BIOVIE INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company’s financial condition and the results of operations should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this report. Overview BioVie Inc. is a clinical-stage company developing innovative drug therapies to overcome unmet medical needs in chronic debilitating conditions. In liver disease , our Orphan Drug candidate BIV201 (continuous infusion terlipressin) is being developed as a future treatment option for patients suffering from ascites and other life-threatening complications of advanced liver cirrhosis caused by NASH, hepatitis, and alcoholism. The initial target for BIV201 therapy is refractory ascites. These patients suffer from frequent life-threatening complications, generate more than $5 billion in annual treatment costs, and have an estimated 50% mortality rate within 6 to 12 months. The US Food and Drug Administration (FDA) has not approved any drug to treat refractory ascites. A Phase 2a clinical trial of BIV201 was completed in 2019, and a multi-center, randomized 30-patient Phase 2b trial is currently underway. As of June 30, 2022, eleven US study centers had been activated and are actively screening and enrolling patients in the study. Top-line results from this trial are expected in mid calendar year 2023. In neurodegenerative disease, BioVie acquired the biopharmaceutical assets of NeurMedix, Inc., a privately held clinical-stage pharmaceutical company and related party affiliate, in June 2021. The acquired assets include NE3107, a potentially selective inhibitor of inflammatory ERK signaling that, based on animal studies, is believed to reduce neuroinflammation. NE3107is a novel orally administered small molecule that is thought to inhibit inflammation-driven insulin resistance and major pathological inflammatory cascades with a novel mechanism of action. There is emerging scientific consensus that both inflammation and insulin resistance may play fundamental roles in the development of Alzheimer’s and Parkinson’s Disease, and NE3107 could, if approved, represent an entirely new medical approach to treating these devastating conditions affecting an estimated 6 million Americans suffering from Alzheimer’s and 1 million from Parkinson’s. The FDA has authorized a potentially pivotal Phase 3 randomized, double-blind, placebo-controlled, parallel group, multicenter study to evaluate NE3107 in subjects who have mild to moderate Alzheimer’s disease (NCT04669028). We initiated this trial on August 5, 2021 and are targeting primary completion in mid calendar year 2023. - 29 - Table of Contents On January 20, 2022, the Company initiated a study by treating the first patient, in its Phase 2 study assessing NE3107’s safety and tolerability and potential pro-motoric impact in Parkinson’s disease patients. The NM201 study (NCT05083260) is a double-blind, placebo-controlled, safety, tolerability, and pharmacokinetics study in Parkinson’s Disease (PD). Participants will be treated with carbidopa/levodopa and NE3107 or placebo. Forty patients with a defined PD medication “off state” will be randomized 1:1 placebo to active NE3107 20 mg twice daily for 28 days. Safety assessments will look at standard measures of patient health and potential for drug-drug interactions affecting L-dopa pharmacokinetics and activity. Exploratory efficacy assessments will use the Motor Disease Society Unified Parkinson’s Disease Rating (MDS-UPDRS) parts 1-3, ON/OFF Diary, and Non-Motor Symptom Scale. Topline results are expected for the NM201 study by the end of calendar year 2022. Investigator-Initiated Trial in MCI and Mild Alzheimer’s Disease, NCT05227820 The Company provided the financial support and the use of our NE3107 formulated drug product to The Regenesis Project of Dr Sheldon Jordan in an open-label phase 2 study in Dr. Sheldon’s patients with Alzheimer’s disease related dementias. The Study which received FDA authorization on December 12, 2021; was designed to measure NE3107 effected on cognition, cerebral spinal fluid (“CSF”) and blood biomarkers, and neuro-imagining endpoints. The study seeks to measure changes in cognition through verbal and visual test procedures and changes in biomarkers of Alzheimer's disease and inflammatory and metabolic parameters that can be measured in the central nervous system with advanced neuroimaging techniques in patients before and after treatment with 20 mg of NE3107 twice daily for 3 months following three months of treatment. Data analysis for the study is expected be in completed in the second half of the calendar year 2022. Results of Operations Comparison of the Year Ended June 30, 2022 to the Year Ended June 30, 2021 Net loss The net loss for the year ended June, 2022 was approximately $26.1 million as compared to net loss of $130.2 million for the year ended June 30, 2021. The net decline in net loss of approximately $104.1 million was primarily attributed to the In process research and development (“IPR&D”) purchased in June 2021 of $130.6 million offset by an increase in research and development (“R&D”) expenses and selling, general and administrative (“SG&A”) expenses totaling approximately $19.8 million and the decline in other income, net of approximately $6.6 million. Total operating expenses for the year ended June 30, 2022 were approximately $27.3 million as compared to $138.1 million for the year ended June 30, 2021. The net decrease of approximately $110.8 million was primarily attributed to the IPR&D purchased in June 2021 of $130.6 million offset by an increase in R&D expenses of approximately $14.7 million and SG&A expenses of approximately $5.1 million. Research and Development Expenses Research and development expenses were approximately $17.3 and $2.5 million for the years ended June 30, 2022 and 2021, respectively. The net increase of approximately $14.8 million, was comprised of the Neuroscience clinical operations of approximately $8.1 million for the activities in the Alzheimer pivotal Phase 3 clinical trial, the initiation of the Parkinson’s Phase 2 clinical that launched in January 2022, financial support to the investigator initiated study in MCI and Mild Alzheimer, and other research projects and R&D; approximately $1.7 million of the increase relates to the ongoing Orphan Drug candidate BIV201’s Phase 2b clinical trial and increased expenses for the expanded clinical team for employee compensation and benefit expenses and supporting clinical consultant roles of approximately $4.9 million which included stock based compensation expense of $1.3 million. The Company expanded the clinical team personnel during the fiscal year ended June 30, 2022 and hired our Chief Medical Officer; VP of Clinical Operations, VP Head of CMC, VP Head of Q&A and other clinical team members, increasing the clinical team head count in to eight full-time employees. - 30 - Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses were approximately $9.8 million and $4.6 million for the years ended June 30, 2022 and 2021, respectively. The net increase of approximately $5.2 million was primarily comprised of increased employee compensation and benefit expenses of approximately $3.2 million which included stock based compensation expense of approximately $2.4 million ; increased legal expense of approximately $804,000; increased investor relations and advisory fees totaling approximately $1.0 million and increased expenses related to other consulting fees, accounting and audit, insurance premiums, office and website development expenses totaling approximately $673,000 and offset by approximately $617,000 of directors stock based compensation. The overall increased SG&A was attributed to the expanded operations of the company, the addition of Neuroscience operations which began in June 2021; the hiring of the new CEO who came on board effective April 27, 2021, the addition of a Chief Social Impact Officer and two administrative staff during the fiscal year ended June 30, 2022. Other income, net Other income, net; for the year ended June 30, 2022 was approximately $1.2 million compared to $7.8 million for the year ended June 30, 2021. The net decline of approximately $6.6 million was attributed to the change in the fair value of the derivative liabilities of approximately $5.0 million and the increase in interest expense of approximately $1.6 million. Capital Resources and Liquidity As of June 30, 2022 the Company had working capital of approximately $14.6 million, cash of approximately $18.6 million, stockholders’ equity of approximately $3.7 million, and an accumulated deficit of approximately $251 million. In addition, the Company has not generated any revenues to date and no revenues are expected in the foreseeable future. The Company’s future operations are dependent on the success of the Company’s ongoing development and commercialization efforts, as well as its ability to secure additional financing as needed. On August 31, 2022, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and B. Riley Securities, Inc. (collectively, the “Agents”), pursuant to which the Company may issue and sell from time to time shares of Company’s Class A common stock, par value $0.0001 per share, through the Agents, subject to the terms and conditions of the Sales Agreement. As of September 12, 2022, the Company has issued 1,544,872 shares under the Sales Agreement for a total net proceeds of $5.9 million after commissions and expenses of approximately $400,000. On July 15, 2022, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with Acuitas. pursuant to which Acuitas agreed to purchase from the Company, in a private placement (the “Private Placement”), (i) an aggregate of 3,636,364 shares of the Company’s Class A common stock, par value $0.0001 per share at a price of $1.65 per share, and (ii) a warrant to purchase 7,272,728 shares of Common Stock, at an exercise price of $1.82, with a term of exercise of five years; (collectively, the “Securities”). The aggregate purchase price for the Securities sold in the Private Placement was approximately $6 million. The Private Placement closed on August 15, 2022. Additionally in November 2021, the Company closed a debt financing, pursuant to which it received a loan in the aggregate principal amount of $15 million and incurred direct financing costs of approximately $390,000. Although the resulting increase in the Company’s cash balance from the capital raise and debt financing could possibly sustain operations over the next 12 months if measures are taken to delay planned expenditures in our research protocols and slow the progress in the Company’s clinical programs, given the Company’s current planned operations to meet certain goals and objectives, we expect projected cash flows to be depleted within that period of time. The future viability of the Company is largely dependent upon its ability to raise additional capital to finance its operations. We cannot assure you that our drug candidate will be developed, work, or receive regulatory approval; that we will ever earn revenues sufficient to support our operations or that we will ever be profitable. Furthermore, since we have no committed source of sufficient financing, we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations. - 31 - Table of Contents Although management continues to pursue its strategic plans, there is no assurance that the Company will be successful in obtaining sufficient financing on terms acceptable to the Company, if at all, to fund continuing operations. Management intends to attempt to secure additional required funding primarily through additional equity or debt financings. We may also seek to secure required funding through sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions. However, there can be no assurance that we will be able to obtain required funding. If we are unsuccessful in securing funding from any of these sources, we will defer, reduce or eliminate certain planned expenditures in our research protocols. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us. The continual widespread health emergencies or pandemics such as the coronavirus (“COVID-19”) pandemic (and its related variants), has lead to continued regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability. Although some jurisdictions have relaxed these measures, others have not or have reinstated them as COVID-19 cases and its variants continue to emerge The duration and spread of the COVID-19 pandemic and the long-term impact of COVID-19 and its variants on the financial markets and the overall economy, are highly uncertain and cannot be predicted at this time. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s ability to raise funds may be materially adversely affected. In addition, the COVID-19 pandemic has created a widespread labor shortage, including a shortage of medical professionals, and may possibly impact the potential patient participation in our studies of which may adversely impact our ability to continue or complete our clinical trials in the planned timeline. These circumstances raise substantial doubt on our ability to continue as a going concern. The financial statements included in this report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty. Off-Balance Sheet Arrangements The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Critical Accounting Policies and Estimates Accounting for Stock-based Compensation The Company follows the provision of ASC 718- Stock Compensation, which requires the measurement of compensation expense for all shared – based payment awards made to employees and non-employee director, including employee stock options. Share-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period, net of forfeitures. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and would be charged to earnings. - 32 - Table of Contents Purchase Accounting for Transactions with Related Party Purchase accounting for transactions with related party, entities under common control, are recorded at the historical carrying cost with no step up in basis to the fair market value of the asset or liability are recognized. Leases The Company determines whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and net of current portion of operating lease liabilities on our balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments. The Company does not include options to extend or terminate the lease term unless it is reasonably certain that the Company will exercise any such options. Rent expense is recognized under the operating leases on a straight-line basis. The Company does not recognize right of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less, and instead will recognize lease payments as expense on a straight-line basis over the lease term. Fair Value of Financial Instruments Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value for applicable assets and liabilities, we consider the principal or most advantageous market in which we would transact and we consider assumptions. market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows: ● Level 1: Observable inputs such as quoted prices in active markets; ● Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and ● Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS Our financial information required to be filed hereunder are indexed under Item 15 of this report and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. - 33 - Table of Contents