What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-10 · 49 added, 83 removed, 170 unchanged (44% of the section changed)

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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;

Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which 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 efficacy, cumbersome application regimens and varying negative side effects, all of which we believe lead to decreased patient compliance.

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

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.

This is primarily due to slow and modest response rates, early onset of negative side effects, daily 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.

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

Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is 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 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.

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 medical and aesthetic skin diseases and conditions.

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.

We also believe the mechanical properties of our Spongilla technology allows for the intradermal delivery of a variety of large molecules, like botulinum toxins, monoclonal antibodies, or dermal fillers, to target treatment sites, through topical application without the need for needles.

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.

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 improvements at all time points for all three primary endpoints throughout the study (reduction in inflammatory lesions, reduction in non-inflammatory lesions, and improvement in Investigator Global Assessment).

Based on this Phase 2b data we recently submitted an end of phase 2 meeting package to the FDA to agree on clinical development requirements for the Phase 3 acne program.

We expect to receive feedback from the FDA by the end of June 2023 and, if acceptable to the FDA, we plan to initiate a Phase 3 program in the second half of 2023.

In addition, based on the multiple mechanisms of action and anti-inflammatory effect seen with DMT310 acne trial, we completed a Phase 1b proof of concept, or POC, trial in psoriasis where we saw encouraging results warranting further investigation.

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

The patient mixes the powder with a fluidizing agent (3% 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 paste is applied like a mud mask and is left on the skin for approximately ten to fifteen minutes, after which time it is washed off with water.

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.

We believe that the penetration of the spicules also 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.

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

Additionally, 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.

acnes and fight inflammation .

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.

We believe the combination of these biological and mechanical effects 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.

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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.

With almost 40% of the hyperhidrosis market currently being treated with intradermal injections of botulinum toxin, we believe there could be significant opportunity for DMT410 to break into this market and replace intradermal injections of botulinum toxin.

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.

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We have funded our operations primarily through the sale of our equity securities and debt securities.

Since inception, we have raised an aggregate of approximately $51.9 million of gross proceeds from the sale of our debt and equity securities, including the securities sold in our IPO.

Since inception, we have raised an aggregate of approximately $56.9 million of gross proceeds from the sale of our debt and equity securities.

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

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.

Our net losses were $2.2 million and $2.8 million for the three months ended March 31, 2023, and 2022, respectively, and as of March 31, 2023, we had an accumulated deficit of $47.8 million.

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

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prepare and file for regulatory approval of DMT310 for the treatment of moderate-to-severe acne;

continue development of DMT310 for the treatment of rosacea, including a Phase 2 clinical trial and Phase 3 clinical trials;

continue development of DMT310 for the treatment of psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials;

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prepare for commercialization of DMT310, if approved, including the hiring of sales and marketing personnel;

begin to manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale;

manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale;

hire additional research and development and selling, general and administrative personnel;

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We will need to generate significant revenues to achieve profitability, and we may never do so.

COVID-19 Update

The COVID-19 pandemic continues to have a major impact in the US and around the world.

The availability of vaccines holds promise for the future, though new variants of the virus and potential waning immunity from vaccines may result in continued impact from this pandemic in the future, which could adversely impact our operations.

To date, we have managed delays and disruptions without significant impact in planned and ongoing preclinical trials, manufacturing, or shipping.

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 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.

Critical Accounting Policies and Use of Estimates

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The Company’s policy permits the valuation of stock-based awards granted to non-employees to be measured at fair value at the grant date.

Determining the appropriate fair value of share-based awards requires the use of subjective assumptions, including the fair value of our common shares for awards prior to our IPO, and for options, the expected life of the option and expected share price volatility.

Determining the appropriate fair value of share-based awards requires the use of subjective assumptions, including the fair value of our common shares for awards prior to 2021, and for options, the expected life of the option and expected share price volatility.

We use the Black-Scholes option pricing model to value our option awards.

The assumptions used in calculating the fair value of share-based awards represents our best estimates and involve inherent uncertainties and the application of judgment.

The assumptions used in calculating the fair value of share-based awards represent our best estimates and involve inherent uncertainties and the application of judgment.

As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.

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We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the progress and timing of expenditures related to the development of our product candidates.

We cannot predict with certainty what the full impact of the COVID-19 pandemic may have on our business, results of operations, financial condition, and prospects.

Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance.

Results of Operations

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,

Three Months Ended March 31, 2023, and 2022

The following table summarizes our results of operations for the periods presented:

Three Months Ended

Operating expenses:

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Other income and expenses:

Interest (income) expense, net

$ (2,424,586 )

$ (1,712,920 )

Research and Development Expenses

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 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:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income and expenses:

Interest (income) expense, net

$ (7,941,311 )

Interest income, net

$ (2,240,142 )

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Research and Development Expenses

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.

Research and development expenses decreased by $0.4 million from $1.6 million for the three months ended March 31, 2022, to $1.2 million for the three months ended March 31, 2023.

The decrease in research and development expense from the first quarter of 2023 as compared the same period in 2022 resulted from $0.8 million of decreased clinical expenses from the DMT310 rosacea study completed in late 2022, offset by increased non-clinical and chemistry, manufacturing, and controls, or CMC, expenses of $0.4 million.

General and Administrative Expenses

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.

General and administrative expenses decreased by $0.1 million from $1.2 million for the three months ended March 31, 2022, to $1.1 million for the three months ended March 31, 2023.

This decrease resulted from decreased insurance costs of $0.1 million.

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.

Other income and expenses increased by $37,540 from the three months ended March 31, 2023, as result of interest income earned from cash sweep accounts, which were opened during the third quarter of 2022.

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

Nine Months Ended

September 30,

Three Months Ended

Statements of cash flows data:

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Operating activities

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.

Cash and cash equivalents used in operations of $1.6 million for the three months ended March 31, 2023, was the result of the net loss of $2.2 million, offset by non-cash stock-based compensation of $0.1 million, a decrease in prepaid expenses and other current assets of $0.2 million, and an increase in accrued and other current liabilities of $0.3 million.

Cash used in operations of $2.6 million for the three months ended March 31, 2022, was the result of the net loss of $2.8 million, offset by non-cash stock-based compensation of $0.2 million.

Financing activities

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.

The Company raised net proceeds of $4.2 million during the quarter ended March 31, 2023, resulting from the issuance of Common Stock and warrants from the March 2023 public offering.

The Company did not experience any financing activities during the three months ended March 31, 2022.

Liquidity and Capital Resources

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

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.

As of March 31, 2023, our cash and cash equivalents totaled $8.8 million, and we had an accumulated deficit of $47.8 million.

For the three months ended March 31, 2023, and the year ended December 31, 2022, we used cash of $1.6 million and $8.8 million, respectively, in operations.

As a result of our public offering of Common Stock and warrants to purchase Common Stock in March 2023 for net proceeds of $4.2 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 first quarter of 2024.

We anticipate that we will continue to incur net losses for the foreseeable future.

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Funding Requirements

We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne, psoriasis, and rosacea.

We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne, psoriasis and rosacea and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions.

We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne and psoriasis.

We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne and psoriasis and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions.

In addition, we plan to seek opportunities to identify, acquire or in license and develop additional drug candidates, potentially build commercial capabilities, and expand our corporate infrastructure.

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Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs.

Our future funding requirements will be heavily determined by the resources needed to support development of our drug candidates.

Our future funding requirements will be heavily determined by the resources needed to support the development of our drug candidates.

As a publicly traded company, we will incur significant legal, accounting, and other expenses that we were not required to incur as a private company.

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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 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 believe that our existing cash and cash equivalents, along with the proceeds from the offering in March 2023, will be sufficient to fund our operating expenses and capital expenditure requirements into the first quarter of 2024.

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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Contractual Obligations and Commitments

We do not currently lease any office space.

We do not currently own or lease any office space.

We enter into contracts in the normal course of business with contract research organizations for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes.

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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