1. Organization and Operations
The Company
Catabasis Pharmaceuticals, Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics based on the Company's proprietary Safely Metabolized And Rationally Targeted, or SMART, linker drug discovery platform. The Company's SMART linker technology platform enables the Company to engineer product candidates that can simultaneously modulate multiple targets in a disease. The Company's proprietary product candidates impact pathways that are central to diseases where efficacy may be optimized by a multiple target approach. The Company's primary focus is on treatments for rare diseases. The Company has applied its SMART linker drug discovery platform to build an internal pipeline of product candidates for rare diseases and plans to pursue partnerships to develop additional product candidates. The Company was incorporated in the State of Delaware on June 26, 2008.
Liquidity
In June 2015, the Company completed its initial public offering (the "IPO"). All of the shares issued and sold in the IPO were registered pursuant to a registration statement on Form S-1, as amended. An aggregate of 5,750,000 shares of common stock ("Common Stock") registered pursuant to the registration statement were sold at a price to the public of $12.00 per share (including 750,000 shares of Common Stock sold pursuant to the exercise of an overallotment option granted to the Company's underwriters in connection with the IPO). Net proceeds of the IPO were $61.7 million, after deducting underwriting discounts, commissions and offering-related expenses payable by the Company of approximately $7.3 million. In connection with the IPO, all shares of the Company's convertible Preferred Stock ("Preferred Stock") were automatically converted into an aggregate of 9,029,549 shares of its Common Stock and its outstanding warrants to purchase 315,688 shares of Preferred Stock were automatically converted into warrants to purchase 24,566 shares of Common Stock.
In August 2016, the Company entered into a sales agreement with Cowen and Company LLC ("Cowen"), pursuant to which the Company could issue and sell shares of Common Stock for an aggregate maximum offering amount of $10.0 million under an at-the-market ("ATM") offering program. Cowen is not required to sell any specific amount, but acts as the Company's sales agent using commercially reasonable efforts that are consistent with Cowen's normal trading and sales practices. Shares sold pursuant to the sales agreement have been sold pursuant to a shelf registration statement, which became effective on July 19, 2016 (the "Shelf Registration Statement"). The Company pays Cowen 3% of the gross proceeds from any Common Stock sold through the sales agreement.
During the year ended December 31, 2016, the Company sold an aggregate of 368,015 shares of Common Stock pursuant to the ATM offering program, at an average price of $4.35 per share, for gross proceeds of $1.6 million, resulting in net proceeds of $1.4 million after deducting sales commissions and offering expenses. As of December 31, 2016, $8.4 million of common stock remained available under the ATM offering program.
In September 2016, the Company closed an underwritten registered direct offering, in which it sold 2,875,000 shares of Common Stock (including 375,000 shares of Common Stock sold pursuant to the exercise of an option by the underwriter to purchase additional shares) at an offering price of $4.00 per share. The shares sold in the offering were sold pursuant to the Shelf Registration Statement. The Company received aggregate gross proceeds from the offering of $11.5 million, resulting in net proceeds of $10.6 million after deducting underwriting discounts and commissions and offering expenses.
As of December 31, 2016, the Company had an accumulated deficit of $144.1 million. The Company has been primarily involved with research and development activities and has incurred operating losses and negative cash flows from operations since its inception. The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company's products. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates. The Company adopted Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15") in connection with the issuance if its consolidated financial statements for the year ended December 31, 2016. The Company's current operating plan provides for cash to fund operations through March 31, 2018, assuming no unscheduled repayment of indebtedness prior to such date. As the lender has the ability to call the debt prior to the maturity date, that could affect the Company's ability to continue as a going concern for a period of one year from the date of issuance of the financial statements. The Company believes that the condition is mitigated by management's plans which include the ability to reduce or delay expenditures including expenditures for employee incentive compensation and direct program expenses.
The Company will require substantial additional capital to fund operations. The Company has not generated any product revenues and has financed its operations primarily through public offerings and private placements of its equity securities. There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate product revenue or revenues from collaborative partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company's business, results of operations, and financial condition.