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 targets 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, 2023 and 2022
Research and Development. Research and development expense for the year ended December 31, 2023 was approximately $28,211,000, compared to approximately $19,220,000 for the year ended December 31, 2022.
The following table provides a summary of research and development costs by category for the years ended December 31, 2023 and December 31, 2022:
Year Ended
December 31,
2023
2022
Variance
Clinical project costs
$
15,132,000
$
12,964,000
$
2,168,000
Manufacturing and related costs
9,341,000
4,238,000
5,103,000
Pre-clinical project costs
483,000
431,000
52,000
General research and development costs
3,255,000
1,587,000
1,668,000
$
28,211,000
$
19,220,000
$
8,991,000
The overall increase in research and development expense of approximately $8,991,000, or 47%, was primarily a result of an increase in manufacturing and related costs related to greater production sourcing necessary to support clinical trials and establish commercial production capabilities of approximately $5,103,000 and clinical project costs of approximately $2,168,000, driven by the timing of the activities related to our pivotal and pediatric trials and an increase in general research and development costs of approximately $1,668,000 primarily attributable to an increase in personnel-related costs.
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General and Administrative. General and administrative expense for the year ended December 31, 2023 was approximately $10,749,000, compared to approximately $9,594,000 in 2022. The increase of $1,155,000, or 12% in general and administrative costs was primarily driven by an increase in personnel costs partially offset by a reduction in professional fees.
Other income (expense), net . Interest income, net, for the year ended December 31, 2023 was approximately $387,000, as compared to approximately $153,000 for the year ended December 31, 2022. The increase is a result of increased returns on money market cash equivalents. Other income was approximately $530,000 was the result of a gain from the valuation of the outstanding warrants issued in September 2023, partially offset by warrant issuance costs.
Liquidity and Capital Resources
Year ended December 31, 2023, Compared to Year Ended December 31, 2022
As of December 31, 2023, we had cash and cash equivalents of $9.6 million, compared to $19.9 million as of December 31, 2022, a decrease of $10.3 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, 2023 was approximately $32,377,000. Net cash proceeds from the issuance of common stock, preferred stock, warrants during 2023 was approximately $22,939,000.
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, 2023, we had an accumulated deficit of approximately $217,483,000.
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, 2023, we generated a net loss of approximately $38.0 million and used approximately $32.4 million in cash for operations. We expect that we will continue to generate operating losses for the foreseeable future. As of December 31, 2023, our consolidated cash balance was approximately $9.6 million. We believe our cash balance as of December 31, 2023, when combined with funds generated by the exercise of warrants in January 2024 (see Note 13 to our audited financial statements in Item 8 below), is adequate to fund our basic budgeted operations into the fourth quarter of 2024. 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.
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
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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.
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 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 September 2023, we allocated the preferred stock and 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.
Warrants . We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. If these instruments are initially classified as liabilities and subsequently meet the requirements for equity classification, we reclassify the fair value to equity.
Preferred Stock. We accounts for preferred stock based upon their specific terms and the authoritative guidance in ASC 480 and ASC 815, including whether they are freestanding instruments, whether any redemption or conversion aspects exist and how they are required to be settled (particularly if there is a cash settlement aspect), whether they contain characteristics that are predominantly debt-like or equity-like, whether they have embedded derivatives, and if they have redemption features. Based upon analysis of these criteria, the preferred stock will be classified as either debt, temporary (or “mezzanine”) equity, or permanent equity. The resultant classification is then evaluated quarterly to determine whether any change to the classification is required.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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