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 phospholipid ether drug conjugate ™ (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. We believe that 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.
We are primarily focused on the development of our radioconjugate PDC programs, also known as phospholipid radioconjugates or PRCs, designed to provide targeted delivery of a radioisotope directly to cancer cells, while limiting exposure to healthy cells. We believe this profile differentiates our PRCs from many traditional on-market treatments and radiotherapeutics. The three lead programs are: iopofosine I 131 (iopofosine), a beta-emitting iodine-131 based program which has been studied extensively, as described below; CLR 121225, an actinium-225 based program; and CLR 121125, an iodine-125 Auger-emitting program, both prepared to enter clinical trials in 2025.
● Iopofosine, the beta-emitting PRC, utilizes iodine-131 and was studied in our CLOVER-WaM Phase 2 pivotal study of iopofosine in patients with relapsed/refractory (r/r) Waldenstrom’s macroglobulinemia (WM), and our Phase 2b studies in r/r multiple myeloma (MM) patients and r/r central nervous system lymphoma (CNSL) are ongoing. The CLOVER-2 Phase 1a study for a variety of pediatric cancers has concluded and a Phase 1b study in pediatric patients with high grade glioma is enrolling. Additionally, a Phase 1 Investigator-initiated study conducted by the University of Wisconsin Madison of iopofosine I 131 in combination with external beam radiation in patients with recurrent head and neck cancer has also completed. As with all clinical trials, adverse events, serious adverse events or fatalities may arise during a clinical trial resulting from medical problems that may not be related to clinical trial treatments.
● CLR 121225, the alpha-emitting, actinium-225 based PRC has demonstrated activity in multiple solid tumor animal models, including pancreatic, colorectal, and breast cancer. CLR 121225 has been shown to be well tolerated in these models with the animals showing no adverse events at the highest doses tested. It was also shown that the compound has excellent biodistribution and uptake by the tumor. Furthermore, in multiple models of pancreatic adenocarcinoma, including highly refractory pancreatic cancer, the compound demonstrated a proportional dose response with a single dose providing either tumor stasis at the lowest dose tested or tumor volume reduction at the higher doses. We are currently prepared to initiate a Phase 1 imaging and dose escalation safety study in the first half of 2025.
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● CLR 121125, the Auger-emitting PRC, utilizes iodine-125 and has demonstrated excellent tolerability with no toxicities in animal models. Additionally, CLR 121125 has been shown to have good activity in multiple solid tumor models, especially in triple negative breast cancer. Auger emitters provide the greatest precision in targeted radiotherapy as the emission can only travel a few nanometers. This means that to cause the necessary breakage of the tumor cell DNA, the isotope most get inside the cell and near the cell nucleus to be effective. CLR 121125 achieves this due to our novel phospholipid ether drug conjugate platform. CLR 121125 is currently projected to be the subject of a Phase 1b dose finding study in the first half of 2025.
Results of Operations
Research and development. Research and development expenses consist of costs incurred in identifying, developing and testing, and manufacturing product candidates, which primarily include salaries and related expenses for personnel, cost of manufacturing materials and contract manufacturing fees paid to contract manufacturers and contract research organizations, and fees paid to medical institutions for clinical studies. We analyze our research and development expenses based on four categories as follows: clinical project costs, preclinical project costs, manufacturing and related costs, and general research and development costs that are not allocated to the functional project costs, including personnel costs, facility costs, and related overhead costs.
General and administrative. General and administrative expenses consist 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.
Other income (expense), net . Other income (expense), net, consists primarily of the impacts related to issuing and revaluing equity securities, and interest income.
Twelve Months Ended December 31, 2024 and 2023
Research and Development. Research and development expenses for the year ended December 31, 2024, were approximately $26,136,000, compared to approximately $27,266,000 for the year ended December 31, 2023.
The following table provides a summary of research and development costs by category for the years ended December 31, 2024 and 2023:
Year Ended
December 31,
2024
2023
Variance
Clinical project costs
$
10,462,000
$
15,132,000
$
(4,670,000)
Manufacturing and related costs
10,582,000
9,341,000
1,241,000
Pre-clinical project costs
228,000
483,000
(255,000)
General research and development costs
4,864,000
2,310,000
2,554,000
$
26,136,000
$
27,266,000
$
(1,130,000)
The overall decrease in research and development expenses of approximately $1,130,000, or 4%, was primarily a result of a reduction in clinical project costs of approximately $4,670,000, resulting from site management costs declining and the timing of patient enrollment related to the WM arm of the CLOVER-WaM study, partially offset by an increase in manufacturing and related costs related to greater production sourcing necessary to further develop commercial production capabilities of approximately $1,241,000 and an increase in general research and development costs related to an increase in personnel of approximately $2,554,000.
General and administrative. General and administrative expenses for the year ended December 31, 2024, were approximately $25,641,000, compared to approximately $11,694,000 in 2023. The increase of $13,947,000, or 119% in general and administrative costs was primarily driven by investing in the development of information and infrastructure to support product commercialization, including the related market preparation and personnel costs.
Other income (expense), net . Other income (expense), net, for the year ended December 31, 2024, was approximately $7,262,000 of income, as compared to approximately $3,870,000 of expense for the year ended December 31, 2023. A significant portion of this non-cash impact comes from changes in the valuation of the Company’s outstanding warrants. Warrant valuation consists of several
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aspects, but the most significant driver is the price of the Company’s common stock at the end of each reporting period. Interest income improved to approximately $1,211,000 in 2024, compared to approximately $387,000 in 2023. The Company’s improved return on cash equivalents is a product of higher average cash balances and a higher average interest rates.
Liquidity and Capital Resources
Year ended December 31, 2024, Compared to Year Ended December 31, 2023
As of December 31, 2024, we had cash and cash equivalents of $23.3 million, compared to $9.6 million as of December 31, 2023, an increase of $13.7 million. Net cash proceeds from the issuance of common stock, preferred stock and warrants during 2024 were approximately $61.4 million. The cash used in operating activities during the twelve months ended December 31, 2024, was approximately $47.6 million.
Investing activities consist exclusively of fixed asset purchases, which declined in 2024 as compared to 2023 due to our having completed the establishment of redundancy in each aspect of our product manufacturing supply chain, ensuring product availability upon commercialization.
Net cash proceeds from financing activities was exclusively the exercise of warrants by investors during 2024 for approximately $61.4 million, as compared to approximately $22.9 million primarily for preferred stock issued in 2023.
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 equity-based securities. As of December 31, 2024, we had an accumulated deficit of approximately $247.3 million.
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, 2024, we generated a net loss of approximately $44.6 million and used approximately $47.6 million in cash for operations. We expect that we will continue to generate operating losses for the foreseeable future. As of December 31, 2024, our consolidated cash balance was approximately $23.3 million. As of the date the accompanying consolidated financial statements were issued (the “issuance date”), the Company’s available liquidity to fund the Company’s operations over the next twelve months beyond the issuance date was limited to approximately $14.9 million of unrestricted cash and cash equivalents. Absent further action taken by management to increase its liquidity, the Company may be unable to fund its operations under normal course beyond the fourth quarter of 2025. To improve the Company’s liquidity, management plans to secure additional outside capital via the sale of equity and/or debt securities or execute a strategic transaction. Management also plans to preserve liquidity, as needed, by implementing cost saving measures. While management believes their plans will be successful, no assurance can be provided such plans will be effectively implemented over the next twelve months beyond the issuance date. In the event management’s plans are not effectively implemented, the Company will be required to seek other alternatives which may include, among others, the sale of assets, discontinuance of certain operations, a wind-down of operations and/or filing for bankruptcy protection.
These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates it will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
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
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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.
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 the financings conducted in July 2024, September 2023 and October 2022, we recorded the preferred stock and warrants separately based on their estimated fair values. Subsequent to issuance, to the extent that such securities are liability classified, they are marked to market, with the change in value reflected in the statement of operations at each reporting date. 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 either liabilities or equity and a subsequent assessment determines that the classification has changed, we reflect that change in the financial statements.
Preferred Stock. We account 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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