Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
You should read this discussion together with
the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-K. The following discussion
contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties. These risks could
cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
AIkido Pharma Inc. (the “Company”),
was initially formed in 1967 and is currently a biotechnology company with a diverse portfolio of small-molecule anti-cancer therapeutics
in development. The Company’s platform consists of patented technology from leading universities and researchers and our innovative
therapeutic drug platform is currently being advanced through strong collaborations with world-renowned educational institutions, including
the University of Texas at Austin, the University of Maryland, Baltimore and Wake Forest University. Our diverse pipeline of therapeutics
includes therapies for pancreatic cancer, acute myeloid leukemia (“AML”) and acute lymphoblastic leukemia (“ALL”).
The Company is also developing broad-spectrum antiviral compounds with the potential to inhibit replication of multiple viruses including
Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and Marburg virus.
The Company previously focused its efforts on
owning, developing, acquiring and monetizing intellectual property assets. Since May 2016, the Company has received limited funds from
its intellectual property monetization. In addition to its patent monetization efforts, since the fourth quarter of 2017, the Company
has been transitioning to focus its efforts as a technology and biotechnology development company. These efforts have focused on biotechnology
research and blockchain technology research. The Company’s investment in biotechnology research development includes: (i) an investment
in Hoth Therapeutics, Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics
for patients suffering from indications such as atopic dermatitis, also known as eczema, (ii) an investment in DatChat, Inc. (“DatChat”),
a privately held personal privacy platform focused on encrypted communication, internet security and digital rights management, and (iii)
the acquisition of assets of CBM BioPharma, Inc. (“CBM”), a pharmaceutical company focusing on the development of cancer
treatments. In January of 2021, the Company acquired an ownership interest in Convergent Therapeutics, Inc., (“Convergent”)
which has exclusive rights to technology related to dual-action peptide receptor radionuclide therapy (“PRRT”) for prostate
cancer covered by multiple issued U.S. and foreign patents. Convergent is currently conducting advanced human trials relating to prostate
cancer treatments utilizing PRRT that targets the prostate-specific membrane antigen (“PSMA”) present on prostate cancer
cells. The technology was developed under the direction of Dr. Neil Bander, Professor of Urologic Oncology at Weill Cornell Medicine.
Outside of the biotechnology space, the Company has put capital
into a series of small investments in private companies that are expected to go public in 2022. These investments include, but are not
limited to, an investment in Tevva Motors, an electric truck producer, a space with recent Rivian Automotive (NASDAQ: RIVN) IPO. Additionally,
the Company has invested in Kerna Health, a growing tele-health business with recurring revenue and large contract backlog, as well an
investment in Kaya Holding Corp., a holding company with a portfolio of wholly-owned subsidiaries focused on emerging technologies and
social networking for cannabis enthusiasts.
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As a result of the Company’s biotechnology
research development and associated investments and acquisitions, our business portfolio now focuses on the treatment of three different
cancers, including pancreatic cancer, AML and ALL. DHA-dFdC, our pancreatic drug candidate developed at the University of Texas at Austin
(“UTA”), is a new compound that we hope will become the next generation of chemotherapy treatment for advanced pancreatic
cancer. DHA-dFdC is designed to overcome tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical
toxicity tests. Preliminary studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth in culture (up to 100,000-fold
more potent that gemcitabine, a current standard therapy), has documented efficacy against pancreatic tumors in a clinically relevant
transgenic mouse model and has demonstrated activities against other cancers, including leukemia, lung and melanoma. Ultimately, we plan
to develop DHA-dFdC for oral and intravesous administration in a solid lipid nanoparticle carrier matrix, which has also been licensed
from UTA, and is intended to be a second-line treatment for advanced pancreatic cancer. The Company has entered into an agreement with
Parimer Scientific , which is working with other third parties, to assist in researching, developing and optimizing the manufacturing
process of the active ingredient, formulating the dosage formulation and performing drug stability tests. The Company’s license
with UTA (the “License”) is a royalty-bearing exclusive license that, unless terminated earlier, continues until the last
date of expiration or termination of the patent rights granted under the License (the “Patent Rights”). With regard to DHA-dFdC,
the Patent Rights include two issued U.S. Patents, several filed U.S. patent applications and an application filed under the Patent Cooperation
Treaty (“PCT”) that is currently being prosecuted to secure rights in foreign countries. So far, two patents have issued,
U.S. Patent No. 10,463,684 (the “684 Patent”) and U.S. Patent No. 11,219,633 (the “633 Patent”), which contain
claims covering the compound DHA-dFdC. Assuming all maintenance fees are timely paid, the 684 Patent is expected to expire on October
27, 2035 and the 633 Patent is expected to expire on May 28, 2035. The Company’s license with UTA also covers a U.S. provisional
patent application relating to the solid lipid nanoparticle carrier matrix for the drug, which was filed on June 6, 2019. In June of
2020, at the request of the Company, UTA filed both a U.S. non-provisional utility patent application as well as a PCT application relating
to the lipid nanoparticle carrier matrix claiming the June 6, 2019 priority date of the provisional application. Patent prosecution on
all pending patent applications is currently underway. The Company is currently engaged in research and development activities related
to the manufacture of DHA-dFdC, which have thus far confirmed the critical chemical steps required for the manufacturing and scalability
of the process. In collaboration with our contract manufacturing organization, Parimer Scientific, we are currently optimizing the manufacturing
procedure for DHA-dFdC. Our manufacturing activities were initially delayed several months due to COVID-19 because Parimer was recruited
by the U.S. and South Carolina governments to manufacture hand sanitizer for use in hospitals. For that reason, our manufacturing activities
did not begin in earnest until the beginning of the third quarter of 2020. Once manufacturing began, shipping delays due to the pandemic
further slowed progress. Further delay resulted from the inherent difficulty in producing scalable quantities of the key intermediate
compound in the process. Despite these delays, we now have successfully replicated the synthesis as reported in the literature, have
developed a new procedure for the production of the key intermediate on a large scale, and are currently optimizing the procedure to
ensure that incorporation of our new procedure into the overall manufacturing process will result in levels of DHA-dFdC on an acceptably
large scale. In tandem, the Company will also develop the solid lipid nanoparticle delivery system containing DHA-dFdC to optimize the
manufacturing process for size and consistency of the particles. We plan to then develop the drug formulation for oral and intravenous
delivery via the solid lipid nanoparticles for use in future animal testing. We do not currently have FDA approval, which will eventually
be required to begin administering DHA-dFdC to patients as part of any clinical trials. Animal studies will be a necessary prerequisite
to filing an Investigational New Drug Application (“IND”) with the FDA. Depending upon the success of the animal studies,
the Company’s development activities will also include preparing the IND for submission to the FDA. The Company’s formulation
is a new chemotherapy oral dosage form “repurposing” the chemotherapeutic agent gemcitabine, which we believe enables it
to be developed for use in patients following a special regulatory pathway codified in Section 505(b)(2) of the FDA rules. Section 505(b)(2)
was enacted to enable sponsors to seek New Drug Application (“NDA”) approval for novel repurposed drugs without the need
for such sponsors to undertake certain time consuming and expensive safety studies. Proceeding under this regulatory pathway, we hope
to be able to rely upon all of the publicly available safety and toxicology data with respect to gemcitabine in our FDA submissions.
We believe that this path will dramatically reduce the required clinical development efforts, costs and risks as compared to what would
be required of us if we were required to conduct the entire scope of trials required for new chemical entities that are not eligible
to be reviewed pursuant to the Section 505(b)(2) regulatory pathway. We estimate that by using the Section 505(b)(2) regulatory pathway,
the clinical development process may be several years shorter than is required for a new chemical entity, and the FDA approval process
may be six to nine months shorter than the typical eighteen-month period, which we believe may result in lower development costs and
shorter development time. As of the date hereof, we have not submitted an IND or an NDA to the FDA. Our AML and ALL compounds, developed
at Wake Forest University, are targeted therapeutics designed to overcome multiple resistance mechanisms observed with the current standard
of care. In addition, we are constantly seeking to grow our pipeline to treat unmet medical needs in oncology.
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In addition, the Company owns an exclusive world-wide
license to patented technology from the University of Maryland Baltimore (“UMB”). Our license is for a broad-spectrum antiviral
drug platform. The licensed technology is a broadly acting pan-viral inhibitory compound with efficacy against multiple viral pathogens.
The technology works to inhibit replication of multiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus
and Marburg virus. The technology is covered by two patent applications already on file with the United States Patent and Trademark Office.
The Company’s license covers two U.S. provisional applications, which were consolidated and timely filed as a PCT application on
June 5, 2020, commencing patent prosecution. Any patents issued from this application are expected to expire 20 years later, on June
5, 2040, unless the term is extended by the patent office. The PCT application describing the technology to which the Company is licensed
was published on December 12, 2020 by the World Intellectual Property Organization under International Publication Number WO 2020/247860
A1. Currently, the Company and UMB are collaborating to identify chemical structures that are as effective as, or more effective than,
the lead compounds covered in the PCT application. The UMB inventors are Drs. Matthew Frieman, Alexander MacKerell and Stuart Watson.
The Company has also executed a Sponsored Research Agreement with UMB to support the development of the technology.
Effective March 23, 2020, and as amended and restated on November
24, 2020, the Company and Continental Stock Transfer & Trust Co. entered into a rights agreement (the “Rights Agreement”)
The Rights Agreement provides each stockholder of record a dividend distribution of one “right” for each outstanding share
of common stock. Rights become exercisable at the earlier of ten days following: (1) a public announcement that an acquirer has purchased
or has the right to acquire 4.99% or more of our common stock, in connection with, (x) the Company consolidating, or merging into any
other person, (y) any person consolidates or merges with or into the Company or (z) the Company sells or otherwise transfers to any person
or persons, in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company,
or (2) the commencement of a tender offer which would result in an offer or beneficially owning 10% or more of our outstanding common
stock. All rights held by an acquirer or offer or expire on the announced acquisition date, and all rights expire at the close of business
on March 23, 2023, subject to further extension. Each right entitles a stockholder to acquire, at a price of $5.00 per one one-thousandth
of a share of our Series A preferred stock, subject to adjustments, which carries voting and dividend rights similar to one share of
our common stock. The purchase price of the preferred stock fractional amount is subject to adjustment for certain events as described
in the Rights Agreement. At the discretion of a majority of the Board and within a specified time period, we may redeem all of the rights
at a price of $0.0001 per right. The Board may also amend any provisions of the Rights Agreement prior to exercise.
Critical Accounting Policies
Our critical accounting policies are disclosed
in Note 3 to the consolidated financial statements.
Recently Issued Accounting Pronouncements
See Note 3 to the onsolidated financial statements
for a discussion of recent accounting standards.
Results of Operations
Fiscal Year Ended December 31, 2021 Compared
to Fiscal Year Ended December 31, 2020
The Company experienced very little or no revenue
in the last two years and we don’t expect any revenue until a biotechnology product is fully developed which may not occur for
many years.
For the year ended December 31, 2021 and 2020, we
incurred a loss from operations of $9.4 million and $6.5 million, respectively. The increase in loss was primarily attributed to $3.6
million increase in general and administrative expenses, partially offset by $0.5 million decrease in research and development expense
incurred in connection with the license acquired, and $0.3 million decrease in other research and development expense. In 2021, we engaged
the services of Revere Securities, LLC (“Revere”) to strategically manage and build our investment processes. Kyle Wool, Board
Member, is the president of Revere. We incurred fees of approximately $1.2 million during the year December 31, 2021. These fees were
included in general and administrative expense.
For the year ended December 31, 2021 and 2020, other
income was approximately $2.3 million and $ Other expenses was approximately $5.8 million, respectively. The increase in other income
was primarily attributed to a $10.4 million increase in fair value of investment, and partially offset by $2.7 million decrease in gains
on marketable securities.
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Liquidity and Capital Resources
We continue to incur ongoing administrative and
other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While we continue to implement
our business strategy, we intend to finance our activities through:
●
managing current cash and cash equivalents on hand from
our past debt and equity offerings;
●
seeking additional funds raised through the sale of additional
securities in the future;
●
seeking additional liquidity through credit facilities
or other debt arrangements; and
●
increasing revenue from its patent portfolios, license
fees and new business ventures.
Our ultimate success is dependent on our ability to obtain additional
financing and generate sufficient cash flow to meet our obligations on a timely basis. Our business will require significant amounts of
capital to sustain operations and make the investments it needs to execute its longer-term business plan to support new technologies and
help advance innovation. Our working capital amounted to approximately $89.8 million at December 31, 2021. We will need to obtain additional
debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if
we experience significant increases in expense levels resulting from being a publicly-traded company or operations. If we attempt to obtain
additional debt or equity financing, we cannot assume that such financing will be available to the Company on favorable terms, or at all.
The Company plans to pursue its plans regarding
research and development of our two pre-clinical products which will require resources beyond those currently, ultimately requiring third
party capital. During this time, the Company does not expect to generate revenue and there is substantial doubt about the Company’s
ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Cash Flows from Operating Activities -
For the year ended December 31, 2021 and 2020, net cash used in operations
was $6.6 million and $4.0 million, respectively. The cash used in operating activities for the year ended December 31, 2021 primarily
resulted from a net loss of $7.2 million and increase in fair value of investment of $5.0 million, and partially offset unrealized loss
on marketable investment of $3.1 million and $1.1 million research and development expense related with license acquired. The cash used
in operating activities for the year ended December 31, 2020 primarily resulted from a net loss of $12.3 million, and partially offset
by reduction in fair value of investment of $6.8 million and $1.5 million research and development expense related with license acquired.
Cash Flows from Investing Activities -
For the year ended December 31, 2021, net cash used in investing activities was approximately $8.9 million as compared to net cash used
in investing activities of approximately $25.0 million for the year ended December 31, 2020. The cash used in investing activities for
the year ended December 31, 2021 primarily resulted from our purchase of marketable securities of $93.4 million, funds to deposit accounts
of $4.2 million, purchase of short-term investments of $5.7 million and research and development expense related with license acquired
of $0.6 million, partially offset by our sale of marketable securities of $103.0 million since we invest excess cash into marketable
securities until additional cash is needed. The cash used in investing activities for the year ended December 31, 2020 primarily resulted
from our purchase of marketable securities of $98.8 million and research and development expense related with license acquired of $1.5
million, partially offset by our sale of marketable securities of $74.9 million since we invest excess cash into marketable securities
until additional cash is needed.
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Cash Flows from Financing Activities –
For the year ended December 31, 2021, cash provided by financing activities
was $78.3 million, which reflects the net proceeds of $78.2 million from investors in exchange of issuance of common stock and warrants,
and net proceeds of $84,000 from the exercise of common warrants and prefunded warrants. For the year ended December 31, 2020, cash provided
by financing activities was $31.6 million, which reflects the net proceeds of $6.6 million from investors in exchange of issuance of
common stock, common warrants and prefunded warrants, net proceeds of $17.8 million from investors in exchange of issuance of common
stock, and net proceeds of $7.2 million from the exercise of common warrants and prefunded warrants.
We have filed a shelf registration statement
on Form S-3 with the SEC. Whether we sell securities under the registration statement will depend on a number of factors, including the
market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital.
Contractual obligations
None.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required
to provide the information required by this item.
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