What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-15 · 78 added, 51 removed, 175 unchanged (42% of the section changed)

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However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.

We are a clinical stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe have significant unmet needs.

Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), papulopustular rosacea (or rosacea), hyperhidrosis, and various aesthetic indications affect millions of people worldwide each year and may negatively impact their quality of life and emotional well-being.

While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming treatment results, cumbersome application regimens and varying negative side effects leading to a lack of patient compliance.

While a majority of these indications are first treated with topical products, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction with slow and modest response rates, early onset of negative side effects, onerous application schedules and typically long duration of therapy.

Given the limitations with current topical therapies and the restricted usability of systemic therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for effective topical products that satisfy their dermatological and lifestyle needs.

Our two product candidates, DMT310 and DMT410, incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions.

Our Spongilla technology is a multifactorial, naturally derived product that is processed from a wholly naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder and is mixed with a fluidizing agent immediately prior to application by the patient to form an easily applicable paste.

We are a clinical-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe represent significant market opportunities.

Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), papulopustular acne rosacea (or rosacea), hyperhidrosis and various aesthetic skin quality issues, affect millions of people worldwide each year, and may negatively impact their quality of life and emotional well-being.

While there are multiple current treatment options for each of these indications on the market, we believe that current therapies come with significant drawbacks, including underwhelming efficacy, cumbersome application regimens, and significant tolerability issues, all of which we believe may lead to poor patient compliance.

A majority of these indications are first treated with topical products;

however, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction.

This is primarily due to slow and modest response rates, the early onset of negative side effects, onerous application schedules, and long duration of therapy.

Given the limitations with current topical therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for topical products that satisfy their dermatological and lifestyle needs.

Our two product candidates, DMT310 and DMT410, both incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions and satisfy the unmet need of patients.

Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is then mixed with a fluidizing agent immediately prior to application, to form an easily applicable paste.

Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world and under specific environmental conditions, all of which give it its distinctive anti-microbial, anti-inflammatory, and mechanical properties.

The combination of these ideal environmental conditions, the proprietary harvesting protocols developed with our supplier, and our post-harvest processing procedures optimize the mechanical component as well as the chemical components of Spongilla for product candidates with multiple mechanisms of action for the treatment of inflammatory skin conditions.

Our lead product candidate DMT310, utilizes our Spongilla technology for a once-weekly treatment of a variety of skin diseases.

Our initial focus is the treatment of acne vulgaris.

However, due to the multiple mechanisms of action and anti-inflammatory effect seen with DMT310, we have moved into clinical trials of two additional indications, psoriasis and rosacea.

In October 2021, we completed a Phase 1b proof of concept, or POC, trial in psoriasis and in November 2021 we initiated a Phase 2 clinical trial of DMT310 for the treatment of rosacea with results expected in the second half of 2022.

Our second product candidate utilizing our Spongilla technology is our combination treatment, DMT410.

DMT410 consists of one treatment of our proprietary sponge powder followed by topical application of botulinum toxin for delivery into the dermis.

We first tested this program in a Phase 1 POC trial of axillary hyperhidrosis patients, which was completed in July 2019.

We reported that 80% of patients achieved a reduction in gravimetric sweat production greater than 50%, four weeks after treatment.

Based on the results of this trial, we initiated a Phase 1 POC trial of DMT410 for the intradermal treatment of multiple aesthetic skin conditions.

In November 2021, we announced top-line results from this trial where we obtained data that we believe warrants further investigation of this program.

We believe these two DMT410 trials indicate we have been able to topically deliver botulinum toxin into the dermis after the application of our Spongilla technology.

We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target topical delivery of chemical compounds into the dermis for maximum treatment effect for a variety of inflammatory skin diseases.

One mechanism of our technology is its mechanical ability to allow for the intradermal delivery of a variety of large and small molecules through microchannels to a targeted treatment site via topical application.

In addition to its mechanical components, the Spongilla technology also utilizes multiple naturally occurring chemical compounds that we believe have demonstrated in-vitro anti-microbial, and anti-inflammatory properties.

We believe the combination of these mechanical and chemical components make our platform versatile for the treatment of a wide variety of medical and aesthetic skin conditions and diseases.

The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical components as well as the chemical components of the sponge to create a product candidate with multiple mechanisms of action for the treatment of inflammatory skin conditions and aesthetic applications.

We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target the topical delivery of chemical compounds into the dermis for a variety of dermatology indications.

We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro , anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform’s effectiveness as a singular product, in the treatment of a wide variety of medical skin diseases like acne, rosacea, and psoriasis.

We also believe the mechanical properties of our Spongilla technology allows for the intradermal delivery of a variety of large molecules, like botulinum toxin, monoclonal antibodies, or dermal filler, to target treatment sites, through topical application.

Our lead product candidate, DMT310, is intended to utilize our Spongilla technology for once weekly treatment of a variety of skin diseases, with our initial focus being the treatment of acne vulgaris, which has a U.S.

market size of approximately 50 million patients.

We have shown DMT310’s ability to treat the multiple causes of acne in a Phase 2b study where we initially saw a 45% reduction in inflammatory lesions after four treatments, with statistically significant results at all time points for all three primary endpoints (reduction in inflammatory lesions, reduction in non-inflammatory lesions, and improvement in Investigator Global Assessment).

Based on the multiple mechanisms of action and anti-inflammatory effect seen with DMT310 acne trial, we moved DMT310 into clinical trials for two additional indications:

psoriasis and rosacea.

In October 2021, we completed a Phase 1b proof of concept, or POC, trial in psoriasis where we saw encouraging results warranting further investigation.

In June 2022, we completed enrollment of a Phase 2 clinical trial of DMT310 for the treatment of rosacea with results expected in December 2022.

DMT310 consists of two grams of powder processed from a naturally grown freshwater sponge, Spongilla lacustris.

The patient mixes the powder with a fluidizing agent (hydrogen peroxide) immediately prior to application by the patient to form an easy-to-apply paste.

The paste is left on the skin for approximately ten to fifteen minutes, after which time it is washed off with water.

Due to the unique combination of DMT310’s mechanical components and chemical components, and based on our Phase 2 acne data, we believe patients will only need to apply DMT310 once weekly to produce a desired treatment effect.

The mechanical components of the Spongilla powder consist of many microscopic siliceous, needle-like spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where pro-inflammatory cytokines and bacteria reside.

We believe that the penetration of the spicules leads to the opening of microchannels, which allow oxygen to enter pilosebaceous glands, helping to kill C.

acnes , which grow in an anaerobic (without oxygen) environment ( C.

acnes is the bacteria that cause inflammatory lesions in acne patients).

The spicules also cause turnover of the top layer of dead skin, thereby increasing collagen production.

We believe the newly created microchannels provide a conduit for DMT310’s naturally occurring chemical compounds to be delivered to the dermis and pilosebaceous glands, helping to kill the C.

In addition to these anti-microbial compounds, DMT310 also appears to have anti-inflammatory chemical compounds, as demonstrated in in vitro experiments, that inhibit inflammation through the reduction of C.acnes stimulated IL-8 production and by inhibiting IL-17A and IL-17F expression in human cell lines.

Also, during in vitro studies of DMT310’s organic compounds, we observed the inhibition of the lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and the oiliness of the skin in patients, which was observed by a number of clinical investigators in our Phase 2 acne studies.

We believe the combination of these biological and mechanical effects of the spicules could be important factors in treating multiple inflammatory skin diseases, as seen in our clinical trials.

Our second product candidate utilizing our Spongilla technology is DMT410, our combination treatment.

DMT410 is intended to consist of one treatment of our proprietary sponge powder followed by one topical application of botulinum toxin for delivery into the dermis.

Currently, botulinum toxin is only approved to be delivered to the dermis by intradermal injections, which can be painful for the patient and time-consuming for the physician.

However, we believe DMT410’s ability to topically deliver botulinum toxin into the dermis could have similar levels of efficacy to existing delivery techniques, with fewer tolerability issues, and a quicker application time, possibly replacing the need for intradermal injections.

We first tested DMT410 in a Phase 1 POC trial of axillary hyperhidrosis patients, which saw 80% of patients achieve a reduction in gravimetric sweat production greater than 50% four weeks after a single treatment.

With almost 40% of the hyperhidrosis market currently being treated with intradermal injections of botulinum toxin, we believe there is significant opportunity for DMT410.

Based on DMT410’s ability to effectively deliver botulinum toxin to the dermis as observed in the Phase 1 axillary hyperhidrosis trial, we also conducted a Phase 1 POC trial of DMT410 for the treatment of multiple aesthetic skin conditions, including reduction of pore size, sebum production, and fine lines, among others.

In November 2021, we announced top-line results from this trial, where we saw promising data that we believe warrants further investigation of DMT410.

We are currently in the process of discussing partnering opportunities with botulinum toxin companies to move the DMT410 program into Phase 2 studies.

We have a limited operating history.

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We have not generated any revenue to date and have incurred significant operating losses.

Our net losses were $2.7 million and $5.5 million for the three and six months ended June 30, 2022, respectively, and as of June 30, 2022, we had an accumulated deficit of $41.5 million.

Our net losses were $2.4 million and $7.9 million for the three and nine months ended September 30, 2022, respectively, and as of September 30, 2022, we had an accumulated deficit of $43.9 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

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Potential impacts to our business include delays in planned and ongoing preclinical and clinical trials including enrollment of patients, disruptions in time and resources provided by independent clinical investigators, CROs, and other third-party service providers, temporary closures of our facilities, disruptions or restrictions on our employees’ ability to travel, and delays in manufacturing and/or shipments to and from third-party suppliers and contract manufacturers for APIs and drug product, including Spongilla .

We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including having all of our employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business.

We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including having our employees to work remotely and suspending all non-essential travel worldwide for our employees.

We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and government agencies, such as the Securities and Exchange Commission, or the SEC, or FDA.

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Results of Operations

Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Operating expenses:

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Other income and expenses:

Interest expense, net

$ (2,730,573 )

Interest (income) expense, net

$ (2,424,586 )

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Research and Development Expenses

Research and development expenses increased by $0.7 million from $0.9 million for the three months ended June 30, 2021, compared $1.6 million for the three months ended June 30, 2022.

The increase in research and development expense was the result of $0.4 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, an increase of $0.1 million related to non-clinical activities, as well as increased employee and personnel expenses and stock-based compensation of $0.2 million.

Research and development expenses increased by $0.8 million from $0.8 million for the three months ended September 30, 2021, compared $1.6 million for the three months ended September 30, 2022.

The increase in research and development expense was the result of $0.3 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, an increase of $0.3 million related to non-clinical activities, and increased chemistry, manufacturing, and controls, or CMC, expenses, of $0.2 million.

General and Administrative Expenses

General and administrative expenses increased by approximately $0.7 million from $0.5 million for the three months ended June 30, 2021, compared to $1.1 million for the three months ended June 30, 2022.

The increase in general and administrative expenses was the result of increased insurance and public company costs of $0.5 million as well as increased employee and personnel and stock-based compensation expenses of $0.2 million.

Six Months Ended June 30, 2022, and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022, and 2021:

Six Months Ended June 30,

General and administrative expenses were $0.9 million for the three months ended September 30, 2022 and September 30, 2021.

Increases in insurance and public company costs were offset by decreases in legal costs for the three months ended September 30, 2022.

Other income and expenses

The Company opened a cash sweep account during the third quarter of 2022 and has begun earning interest income via overnight deposits totaling $21,486, net, for the three months ended September 30, 2022.

Nine Months Ended September 30, 2022, and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022, and 2021:

Nine Months Ended September 30,

Operating expenses:

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Other income and expenses:

Interest expense, net

Interest (income) expense, net

$ (7,941,311 )

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Research and Development Expenses

Research and development expenses increased by $1.7 million from $1.5 million for the six months ended June 30, 2021, compared to $3.2 million for the six months ended June 30, 2022.

The increase in research and development expense was the result of $1.1 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, $0.2 million in increased non-clinical expenses, $0.1 million in increased chemistry, manufacturing, and controls, or CMC, expenses, as well as increased employee and personnel and stock-based compensation expense of $0.3 million.

Research and development expenses increased by $2.4 million from $2.3 million for the nine months ended September 30, 2021, compared to $4.8 million for the nine months ended September 30, 2022.

The increase in research and development expense was the result of $1.4 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, $0.5 million in increased non-clinical expenses, $0.2 million in increased CMC expenses, as well as increased employee and personnel expenses of $0.4 million.

General and Administrative Expenses

General and administrative expenses increased by $0.3 million from $2.0 million for the six months ended June 30, 2021, compared to $2.3 million for the six months ended June 30, 2022.

The increase in general and administrative expenses was the result of increased insurance and public company costs of $1.0 million as well as increased employee and personnel expenses of $0.2 million, offset by decreased stock-based compensation expense of $0.6 million and decreased legal costs of $0.3 million.

General and administrative expenses increased by $0.2 million from $3.0 million for the nine months ended September 30, 2021, compared to $3.2 million for the nine months ended September 30, 2022.

The increase in general and administrative expenses was the result of increased insurance and public company costs of $0.9 million, offset by decreased legal costs of $0.1 million and $0.6 million of decreased stock-based compensation expense.

Other income and expenses

Other income and expenses changed by $67,099 from $45,613 representing interest expense, net, for the nine months ended September 30, 2021 compared to interest income, net, of $21,486 for the nine months ended September 30, 2022.

The Company opened a cash sweep account during the third quarter of 2022 and has begun earning interest income via overnight deposits.

The prior year interest expense related to the amortization of debt discount and interest expense for previously outstanding debt.

As of December 31, 2021, the Company no longer had any debt outstanding.

The following table summarizes our cash flows from operating and financing activities:

Six Months Ended

Nine Months Ended

September 30,

Statements of cash flows data:

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Financing activities

Decrease in cash

Increase (decrease) in cash and cash equivalents

$ (2,731,984 )

Operating activities

Cash used in operations of $4.4 million for the six months ended June 30, 2022, was the result of the net loss of $5.5 million, offset by non-cash stock-based compensation of $0.5 million, as well as an increase in accounts payable and accrued and other current liabilities of $0.2 million and a decrease in prepaid expenses and other current assets of $0.4 million.

Cash used in operations of $1.7 million for the six months ended June 30, 2021, was the result of the net loss of $3.6 million and an increase in prepaid expenses and other current assets of $0.6 million, offset by non-cash stock-based compensation of $1.3 million, as well as an increase in accounts payable and accrued and other current liabilities of $1.3 million.

Cash used in operations of $7.0 million for the nine months ended September 30, 2022, was the result of the net loss of $7.9 million and an increase in prepaid expenses and other current assets of $0.1 million, offset by non-cash stock-based compensation of $0.7 million and an increase in accrued and other current liabilities of $0.3 million.

Cash used in operations of $3.9 million for the nine months ended September 30, 2021 was the result of the net loss of $5.3 million and an increase in prepaid expenses and other current assets of $1.0 million, offset by non-cash stock-based compensation of $1.4 million and an increase in accounts payable and accrued and other current liabilities of $1.0 million.

Financing activities

Cash provided by financing activities of $4.3 million for the six months ended June 30, 2022, was the result of the net proceeds received from the issuance of common stock and warrants issued in April 2022 from a private placement of the Company’s securities.

Cash provided by financing activities of $1.6 million for the six months ended June 30, 2021, was the result of proceeds of $1.6 million from the issuance of convertible subordinated promissory notes and proceeds of $0.6 million from the issuance of Series 1d Preferred Units, offset by $0.6 million of principal and final payments on debt.

Cash provided by financing activities of $4.3 million for the nine months ended September 30, 2022, was the result of the net proceeds received from the issuance of common stock and warrants issued in April 2022 from a private placement of the Company’s securities.

Cash provided by financing activities of $16.0 million for the nine months ended September 30, 2021 was the result of net proceeds of $15.4 million from our initial public offering, $1.6 million from the issuance of convertible subordinated promissory notes, proceeds of $0.6 million from the issuance of Series 1d Preferred Units, offset by $1.0 million payment for the redemption of 5,221,156 shares of Series 1c preferred stock and $0.6 million of principal and final payments on debt.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue or commercialized any products.

As of June 30, 2022, our cash totaled $10.6 million, and we had an accumulated deficit of $41.5 million.

For the six months ended June 30, 2022, and the year ended December 31, 2021, we used cash of $4.4 million and $5.7 million, respectively, in operations.

As of September 30, 2022, our cash and cash equivalents totaled $8.1 million, and we had an accumulated deficit of $43.9 million.

For the nine months ended September 30, 2022, and the year ended December 31, 2021, we used cash of $7.0 million and $5.7 million, respectively, in operations.

As a result of our initial public offering of common stock and warrants to purchase common stock in August 2021 for net proceeds of $15.4 million, as well as our private placement of common stock and warrants to purchase common stock in April 2022 for net proceeds of $4.3 million, our cash balances are expected to fund operations into the third quarter of 2023.

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We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We believe that our existing cash, along with the proceeds from a private placement of our securities which closed in April 2022 (the “Private Placement”), will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2023.

We believe that our existing cash and cash equivalents, along with the proceeds from a private placement of our securities which closed in April 2022 (the “Private Placement”), will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2023.

We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis