Cocrystal Pharma, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Report. Company Overview We develop novel medicines for use in the treatment of human viral diseases. Cocrystal has been developing novel technologies and approaches to create first-in-class and best-in-class antiviral drug candidates since 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors, we plan to leverage our infrastructure and expertise in these areas. During our year ended December 31, 2024, the following key aspects of our business advanced: Pandemic and Seasonal Influenza A ● Our novel oral PB2 inhibitor, CC-42344, has shown excellent antiviral activity against influenza A strains including pandemic and seasonal strains, as well as strains resistant to Tamiflu® and Xofluza®. ● In October 2023 we announced receipt of authorization from the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA) to initiate a Phase 2a human challenge trial with its broad-spectrum, oral PB2 inhibitor CC-42344 as a potential treatment for pandemic and seasonal influenza A. In December 2023 we announced achievement of first-patient-in for the Phase 2a human challenge clinical trial. ● In December 2024, the Company announced plans to extend enrollment for the oral CDI-42344 Phase 2a study due to unexpectedly low influenza infection among study participants. Specifically, management determined that an extension of the study is necessary due to low infectivity rate of the challenge influenza strain used in this study. The Company is currently in continuing discussions with the clinical research organization to address this study and determine a course forward with respect thereto, including potentially by preparing a protocol amendment for approval by the United Kingdom MHRA in order to seek to extend enrollment or a resubmission to study and to ensure necessary infection rates among enrolled study subjects in study. ● Preclinical development is progressing with an inhaled formulation of CC-42344 as a treatment and prophylaxis for influenza A. Pandemic and Seasonal Influenza A/B Program ● Novel inhibitors effective against both influenza strains A and B have been identified and are in the preclinical stage. 39 Oral Protease Inhibitor CDI-988 ● A novel, broad-spectrum pan-viral 3CL protease inhibitor antiviral drug candidate CDI-988 for clinical development as an oral treatment for coronaviruses (including SARS-CoV-2) and norovirus. ● Conducting randomized, double-blind, placebo-controlled Phase 1 study of CDI-988 is approved by Australia Human Research Ethics Committees (HREC). The study is designed to access the safety, tolerability and pharmacokinetics of CDI-988. ● In September 2024 we initiated dosing of the first subjects in the MAD portion of the Phase 1 study with CDI-988 and topline Phase 1 study safety and tolerability SAD results and testing of 800 mg for 10 consecutive days were reported in January 2025 indicating favorable safety and tolerability results. The topline data of the MAD cohorts, including based on an additional cohort with a higher dose of 1200 mg and a shorter treatment duration of five consecutive days, is expected to be released in the first half of 2025. Replication Inhibitors ○ We are using our proprietary structure-based drug discovery platform technology to discover replication inhibitors for orally administered therapeutic and prophylactic treatments for SARS-CoV-2. Replication inhibitors hold potential to work with protease inhibitors in a combination therapy regimen. Results of Operations Research and Development Expense Research and development expenses consist primarily of compensation-related costs for our employees dedicated to clinical advancement and research and development activities and for our Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs. Total research and development expenses were $12,537,000 for the year ended December 31, 2024, compared with $15,169,000 for the year ended December 31, 2023. The decrease of $2,632,000 was primarily due to timing of clinical study costs. General and Administrative Expense General and administrative expenses include compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. General and administrative expenses were $5,341,000 for the year ended December 31, 2024, compared with $ 5,990,000 for the year ended December 31, 2023. This decrease of $649,000 was primarily due to reduction of insurance cost and other general and administrative expenses. Legal Settlement In July 2022, the Company filed a legal appeal and deposited $1.6 million with the United State District Court for the District of Delaware as security during pending our appeal. During the second quarter ended June 30, 2022, the Company recorded a legal judgement for this amount inclusive of estimated costs. During the third quarter of 2023, the Company received a $1.6 million refund from the registry of the court reflecting the recovery of funds following a successful appeal in the Company’s litigation with an insurer. During November 2023, a settlement agreement was executed and the insurer paid the Company an additional $1.0 million. There is no further litigation with the insurer following the settlement. See “Note 11. Commitments and Contingencies” in the footnotes to the financial statements contained in this Report for more information 40 Total other Income/Expense Total other income was $374,000 for the year ended December 31, 2024, compared to total other expense of $575,000 for the year ended December 31, 2023. This decrease of $201,000 was primarily due to a decrease in interest income discussed below. Interest income was $537,000 for the year ended December 31, 2024, compared to interest income of $640,000 for the year ended December 31, 2023. The interest income was primarily earned on cash held in interest bearing bank accounts. We also had foreign exchange loss of $163,000 and $65,000 for the years ended December 31, 2024 and 2023, respectively, related to currency exchange rate measurements with regards to our Australian operations. Net Loss As a result of the above factors, net loss for the years ended December 31, 2024 and 2023 was $ 17,504,000 and $17,984,000 (net of $2.6 million legal settlement received), respectively. Liquidity and Capital Resources For the year ended December 31, 2024, net cash used in operating activities was $16,485,000, compared to net cash used in operating activities of $14,666,000 for the year ended December 31, 2023. This increase was primarily related to period expenses of our Influenza A Phase 2a clinical trial and preparation for our anticipated Influenza A Phase 1 inhaler administer medicine clinical trial and completion of our COVID-19 Phase 1 clinical trial. For the year ended December 31, 2024, net cash used in investing activities netted to $8,000, which consisted of capital expenditures for lab equipment, software, and networking for our Lab located in Bothell, Washington. For the year ended December 31, 2023, our net cash used in investing activities consisted of $118,000. For the year ended December 31, 2024, net cash provided by financing activities was $0, compared to net cash used by financing activities of $3,993,000 for the year ended December 31, 2023. Net cash provided by financing activities in 2023 was result of a raise of $4,000,000 in a private placement sale of common stock. We expect that our reported cash balance is not be sufficient to support the Company’s working capital needs for the 12 months following the filing of this Report, taking into account our intended research and development efforts in 2025. As a result, we need to complete a financing to provide the needed working capital. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is capital-intensive. As a rule, research and development expenses increase substantially as a company advances a product candidate toward clinical programs. Historically, we have financed our operations with the proceeds from public and private equity and debt offerings, including additional investments by certain existing stockholders, and entered into strategic partnerships and collaborations for the research, development and commercialization of product candidates. The Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. In January 2021, the Company sold 1,030,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2.1 million. There have been no sales under the ATM Agreement since then. Cautionary Note Regarding Forward Looking Statements This Annual Report includes forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, including statements regarding our plans for the future development of preclinical and clinical drug candidates, our expectations regarding future characteristics of the product candidates we develop, the expected time of achieving certain value driving milestones in our programs, including, preparation, commencement and advancement of clinical studies for certain product candidates in 2025, our expectations with respect to market opportunities for certain product candidates and our plans regarding further clinical development of such product candidates, our search for collaboration partners, our expectations regarding future operating results, statement regarding the suitability and adequacy of our properties and capital resources, and our future liquidity. 41 The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include inflation, the possibility of recession, interest rate increases, imposed and threatened tariffs and geopolitical conflicts including the conflicts in Ukraine and Israel on our Company, our collaboration partners, and on the U.S., U.K., Australia and global economy, including manufacturing and research delays arising from raw materials and labor shortages, supply chain disruptions and other business interruptions including any adverse impacts on our ability to obtain raw materials and test animals as well as similar problems with our vendors and our current and any future CROs and CMOs, the progress and results of the studies for CC-42344 and CDI-988 including the delay of the Phase 2a study for CC-42344 which may require us to incur substantial additional costs, the ability of our CROs to recruit volunteers for, and to proceed with, clinical studies, our and our collaboration partners’ technology and software performing as expected, financial difficulties experienced by certain partners, the results of future preclinical and clinical trials, general risks arising from clinical trials, receipt of regulatory approvals, regulatory changes including based on initiatives and actions taken by the Trump Administration which could, among other things, result in delays in regulatory approvals or limit access to federal funding for our programs, development of effective treatments and/or vaccines by competitors, including as part of the programs financed by the U.S. government, and potential mutations in a virus we are targeting which may result in variants that are resistant to a product candidate we develop. Further information on such uncertainties and risks is contained in the “Risk Factors” in Item 1A of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see “Item 1A – Risk Factors” and our other filings with the SEC. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. While our significant accounting policies are more fully described in the accompanying notes to the consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2024, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements. Stock-Based Compensation We account for stock options related to our equity incentive plans under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718 which requires the recognition of the fair value of stock-based compensation. The fair value of stock options is estimated using a Black-Scholes option valuation model. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. The fair value of equity-based awards is amortized over the requisite service period of the award. Due to the limited amount of historical data available to us, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions. Recently Issued Accounting Standards See discussion in Note 2 to the consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.