slno-10q_20210331.htm

10-Q 1 slno-10q_20210331.htm 10-Q slno-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36593

SOLENO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0523891

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

203 Redwood Shores Parkway, Suite 500

Redwood City, California

(Address of principal executive offices)

94065

(Zip Code)

(650) 213-8444

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	SLNO	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 30, 2021, there were 79,723,680 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

SOLENO THERAPEUTICS, INC.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations (unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	5
Condensed Consolidated Statements of Cash Flows (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	18
Item 4. Controls and Procedures	19
PART II—OTHER INFORMATION	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	20
Item 4. Mine Safety Disclosures	20
Item 5. Other Information	20
Item 6. Exhibits	20
EXHIBIT INDEX	21
SIGNATURES	22

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Soleno Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

	March 31, 2021			December 31, 2020
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	41,607		$	49,224
Prepaid expenses and other current assets		921			1,019
Total current assets		42,528			50,243
Long-term assets
Property and equipment, net		20			19
Operating lease right-of-use assets		50			124
Finance lease right-of-use assets		13			15
Intangible assets, net		14,095			14,581
Total assets	$	56,706		$	64,982
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	4,669		$	3,489
Accrued compensation		411			1,005
Accrued clinical trial site costs		4,140			3,789
Operating lease liabilities		57			139
Other current liabilities		232			196
Total current liabilities		9,509			8,618
Long-term liabilities
2018 PIPE Warrant liability		338			539
Contingent liability for Essentialis purchase price		9,291			10,278
Total liabilities		19,138			19,435
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.001 par value, 250,000,000 shares authorized, 79,723,680 and 79,615,692 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively.		80			80
Additional paid-in-capital		228,887			227,912
Accumulated deficit		(191,399	)		(182,445	)
Total stockholders’ equity		37,568			45,547
Total liabilities and stockholders’ equity	$	56,706		$	64,982

See accompanying notes to condensed consolidated financial statements

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In thousands except share and per share data)

	Three Months Ended March 31,
	2021			2020
Operating expenses
Research and development	$	7,164		$	6,695
General and administrative		2,979			2,003
Change in fair value of contingent consideration		(987	)		584
Total operating expenses		9,156			9,282
Operating loss		(9,156	)		(9,282	)
Other income
Change in fair value of warrants liabilities		201			3,413
Interest income		1			11
Total other income		202			3,424
Net loss	$	(8,954	)	$	(5,858	)
Net loss per common share, basic and diluted	$	(0.11	)	$	(0.13	)
Weighted-average common shares outstanding used to calculate basic and diluted net loss per common share		79,694,781			44,679,858

See accompanying notes to condensed consolidated financial statements

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(unaudited)

(In thousands except share data)

	Common Stock					Additional Paid-In			Accumulated			Total Stockholders’
	Shares			Amount		Capital			Deficit			Equity
Balances at January 1, 2021		79,615,692		$	80	$	227,912		$	(182,445	)	$	45,547
Stock-based compensation							1,095						1,095
Issuance of common stock under equity incentive plan, net of tax withholdings		167,060			—								—
Tax withholding payments for net share-settled equity awards		(59,072	)				(120	)					(120	)
Net loss										(8,954	)		(8,954	)
Balances at March 31, 2021		79,723,680		$	80	$	228,887		$	(191,399	)	$	37,568



	Common Stock					Additional Paid-In			Accumulated			Total Stockholders’
	Shares			Amount		Capital			Deficit			Equity
Balances at January 1, 2020		44,658,054		$	45	$	172,708		$	(157,806	)	$	14,947
Stock-based compensation							392						392
Issuance of common stock under equity incentive plan		28,757			—								—
Net loss										(5,858	)		(5,858	)
Balances at March 31, 2020		44,686,811		$	45	$	173,100		$	(163,664	)	$	9,481

See accompanying notes to condensed consolidated financial statements

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(8,954	)	$	(5,858	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		489			489
Non-cash lease expense		76			68
Stock-based compensation expense		1,095			392
Change in fair value of stock warrants		(201	)		(3,413	)
Change in fair value of contingent consideration		(987	)		584
Change in operating assets and liabilities:
Prepaid expenses, other current assets and other assets		98			(161	)
Accounts payable		1,180			1,485
Accrued compensation		(594	)		55
Accrued clinical trial site costs		351			847
Operating lease liabilities		(82	)		10
Other liabilities		41			(157	)
Net cash used in operating activities		(7,488	)		(5,659	)
Cash flows from investing activities:
Purchases of property and equipment		(4	)		—
Net cash used in investing activities		(4	)		—
Cash flows from financing activities:
Tax withholding payments for net share-settled equity awards		(120	)		—
Principal paid on finance lease liabilities		(5	)		(4	)
Net cash used in financing activities		(125	)		(4	)
Net decrease in cash and cash equivalents		(7,617	)		(5,663	)
Cash and cash equivalents, beginning of period		49,224			20,733
Cash and cash equivalents, end of period	$	41,607		$	15,070

See accompanying notes to condensed consolidated financial statements.

Soleno Therapeutics, Inc.

March 31, 2021

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Overview

Soleno Therapeutics, Inc. (the Company or Soleno) is focused on the development and commercialization of novel therapeutics for the treatment of rare diseases. Its lead candidate is Diazoxide Choline Controlled Release tablets (DCCR), a once-daily oral tablet for the treatment of Prader-Willi Syndrome (PWS). DCCR has received orphan designation for the treatment of PWS in the United States (U.S.) as well as in the European Union (E.U.).

The Company incorporated in the State of Delaware on August 25, 1999, and is located in Redwood City, California. It initially established its operations as Capnia, a diversified healthcare company that developed and commercialized innovative diagnostics, devices and therapeutics addressing unmet medical needs. During 2017, the Company merged with Essentialis, Inc (Essentialis) and subsequently received stockholder approval to amend its Amended and Restated Certificate of Incorporation to change its name from “Capnia, Inc.” to “Soleno Therapeutics, Inc.” Essentialis was a privately held clinical-stage company focused on the development of breakthrough medicines for the treatment of rare diseases where there is increased mortality and risk of cardiovascular and endocrine complications. After the merger, the Company’s primary focus has been the development and commercialization of novel therapeutics for the treatment of rare diseases and the Company divested all prior business efforts.

DCCR has been evaluated in a Phase 3 study (C601 or DESTINY PWS), a 3-month randomized, double-blind placebo-controlled study, which completed enrollment in January 2020, with 127 patients at 29 sites in the U.S. and U.K. Patients who complete treatment in DESTINY PWS are eligible to receive DCCR for up to 36 months in C602, an open-label extension study. Top line results from DESTINY PWS were announced in June 2020. Although the trial did not meet its primary endpoint of change from baseline in hyperphagia, significant improvements were observed in two of three key secondary endpoints. In February 2021, the Company announced analysis limited to data collected before the onset of the COVID-19 pandemic. The analysis of the data through March 1, 2020 showed statistical significance in the primary, all key secondary and several other efficacy endpoints. In March 2021, the U.S. Food and Drug Administration (FDA) informed the Company that an additional clinical trial would be necessary to support a New Drug Approval submission. The Company is evaluating the data and is in communication with the regulatory authorities to determine next steps.

Note 2. Liquidity

The Company had a net loss of $9.0 million during the three months ended March 31, 2021 and has an accumulated deficit of $191.4 million at March 31, 2021 resulting from having incurred losses since its inception. The Company had $41.6 million of cash and cash equivalents on hand at March 31, 2021 and used $7.5 million of cash in its operating activities during the three months ended March 31, 2021. The Company has financed its operations principally through issuances of equity securities. On June 26, 2020, the Company sold 34,848,484 shares of common stock in an underwritten public offering at a price of $1.65 per share for net proceeds of $53.7 million. The Company expects to continue incurring losses for the foreseeable future. However, the Company expects that its current cash and cash equivalents balance are sufficient to enable the Company to meet its obligations for at least the next twelve months from the date of this filing.

Note 3. Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies during the three months ended March 31, 2021 as compared to the significant accounting policies described in Note 3 of the “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Below are those policies with current period updates.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2021, are not necessarily indicative

of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2021. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements for the fiscal year ended December 31, 2020, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 3, 2021.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of expenses in the financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates included in the financial statements include the valuation of deferred income tax assets, the valuation of financial instruments, stock-based compensation, accrued costs for services rendered in connection with third-party contractor clinical trial activities, value and life of acquired intangibles, and the valuation of contingent liabilities for the purchase price of assets obtained through acquisition. The contingent liability represents the fair value of the contingent consideration arising from the Company’s acquisition of Essentialis in 2017. As part of the purchase price, the Company is obligated to make cash earn out payments to Essentialis stockholders up to a maximum of $30 million upon the achievement of certain commercial milestones.

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.

During the three months ended March 31, 2021, there have been no recently adopted accounting standards and no new, or existing recently issued, accounting pronouncements that are of significance, or potential significance, that impact the Company’s condensed consolidated interim financial statements.

Note 4. Fair Value of Financial Instruments

The carrying value of the Company’s cash, cash equivalents and accounts payable, approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

•

Level I — Unadjusted quoted prices in active markets for identical assets or liabilities;

•

Level II — Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

•

Level III — Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).

	Fair Value Measurements at March 31, 2021
	Total		Level 1		Level 2		Level 3
Liabilities
2018 PIPE warrant liability	$	338	$	—	$	—	$	338
Essentialis purchase price contingency liability		9,291		—		—		9,291
Total common stock warrant and contingent consideration liability	$	9,629	$	—	$	—	$	9,629

	Fair Value Measurements at December 31, 2020
	Total		Level 1		Level 2		Level 3
Liabilities
2018 PIPE warrant liability	$	539	$	—	$	—	$	539
Essentialis purchase price contingency liability		10,278		—		—		10,278
Total common stock warrant and contingent consideration liability

SEC Form 10-Q filed by Soleno Therapeutics, Inc.