Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated)
Restatement of Previously Issued Financial Statements
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended and restated to give effect to the restatement of our financial statements, as more fully described in Note 1–“Restatement of Prior Financial Information” to our consolidated financial statements under Item 8 in this Form 10-K Amendment No. 1. For further detail regarding the restatement, see “Explanatory Note”. This section does not substantively amend, update or change any disclosures or analysis contained in the Original Filing, and accordingly, does not reflect any information or events occurring after March 8, 2023, the filing date of the Original Filing, or modify or update those disclosures affected by events that occurred at a later date or facts that subsequently became known to the Company, except to the extent they are otherwise required to be included and discussed herein.
Cautionary Statement Regarding Forward-Looking Statements
This report contains certain statements that may be deemed ‘forward-looking statements’ within the meaning of United States securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Certain factors that could cause results to differ materially from those projected or implied in the forward-looking statements are set forth in this Annual Report on Form 10-K for the year ended December 31, 2022 under the caption “Item 1A — Risk factors”.
We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company developing innovative cancer medicines based on cell cycle, transcriptional regulation and mitosis control biology. We reported no revenues for the years ended December 31, 2021 and 2022, and do not expect to report revenue for the foreseeable future.
During 2022, our primary focus has been on our transcriptional regulation program, which is evaluating fadraciclib, a CDK2/9 inhibitor, in solid tumors and hematological malignancies . The anti-mitotic program is evaluating plogosertib, a PLK1 inhibitor, in advanced cancers.
We currently retain all marketing rights worldwide to the compounds associated with our drug programs.
Agreements to Sell Securities
On August 12, 2021, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which we could issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor could sell the our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act.
On August 12, 2022, we became aware that the shelf registration statement on Form S-3 (file number 333-231923) (the “Registration Statement”) associated with this Sales Agreement had expired on June 21, 2022. Prior to becoming aware of the expiration, we sold an aggregate of 1,987,100 shares of our common stock at market prices, following the expiration of the Registration Statement and through August 12, 2022, for aggregate proceeds of approximately
68
Table of Contents
$2,721,187. There was no sale of shares post August 12, 2022. The sale of these shares may be subject to potential rescission rights by certain stockholders. As of December 31, 2022, there have been no claims or demands to exercise such rights. As a result of these potential rescission rights, we reclassified 3,117,100 shares (including 1,130,000 previously issued and outstanding shares sold for which the Company did not receive proceeds), with an aggregate redemption value of $4,494,496 of our common stock as temporary equity, presented outside of stockholders’ equity. The reclassification of these shares shall remain for a period of one year from the transaction date. These shares have been treated as issued and outstanding for purposes of earnings per share and general financial reporting.
On August 15, 2022, due to expiry of the Registration Statement, the Sales Agreement was mutually terminated. A total of 3,281,067 shares, for gross proceeds of approximately $7.6 million, had been sold pursuant to the Sales Agreement, including 2,528,642 shares during the year ended December 31, 2022 for gross proceeds of approximately $3.4 million.
On March 12, 2021, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representative of the underwriters identified therein (collectively, the “Underwriters”), pursuant to which we agreed to issue and sell 1,807,143 shares of common stock, $0.001 par value per share, at a public offering price of $7.00 per share (the “Offering”) along with a 30-day overallotment option to purchase up to an additional 271,071 shares of common stock at the public offering price, less underwriting discounts and commissions. The closing of the offering occurred on March 16, 2021, and the net proceeds to us (including exercise of the over-allotment option) were approximately $13.5 million, after deducting placement agent fees and other offering expenses payable by us.
Dividend on Preferred Stock
On December 6, 2022, the Board of Directors declared a quarterly cash dividend in the amount of $0.15 per share on our Preferred Stock. The cash dividend was paid on February 1, 2023 to the holders of record of the Preferred Stock as of the close of business on January 13, 2023.
Results of Operations
Years Ended December 31, 2021 and 2022
Results of Continuing Operations
Research and development
We expense all research and development costs as they are incurred. Research and development expenses primarily include:
● Clinical trial and regulatory-related costs;
● Payroll and personnel-related expenses, including consultants and contract research organizations;
● Preclinical studies and materials;
● Technology license costs;
● Stock-based compensation; and
● Rent and facility expenses for our office.
69
Table of Contents
The following table provides information with respect to our research and development expenditures for the years ended December 31, 2021 and 2022 (in thousands except percentages):
Year Ended
December 31,
Difference
2022
2021
$
%
As restated (see Note 1)
Transcriptional Regulation (fadraciclib)
$
14,043
$
10,556
$
3,487
33
Anti-mitotic (plogosertib)
5,546
3,579
1,967
55
Other research and development expenses
685
793
(108)
(14)
Total research and development expenses
$
20,274
$
14,928
$
5,346
36
Research and development expenses represented 67% and 73% of our operating expenses for the years ended December 31, 2021 and 2022, respectively.
Research and development expenses increased by $5.3 million from $14.9 million for the year ended December 31, 2021 to $20.3 million for the year ended December 31, 2022. Expenditure for the transcriptional regulation program increased by $3.5 million for the year ending December 31, 2022 relative to the respective comparative period. This was due to an increase in clinical trial costs of $2.8 million associated with the progression of clinical trials for the evaluation of fadraciclib in Phase 1/2 studies, along with an increase in non-clinical expenditure of $0.7 million. Research and development expenses relating to plogosertib increased by $2.0 million for the year ending December 31, 2022 relative to the respective comparative period. This was due to an increase in clinical trial costs of $2.7 million associated with the progression of clinical trials for the evaluation of plogosertib in Phase 1/2 studies, offset by a decrease in non-clinical expenditure of $0.7 million.
The future
We anticipate that overall research and development expenses for the year ended December 31, 2023 will be broadly similar compared to the year ended December 31, 2022 as we continue our Phase 1/2 programs.
General and administrative
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the total general and administrative expenses for the years ended December 31, 2021 and 2022 (in thousands except percentages):
Year Ended
December 31,
Difference
2022
2021
$
%
Total general and administrative expenses
$
7,382
$
7,461
$
(79)
(1)
Total general and administrative expenses represented 33% and 27% of our operating expenses for the years ended December 31, 2021 and 2022, respectively.
Our general and administrative expenditures remained relatively flat at approximately $7.4 million for each of the years ended December 31, 2021 and 2022. During the year ended December 31, 2022 as compared to the year ended December 31, 2021, there were increases in employment costs of $0.3 million, stock compensation costs of $0.2 million and professional costs of $0.2 million, offset by reductions in facility costs of $0.6 million.
The future
We expect general and administrative expenditures for the year ended December 31, 2023 to remain relatively flat compared to the year ended December 31, 2022.
70
Table of Contents
Other income (expense), net
The following table summarizes the other income (expense) for years ended December 31, 2021 and 2022 (in thousands except percentages):
Year Ended
December 31,
Difference
2022
2021
$
%
Foreign exchange gains
$
233
$
44
$
189
430
Interest income
210
16
194
1,213
Other income, net
1,298
144
1,154
801
Total other income
$
1,741
204
$
1,537
753
Total other income, net, increased by approximately $1.5 million from approximately $0.2 million for the year ended December 31, 2021 to approximately $1.7 million for the year ended December 31, 2022. The increase in other income primarily relates to royalties receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by us in March 2006) sold through the APA and other related agreements certain assets and intellectual property which are not related to our product development plans to ThermoFisher Scientific Company, or TSC. Accordingly, we presented $1.3 million and $144,000 as other income received from TSC during the years ended December 31, 2022 and 2021 respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.
Foreign exchange gains (losses)
Foreign exchange gains increased by approximately $189,000 to a gain of $233,000 for the year ended December 31, 2022 compared to a gain of approximately $44,000 for the year ended December 31, 2021.
We have intercompany loans in place between our parent company based in New Jersey and our subsidiary based in Scotland. The intercompany loans outstanding are not expected to be repaid in the foreseeable future and the nature of the funding advanced is of a long-term investment nature. Therefore, all unrealized foreign exchange gains or losses arising on the intercompany loans are recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable. Unfavorable unrealized foreign exchange movements related to intercompany loans resulted in a loss of $21.2 million for the year ended December 31, 2022 compared to a loss of $2.1 million for the year ended December 31, 2021.
The future
Other income (expense), net will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by TSC, we are unable to estimate the level and timing of income under the APA, if any.
As the funding advanced through intercompany loans is that of a long-term investment in nature, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income (loss) until repayment of the intercompany loan becomes foreseeable.
Income tax benefit
Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s taxation and customs authority (HMRC), in respect of qualifying research and development costs incurred.
71
Table of Contents
The following table summarizes total income tax benefit from such credits for the years ended December 31, 2021 and 2022 (in thousands except percentages):
Year Ended
December 31,
Difference
2022
2021
$
%
As restated (see Note 1)
As restated (see Note 1)
Income tax benefit
$
4,717
$
3,728
$
989
27
Total income tax benefit
$
4,717
$
3,728
$
989
27
The income tax benefit increased significantly by approximately $1.0 million, from $3.7 million for the year ended December 31, 2021 to $4.7 million for the year ended December 31, 2022. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax credits for the year ending December 2023 and will continue to elect to receive payment of the tax credit. Beyond 2023, we cannot be certain to be eligible to receive this tax credit or if eligible, the amount that may be receivable due to proposed changes by HMRC to the elibility criteria.
Liquidity and Capital Resources
The following is a summary of our key liquidity measures as of December 31, 2021 and 2022 (in thousands):
December 31,
2022
2021
As restated (see Note 1)
As restated (see Note 1)
Cash and cash equivalents
$
18,345
$
36,559
Working capital:
Current assets
$
24,411
$
40,942
Current liabilities
(7,511)
(5,413)
Total working capital
$
16,900
$
35,529
Cash Flows
Cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2021 and 2022 is summarized as follows (in thousands):
Year Ended December 31,
2022
2021
Net cash used in operating activities
$
(20,827)
$
(18,540)
Net cash used in investing activities
(7)
(27)
Net cash provided by financing activities
2,998
21,737
Operating activities
Net cash used in operating activities increased by $2.3 million, from $18.5 million for the year ended December 31, 2021 to $20.8 million for the year ended December 31, 2022. The increase in cash used by operating activities was primarily the result of an increase in our year-over-year net loss of $2.7 million, a change in working capital of $0.6 million and a decrease in change in lease liability of $0.1 million, offset by an increase in stock compensation costs of $0.3 million.
72
Table of Contents
Investing activities
Net cash used in investing activities decreased by $20,000 for the year ended December 31, 2022 due to a decrease in capital expenditures on IT equipment.
Financing activities
Net cash provided by financing activities was $3.0 million for the year ended December 31, 2022 as a direct result of receiving approximately:
- $3.2 million in net proceeds from the issuance of common stock under a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co.,
- offset by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable Preferred Stock.
Net cash provided by financing activities was $21.7 million for the year ended December 31, 2021 as a direct result of receiving approximately:
- $13.5 million in net proceeds from the issuance of common stock under an underwriting agreement with Oppenheimer & Co. Inc.,
- $4.5 million from warrant exercises associated with a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, and
- $4.0 million from the issuance of common stock under a controlled equity offering sales agreement with Cantor Fitzgerald & Co., and
- offset by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable Preferred Stock.
Funding Requirements and Going Concern
As of December 31, 2022, we had cash and cash equivalents of $18.3 million We have incurred losses since our inception and as of December 31, 2022, we had an accumulated deficit of $405.7 million.We expect to continue to incur substantial operating losses in the future.
We do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.
Our future funding requirements will depend on many factors, including but not limited to:
● the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;
● the costs associated with establishing manufacturing and commercialization capabilities;
● the costs of acquiring or investing in businesses, product candidates and technologies;
● the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
● the costs and timing of seeking and obtaining FDA and EMA approvals;
73
Table of Contents
● the effect of competing technological and market developments; and
● the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. Although we are not reliant on institutional credit finance and therefore not subject to debt covenant compliance requirements or potential withdrawal of credit by banks, we are reliant on the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to partner one or more of our product candidate programs at an earlier stage of development, which would lower the economic value of those programs to us.
Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments, licensing revenue, royalty income, and a limited amount of product revenue from operations discontinued in September 2012.
As discussed in Note 2 of the Notes to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K, under ASC Topic 205-40, Presentation of Financial Statements - Going Concern , management is required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.
Based on our current operating plan, we anticipate that our cash and cash equivalents of $18.3 million as of December 31, 2022 will allow us to meet our liquidity requirements to the fourth quarter of 2023. Our history of losses, our negative cash flows from operations, our liquidity resources currently on hand, and our dependence on the ability to obtain additional financing to fund our operations after the current resources are exhausted, about which there can be no certainty, have resulted in our assessment that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the issuance date of this Annual Report on Form 10-K. While we have plans in place to mitigate this risk, which primarily consist of raising additional capital through a combination of public or private equity or debt financings or by entering into partnership agreements for further development of our drug candidates, there is no guarantee that we will be successful in these mitigation efforts.
Contractual Obligations
The following table summarizes our long-term contractual obligations as of December 31, 2022 (in thousands):
Payments Due by Period
Less than
More than
Total
1 year
1 – 3 years
3 – 5 years
5 years
Operating Lease Obligations (1)
$
170
$
67
$
104
$
—
$
—
(1) Operating lease obligations relate primarily to leasing office space at our Berkeley Heights, New Jersey location. The lease for our Berkeley Heights location, which was entered into in April 2022, expires in July 2025.
74
Table of Contents
Off-Balance Sheet Arrangements
Since our inception, we have not had any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the judgments and estimates required by the following accounting policies to be critical in the preparation of our consolidated financial statements.
Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Accrued Research and Development Costs
Accrued research and development costs comprise our best estimates related to the cost of clinical trials, laboratory, and manufacturing activities that were incurred, but not paid or invoiced, as of the end of a reporting period.
Data management and monitoring of our clinical trials are performed with the assistance of contract research organizations, or CROs, or clinical research associates, or CRAs, in accordance with our standard operating procedures. Typically, CROs and CRAs bill monthly for services performed, or based upon milestones achieved. We accrue unbilled clinical trial expenses based on estimates of the level of services performed each period. Moreover, clinical trial costs related to patient enrollment are accrued as patients are entered into and progress through the trial.
We also perform outsourced laboratory and manufacturing activities. We accrue for unbilled laboratory and manufacturing activities performed by third parties based on estimates of their progress towards completing the requested tasks.
As of December 31, 2022, we accrued $3.3 million of clinical trial, laboratory, and manufacturing costs that we believe had been incurred as of year-end but had not been invoiced. This represents approximately 17% of our total research and development expense for the year ended December 31, 2022. The comparable accrual for unbilled research and development costs as of December 31, 2021 was approximately $2.3 million. This accrual represented approximately 15% of our total research and development expense for the year ended December 31, 2021.
When recording these accruals, we must make judgments about the progress of our various clinical activities. We (as well as our CROs and CRAs) are reliant on information being provided timely and accurately by the multitude of clinics and hospitals where the studies are being conducted, some of which are located internationally. We must also make estimates about the progress our third-party vendors are making towards completing laboratory and manufacturing activities.
Stock-based Compensation
We grant stock options, restricted stock units and restricted stock to officers, employees, directors and consultants under our 2018 Equity Incentive Plan (the 2018 Plan) and the 2020 Inducement Equity Incentive Plan. We measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation over the
75
Table of Contents
requisite service period. The fair value of restricted stock and restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The determination of grant-date fair value for stock option awards is estimated using an option-pricing model, which includes variables such as the expected volatility of our share price, the anticipated exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in significant adjustments to the expense recognized for share-based payments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide information response to this item.
76
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.