Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Form 10-K and our final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, on June 28, 2021, or the Prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
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Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investor Relations section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that it shares on the Investors section of our website, www.acurxpharma.com.
Overview
Acurx Pharmaceuticals, Inc., (the “Company”), a Delaware corporation, formerly Acurx Pharmaceuticals, LLC (the “Company”) is a clinical stage biopharmaceutical company developing a new class of antibiotics for infections caused by bacteria listed as priority pathogens by the World Health Organization (“WHO”), the U.S. Centers for Disease Control and Prevention (“CDC”) and the U.S. Food and Drug Administration (“FDA”). Priority pathogens are those which require new antibiotics to address the worldwide crisis of antimicrobial resistance (“AMR”) as identified by the WHO, CDC and FDA. The CDC estimates that, in the U.S., antibiotic-resistant pathogens infect one individual every 11 seconds and result in one death every 15 minutes. The WHO recently stated that growing antimicrobial resistance is equally as dangerous as the ongoing COVID-19 pandemic, threatens to unwind a century of medical progress and may leave us defenseless against infections that today can be treated easily. According to the WHO, the current clinical development pipeline remains insufficient to tackle the challenge of the increasing emergence and spread of antimicrobial resistance.
Our approach is to develop a new class of antibiotic candidates that block the DNA polymerase IIIC (“pol IIIC”). We believe we are developing the first pol IIIC inhibitor to enter clinical trials and have clinically validated the bacterial target by demonstrating the efficacy of our lead antibiotic candidate in a Phase 2a clinical trial. pol IIIC is the primary catalyst for DNA replication of several Gram-positive bacterial cells. Our research and development pipeline includes clinical stage and early stage antibiotic candidates that target Gram-positive bacteria for oral and/or parenteral treatment of infections caused by Clostridium difficile (“C. difficile”), Enterococcus (including vancomycin-resistant strains (“VRE”)), Staphylococcus (including methicillin-resistant strains), and Streptococcus (including antibiotic resistant strains).
Pol IIIC is required for the replication of DNA in certain Gram-positive bacterial species. By blocking this enzyme, our antibiotic candidates are believed to be bactericidal and inhibit proliferation of several common Gram-positive bacterial pathogens, including both sensitive and resistant C. difficile , methicillin-resistant Staphylococcus aureus (“MRSA”), vancomycin-resistant Enterococcus, penicillin-resistant Streptococcus pneumonia (“PRSP”) and other resistant bacteria.
We intend to “de-risk” this new class of antibiotics through our drug development activities and potentially partner with a fully-integrated pharmaceutical company for late-stage clinical trials and commercialization.
Our lead antibiotic candidate, ibezapolstat (formerly named ACX- 362E), has a novel mechanism of action that targets the pol IIIC enzyme, a previously unexploited scientific target. Phase 2a clinical efficacy of our lead antibiotic validate the pol IIIC bacterial target. On December 3, 2021, we commenced enrollment in a Phase 2b 64-patient, randomized (1-to-1), non-inferiority, double-blind, trial of oral ibezapolstat compared to oral vancomycin, a standard of care to treat C. difficile infections (“CDI”).
Prior to that, we completed our Phase 2a clinical trial of ibezapolstat to treat patients with CDI and reported the top-line data in November 2020. The Phase 2a clinical trial was terminated early based upon the recommendation of our Scientific Advisory Board (the “SAB”). The SAB reviewed the study data presented by management, including adverse events and efficacy outcomes, and discussed its clinical impressions. The SAB unanimously supported the early termination of the Phase 2a trial after 10 patients were enrolled in the trial instead of 20 patients as originally planned. The early termination was further based on the evidence of meeting the treatment goals of eliminating the infection with an acceptable adverse event profile.
The SAB noted that 10 out of 10 patients enrolled in the Phase 2a trial reached the Clinical Cure endpoint, defined in the study protocol as the resolution of diarrhea in the 24-hour period immediately before the end of treatment that is
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maintained for 48 hours after end of treatment. Such cure was sustained, meaning that the patients showed no sign of infection recurrence, for 30 days thereafter. This constitutes a 100% response rate for the primary and secondary endpoints of the trial. All 10 patients enrolled in the Phase 2a trial met the study’s primary and secondary efficacy endpoints, namely, Clinical Cure at end of treatment and Sustained Clinical Cure of no recurrence of CDI at the 28-day follow-up visit. No treatment-related serious adverse events (“SAEs”) were reported by the investigators who enrolled patients in the trial. We believe these results represent the first-ever clinical data showing pol IIIC has potential as a therapeutically relevant antibacterial target. Our Phase 2b clinical trial commenced enrollment on December 3, 2021.
Currently available antibiotics used to treat CDI infections utilize other mechanisms of action. We believe ibezapolstat is the first antibiotic candidate to work by blocking the DNA pol IIIC enzyme in C. difficile . This enzyme is necessary for replication of the DNA of certain Gram-positive bacteria, like C. difficile .
We also have an early stage pipeline of antibiotic product candidates with the same previously unexploited mechanism of action which has established proof of concept in animal studies. This pipeline includes ACX-375C, a potential oral and parenteral treatment targeting Gram-positive bacteria, including MRSA, VRE and PRSP.
As of December 31, 2023, we had cash of approximately $7.5 million.
Recent Developments
Completion of Phase 2b Clinical Trial
On October 2, 2023, we discontinued our Phase 2b clinical trial of our lead antibiotic candidate, ibezapolstat, targeting the treatment of patients with CDI and anticipate advancing to Phase 3 clinical trials more expeditiously than originally planned. We made the decision to discontinue the Phase 2b clinical trial in consultation with our medical and scientific advisors and statisticians based upon observed aggregate blinded data and other factors, including the cost to maintain clinical trial sites and slow enrollment due to COVID-19.
We determined that the Phase 2b clinical trial has performed as anticipated for each of ibezapolstat, our lead antibiotic candidate, and vancomycin, the control agent and a standard of care to treat patients with CDI, with high rates of clinical cure observed across the trial and no emerging safety concerns reported to date. Accordingly, the Independent Data Monitoring Committee will not be required to perform an interim analysis of the Phase 2b clinical trial data as originally planned but is supportive of our decision to early discontinue the Phase 2b clinical trial and will remain involved for our Phase 3 clinical trials. Prior to discontinuing the Phase 2b clinical trial, we notified FDA of its decision to early discontinue the trial. The trial was not discontinued due to safety concerns.
Top-Line Ibezapolstat Phase 2 Efficacy Results
On November 2, 2023, we announced top-line Phase 2 efficacy and safety results from the clinical trial of ibezapolstat in patients with CDI. The overall observed Clinical Cure rate in the combined Phase 2 trials in patients with CDI was 96% (25 out of 26 patients), based on 10 out of 10 patients (100%) in Phase 2a in the modified intent to treat population, plus 15 out of 16 (94%) patients in Phase 2b in the per protocol population, who experienced Clinical Cure during treatment with ibezapolstat. Ibezapolstat was well-tolerated, with three patients each experiencing one mild adverse event assessed by the blinded investigator to be drug-related. All three events were gastrointestinal in nature and resolved without treatment. There were no drug-related treatment withdrawals or no drug-related serious adverse events, or other safety findings of concern. In the Phase 2b vancomycin control arm, 14 out of 14 patients experienced clinical cure. We believe that based on the pooled Phase 2 ibezapolstat clinical cure rate of 96% and the historical vancomycin cure rate of approximately 81% (Vancocin® Prescribing Information, January 2021), we will demonstrate non-inferiority of ibezapolstat to vancomycin in Phase 3 trials in accordance with the applicable FDA Guidance for Industry (October, 2022). The Phase 2b clinical trial met the protocol primary objective of assessing the primary efficacy endpoint of the Clinical Cure rate after 10 days of oral treatment. Further analyses will be forthcoming regarding secondary and exploratory endpoints, including Sustained Clinical Cure data, Extended Clinical Cure data up to 94 days and comparative effects on the gut microbiome.
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We are currently preparing for an End-of-Phase 2 Meeting with FDA and advancement to Phase 3.
2023 At-the-Market Offering
On November 15, 2023, we entered into a Sales Agreement and established the “ATM Program”, pursuant to which we may offer and sell, from time to time through A.G.P/Alliance Global Partners, as sales agent, shares of its common stock having an aggregate offering price of up to $17.0 million. Under the Sales Agreement, the sales agent is entitled to compensation of 3% of the gross offering proceeds of all Shares sold through it pursuant to the Sales Agreement.
As of the year ended December 31, 2023, we sold 698,121 shares of its common stock under the ATM Program at a weighted-average price of $3.76 per share, raising $2.6 million of gross proceeds and net proceeds of $2.4 million, after deducting commissions to the sales agents and other ATM Program related expenses. There remains approximately $14.4 million available for future sales of shares of common stock under the Sales Agreement. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds.
2023 Registered Direct Offering
On May 16, 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single healthcare-focused U.S. institutional investor named therein (the “2023 Investor”), pursuant to which we issued and sold, in a registered direct offering by us directly to the 2023 Investor (the “2023 Registered Offering”), an aggregate of 601,851 shares of common stock at an offering price of $3.00 per share and an aggregate of 731,482 pre-funded warrants exercisable for shares of common stock at an offering price of $2.9999 per pre-funded warrant. The pre-funded warrants sold to the 2023 Investor have an exercise price of $0.0001 and were immediately exercisable. As of September 30, 2023, all of the pre-funded warrants were exercised.
The gross proceeds to us from the 2023 Registered Offering were approximately $4.0 million and net proceeds after deducting the placements agent’s fees and other offering expenses payable by us were approximately $3.5 million. The securities were offered by us pursuant to a registration statement on Form S-3 (File No. 333-265956) previously filed with the SEC on July 1, 2022, and which was declared effective by the SEC on July 11, 2022.
In a concurrent private placement (the “2023 Private Placement” and together with the 2023 Registered Offering, the “2023 Offerings”), we issued to the Investor series C warrants exercisable for an aggregate of up to 1,333,333 shares of common Stock at an exercise price of $3.26 per share and series D warrants exercisable for an aggregate of up to 1,333,333 shares of common stock at an exercise price of $3.26 per share. Each Series C Warrant was exercisable commencing on November 18, 2023 and will expire on November 18, 2025. Each Series D Warrant was exercisable commencing on November 18, 2023 and will expire on November 19, 2029.
The 2023 Offerings closed on May 18, 2023.
In connection with the 2023 Offerings, we also entered into a Warrant Amendment Agreement with the 2023 Investor. Under the Warrant Amendment Agreement, we amended its existing series A warrants to purchase up to an aggregate of 1,230,769 shares of our common stock and series B warrants to purchase up to an aggregate of 1,230,769 shares of our common stock (collectively, the “Existing Warrants”) that were previously issued in July 2022, such that effective upon the closing of the 2023 Offerings, the Existing Warrants were amended to have a termination date of May 18, 2029.
On May 16, 2023, we entered into a placement agency agreement (the “2023 Placement Agent Agreement”) with Maxim Group LLC (the “Placement Agent”) pursuant to which we engaged Maxim as the placement agent in connection with the 2023 Offerings. The Placement Agent agreed to use its reasonable best efforts to arrange for the sale of the Securities. We paid the Placement Agent a placement agent fee in cash equal to 5.75% of the gross proceeds from the sale of the Shares, Warrants and Pre-Funded Warrants. We also reimbursed the Placement Agent for all reasonable travel and other out-of-pocket expenses, including the reasonable fees of legal counsel not to exceed $50,000. The 2023 Placement Agent Agreement also contained representations, warranties, indemnification and other provisions customary for transactions of this nature.
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Effects of Coronavirus (COVID-19) on Our Business
Public health crises such as pandemics or similar outbreaks could adversely impact our business. Notably, the COVID-19 pandemic continues to evolve. The extent to which COVID-19 impacts our operations or those of our collaborators, vendors, contractors, suppliers, clinical trial sites and other material business relations and governmental agencies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the outbreak, new information that will emerge concerning the severity of the virus and the actions to contain it or treat its impact, among others. Previously, our clinical trial operations were directly and indirectly impacted, and could continue to be directly and indirectly impacted, by the COVID-19 pandemic. While the potential economic impact brought by, and the ultimate duration of, the COVID-19 pandemic, have been, and continue to be, difficult to assess or predict, the spread of COVID-19 has caused a broad impact globally. The extent to which the COVID-19 pandemic may impact our business continues to be highly uncertain and cannot be predicted with confidence.
Components of our Results of Operations
Revenue
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.
Research and Development Expenses
To date, our research and development expenses have related primarily to development of ibezapolstat, preclinical studies and other preclinical activities related to our portfolio. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
● external research and development expenses incurred under agreements with contract research organizations, or CROs, and consultants to conduct our preclinical, toxicology and other preclinical studies;
● laboratory supplies;
● costs related to manufacturing product candidates, including fees paid to third-party manufacturers and raw material suppliers;
● license fees and research funding; and
● facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies.
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials.
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of preclinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and preclinical studies of product candidates. Clinical and preclinical development timelines, the probability of success and the amount of development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which product
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candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future clinical development costs may vary significantly based on factors such as:
● per-patient trial costs;
● the number of trials required for regulatory approval;
● the number of sites included in the trials;
● the countries in which the trials are conducted;
● the length of time required to enroll eligible patients;
● the number of patients that participate in the trials;
● the number of doses that patients receive;
● the drop-out or discontinuation rates of patients;
● potential additional safety monitoring requested by regulatory agencies;
● the duration of patient participation in the trials and follow-up;
● the phase of development of the product candidate; and
● the efficacy and safety profile of the product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in our executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, pre-commercialization and, if any product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Results of Operations
Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:
Years Ended
December 31,
Percentage
2023
2022
Change
(in thousands)
OPERATING EXPENSES:
Research and Development
$
6,044
$
4,754
27
%
General and Administrative
8,534
7,339
16
%
TOTAL OPERATING EXPENSES
14,578
12,093
21
%
Net Loss
$
(14,578)
$
(12,093)
21
%
Research and Development Expenses. Research and development expenses were $6.0 million for the year ended December 31, 2023, and $4.8 million for the year ended December 31, 2022, an increase of $1.2 million primarily due to increase in consulting related costs for the Phase 2b clinical trial.
General and Administrative Expenses. General and administrative expenses were $8.5 million for the year ended December 31, 2023, and $7.3 million for the year ended December 31, 2022. General and administrative expenses
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increased by approximately $1.2 million primarily due to $0.5 million increase in professional fees, $0.3 million increase in share-based compensation costs, and a $0.3 million increase in employee compensation related costs.
Net Loss. Net loss was $14.6 million for the year ended December 31, 2023, compared to $12.1 million for the year ended December 31, 2022, an increase of $2.5 million, primarily due to the reasons stated above.
Liquidity and Capital Resources
Since inception, we have generated no revenue from operations and we have incurred cumulative losses of approximately $53.2 million as of December 31, 2023. We have funded our operations primarily from equity issuances. We received net cash proceeds of approximately $12.9 million from equity financings closed between March 2018 and October 2020. On June 29, 2021, we completed our IPO resulting in net proceeds of approximately $14.8 million after deducting underwriter discounts of $1.4 million and offering costs of approximately $1.1 million. On July 27, 2022, we completed a registered direct offering and concurrent private placement resulting in net proceeds of approximately $3.7 million after deducting the placement agents commission of $0.3 million and offering costs of $0.2 million. On May 18, 2023, we completed a registered direct offering and a concurrent private placement resulting proceeds of approximately $3.5 million after deducting the placement agents fee of $0.2 million and offering costs of $0.2 million. On November 15, 2023, we entered into a Sales Agreement and established the ATM Program, pursuant to which we may offer and sell, from time to time, through A.G.P./Alliance Global Partners, as sales agent, shares of our common stock having an aggregate offering price of up to $17.0 million. Under the ATM Program, we raised net proceeds of approximately $2.4 million after deducting sales agent commission and other related expenses of $0.2 million.
Based upon our lack of revenue expected for the foreseeable future, and because of numerous risks and uncertainties associated with the research, development and future commercialization of our product candidates, we are unable to estimate with certainty the amounts of increased capital outlays and operating expenditures associated with our anticipated clinical trials and development activities.
As of December 31, 2023, we had working capital of $4.7 million, consisting primarily of $7.5 million of cash, $0.1 million of other receivable and $0.1 million of prepaid expenses, offset by $3.0 million of accounts payable and accrued expenses.
Sources of Liquidity
To date, we have financed our operations principally through private placements of equity issuances, the IPO, registered direct offerings and the ATM Program.
Class A Membership Financings
We have funded our operations primarily from equity issuances. We received net cash proceeds of approximately $12.9 million from equity financings closed between March 2018 and October 2020 starting with investments from the co-founders. All of our equity financings were consummated at a price ranging from $1.00 per Class A Membership Interest (March 2018) to $3.25 per Class A Membership Interest (July 2020 and October 2020). Warrant coverage was provided in all but our most-recent financing and the warrant coverage in our early-stage financings ranged from 25% warrant coverage to 50% warrant coverage, in each case, with a conversion price equal to the issue price in each offering.
Paycheck Protection Program Loan
In May 2020, we received a PPP Loan under the CARES ACT, as administered by the SBA in the amount of $66,503. We did not provide any collateral or guarantees in connection with the PPP Loan, nor did we pay any facility charge to obtain the PPP Loan. The PPP Loan carried an annual interest rate of 0.98% and was scheduled to mature two (2) years from issuance. On April 13, 2021, the SBA authorized the full forgiveness of the PPP Loan. Upon forgiveness of the PPP Loan, we reduced the liability and recorded a gain on the forgiveness of the PPP Loan in the statement of operations.
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Initial Public Offering
In June 2021, we completed the IPO and issued and sold an aggregate 2,875,000 shares of common stock, which included 375,000 shares of our common stock issued pursuant to the underwriters’ option to purchase additional shares, at a public offering price of $6.00 per share, for net cash proceeds of $14.8 million after deducting underwriting discounts and commissions and other offering costs.
Registered Direct Offerings
In July 2022, we completed a registered direct offering and a concurrent private placement, issuing 1,159,211 shares of common stock and 130,769 pre-funded warrants and series A warrants to purchase 1,289,980 shares of common stock and series B warrants to purchase 1,289,980 shares of common stock for gross proceeds of approximately $4.2 million.
On May 18, 2023, we completed a registered direct offering and a concurrent private placement, issuing 601,851 shares of common stock, 731,482 pre-funded warrants, series C warrants to purchase 1,333,333 shares of common stock and series D warrants to purchase 1,333,333 shares of common stock for gross proceeds of approximately $4.0 million.
2023 At-the-Market Offering
On November 15, 2023, we entered into a Sales Agreement and established the ATM Program, pursuant to which we may offer and sell, from time to time through A.G.P./Alliance Global Partners, as sales agent, shares of our common stock having an aggregate offering price of up to $17.0 million. Under the sales agreement, the sales agent is entitled to compensation of 3% of the gross offering proceeds of all Shares sold through it pursuant to the Sales Agreement.
As of the year ended December 31, 2023, we sold 698,121 shares of its common stock under the ATM Program at a weighted-average price of $3.76 per share, raising $2.6 million of gross proceeds and net proceeds of $2.4 million, after deducting commissions to the sales agents and other ATM Program related expenses. There remains approximately $14.4 million available for future sales of shares of common stock under the Sales Agreement. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds.
Cash Flows
The following table sets forth a summary of the net cash flow activity for the years ended December 31, 2023 and 2022:
Years Ended
December 31,
2023
2022
(in thousands)
Net cash (used in)/provided by:
Operating activities
$
(9,801)
$
(7,542)
Financing activities
8,163
3,695
Net decrease in cash
$
(1,638)
$
(3,847)
Operating Activities
Net cash used in operating activities was $9.8 million for the year ended December 31, 2023, primarily attributable to the net loss of $14.6 million, offset by share-based compensation of $3.2 million, share-based payments to vendors of $0.6 million and an increase of $1.0 million in accounts payable and accrued expenses.
Net cash used in operating activities was $7.5 million for the year ended December 31, 2022, primarily attributable to the net loss of $12.1 million, offset by share-based compensation of $2.9 million, share-based payments to vendors of $0.4 million and an increase of $1.2 million in accounts payable and accrued expenses.
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Investing Activities
Net cash provided by investing activities were none for the years ended December 31, 2023 and 2022.
Financing Activities
Net cash provided by financing activities was $8.2 million for the year ended December 31, 2023, which was attributable to the net proceeds from the 2023 registered direct offering of $3.5 million, net proceeds from the ATM Program of $2.4 million and $2.2 million of proceeds from the exercise of warrants.
Net cash provided by financing activities was $3.7 million for the year ended December 31, 2022, which was attributable to the net proceeds from the registered direct offering.
Funding Requirements
We believe that our existing cash will not be sufficient to meet our anticipated cash requirements for at least 12 months from the issuance of our financial statements for the year ended December 31, 2023. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially, including with regard to the impact of COVID-19 on our clinical trial enrollment. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
Our future capital requirements will depend on many factors, including:
● the timing, progress, and results of our ongoing and planned clinical trials of our product candidates;
● our ability to manufacture sufficient clinical supply of our product candidates and the costs thereof;
● discussions with regulatory agencies regarding the design and conduct of our clinical trials and the costs, timing and outcome of regulatory review of our product candidates;
● the cost and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
● the costs of any other product candidates or technologies we pursue;
● our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
● the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval; and
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims.
Until such time, if ever, as we can generate substantial product revenues to support our capital requirements, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may need to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings as and when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
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Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued certain accounting pronouncements as of December 31, 2023 that will become effective in subsequent periods; however, we do not believe that any of those pronouncements would have significantly affected our financial accounting measurements or disclosures had they been in effect during 2023, or that they will have a significant impact on us at the time they become effective.
Critical Accounting Policies and Significant Judgments and Estimates
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Research and Development
We expense research and development costs as incurred. At times, we may make cash advances for future research and development services. These amounts are deferred and expensed in the period the services are provided.
Costs for certain research and development activities, such as the provision of services for clinical trial activity, are estimated based on an evaluation of the progress to completion of specific tasks which may use data such as subject enrollment, clinical site activations or information provided to us by our vendors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be. The estimates are adjusted to reflect the best information available at the time of the financial statement issuance. Although we do not expect its estimates to be materially different from amounts actually incurred, our estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary.
Share-Based Compensation
We account for the cost of services performed by employees, officers and directors received in exchange for an award of Company membership interests, common stock or stock options, based on the grant-date fair value of the award. We recognize compensation expense based on the requisite service period.
Compensation expense associated with stock option awards is recognized over the requisite service period based on the fair value of the option at the grant date determined based on the Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions including the expected price volatility. Our employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value computation using the Black-Scholes option pricing model. Because there is no public market for our stock options and very little historical experience with our stock, similar public companies were used for the comparison of volatility and the dividend yield. The risk-free rate of return was derived from U.S. Treasury notes with comparable maturities. We will continue to analyze the expected stock price volatility and will adjust our Black-Scholes option pricing assumptions as appropriate. Any changes in the foregoing Black-Scholes assumptions, or if we were to elect to utilize an alternative method for valuing stock options granted to employees, officers and directors, could potentially impact our stock-based compensation expense and our results of operations.
Share-Based Payments to Vendors
We account for the cost of services performed by vendors in exchange for an award of our membership interests, common stock, or stock options, based on the grant-date fair value of the award or the fair value of the services rendered;
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whichever is more readily determinable. We also use Black-Scholes option pricing model for the purpose of estimating the fair value of options and warrants. Changes in our Black-Scholes assumptions, or if we were to utilize an alternative method for valuing options or warrants issued to our vendors, could impact our expense and our results of operations.