Dare Bioscience Inc.

03/31/2025 | Press release | Distributed by Public on 03/31/2025 14:03

Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this report. This following discussion includes forward-looking statements. See PART I "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS," above. Forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors, including, but not limited to, those discussed in Part I, Item 1A of this report under the heading "Risk Factors," which are incorporated herein by reference.
Business Overview
We are a biopharmaceutical company driven by a mission to challenge the status quo, making women's health a priority. We exist to accelerate innovation in women's health and we believe that innovation does not have to start from scratch. With growing awareness around menopause, sexual health, and vaginal health, the conversation is shifting, but access to real, evidence-based solutions still lags behind. We continuously hear from healthcare providers, researchers, and women themselves about the urgent need for access to evidence-based treatment options. Our goal is to fulfill that need by bringing to market as soon as practicable innovative evidence-based treatment solutions that address decades of unmet needs in women's health and enhance outcomes and convenience, primarily in the areas of contraception, sexual health, pelvic pain, fertility, infectious disease, vaginal health and menopause - areas in women's health that we believe represent compelling and meaningful market opportunities. The needed medical treatment solutions we aim to bring to market will primarily be available only with a physician's prescription - either as an FDA-approved product or as a compounded drug under Section 503B of the FDCA. We may also bring to market consumer health products that can be obtained without a physician's prescription. As discussed in more detail below, we are taking action to utilize 503B compounding to bring our
proprietary Sildenafil Cream formulation to market, and we are targeting to make it available in the fourth quarter of 2025. See "-Recent Events-Bringing Sildenafil Cream to Market under Section 503B."
The first FDA-approved product to emerge from our portfolio is XACIATO. We achieved FDA approval of XACIATO three years after acquiring rights to the program. In 2022, we entered into an agreement with Organon, whereby Organon licensed exclusive worldwide rights to develop, manufacture and commercialize XACIATO. Organon commenced U.S. marketing of XACIATO in the fourth quarter of 2023 and, in January 2024, Organon announced that XACIATO was available nationwide. As discussed below, to provide funding for the development of the product candidates in our pipeline, in April 2024, we entered into an agreement with XOMA whereby we sold our rights to all royalty and potential milestone payments based on net sales of XACIATO under our agreement with Organon, net of our obligations to certain third parties, until XOMA receives a specified return on its investment, after which we will share equally in the royalty and milestone payments earned on net sales of XACIATO from Organon.
Our product pipeline includes diverse programs that target unmet needs in women's health in the areas of contraception, sexual health, pelvic pain, fertility, infectious disease, vaginal health and menopause, and aim to expand treatment options, enhance outcomes and improve ease of use for women. We are primarily focused on progressing the development of our existing portfolio of product candidates. However, we also explore opportunities to expand our portfolio and commercial offerings by leveraging assets to which we hold rights or obtaining rights to new assets, with continued focus solely on women's health.
Our current portfolio includes five product candidates in advanced clinical development (Phase 2-ready to Phase 3):
•Ovaprene®, a hormone-free, monthly intravaginal contraceptive;
•Sildenafil Cream, 3.6%, a proprietary cream formulation of sildenafil for topical administration to the female genitalia on demand for the treatment of female sexual arousal disorder (FSAD);
•DARE-HRT1, an intravaginal ring designed to deliver combination menopausal hormone therapy, bio-identical 17β-estradiol and progesterone together, continuously over a 28-day period, for the treatment of moderate-to-severe VMS, also known as hot flashes;
•DARE-VVA1, a proprietary formulation of tamoxifen for intravaginal administration being developed as a hormone-free alternative to estrogen-based therapies for the treatment of moderate-to-severe dyspareunia, or pain during sexual intercourse, a symptom of GSM (formerly called VVA); and
•DARE-HPV, a proprietary, fixed-dose formulation of lopinavir and ritonavir in a soft gel vaginal insert, which we plan to develop for the treatment of genital HPV infection in women, treatment of CIN (also known as cervical dysplasia), and other HPV-related pathologies.
Our portfolio also includes six product candidates in Phase 1 clinical development or that we believe are Phase 1-ready:
•DARE-PDM1, a proprietary hydrogel formulation of diclofenac, a nonsteroidal anti-inflammatory drug, for vaginal administration as a treatment for primary dysmenorrhea;
•Casea S, an investigational biodegradable contraceptive implant designed to control release of etonogestrel for a set period of time (18-24 months) before dissolving;
•DARE-204and DARE-214, injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods, respectively;
•DARE-FRT1, an intravaginal ring designed to deliver bio-identical progesterone continuously for up to 14 days for luteal phase support as part of an in vitro fertilization treatment plan; and
•DARE-PTB1, an intravaginal ring designed to deliver bio-identical progesterone continuously for up to 14 days for the prevention of preterm birth.
In addition, our portfolio includes the following preclinical stage programs:
•DARE-LARC1, a contraceptive implant delivering levonorgestrel with a woman-centered design that has the potential to be a long-acting, yet convenient and user-controlled contraceptive option;
•DARE-RH1, a novel approach to non-hormonal contraception for both men and women by targeting the CatSper ion channel; and
•DARE-PTB2, a novel approach for the prevention and treatment of idiopathic preterm birth through inhibition of a stress response protein.
See ITEM 1. "BUSINESS," in Part I of this report for additional information regarding our product candidates.
Our primary operations consist of research and development activities to advance our portfolio of product candidates through late-stage clinical development and/or regulatory approval. During 2025, we are also taking action to bring our proprietary Sildenafil Cream formulation to market under Section 503B of the FDCA. Until we secure additional capital to fund our operating needs, we will focus our resources primarily on advancement of Ovaprene. In addition, we expect to incur significant research and development expenses for the DARE-LARC1 and DARE-HPV programs, but we also expect such expenses will be supported by non-dilutive funding, with respect to DARE-LARC1, through at least 2026, and with respect to DARE-HPV, through October 2026. See Note 15, "Grant Awards" to the accompanying consolidated financial statements for additional information.
As discussed below, we will need to raise substantial additional capital to continue to fund our operations and execute our current business strategy. Our business is subject to a number of risks common to biopharmaceutical companies (see ITEM 1A. RISK FACTORS in Part I of this report) and the process of developing and obtaining regulatory approvals for prescription drug and drug/device products in the United States and in foreign jurisdictions is inherently uncertain and requires the expenditure of substantial financial resources without any guarantee of success. The commercialization of a product and compliance with applicable laws and regulations requires the expenditure of further substantial financial resources without any guarantee of commercial success. The amount of post-approval financial resources required for commercialization and the potential revenue we may receive from sales of any product will vary significantly depending on many factors, including whether, and the extent to which, we establish our own sales and marketing capabilities and/or enter into and maintain commercial collaborations with third parties with established commercialization infrastructure.
Recent Events
Bringing Sildenafil Cream to Market under Section 503B
We are taking action to bring our proprietary Sildenafil Cream formulation to market under Section 503B of the FDCA, and we expect to begin recording revenue from sales therefrom, in the fourth quarter of 2025. See ITEM 1. "BUSINESS-503B Compounding" in Part I of this report for additional information.
Bringing our proprietary Sildenafil Cream formulation to market under Section 503B is part of our dual-path approach to bring some of our proprietary formulations to market as soon as practicable because we believe women should not have to wait for a needed solution while we continue to pursue FDA approval of our product candidates. In parallel, we will continue to pursue FDA approval of Sildenafil Cream as a treatment for FSAD. Bringing our proprietary Sildenafil Cream formulation to market via 503B compounding will not impact the regulatory process or commercial opportunity for an FDA-approved Sildenafil Cream product. Rather, if successful, 503B compounding will be a source of revenue from existing assets that is non-dilutive to our stockholders.
To bring our proprietary Sildenafil Cream formulation to market under Section 503B, among other things, we will need to successfully identify and enter into satisfactory arrangements with one or more 503B-registered outsourcing facilities, and we intend to focus our resources on provider-to-provider education about disease state and our proprietary Sildenafil Cream formulation, leveraging online resources, including web-based ordering platforms and collaborations with telehealth platforms and providers. We anticipate needing to invest no more than $1.0 million to support a 503B-registered outsourcing facility with technology-transfer activities specific to our Sildenafil Cream formulation, activate an awareness campaign, and facilitate access to our proprietary Sildenafil Cream formulation as an option for providers and women. We are targeting the second quarter of 2025 to provide an update on the strategic partnerships to achieve these objectives.
Noncompliance with Nasdaq's Minimum Market Value of Listed Securities Requirement
On August 12, 2024, we received a letter from The Nasdaq Stock Market LLC, or Nasdaq, notifying us that we do not meet the requirement in Nasdaq Listing Rule 5550(b)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires a company listed on Nasdaq to maintain a minimum market value of listed securities of $35.0 million, which we refer to as the Minimum MVLS Rule. We were provided an initial period of 180
calendar days, or until February 10, 2025, to regain compliance with the Minimum MVLS Rule.
On February 13,2025, Nasdaq's Listing Qualifications Department notified us that because the we did not regain compliance with the Minimum MVLS Rule by February 10, 2025, our common stock is subject to delisting from Nasdaq unless we timely requests a hearing before the Nasdaq Hearing Panel, or the Panel.
On February 20, 2025, we requested a hearing before the Panel, which request stayed the delisting of our common stock pending the decision of the Panel following the hearing and the expiration of any extension period that may be granted by the Panel. The hearing occurred on March 25, 2025. Pursuant to published Nasdaq guidance, the Panel typically issues its decision within 30 days of the hearing.
There can be no assurance that the Panel will grant us any extension period within which to regain compliance with the Minimum MVLS Rule, or if any extension period is granted, that we will regain compliance with the Minimum MVLS Rule within such extension period, or that we will be successful in otherwise maintaining the listing of our common stock on The Nasdaq Capital Market. See the risk factor titled, If we fail to regain and maintain compliance with the continued listing requirements of The Nasdaq Capital Market, our common stock could be suspended and delisted, which could, among other things, limit demand for our common stock, substantially impair our ability to raise additional capital and have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock, under "Risks Related to Our Securities" in ITEM 1A. RISK FACTORS of this report.
NICHD Performance under the CRADA for the Pivotal Phase 3 Study of Ovaprene
See ITEM 1. "BUSINESS- Our Pipeline: Clinical-Stage Programs- Ovaprene®- Pivotal Phase 3 Clinical Study" in Part I of this report for a discussion of the impact of executive orders and other actions taken by the new U.S. presidential administration in the first quarter of 2025 on the Phase 3 clinical study of Ovaprene and NICHD's ability to carry out its responsibilities under the CRADA.
Theramex Co-Development and Licensing Agreement
See ITEM 1. "BUSINESS- Strategic Agreements for Pipeline Development- Theramex Co-Development and License Agreement" in Part I of this report for a discussion of the agreement we entered into with Theramex in February 2025.
Receipt of Grant Funding Installment to Support DARE-LARC1
In December 2024, we received a payment of $2.5 million as the latest installment under a grant to advance the development of our investigational contraceptive DARE-LARC1 in nonclinical proof-of-principle studies and other IND-enabling work to allow for the submission of an IND application with the FDA, approval of which will be required to commence testing in humans. Under the terms of the grant agreement, we may receive a total of up to approximately $49.0 million to support nonclinical development of DARE-LARC1. As of the filing date of this report, we had received a cumulative total of approximately $31.8 million of such total potential amount under the grant agreement. Additional payments are conditioned on the program meeting specified development and reporting milestones. See Note 15, "Grant Awards- Other Non-Dilutive Grant Funding- 2021 DARE-LARC1 Grant Agreement" to the accompanying consolidated financial statements for additional information regarding the grant agreement.
Non-Dilutive Funding Awards for DARE-HPV
In December 2024, we received a notice of award from the National Institute of Allergy and Infectious Diseases (NIAID), a component of the NIH, that we were awarded a $1.0 million grant in support of non-clinical activities for the development of DARE-HPV for an initial project year of December 2024 through November 2025, and that an additional $1.0 million was recommended for a subsequent year, subject to the availability of funds and satisfactory progress of the project, as determined by NIAID.
In October 2024, we entered into a subaward agreement with National Collegiate Inventors and Innovators Alliance, Inc. d/b/a VentureWell under which we are entitled to receive up to $10.0 million in milestone-based payments subject to our achievement of specified research activities and objectives relating to advancement of our DARE-HPV program, including commencement of a Phase 2 clinical study to evaluate the safety and preliminary efficacy of DARE-HPV for the clearance of high-risk HPV infection in women, over an approximately 24-month period ending in October 2026. We anticipate that more than half of the award amount will become payable to us during the first 12 months of the performance period under the subaward agreement. To date, we have received payments totaling $2.5 million. The subaward agreement was the result of our selection as an awardee by an agency within the HHS.
Grant Agreement to Support the Ovaprene Phase 3 Study and Identification & Development of a New Non-Hormonal Contraceptive Candidate
In November 2024, we entered into a grant agreement with the Foundation, under which we were awarded a new grant of up to approximately $10.7 million to support (i) expansion of the number of study sites in the ongoing Phase 3 clinical trial of Ovaprene, and (ii) activities that will aid in the identification and development of a novel non-hormonal intravaginal contraceptive candidate, suitable for and acceptable to women in low- and middle-income country settings who need or would prefer to use such a product to avoid an unplanned pregnancy. We received an initial payment under the grant agreement of approximately $5.4 million in November 2024. Additional payments are contingent upon our achievement of specified development and reporting milestones during the term of the grant agreement, which extends through October 2026. See Note 15, "Grant Awards--Other Non-Dilutive Grant Funding--2024 Contraceptive Product Candidate Grant Agreement" to the accompanying financial statements for additional information regarding the grant agreement.
Equity Line
In October 2024, we entered into a purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park. Under the terms and subject to the conditions of the purchase agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15.0 million in shares of our common stock. Such sales of our common stock to Lincoln Park, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 24-month period commencing on November 27, 2024, which we refer to as the Commencement Date.
From time to time after the Commencement Date, at our sole discretion, on any business day selected by us on which the closing sale price of our common stock is not below $0.50 per share, we may direct Lincoln Park to purchase up to 30,000 shares of our common stock (or up to 35,000 and 40,000 shares if the closing sale price of our common stock on the day on which we initiate a purchase is not below $5.00 or $7.50, respectively, subject to customary adjustments for stock splits and similar transactions) at a purchase price equal to the lower of (i) the lowest sale price of our common stock on the business day on which we initiate the purchase and (ii) the average of the three lowest closing sale prices of our common stock during the 10-business day period immediately preceding the business day on which we initiate the purchase. However, Lincoln Park's maximum commitment in any single purchase may not exceed $500,000. In addition, we may also direct Lincoln Park to purchase other amounts of common stock as accelerated purchases and as additional accelerated purchases, subject to limits specified in the purchase agreement, at a purchase price per share calculated as specified in the purchase agreement, but in no case lower than the minimum price per share we stipulate in our notice to Lincoln Park initiating these purchases.
In addition, under applicable Nasdaq rules, we may not issue or sell to Lincoln Park under the purchase agreement more than 1,711,172 shares of our common stock, which we refer to as the Exchange Cap, unless (i) we obtain stockholder approval to issue shares in excess of the Exchange Cap or (ii) the average price of all applicable sales of our common stock to Lincoln Park under the equity line agreement equals or exceeds $3.59 per share (which represents the lower of (A) the official closing price per share of our common stock on Nasdaq immediately preceding the signing of the purchase agreement and (B) the average official closing price of our common stock on Nasdaq for the five consecutive trading days ending on the trading day immediately preceding the date of the purchase agreement). We may also not sell shares to Lincoln Park under the purchase agreement if it would result in Lincoln
Park beneficially owning more than 4.99% of our then outstanding shares of common stock, which limitation we refer to as the beneficial ownership cap. Lincoln Park, upon written notice to us, may increase the beneficial ownership cap to up to 9.99%. Any increase in the beneficial ownership cap will not be effective until the 61st day after such written notice is delivered to us.
In connection with entering into the purchase agreement, we issued 137,614 shares of our common stock to Lincoln Park in consideration for its commitment to purchase shares thereunder.
U.S. Government Policy and Funding and Regulatory Uncertainty
There may be significant future effects on the women's health sector and the pharmaceutical and biopharmaceutical industries as a result of federal policy and regulatory changes under the new U.S. presidential administration, including in areas relating to regulatory framework and oversight, research and development funding, drug pricing reform, global trade policy and tariffs, and others. We continue to monitor these developments, which could result in new opportunities as well as challenges. The potential effects of these changes on our business could be significant. Our business strategy has included seeking non-dilutive sources of funding and collaborations to support product development, and we have received federal government grants and awards in support of several of our development programs. Our pivotal Phase 3 study of Ovaprene and our DARE-HPV program are being significantly supported by federal government funding. Our pivotal Phase 3 study of Ovaprene is being conducted, in part, under our CRADA with NICHD, and advancement of our DARE-HPV program is being supported by federal government funding under our October 2024 subaward agreement with VentureWell and a December 2024 grant award from NIAID. Our subaward agreement will automatically terminate if the prime agreement from which the federal government funding flows is terminated and may be terminated for convenience by VentureWell if the prime agreement is materially changed in a way that would materially adversely affect VentureWell financially and, if so terminated, we would be paid only for milestones achieved up to the date of termination. As discussed in ITEM 1. "BUSINESS- Our Pipeline: Clinical-Stage Programs- Ovaprene®- Pivotal Phase 3 Clinical Study" in Part I of this report, executive orders and other actions taken by the U.S. presidential administration in the first quarter of 2025 have negatively impacted the Phase 3 study and NICHD's ability to carry out its responsibilities under the CRADA, and future developments, including relating to executive orders issued in January 2025, could have a material adverse impact on the study. Given the high level of uncertainty regarding federal policy and enforcement and regulatory changes under the new U.S. presidential administration and that circumstances are rapidly evolving, including as a result of legal challenges to federal government actions, we are not able to reasonably predict the potential impact on our business at this time.
Reverse Stock Split
On July 1, 2024, we effected a 1-for-12 reverse split of our issued common stock. At the effective time of the reverse stock split, every 12 shares of our common stock was automatically reclassified and combined into one share of our common stock. No fractional shares were issued as a result of the reverse stock split. Stockholders who would have otherwise been entitled to receive a fractional share instead automatically had their fractional interests rounded up to the next whole share. All common stock share and per share data presented in this report for prior periods have been retroactively adjusted to reflect the impact of the reverse stock split, without giving effect to whole shares issued in lieu of fractional shares. See Notes 2 and 9 to the accompanying consolidated financial statements for additional information.
Financial Overview
Revenue
Our revenue reflects payments earned under our license agreement with Organon to commercialize XACIATO. Pursuant to our traditional royalty purchase agreement with XOMA, from and after April 1, 2024, all of the royalties and potential milestone payments we would otherwise have the right to receive under our license agreement with Organon based on net sales of XACIATO will be paid to XOMA, net of payments made under our exclusive license agreement with third-party licensors TriLogic Pharma, LLC and MilanaPharm LLC and under our royalty interest financing agreement with UiE. Accordingly, from and after April 1, 2024, any revenue we recognize under our license agreement with Organon based on net sales of XACIATO will be payable to UiE and recognized as non-cash royalty revenue.
In the future, we may generate revenue from license fees, milestone payments, and research and development payments in connection with strategic collaborations, as well as product sales of future products, if any. Our ability to generate such revenue will depend on the extent to which clinical development of our product
candidates is successful and we or a strategic collaborator receive regulatory approvals to market such product candidates, as well as the eventual commercial success of the approved products. If we fail to complete the development of our product candidates in a timely manner, or to receive regulatory approval for such product candidates, our ability to generate future revenue and our results of operations would be materially adversely affected.
Research and Development Expenses
The majority of our operating expenses during a fiscal year are research and development, or R&D, expenses, a significant portion of which, excluding those funded by non-dilutive grants, are associated with the clinical development for our product candidates that have reached the human clinical study development phase. We expect our R&D expenses will continue to represent the majority of our operating expenses for at least the next twelve months. R&D expenses consist primarily of:
•direct program costs, including:
◦expenses incurred under agreements with clinical research organizations (CROs), investigative sites and other third parties that assist in the conduct of our clinical trials and nonclinical studies and conduct other R&D and regulatory affairs activities on our behalf,
◦contract manufacturing expenses, primarily for the production of materials for use in our clinical trials and nonclinical studies,
◦transaction costs related to acquisitions of companies, technologies and related intellectual property, and other assets, and
◦milestone payments due to third parties under acquisition and in-licensing arrangements based on our product candidates' achievement of R&D and regulatory milestones specified therein, and
•indirect costs, including:
◦personnel-related costs, including salaries, bonuses, benefits, payroll taxes, and stock-based compensation expenses for employees engaged in R&D functions,
◦the costs of services performed by third parties, including consulting services,
◦facilities-related costs, including rent and maintenance costs, and insurance, depreciation, supplies, and miscellaneous expenses, and
◦costs related to travel, conference participation, service contracts, information technology, dues and subscriptions.
We recognize R&D expenses as they are incurred. External expenses are recognized based on our evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the amount of services that has been performed at each reporting date. Nonrefundable payments we make prior to the receipt of goods or services to be used in R&D are recognized as an expense as the related goods are delivered or services are performed. Milestone payments to third parties under acquisition, license, and option agreements are recognized as they are incurred or when we deem their incurrence to be probable.
At any one time, we are working on multiple programs at various stages of development. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each development program on an ongoing basis based on our cash resources and in response to the results of ongoing and future clinical trials and preclinical studies, regulatory developments, and our ongoing assessments as to the commercial potential of each product candidate. We generally track direct R&D costs on a specific basis and will present direct costs for our key development programs on a program-by-program basis. We plan to present direct costs for all other programs on a consolidated basis generally by stage of development. Specifically, we will present consolidated direct costs for (a) such programs that are in (i) advanced clinical development (Phase 2-ready to Phase 3), (ii) Phase 1 clinical development or that we believe are Phase 1-ready, and (iii) preclinical stage, and (b) other development programs. We do not track indirect costs on a program-by-program basis because those costs generally are deployed across multiple development programs.
Investment in the development of and seeking regulatory approval for our clinical-stage and Phase 1-ready product candidates and the development of any other potential product candidates we may advance into and through clinical trials in the pursuit of regulatory approvals, will increase our R&D expenses. Activities associated with the foregoing will require a significant increase in investment in regulatory support, clinical supplies, inventory build-up related costs, and the payment of success-based milestones to licensors. In addition, we continue to evaluate
opportunities to acquire or in-license other product candidates and technologies, which may result in higher R&D expenses due to, among other factors, milestone payments.
Until the first commercial sale of XACIATO, we recognized contract manufacturing expenses associated with producing commercial supplies of XACIATO and costs of regulatory affairs activities related to XACIATO as R&D expenses. Following the first commercial sale of XACIATO, and during the interim period when we were the NDA holder of XACIATO and provided commercial supplies of XACIATO to Organon, those expenses were recognized as general and administrative expenses.
We recognize the Australian Research and Development Tax Incentive Program, or the Tax Incentive, as a reduction of R&D expenses (contra-R&D expense). The amounts are determined based on our eligible R&D expenditures and are non-refundable, provided that in order to qualify for the Tax Incentive the filing entity must have revenue of less than AUD $20.0 million during the tax year for which a reimbursement claim is made and cannot be controlled by an income tax exempt entity. The Tax Incentive is recognized when there is reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured or reliably estimated.
We have received, and may in the future receive, funding through grants and other financial awards from governmental entities, private foundations and other organizations that support activities related to the development of certain of our product candidates. As we incur eligible expenses under those grants or awards, we recognize grant funding in our statements of operations as a reduction to R&D expenses (contra-R&D expense). For more information, see Note 2, "Basis of Presentation and Summary of Significant Accounting Policies - Grant Funding" to the accompanying consolidated financial statements. For the years ended December 31, 2024 and 2023, we recognized contra-research and development expense of approximately $8.8 million and $9.3 million, respectively.
Conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may not obtain regulatory approval for any product candidate on a timely or cost-effective basis, or at all. Our future R&D expenses and the probability of success of our product candidates may be affected by numerous factors, including the number, scope, rate of progress, expense, and results of our clinical trials and nonclinical R&D activities, the countries in which our clinical trials are conducted, the phase of clinical development of our product candidates, the cost and timing of manufacturing our product candidates, our ability to scale up manufacturing as needed to support later-stage clinical trials and, if approved, commercialization of our product candidates, the extent of changes in government regulation and regulatory guidance relating to development and approval of our product candidates, the timing, receipt, and terms of any clearances to conduct clinical trials and any marketing approvals from applicable regulatory authorities, competition and commercial viability of our product candidates, the extent to which we establish and maintain intellectual property rights, the extent to which we establish and maintain license, collaboration, or other arrangements. As a result, we cannot accurately determine the duration and completion costs of development projects or if, when and to what extent we will generate revenue from any products we develop.
License Fee Expenses
License fee expenses consist of up-front license fees and annual license fees due under our in-licensing arrangements.
General and Administrative Expenses
General and administrative expenses consist of personnel costs, facility expenses, expenses for outside professional services, including legal, audit and accounting services, commercial-readiness expenses, and milestone expenses. Personnel costs consist of salaries, benefits and stock-based compensation. Facility expenses consist of rent and other related costs. Commercial-readiness expenses consist of consultant and advisor costs. Milestone expenses consist of amounts that become due to third parties under our in-license or other agreements under which we acquired rights to technology or other intellectual property we use in a product based on the product's achievement of commercial milestones specified therein.
Recently Issued Accounting Standards
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations and cash flows is discussed in Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements that we prepared in accordance with accounting principles generally accepted in the United States. Preparing these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. Historically, revisions to our estimates have not resulted in a material change to our financial statements.
While our significant account policies are described in more detail in Note 2 to our consolidated financial statements included herein, we believe that the following accounting policies are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.
•Revenue Recognition;
•Stock-Based Compensation;
•Sale of Future Payments;
•Grant Funding; and
•Clinical Trial Expense Accruals.
Revenue Recognition
Under ASC Topic 606, or ASC 606, we recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, we perform five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligations. At contract inception, we assess the goods or services agreed upon within each contract, assess whether each good or service is distinct, and determines those that are performance obligations. We then recognize as revenue the amount of the transaction price allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In a contract with multiple performance obligations, we develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations. The estimation of the stand-alone selling price(s) may include estimates regarding forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time. Any change made to estimated progress towards completion of a performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.
Collaboration Revenues. We enter into collaboration and licensing agreements under which we out-license certain rights to our products or product candidates to third parties. The terms of these arrangements typically include payment of one or more of the following to us: non-refundable, up-front license fees; development, regulatory and/or commercial milestone payments; and royalties on net sales of licensed products. To date, we have not recognized any collaboration revenues.
License Fee Revenue. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in a contract, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. To date, we have recognized $11.0 million in license fee revenue, all from payments received under our license agreement with Organon to commercialize XACIATO.
Milestones.At the inception of each arrangement in which we are a licensor and that includes developmental, regulatory or commercial milestones, we evaluate whether achieving the milestones is considered probable and
estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments not within our control, such as where achievement of the specified milestone depends on activities of a third party or regulatory approval, are not considered probable of being achieved until the specified milestone occurs. To date, we have recognized $1.8 million of milestone revenue, which represents the $1.8 million milestone payment we received under our license agreement with Organon in connection with the first commercial sale of XACIATO.
Royalties.For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have recognized approximately $18,000 of royalty revenue.
Product Supply. Arrangements that include a promise for future supply of product for commercial supply at the licensee's discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. We evaluate whether we are the principal or agent in the arrangement based on the degree we control the specified product at any time before transfer to the customer. If we are in the capacity of a principal, revenues are recognized on a gross basis. If we are in the capacity of an agent, revenues are recognized on a net basis. To date, we have recognized approximately $205,000 in revenue (and $201,000 in other expense attributed to the cost of revenue) associated with our XACIATO product supply arrangement, which is recorded in other income in our consolidated statements of operations and comprehensive loss. In connection with the transfer of the NDA for XACIATO to Organon in December 2023, that arrangement was terminated and we will not recognize product supply revenue associated with that arrangement in the future.
Stock-Based Compensation
The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award (determined using a Black-Scholes option pricing model), and is recognized as an expense over the requisite service period (generally the vesting period of the award). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including estimating the market price volatility of our common stock, future stock option exercise behavior and requisite service periods. Due to our limited history of stock option exercises, we applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life.
Stock options or stock awards with performance conditions issued to non-employees who are not directors are measured on the grant date and recognized when the performance is complete. Refer to Note 10 to our consolidated financial statements included in this report for more information.
Sale of Future Payments
On April 29, 2024, we entered into and closed a traditional royalty purchase agreement and a synthetic royalty purchase agreement with XOMA (US) LLC ("XOMA") pursuant to which we sold our right, title and interest in the following to XOMA (i) all future net royalty and potential net milestone payments we would otherwise receive from Organon based on net sales of XACIATO, (ii) a portion of future net sales of Ovaprene and a portion of a potential future milestone payment we may receive under our license agreement with Bayer related to Ovaprene, and (iii) a portion of future net sales of Sildenafil Cream. We received $22.0 million from XOMA in connection with entering into the royalty purchase agreements. Under the terms of the royalty purchase agreements, if XOMA receives total payments under the royalty purchase agreements equal to an amount that exceeds $88.0 million, XOMA will pay $11.0 million to us for each successive $22.0 million XOMA receives under the royalty purchase agreements. If we earn any such payments, they will be accounted for as variable consideration under ASC 606, Revenue Recognition,and will be recorded as income when such payments are received.
We evaluated the expected cash flows to XOMA from royalties and milestone payments expected to be earned on XACIATO, Ovaprene and Sildenafil Cream over the period that we expect it will take for XOMA to receive total payments of $88.0 million under the royalty purchase agreements, and determined to allocate the $22.0 million we received from XOMA in connection with entering into the royalty purchase agreements, net of transaction costs of approximately $1.6 million, to the traditional royalty purchase agreement for XACIATO, and none of it to the synthetic royalty purchase agreement for Ovaprene and Sildenafil Cream. Until such time that we are certain of commercialization, the cash flows to XOMA from royalties and milestone payments expected to be earned on Ovaprene and Sildenafil Cream are expected to be de minimis over the period that we expect it will take for XOMA to
receive total payments of $88.0 million under the royalty purchase agreements because, unlike XACIATO, Ovaprene and Sildenafil Cream are not commercial assets at this time.
We determined that the traditional royalty purchase agreement represents a complete sale of a nonfinancial asset (our right, title and interest in and to future payments related to commercial sales of XACIATO) for which XOMA bears all benefit and for which we have no obligations or involvement going forward, and therefore should be accounted for within the scope of Accounting Standards Codification ("ASC") 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. The $22.0 million net of transaction costs of approximately $1.6 million was recorded as other income on our consolidated statements of operations and comprehensive loss.
Grant Funding
We receive certain research and development funding under grants issued by the U.S. government and a not-for-profit foundation. In accordance with a policy we adopted in 2018, we recognize grant funding in the statements of operations as a reduction to R&D expense, or contra R&D, as the related costs are incurred to meet those obligations over the grant period. Grant funding payments received in advance of research and development expenses incurred are recorded as deferred grant funding liability in our consolidated balance sheets. For the years ended December 31, 2024 and December 31, 2023, there were no material adjustments to our prior period estimates of grant funded research and development expenses. Refer to Note 15 to our consolidated financial statements included in this report for more information.
Clinical Trial Expense Accruals
We estimate expenses resulting from our obligations under contracts with vendors, CROs and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided.
We record clinical trial expenses in the period in which services are performed and efforts are expended. We accrue for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We estimate accruals through financial models taking into account discussion with applicable personnel and outside service providers as to the progress of trials. During the course of a clinical trial, we may adjust our clinical accruals if actual results differ from our estimates. We estimate accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. Our clinical trial accruals are dependent upon accurate reporting by CROs and other third-party vendors. Although we do not expect our estimates to differ materially from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low for any particular period. For the years ended December 31, 2024 and December 31, 2023 there were no material adjustments to our prior period estimates of accrued expenses for clinical trials.
Results of Operations
Comparison of the Years ended December 31, 2024 and 2023
The following table summarizes our consolidated results of operations for the years ended December 31, 2024 and 2023, and the change in the applicable line item in terms of dollars and percentage:
Years Ended
December 31,
Change
2024 2023 $ %
Revenue
License fee revenue $ - $ 1,000,000 $ (1,000,000) (100) %
Milestone revenue - 1,800,000 (1,800,000) (100) %
Royalty revenue
9,784 7,885 1,899 24 %
Total revenue 9,784 2,807,885 (2,798,101) (100) %
Operating expenses
General and administrative expenses
$ 9,156,061 $ 12,109,691 $ (2,953,630) (24) %
Research and development expenses
14,205,208 21,538,074 (7,332,866) (34) %
License fee expenses 100,000 100,000 - - %
Total operating expenses 23,461,269 33,747,765 (10,286,496) (30) %
Loss from operations (23,451,485) (30,939,880) 7,488,395 24 %
Other income (expense)
Sale of royalty and milestone rights, net 20,379,376 - 20,379,376 100 %
Other income (expense), net
(981,490) 778,489 (1,759,979) (226) %
Net loss $ (4,053,599) $ (30,161,391) $ 26,107,792 (87) %
Revenues
Revenues for the years ended December 31, 2024 and 2023 related to our license agreement with Organon to commercialize XACIATO. For 2023, we recognized $1.0 million in license fee revenue upon execution of the amendment to the license agreement in July 2023, $1.8 million in milestone revenue in connection with the first commercial sale of XACIATO, and approximately $7,900 in royalties from net sales of XACIATO in the fourth quarter.
General and administrative expenses
The decrease of approximately $3.0 million in general and administrative expenses from 2023 to 2024 was primarily attributable to decreases in (i) commercial-readiness expenses of approximately $1.6 million, (ii) personnel costs of approximately $0.6 million due to reduced headcount, (iii) stock-based compensation expense of approximately $0.3 million, (iv) a one-time fraud loss in the first quarter of 2023 of approximately $0.2 million, net of proceeds we received under an insurance policy, related to criminal fraud commonly referred to as "business email compromise fraud" to which we were subject, and (v) professional services expenses of approximately $0.2 million.
Research and development expenses
The following table summarizes our R&D expenses for the periods indicated, together with the changes in those items in terms of dollars and percentage:
Years Ended
December 31, 		Change
2024 2023 $ %
Direct program costs:
Ovaprene (1)
$ 8,518,495 $ 3,762,611 $ 4,755,884 126 %
Sildenafil Cream, 3.6% 2,361,052 7,746,264 (5,385,212) (70) %
Other advanced clinical stage programs 1,321,888 3,498,955 (2,177,067) (62) %
Phase 1 and Phase 1-ready clinical stage programs (1)
761,721 2,912,857 (2,151,136) (74) %
Preclinical stage programs (1)
4,233,762 7,432,439 (3,198,677) (43) %
Other development programs 27,542 189,706 (162,164) (85) %
Contra R&D expenses (2)
(7,685,533) (8,965,347) 1,279,814 (14) %
Total direct program costs 9,538,927 16,577,485 (7,038,558) (42) %
Indirect costs:
Personnel-related (including stock compensation) 5,611,057 5,566,016 45,041 1 %
Outside services (including consulting) 543 38,114 (37,571) (99) %
Facilities-related (including depreciation) 78,168 86,239 (8,071) (9) %
Other indirect R&D costs 176,061 259,936 (83,875) (32) %
Contra R&D expenses (1,199,548) (989,716) (209,832) 21 %
Total indirect R&D costs 4,666,281 4,960,589 (294,308) (6) %
Total R&D expenses $ 14,205,208 $ 21,538,074 $ (7,332,866) (34) %
(1)The applicable program(s) receive grant funding and/or the Tax Incentive. The amount of R&D expense for the period indicated is shown on a gross basis (i.e., without deducting the amount of contra R&D expense for the applicable program(s). See footnote (2) below.
(2)These contra R&D expenses were recognized as follows for the years ended December 31, 2024 and 2023: (a) Ovaprene, $0.2 million, and $0, respectively; (b) Other advanced clinical stage programs, $0 and $0.1 million, respectively, (c) Phase 1 and Phase 1-ready clinical stage programs, $1.3 million and $0.9 million, respectively; and (d) Preclinical stage programs, $6.2 million and $7.9 million, respectively.
The decrease of approximately $7.3 million in R&D expenses from 2023 to 2024 was primarily attributable to a decrease in costs related to development activities for Sildenafil Cream as a result of the completion of the Phase 2b RESPOND clinical study completed in June 2023, partially offset by increases in costs related to our ongoing pivotal Phase 3 clinical trial of Ovaprene and manufacturing and regulatory affairs activities for Ovaprene. Contra-R&D expenses for the years ended December 31, 2024 and 2023 primarily offset direct program costs for DARE-LARC1, one of our preclinical stage programs.
License fee expenses
For each of the years ended December 31, 2024 and December 31, 2023 we accrued or paid $100,000 of the annual license maintenance fee payable under our license agreement related to DARE-HRT1. For further discussion of this annual license maintenance fee, see Note 3 "Strategic Agreements-Strategic Agreements for Pipeline Development" to the accompanying consolidated financial statements.
Other income (expense)
Sale of royalty and milestone rights, net
The $20.4 million of other net income for 2024 represents the $22.0 million payment to us in April 2024 under the Royalty Purchase Agreements, net of approximately $1.6 million in transaction costs.
Other income (expense), net
The decrease of $1.8 million in other income (expense) for 2024 as compared to 2023 was primarily due to a loss on the disposal of a fixed asset of $0.6 million, interest expense related to the Royalty Interest Agreement in 2024 of approximately $0.8 million, and decreased interest earned on cash balances in 2024.
Liquidity and Capital Resources
Plan of Operations and Future Funding Requirements
At December 31, 2024, we had an accumulated deficit of approximately $175.3 million, cash and cash equivalents of approximately $15.7 million, and a working capital deficit of approximately $3.2 million. We will need additional capital to fund our operating needs into the third quarter of 2025 and to meet our current obligations as they become due. All of our cash and cash equivalents at December 31, 2024 represented funds received under grant agreements that generally may be applied solely toward direct costs of carrying out the respective projects under those grant agreements.
We prepared the accompanying consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. We have a history of losses from operations and we expect significant losses from operations, net losses, and negative cash flows from operations for at least the next several years as we continue to develop and seek to bring to market our product candidates. We are dependent on securing substantial additional capital from one or more third-party sources to satisfy our working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying consolidated financial statements. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.
We are in ongoing discussions with potential third-party sources of additional capital, and we will continue to evaluate and may pursue a variety of capital raising options, including sales of equity (including sales of our common stock under our equity line arrangement and in ATM offerings (see "-Capital Resources," below)), debt financings, government or other grant funding, collaborations, structured financings, and strategic alliances or other similar types of arrangements. However, our ability to raise additional capital will depend on a variety of factors, many aspects of which are not entirely within our control, and there can be no assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Raising additional capital may cause substantial dilution to our stockholders, restrict our operations or require us to relinquish rights in our technologies or product candidates and their future revenue streams. See the risk factors under "Risks Related to Our Financial Position and Capital Needs" in ITEM 1A. RISK FACTORS of this report.
Ifwe cannot raise capital when needed, on favorable terms or at all, we will not be able to continue development of our product candidates, will need to reevaluate our planned operations and may need to delay, scale back or eliminate some or all of our product candidate programs, reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. For example, in recent years, due to our limited capital resources, we have focused our resources primarily on the advancement of Ovaprene and Sildenafil Cream, unless a program has been supported by grant or other non-dilutive funding, and we have delayed R&D activities for other programs. If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock.
A majority of our operating expenses during a fiscal year are R&D expenses. Our R&D expenses for 2025, until we secure additional capital to fund our operating needs, will be primarily associated with our ongoing pivotal Phase 3 clinical study of Ovaprene. However, we plan to continue to advance preclinical development of DARE-LARC1, the costs of which are being supported by grant funding, and, with the support of funding under our October 2024 subaward agreement and the December 2024 NIAID grant award, to advance development of DARE-HPV toward a Phase 2 clinical study. Assuming we are able to raise the necessary capital to continue our operations, we anticipate our R&D expenses and our general and administrative expenses for 2025 will be similar to the amount of such expenses for 2024.
We expect our operating expenses for the foreseeable future to continue to be R&D expenses and general and administrative expenses consistent with the nature of such expenses described above under "Financial Overview." Our future expenses could also include significant costs related to commercialization of our product candidates, if approved, depending on the type, nature and terms of commercial collaborations we establish, and in particular, if we determine to engage in commercialization activities directly as opposed to through a third-party collaborator. Our future capital requirements are difficult to predict because they will depend on many factors that are highly variable and difficult to predict, including, but not limited to, those discussed under "Risks Related to Our Financial Position and Capital Needs" in ITEM 1A. RISK FACTORS of this report. We cannot accurately determine the
duration and completion costs of our development programs, or if, when and to what extent we will generate revenue from any products we develop.
Capital Resources
Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock. We have also received a significant amount of cash through non-dilutive grants, strategic collaborations and royalty monetization transactions.
We have a sales agreement with Stifel, Nicolaus & Company, Incorporated, or Stifel, to sell shares of our common stock from time to time through an ATM offering under which Stifel acts as our agent. During 2024, we sold 109,655 shares of our common stock under the sales agreement for net proceeds of approximately $0.5 million. Shares of our common stock sold under the sales agreement will be offered and sold under our shelf registration statement on Form S-3 (File No. 333-278380), declared effective by the SEC on May 10, 2024, the base prospectus included therein and the prospectus supplement thereto dated May 10, 2024 relating to the offering of up to $18.1 million of shares of our common stock, and any subsequent prospectus supplement related to the offering of shares of our common stock under the sales agreement.
We have a purchase agreement with Lincoln Park under which, subject to the conditions thereof, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15.0 million in shares of our common stock. Such sales of our common stock to Lincoln Park, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 24-month period commencing on November 27, 2024. We did not sell any shares of our common stock under this purchase agreement during 2024. See "-Recent Events-Equity Line," above.
As discussed above, we are seeking to bring our proprietary Sildenafil Cream formulation to market under Section 503B of the FDCA, and we expect to begin recording revenue from sales therefrom, in the fourth quarter of 2025, however, we do not expect the amount of such revenue, if any, to be material during 2025.
Our royalty purchase agreements with XOMA may be a source of future capital; however, whether we receive any future payments from XOMA will depend on whether XOMA first receives total payments under those agreements equal to an amount that exceeds $88.0 million, which may not occur and will depend, in part, on the commercial success of XACIATO, which is outside of our control.
Our license agreement with Bayer regarding the further development and commercialization of Ovaprene in the U.S., if approved, may be a future source of capital; however, whether we receive any future payments from Bayer will depend on whether Bayer, in its sole discretion, exercises its right to make the license effective by paying us $20.0 million after we complete the ongoing pivotal Phase 3 clinical study of Ovaprene, which we do not expect to be completed in 2025. In addition, a portion of that potential $20.0 million payment from Bayer would be payable to XOMA as discussed under "-Contractual Obligations and Other Commitments-Royalty Purchase Agreements with XOMA," below.
Deferred Grant Funding
We have received substantial funding under grant agreements with the Foundation, and we generally receive grant funds before we incur the eligible expenses. Under the terms of such grant agreements, the funds we receive may be applied solely toward direct costs of carrying out the respective projects under those grant agreements, other than approximately 10% of such funds, which may be applied toward general overhead and administration expenses that support our entire operations. Funds received that have not been spent are recorded both as cash and cash equivalents and as a deferred grant funding liability in our consolidated balance sheets. Funds received that have been spent but not yet expensed in accordance with GAAP are also recorded as part deferred grant funding liability in our consolidated balance sheets. As of December 31, 2024, our deferred grant funding liability was approximately $16.6 million, substantially all of which consisted of unspent funds for the DARE-LARC1 program and the Ovaprene Phase 3 clinical study. For more information about these grant agreements, see Note 2, "Basis of Presentation and Summary of Significant Accounting Policies-Grant Funding," and Note 15, "Grant Awards-Other Non-Dilutive Grant Funding" to the accompanying consolidated financial statements.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Years Ended
December 31,
2024 2023
Net cash provided by (used in) operating activities
$ 5,394,247 $ (38,856,654)
Net cash used in investing activities (573,046) (629,430)
Net cash provided by financing activities 433,830 15,637,120
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(67,913) (9,585)
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 5,187,119 $ (23,858,549)
Net cash used in operating activities
Cash used in operating activities during the year ended December 31, 2024 included the net loss of $4.1 million, decreased by non-cash stock-based compensation expense of approximately $2.2 million. Components providing operating cash were a decrease in prepaid expenses of approximately $3.6 million, an increase in deferred grant funding of approximately $2.8 million, a decrease in other receivables of approximately $0.7 million, an increase in interest payable of approximately $0.5 million related to the Royalty Interest Financing Agreement, an increase in accrued expenses of $0.2 million, and a decrease in deposits of $0.4 million. Components reducing operating cash were a decrease in accounts payable of approximately $1.9 million and a decrease in other non-current assets of approximately $34,000.
Cash used in operating activities during the year ended December 31, 2023 included the net loss of $30.2 million, decreased by non-cash stock-based compensation expense of approximately $2.5 million. Components providing operating cash were an increase in accounts payable of approximately $1.4 million, a decrease in other receivables of approximately $0.8 million, and a decrease in prepaid expenses of approximately $0.5 million. Components reducing operating cash were a decrease in accrued expenses of approximately $8.3 million, a decrease in deferred grant funding of approximately $4.6 million, an increase in deposits of $1.2 million primarily related to deposits paid for the construction of capital equipment, and a decrease in other non-current assets of approximately $10,000.
Net cash used in investing activities
Net cash used in investing activities during the years ended December 31, 2024 and December 31, 2023 was related to purchases of property and equipment of approximately $573,000 and $629,000, respectively.
Net cash provided by financing activities
Net cash provided by financing activities during the year ended December 31, 2024 was approximately $0.4 million and primarily consisted of proceeds from (i) the sale of our common stock under our ATM sales agreement and (ii) the financing of certain director and officer and other liability insurance premiums, partially offset by payments on the insurance financing payable.
Net cash provided by financing activities during the year ended December 31, 2023 was approximately $15.6 million and consisted of proceeds from (i) the sale of our common stock and warrants in the registered direct offering completed in September 2023 of approximately $7.0 million, (ii) the sale of future royalties of approximately $4.7 million, net, (iii) the sales of our common stock under our ATM sales agreement of approximately $2.3 million, net, (iv) the exercise of warrants of approximately $1.3 million, and (v) the financing of certain director and officer and other liability insurance premiums of approximately $0.6 million net of payments made of approximately $0.3 million.
Contractual Obligations and Other Commitments
License and Royalty Agreements
We have assembled our product pipeline primarily through acquisitions, in-license agreements, and other collaborations. We agreed to make royalty and milestone payments, and in some cases annual license fee payments, under the license and development agreements related to XACIATO, Ovaprene, and Sildenafil Cream and under other agreements related to our other clinical and preclinical candidates. The amount and timing of most of these payments are difficult to predict because the timing of milestone payments for pre-commercial programs generally depends on the progress of and success in development of a particular program, which is subject to many risks and uncertainties as discussed elsewhere in this report and difficult to predict, and the timing and amount of royalty and milestone payments related to commercial products generally depends on their commercial success, which may, as it is with XACIATO, be outside of our control. During 2025, based on our current expectations regarding the progress of development of our product candidates and sales of XACIATO, we expect approximately $0.1 million of such payments to upstream licensors to become payable. With respect to our license agreement relating to XACIATO, royalties payable by us to upstream licensors will be funded by royalty payments made by our licensee, Organon. For further discussion of these potential payments, see Note 3 "Strategic Agreements-Strategic Agreements for Pipeline Development" to the accompanying consolidated financial statements.
Grant Agreements
For information regarding our grant agreements with the Foundation, see "--Deferred Grant Funding," above, Note 2, "Basis of Presentation and Summary of Significant Accounting Policies-Grant Funding" and Note 15, "Grant Awards-Other Non-Dilutive Grant Funding" to the accompanying consolidated financial statements.
Royalty Purchase Agreements with XOMA
In April 2024, we entered into a traditional royalty purchase agreement and a synthetic royalty purchase agreement with XOMA (which, together, we refer to as the Royalty Purchase Agreements) pursuant to which we sold our right, title and interest in the following to XOMA: (a) all of the royalties and potential milestone payments we would otherwise have the right to receive from and after April 1, 2024 under our exclusive license agreement with Organon based on net sales of XACIATO, net of our obligations to upstream licensors and UiE (such net amount we refer to as the Purchased Receivables); (b) a portion of a potential future $20.0 million payment from Bayer under our license agreement relating to Ovaprene and a portion of future net sales of Ovaprene; and (c) a portion of future net sales of Sildenafil Cream (such amounts described in the foregoing clauses (b) and (c) we collectively refer to as the Revenue Participation Right). We received $22.0 million from XOMA in connection with entering into the Royalty Purchase Agreements. If XOMA receives total payments equal to an amount that exceeds $88.0 million, XOMA will pay $11.0 million to us for each successive $22.0 million XOMA receives under the Royalty Purchase Agreements.
Pursuant to the traditional royalty purchase agreement, XOMA, at its sole cost and discretion, may repay in full and retire all of our payment obligations to UiE under our royalty interest financing agreement with UiE. If XOMA does so, no further amounts in respect of that agreement will be deducted from the net royalties and net milestone payments that XOMA is entitled to receive. We cannot elect to receive any additional funding from UiE under our royalty interest financing agreement with UiE without XOMA's prior written consent.
In connection with the synthetic royalty purchase agreement, we granted to XOMA a security interest in certain product assets related to Ovaprene and Sildenafil Cream. The Royalty Purchase Agreements include covenants that limit or restrict our ability to incur indebtedness or liens related to the Purchased Receivables, the Revenue Participation Right, and certain product assets related to Ovaprene and Sildenafil Cream (except pursuant to a suitable intercreditor agreement).
For more information regarding our contractual obligations to XOMA, see ITEM 1. "BUSINESS- Royalty Monetization Transactions- Traditional and Synthetic Royalty Purchase Agreements with XOMA" in Part I of this report and Note 13 "Royalty Purchase Agreements" to the accompanying consolidated financial statements.
Royalty Interest Financing Agreement
In December 2023, we entered into a royalty interest financing agreement with UiE pursuant to which we sold an interest in the royalty and milestone payments we are entitled to receive in respect of net sales of XACIATO under our license agreement with Organon and received a payment of $5.0 million from UiE. We have not elected to receive
any of the up to $7.0 million in potential additional payments from UiE under the agreement, and we cannot do so without XOMA's prior written consent. In exchange for any payments to us from UiE under the agreement, we agreed to make payments to UiE out of royalty and milestone payments earned on net sales of XACIATO from Organon, net of our obligations to upstream licensors, until UiE receives a specified return on its investment. As described above, XOMA, at its sole cost and discretion, may repay in full and retire all of our payment obligations to UiE under the royalty interest financing agreement.
For more information regarding our contractual obligations to UiE, see ITEM 1. "BUSINESS- Royalty Monetization Transactions- Royalty Interest Financing Agreement" in Part I of this report and Note 12 "Royalty Interest Financing" to the accompanying consolidated financial statements.
Other Contractual Obligations
We enter into contracts in the normal course of business with various third parties for research studies, clinical trials, testing and other services. These contracts generally provide for termination upon notice, and we do not believe that our non-cancelable obligations under these agreements are material.
For descriptions of additional contractual obligations and commitments, see Note 14 "Commitments and Contingencies" to the accompanying consolidated financial statements.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.