NVUS 2018 Annual Report

antibiotic-only formulation of OP0101 that was non-inferior to standard of care, but with a more favorable dosing regimen (once a day dosing instead of twice a day).

In 2016, Novus began development of OP0102, a second-generation formulation designed to rapidly relieve ear pain (an unmet need in AOE) and eradicate infection with less than seven days of treatment. Novus subsequently paused the OP0102 development program to focus resources on the surfactant program.

RECENT DEVELOPMENTS

Equity Distribution Agreement

2Q $XJXVW WKH &RPSDQ\ HQWHUHG LQWR DQ HTXLW\ GLVWULEXWLRQ DJUHHPHQW WKH ³(TXLW\ 'LVWULEXWLRQ $JUHHPHQW´ ZLWK 3LSHU -DIIUD\ &R ³3LSHU -DIIUD\´ DV VDOHV DJHQW SXUVXDQW WR ZKLFK WKH &RPSDQ\ PD\ RIIHU DQG VHOO IURP WLPH WR time, through Pip HU -DIIUD\ VKDUHV RI WKH &RPSDQ\¶V FRPPRQ VWRFN ,Q FRQQHFWLRQ ZLWK WKH (TXLW\ 'LVWULEXWLRQ $JUHHPHQW RQ $XJXVW WKH &RPSDQ\ ILOHG D SURVSHFWXV VXSSOHPHQW WKH ³ 3URVSHFWXV XQGHU ZKLFK WKH &RPSDQ\ ZDV permitted to offer and sell up to $8.5 million in shares of its common stock. From October 2, 2017 through March 9, 2018, the Company sold 2,463,966 shares of its common stock through Piper Jaffray under the Equity Distribution Agreement and 2017 Prospectus for gross proceeds of approximately $8.5 million. During the year ended December 31, 2018, the Company received approximately $7.5 million in proceeds, net of $232,000 in offering costs. On July 23, 2018, the Company filed a new SURVSHFWXV VXSSOHPHQW WKH ³ 3URVSHFWXV´ XQGHU ZKLFK WKH &RPSDQ\ may offer and sell, from time to time, through Piper Jaffray, up to an additional $8.8 million in shares of its common stock. No shares have been sold under the 2018 Prospectus as of December 31, 2018. CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES 2XU PDQDJHPHQW¶V GLVFXVVLRQ DQG DQDO\VLV RI RXU ILQDQFLDO FRQGLWLRQ DQG UHVXOWV RI RSHUDWLRQV DUH EDVHG RQ RXU financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ( ³ GAAP ´ ). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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 materially from these estimates under different assumptions or conditions. Business Combinations Accounting for acquisitions requires extensive use of estimates and judgment to measure the fair value of the identifiable tangible and intangible assets acquired, including in-process research and development and liabilities assumed. Additionally, we must determine whether an acquired entity is considered a business or a set of net assets because the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination. We accounted for the Reverse Merger with Tokai as a business combination under the acquisition method of accounting. Consideration paid to acquire Tokai was measured at fair value and included the exchange of Tokai ¶V FRPPRQ VWRFN 7KH allocation of the purchase price resulted in recognition of goodwill. Goodwill Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting. Goodwill is not amortized but is evaluated for impairment as of October 1 of each year or earlier if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount. The Company performs its goodwil O LPSDLUPHQW DQDO\VLV DW WKH UHSRUWLQJ XQLW OHYHO ZKLFK DOLJQV ZLWK WKH &RPSDQ\¶V reporting structure and availability of discrete financial informatio The Company performs its annual impairment analysis n. by either comparing the UHSRUWLQJ XQLW¶V HVWLPDWHG IDLU YDOXH WR LWV FDUU\LQJ DPRXQW RU GRLQJ D TXDOLWDWLYH DVVHVVPHQW RI D No further sales will be made under the 2017 Prospectus.

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