Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a late-stage clinical biopharmaceutical company focused on the discovery, development and commercialization of drugs for the treatment of cancer. Our core objective is to leverage our proprietary PDC delivery platform to develop PDCs that are designed to specifically target cancer cells and deliver improved efficacy and better safety as a result of fewer off-target effects. Our PDC platform possesses the potential for the discovery and development of the next generation of cancer-targeting treatments, and we plan to develop PDCs both independently and through research and development collaborations.
Our lead PDC therapeutic, iopofosine, is a small-molecule PDC designed to provide targeted delivery of iodine-131 directly to cancer cells, while limiting exposure to healthy cells. We believe this profile differentiates iopofosine from many traditional on-market treatments. Iopofosine is currently being evaluated in the multi cohort CLOVER-1 Phase 2 study in adult B-cell malignancies and the CLOVER-2 Phase 1 study for a variety of pediatric cancers. Our product pipeline also includes one preclinical PDC chemotherapeutic program (CLR 1900) and several partnered PDC assets. The CLR 1900 Series is being targeted for solid tumors with a payload that inhibits mitosis (cell division), a validated pathway for treating cancers.
Results of Operations
Research and development expense. Research and development expense consists of costs incurred in identifying, developing, testing, and manufacturing product candidates, which primarily include the cost of manufacturing materials, fees paid to contract research organizations, fees paid to medical institutions for clinical studies, and costs to secure intellectual property. We analyze our research and development expenses based on four categories as follows: clinical projects, manufacturing and related, preclinical projects, and general fixed and overhead costs that are not allocated to the functional project costs, including personnel costs, facility costs, related overhead costs, and patent costs.
General and administrative expense. General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, and administrative functions. Other costs include insurance, costs for public company activities, investor relations, directors’ fees, and professional fees for legal and accounting services.
Twelve Months Ended December 31, 2022 and 2021
Research and Development. Research and development expense for the year ended December 31, 2022 was approximately $19,220,000, compared to approximately $17,586,000 for the year ended December 31, 2021.
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The following table is a comparison summary of research and development costs for the years ended December 31, 2022 and December 31, 2021:
Year Ended
December 31,
2022
2021*
Variance
Clinical project costs
$
12,964,000
$
13,124,000
$
(160,000)
Manufacturing and related costs
4,238,000
2,520,000
1,718,000
Pre-clinical project costs
431,000
50,000
381,000
General research and development costs
1,587,000
1,892,000
(305,000)
$
19,220,000
$
17,586,000
$
1,634,000
* Prior period amounts have been reclassified to conform with current period presentation.
The overall increase in research and development expense of approximately $1,634,000, or 9%, was primarily a result of an increase in manufacturing and related costs related to production sourcing and pre-clinical costs. This increase was partially offset by reduced clinical project costs of approximately $160,000, driven by the timing of the activities related to our pivotal trial, and a reduction in general research and development costs of approximately $305,000.
General and Administrative. General and administrative expense for the year ended December 31, 2022 was approximately $9,594,000, compared to approximately $6,545,000 in 2021. The increase of $3,049,000, or 47%, in general and administrative costs was primarily driven by increased professional fees, a portion of which are non-recurring, as well as travel and personnel costs.
Other income (expense), net . Interest income, net, for the year ended December 31, 2022 was approximately $153,000, as compared to approximately $2,000 for the year ended December 31, 2021. The increase is a result of increased returns on investments. Other income for the year ended December 31, 2021 was approximately $7,000. The year ended December 31, 2022 did not have other income.
Liquidity and Capital Resources
Year ended December 31, 2022, Compared to Year Ended December 31, 2021
As of December 31, 2022, we had cash and cash equivalents of $19.9 million, compared to $35.7 million as of December 31, 2021, a decrease of $15.8 million. This decrease was primarily a result of research and development expense and general and administrative expenses. The cash used in operating activities during the twelve months ended December 31, 2022 was approximately $25,222,000. Net cash proceeds from the issuance of common stock, pre-funded warrants and common warrants during 2022 was approximately $9,611,000.
Our cash requirements have historically been for our research and development activities, finance and administrative costs, capital expenditures and overall working capital. We have experienced negative operating cash flows since inception and have funded our operations primarily from sales of common stock and other securities. As of December 31, 2022, we had an accumulated deficit of approximately $179,499,000.
Liquidity Outlook
We have incurred losses since inception in devoting substantially all of our efforts toward research and development. During the year ended December 31, 2022, we generated a net loss of approximately $28.6 million, and used approximately $25.2 million in cash for operations. We expect that we will continue to generate operating losses for the foreseeable future. As of December 31, 2022, our consolidated cash balance was approximately $19.9 million. We believe our cash balance as of December 31, 2022 is adequate to fund our basic budgeted operations into the fourth quarter of 2023. Our ability to execute our operating plan beyond that time depends on our ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise. We plan to actively pursue all available financing alternatives; however, there can be no assurance that we will obtain the necessary funding. Other than the uncertainties regarding our ability to obtain additional funding and our ability to meet the continued listing standards of Nasdaq, there are currently no known trends, demands, commitments, events or uncertainties that are likely to materially affect our liquidity.
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S., or GAAP, requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Management bases its estimates and judgments on historical experience, knowledge of current conditions and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary.
We believe that the following accounting policies reflect our more significant judgments and estimates used in the preparation of our financial statements.
Accrued Liabilities . As part of the process of preparing financial statements, we are required to estimate accrued liabilities. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Examples of estimated expenses for which we accrue include: contract service fees, such as amounts paid to clinical research organizations and investigators in conjunction with clinical studies; fees paid to vendors in conjunction with the manufacturing of clinical materials; and professional service fees, such as for lawyers and accountants. In connection with such service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. The majority of our service providers invoice us monthly in arrears for services performed. In the event that we do not identify certain costs that have begun to be incurred, or we over or underestimate the level of services performed or the costs of such services, our reported expenses for such period would be too high or too low. The date on which certain services commence, the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments. We make these judgments based on the facts and circumstances known to us, in accordance with GAAP.
Long-Lived Assets. Long-lived assets include property, equipment, and right-of-use assets. We periodically evaluate long-lived assets for potential impairment. Whenever events or circumstances change, an assessment is made as to whether there has been impairment to the value of long-lived assets by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment date. There were no long-lived asset impairment charges recorded during the years ended December 31, 2022 or 2021.
Right-Of-Use Asset and Lease Liability. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be expensed when paid for operating leases.
Stock-based Compensation . We account for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, using the Black-Scholes option-pricing model. The cost of service-based awards is recognized over the period during which an employee is required to provide service in exchange for the award, the requisite service period (usually the vesting period). For stock options with performance-based vesting provisions, recognition of compensation expense commences if and when the achievement of the performance criteria is deemed probable and is recognized over the relevant performance period. We account for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued (using the Black-Scholes option-pricing model), whichever is more reliably measured. The measurement of stock-based compensation for non-employees is subject to periodic adjustments as the options vest, and the expense is recognized over the period during which a non-employee is required to provide services for the award (usually the vesting period).
Accounting for equity instruments granted or sold by us under accounting guidance requires fair-value estimates of the equity instrument granted or sold. If our estimates of the fair value of these equity instruments are too high or too low, our expenses may be over- or understated. For equity instruments granted or sold in exchange for the receipt of goods or services, we estimate the fair value of the equity instruments based on consideration of factors that we deem to be relevant at that time.
Fair value measurements. We account for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in the principal, most advantageous market for the asset or liability in an orderly
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transaction between market participants on the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that a market participant would use in pricing an asset or liability. In conjunction with our financing in October 2022, we allocated the common stock, warrants and pre-funded warrants separately based on the respective estimated relative fair value. If management made different assumptions or judgments, material differences in measurements of fair value could occur.
Contingencies. From time to time, we may become involved in legal disputes regarding our products in development, intellectual property rights, stockholder claims or other matters. We assess each matter to determine if a contingent liability should be recorded. In making this assessment, we may consult, depending on the nature of the matter, with external legal counsel and technical experts. Based on the information we obtain, combined with our judgment regarding all the facts and circumstances of each matter, we determine whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be reasonably estimated. Should a loss be probable and reasonably estimable, we record a loss. In determining the amount of the loss, we consider advice received from experts in the specific matter, current status of legal proceedings, if any, prior case history and other factors. Should the judgments and estimates made by us be incorrect, we may need to record additional contingent losses that could materially adversely impact the results of operations and financial conditions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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