) cash and cash equivalents of approximately $12.4 million. The company also had negative cash flow from operations of approximately $4.8 million during the six months ended June 30, 2018. As further discussed below, in “Recent Events – Capital Raising,” the company received net proceeds of approximately $10.2 million in the aggregate in early 2018 through the sale of equity securities. The company will need to raise substantial additional capital to continue to fund its operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of its clinical development efforts. If the company do not raise capital as and when needed, the company will not be able to continue development of its product candidates or the company will be required to delay, scale back or eliminate some or all of its development programs or cease operations.

2017 Business Combination and Related Transactions

Until July 20, 2017, its corporate name was Cerulean Pharma Inc., or Cerulean. Cerulean was incorporated in Delaware in December 2005. On July 19, 2017, Cerulean and Daré Bioscience Operations, Inc., a privately held Delaware corporation, or Private Daré, completed a transaction in which the holders of capital stock and securities convertible into capital stock of Private Daré, which holders are collectively referred to as the Private Daré Stockholders, sold their shares of capital stock of Private Daré to Cerulean in exchange for newly issued shares of Cerulean common stock. As a result of that transaction, Private Daré became a wholly owned subsidiary of Cerulean. As of immediately following the closing of that transaction: (i) the Private Daré Stockholders owned approximately 51% of the outstanding common stock of Cerulean, and (ii) the equity holders of Cerulean immediately prior to the closing, collectively, owned approximately 49% of the outstanding common stock of Cerulean. In connection with the transaction, Cerulean changed its name from “Cerulean Pharma, Inc.” to “Daré Bioscience, Inc.” The company refer to the transaction described above as the Cerulean/Private Daré stock purchase transaction.

On July 19, 2017, Cerulean also completed the sale of its proprietary Dynamic Tumor Targeting™ Platform to Novartis Institutes for BioMedical Research, Inc. for $6.0 million.

The company and its wholly owned subsidiaries, Private Daré, Daré Bioscience Australia Pty LTD, and Pear Tree Pharmaceuticals, Inc. operate in one business segment.

On July 20, 2017, the company effected a 1-for-10 reverse stock split of its common stock. All share and per share amounts of common stock, options and warrants in this report, including those amounts included in the accompanying interim consolidated financial statements, have been restated for all periods to give retroactive effect to the reverse stock split

Recent Events

Capital Raising

On January 4, 2018, the company entered into a common stock sales agreement pursuant to which the company may sell up to an aggregate of $10 million worth of shares of its common stock from time to time in “at-the-market” offerings (as defined in Rule 415 promulgated under the Securities Act of 1933, as amended), including in sales made directly on Nasdaq, to or through a market maker or, subject to its prior approval, in negotiated transactions. The company will pay an aggregate commission rate of up to 3% of the gross proceeds of any common stock sold under this agreement. In January and February 2018, the company generated gross proceeds of approximately $1.1 million resulting in net proceeds of an aggregate of approximately $803,000 on sales of 375,000 shares of its common stock under this agreement.

On February 15, 2018, the company closed an underwritten public offering of 5.0 million shares of its common stock and warrants to purchase up to 3.5 million shares of common stock. Each share of common stock was sold together with a warrant to purchase up to 0.70 of a share of common stock, at an exercise price of $3.00 per share. The company generated gross proceeds of approximately $10.3 million, resulting in net proceeds of approximately $9.4 million. The warrants are exercisable immediately and for a period of five years from the date of issuance. The warrants include a price-based anti-dilution provision, which provides that the exercise price of the warrants will be adjusted downward if the company issue or sell (or are deemed to issue or sell) securities at a price that is less than the exercise price in effect immediately prior to such issuance or sale (or deemed issuance or sale), before the expiration of the warrant term. In that case, the new exercise price of the warrants would equal the price at which the new securities are issued or sold (or are deemed to have been issued or sold). In addition, if the company issue, sell or enter into any agreement to issue or sell securities at a price which varies or may vary with the market price of the shares of its common stock, the holders of the warrants shall have the right to substitute such variable price for the exercise price of the warrant then in effect. The warrants are exercisable only for cash, unless the registration statement of which the prospectus registering the offering was part is not effective for the issuance of the shares underlying the warrants, in which case the warrants may be exercised on a cashless basis. The company granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of its common stock and warrants to purchase up to 525,000 shares of its common stock directly from it at a price of $2.05 per common share and accompanying warrant. The company received an overallotment notice from the underwriter for warrants to purchase up to 220,500 shares of its common stock, which shares were issued on February 15, 2018.

Topical 5% Sildenafil Citrate Cream License and Collaboration Agreement

On February 11, 2018, the company entered into a license and collaboration agreement, or the SST License Agreement, with SST. Under the SST License Agreement, subject to its securing an investment of at least $10.0 million by March 31, 2018, which the company secured as a result of the underwritten public offering that closed on February 15, 2018 discussed above, the company obtained a worldwide exclusive, royalty-bearing, sublicensable license to develop and commercialize in all countries and geographic territories of the world, for all indications for women related to female sexual dysfunction and/or female reproductive health, including treatment of female sexual arousal disorder, or the Field of Use, SST’s topical formulation of Topical 5% Sildenafil Citrate Cream as it exists as of the effective date of the SST License Agreement, or any other topically applied pharmaceutical product containing sildenafil or a salt thereof as a pharmaceutically active ingredient, alone or with other active ingredients, but specifically excluding any product containing ibuprofen or any salt derivative of ibuprofen, or the SST Licensed Products.

The company agreed to use commercially reasonable efforts to develop the SST Licensed Products in the Field of Use in accordance with a development plan contained in the SST License Agreement, and to commercialize the SST Licensed Products in the Field of Use.

SST will be eligible to receive tiered royalties based on percentages of annual net sales of the SST Licensed Products in the single digits to the mid-double digits, including customary provisions permitting royalty reductions and offset, and a percentage of sublicense revenue. Cerulean Pharma is responsible for all reasonable internal and external costs and expenses incurred by SST in its performance of the development activities it is required to perform under the SST License Agreement. Further, the SST License Agreement provides that the company shall make base milestone payments to SST ranging from $0.5 million to $18.0 million on achieving certain clinical and regulatory milestones in the U.S. and worldwide, and an additional $10.0 million to $100 million upon achieving certain commercial milestones. Should the company enter into strategic development or distribution partnerships related to the SST Licensed Products, additional milestone payments would be due to SST.

Orbis Development and Option Agreement

On March 12, 2018, the company entered into an exclusive development and option agreement, or the Orbis Agreement, with Orbis, for the development of long-acting injectable etonogestrel contraceptive with 6- and 12-month durations (ORB-204 and ORB-214, respectively). The collaboration represents its first partnership that leverages funds and development work supported to date by investment from a donor and non-profit development community devoted to improving options in women’s reproductive health, positioning it as a committed industry partner to advance innovation that addresses global gaps in therapeutic options. Cerulean Pharma has agreed to pay Orbis $300,000 to conduct the first stage of development work, Stage 1, as follows: $150,000 upon signing the Orbis Agreement, $75,000 at the 50% completion point, not later than 6 months following the date the Orbis Agreement was signed, and $75,000 upon delivery by Orbis of the 6-month batch, not later than 11 months following the date the Orbis Agreement was signed. Upon Orbis successfully completing Stage 1 of the development program and achieving the predetermined target milestones for Stage 1, the company will have 90 days to instruct Orbis whether to commence the second stage of development work, Stage 2. Should the company execute its option to proceed to Stage 2, the company will be obligated to provide additional funding to Orbis for such activities.

The initial development on Orbis’s long-acting injectable contraceptive program was carried out under a subcontract funded by Family Health International, or FHI 360, through a grant from the Bill and Melinda Gates Foundation, or the Gates Foundation. The Gates Foundation and FHI 360 are world leaders in the funding and development of novel contraceptive products and programs. In July of 2017, the Gates Foundation announced a commitment of $375 million over three years in support of Family Planning 2020, a global public/private partnership aimed at providing access to contraception.

An injectable contraceptive is designed to provide discreet, non-implanted protection over periods of months. Limitations of the currently marketed injectable contraceptive is that it provides contraceptive protection for only three months and can delay the ability to get pregnant for up to ten months after receiving the injection. The target product profiles of ORB-204 and ORB-214 include prolonged duration (6 to 12 months), improved ease of use, with an improved side effect profile and predictable return to fertility.

Pre-clinical studies for the 6- and 12-month formulations have been completed to date, including establishing pharmacokinetics and pharmacodynamics profiles. The collaboration with Orbis will continue to advance the program through formulation optimization with the goal of achieving sustained release over the target time period.

The Orbis Agreement provides it with an option to enter into a license agreement for ORB-204 and ORB-214 should upcoming development efforts be successful.

Juniper Exclusive License Agreement

On April 24, 2018, the company entered into an Exclusive License Agreement, or the Juniper License Agreement, with Juniper, pursuant to which Juniper granted it (a) an exclusive, royalty-bearing worldwide license under certain patent rights, either owned by or exclusively licensed to Juniper, to make, have made, use, have used, sell, have sold, import and have imported products and processes; and (b) a non-exclusive, royalty-bearing worldwide license to use certain technological information owned by Juniper to make, have made, use, have used, sell, have sold, import and have imported products and processes. Cerulean Pharma is entitled to sublicense the rights granted to it under the Juniper License Agreement.

The following is a summary of the material terms of the Juniper License Agreement:

  • Upfront Fee. The company paid a $250,000 non-creditable upfront license fee to Juniper in connection with the execution of the Juniper License Agreement.
  • Annual Maintenance Fee. The company will pay an annual license maintenance fee to Juniper on each anniversary of the date of the Juniper License Agreement, the amount of which will be $50,000 for the first two years and $100,000 thereafter, and which will be creditable against royalties and other payments due to Juniper in the same calendar year but may not be carried forward to any other year.
  • Milestone Payments. Cerulean Pharma is required to make potential future development and sales milestone payments of up to $43.8 million (up to $13.5 million in clinical and regulatory milestones and up to $30.3 million in sales milestones) for each product or process covered by the licenses granted under the Juniper License Agreement.
  • Royalty Payments. During the royalty term, the company will pay Juniper mid-single-digit to low double-digit royalties based on worldwide net sales of products and processes covered by the licenses granted under the Juniper License Agreement. In lieu of such royalty payments, the company will pay Juniper a low double-digit percentage of all sublicense income that the company receive for the sublicense of rights under the Juniper License Agreement to a third party. The royalty term, which is determined on a country-by-country basis and product-by-product basis (or process-by-process basis), begins with the first commercial sale of a product or process in a country and terminates on the latest of (1) the expiration date of the last valid claim within the licensed patent rights with respect to such product or process in such country, (2) 10 years following the first commercial sale of such product or process in such country, and (3) when one or more generic products for such product or process are commercially available in such country, except that if there is no such generic product by the 10th year following the first commercial sale in such country, then the royalty term will terminate on the 10 year anniversary of the first commercial sale in such country.
  • Efforts. Cerulean Pharma is required to use commercially reasonable efforts to develop and make at least one product or process available to the public, which efforts include achieving specific diligence requirements by specific dates specified in the Juniper License Agreement.
  • Term. Unless earlier terminated, the term of the Juniper License Agreement will continue on a country-by-country basis until the later of (1) the expiration date of the last valid claim within such country, or (2) 10 years from the date of first commercial sale of a product or process in such country. Upon expiration (but not earlier termination) of the Juniper License Agreement, the licenses granted thereunder will convert automatically to fully-paid irrevocable licenses. Juniper may terminate the Juniper License Agreement (1) upon 30 days’ notice for its uncured breach of any payment obligation under the Juniper License Agreement, (2) if the company fail to maintain required insurance, (3) immediately upon its insolvency or the making of an assignment for the benefit of its creditors or if a bankruptcy petition is filed for or against it, which petition is not dismissed within 90 days, or (4) upon 60 days’ notice for any uncured material breach by it of any of its other obligations under the Juniper License Agreement. The company may terminate the Juniper License Agreement on a country-by-country basis for any reason by giving 180 days’ notice (or 90 days’ notice if such termination occurs prior to receipt of marketing approval in the United States). If Juniper terminates the Juniper License Agreement for the reason described in clause (4) above or if the company terminate the Juniper License Agreement, Juniper will have full access including the right to use and reference all product data generated during the term of the Juniper License Agreement that is owned by it.

Pear Tree Pharmaceuticals Acquisition

On April 30, 2018, the company entered into an Agreement and Plan of Merger, the Merger Agreement, with Pear Tree, Daré Merger Sub, Inc., its wholly-owned subsidiary, or Merger Sub, and Pear Tree stockholders’ representatives. The transactions contemplated by the Merger Agreement closed on May 16, 2018, and as a result, Pear Tree became its wholly owned subsidiary. The company acquired Pear Tree to secure the rights to develop PT-101, a proprietary vaginal formulation of tamoxifen, as a potential treatment for vulvar and vaginal atrophy.

Under the Merger Agreement, upon the closing of the merger, if the Positive Consideration Amount (as defined below) exceeded the Negative Consideration Amount (as defined below), certain former and continuing Pear Tree service providers and former holders of Pear Tree’s capital stock, or the Holders, would have been entitled to receive an amount of cash equal to such excess, and if the Negative Consideration Amount exceeded the Positive Consideration Amount, then the company would be able to offset such excess from future payments that would otherwise be due to the Holders, including the potential payment of $75,000 due on the one-year anniversary of the closing. The Negative Consideration Amount exceeded the Positive Consideration Amount by approximately $132,000. As such, approximately $132,000 will be offset from future payments that would otherwise be due to the Holders. Under the Merger Agreement, Positive Consideration Amount means the sum of $75,000 and the cash and cash equivalents held by Pear Tree at closing, and Negative Consideration Amount means the sum of (i) certain Pear Tree indebtedness and transaction expenses, (ii) transaction expenses of the stockholders’ representatives, and (iii) amounts payable under Pear Tree’s management incentive plan.

Under the Merger Agreement, the Holders will be eligible to receive, subject to certain offsets, tiered royalties, including customary provisions permitting royalty reductions and offset, based on percentages of annual net sales of certain products subject to license agreements the company assumed, and a percentage of sublicense revenue. The company must also make payments to the Holders that are contingent on achieving certain clinical, regulatory and commercial milestones, and may be paid, in its sole discretion, in cash or shares of its common stock. The parties made customary representations, warranties, and covenants in the Merger Agreement, including provisions regarding indemnification.

Liquidity and capital resources

Cerulean Pharma has a history of annual losses from operations, and the company anticipate that the company will continue to incur losses for at least the next several years. As of June 30, 2018, the company had incurred a net loss from operations of $11.2 million, its accumulated deficit was $23.5 million, the company had $12.4 million in cash and cash equivalents and working capital of $11.6 million.

Cerulean Pharma has not generated any revenue to date, and the company cannot anticipate if, and when the company will generate any revenue. The company must obtain regulatory approvals in order to sell any of its products in the future. The company will need to generate sufficient safety and efficacy data on its product candidates in order for them to be attractive assets for potential strategic partners to license or for pharmaceutical companies to acquire, and for it to generate cash and other license fees related to such product candidates. At the same time, the company expect its expenses to increase in connection with the PCT clinical trial of Ovaprene, clinical and other studies related to Topical 5% Sildenafil Citrate Cream, other efforts to advance its portfolio, and any other development activities the company may undertake in the future. The company also expect to continue to incur additional costs given the requirements of operating as a public company.

The company's primary uses of capital are, and the company expect will continue to be, staff-related expenses, the cost of clinical trials and regulatory activities related to its product candidates, costs associated with contract manufacturing services and third-party clinical research and development services, milestone payments due upon the successful advancement of its product candidates, legal expenses, other regulatory expenses and general overhead costs.

The company believe its existing cash balances will be sufficient to satisfy its working capital needs and other liquidity requirements associated with its planned operations for at least the next 12 months.

Based on its current plans and existing cash balances, the company believe that its available funds will be sufficient for it to complete the PCT clinical trial of Ovaprene that commenced in mid-2018 and to advance Topical 5% Sildenafil Citrate Cream into a Phase 2b clinical trial. Cerulean Pharma has based this estimate on assumptions that may prove to be wrong, and the company could deplete its available cash resources sooner than the company currently expect.

The company will continue to require additional capital to continue to fund its operations and to successfully execute its current operating plan, including the development of its current product portfolio, and Cerulean Pharma is currently evaluating a variety of financing options. The company's operating expenses will increase as the company advance into later stages of product development, including a pivotal contraceptive study, and expand its product portfolio. If the company obtain regulatory approval for any of its product candidates, the company will need additional funds to commercialize them. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of clinical development efforts.

The company intend to cover its future operating expenses through cash and cash equivalents on hand and through a combination of equity offerings, debt financings, government or other grant funding, collaborations and strategic alliances. To the extent that the company raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of its current stockholders will be diluted. There can be no assurance that the company will be able to raise additional capital when needed or on terms favorable to it and its stockholders. If Cerulean Pharma is unable to raise additional capital when needed, on favorable terms or at all, the company will not be able to continue development of its product candidates or the company will be required to delay, scale back or eliminate some or all of its development programs or cease operations, any of which would have a negative impact on its financial condition.


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