What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-09 · 46 added, 79 removed, 177 unchanged (41% 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 represent significant market opportunities.

We are a late-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), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which may negatively impact their quality of life and emotional well-being.

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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 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 submitted an end of phase 2 meeting package to the FDA to agree on clinical development requirements for the Phase 3 acne program.

We received feedback from the FDA in the end of June 2023 and based on FDA recommendations we have amended the Phase 3 protocols to include the FDA’s recommended additions.

In July 2023, we submitted the amended protocols to the FDA and we plan to initiate a Phase 3 program in the second half of 2023, assuming the receipt of final approval from the FDA.

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

Our lead product candidate, DMT310, is intended to utilize our Spongilla technology for the 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 33 million diagnosed patients.

We recently initiated a Phase 3 program of DMT310 in moderate-to-severe acne and began enrolling patients in the first of two identical Phase 3 studies in December of 2023.

Both studies will be double blinded, randomized, placebo controlled, and enroll about 550 patients, age 9 years or older across sites in the United States and Latin America.

The primary endpoints include absolute reduction in inflammatory and noninflammatory lesions and the improvement in investigators global assessment (IGA) of acne, which are the same endpoints used in our Phase 2b study of DMT310 for moderate-to-severe acne.

Patients will be treated once a week for 12 weeks with either DMT310 or placebo and will be evaluated monthly.

The second Phase 3 study will be followed by a long-term extension study.

We expect to have top-line results from the first Phase 3 study in the first quarter of 2025.

Previously DMT310 has shown its 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 DMT310 achieving 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 IGA).

In addition, based on the multiple mechanisms of action and anti-inflammatory effect seen with the 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.

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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 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.

Currently, BOTOX®, is the only approved botulinum toxin 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 a botulinum toxin into the dermis could have similar levels of efficacy to intradermal injections of botulinum toxin, with fewer tolerability issues, and a quicker application time, possibly replacing the need for intradermal injections.

We first tested DMT410 with BOTOX® 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 BOTOX®, we believe there could be significant opportunity for DMT410 to break into this market and replace intradermal injections of botulinum toxin with a topical delivery option.

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 with BOTOX® 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.

Given that BOTOX® is a Type A toxin, and acts through a similar pathway as other Type A botulinum toxins, we are discussing partnering opportunities with multiple companies that have a botulinum toxin type A to move our DMT410 program into additional clinical 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 $1.7 million and $2.4 million for the three months ended September 30, 2023, and 2022, respectively, and as of September 30, 2023, we had an accumulated deficit of $51.3 million.

Our net losses were $3.1 million and $2.2 million for the three months ended March 31, 2024, and 2023, respectively, and as of March 31, 2024, we had an accumulated deficit of $56.5 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 psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials;

identify a botulinum toxin partner for DMT410 for the treatment of aesthetic and medical skin conditions;

identify a botulinum toxin partner for DMT410 for the treatment of medical and aesthetic skin conditions and diseases;

continue development of DMT410 for the treatment of treatment of aesthetic and medical skin conditions, including Phase 1 and Phase 2 clinical trials;

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

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

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

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

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Recent Developments

Equity Offerings

On March 20, 2023, we closed a public offering (the “March 2023 Offering”) of (i) 85,000 shares of Common Stock, $0.0001 par value per share (“Common Stock”), (ii) pre-funded warrants to purchase up to an aggregate of 1,533,123 shares of Common Stock with an exercise price of $0.0001 per share, (iii) Series A warrants to purchase up to an aggregate of 1,618,123 shares of Common Stock, and (iv) Series B warrants to purchase up to an aggregate of 1,618,123 shares of Common Stock.

Both the Series A and Series B warrants have an exercise price of $2.82 per share.

The net proceeds of the March 2023 Offering, after deducting the placement agent’s fees and expenses and other offering expenses payable by the Company was approximately $4.2 million.

In connection with the March 2023 Offering, we also issued warrants to purchase an aggregate of 113,269 shares of Common Stock to certain affiliated designees of the placement agent as part of the placement agent’s compensation.

The placement agent warrants are exercisable at an exercise price of $3.8625 per share, and will expire on the five year anniversary of the date of issuance.

On May 26, 2023, we closed a private placement (the “2023 PIPE”), priced at the market under Nasdaq rules, in which we sold 458,555 shares of its Common Stock together with 342,322 pre-funded warrants to purchase up to an aggregate of 342,322 shares of Common Stock with an exercise price of $0.0001 per share, (the “May 2023 Pre-Funded Warrants”).

We received net proceeds of approximately $1.5 million, after deducting fees to the placement agent and other offering expenses.

The Common Stock purchase warrants were immediately exercisable at an exercise price of $2.16 per share and will expire five and one-half years from the date of issuance.

The pre-funded warrants were immediately exercisable at an exercise price of $0.0001 per share and do not expire.

In connection with the offering, we also issued warrants to purchase an aggregate of 56,061 shares of Common Stock to certain affiliated designees of the placement agent as part of the placement agent’s compensation.

The placement agent warrants are exercisable at an exercise price of $2.8563 per share and will expire on the five-year anniversary of the date of issuance.

The net proceeds will be used for general corporate purposes, which includes, without limitation, ongoing research and pre-clinical studies, clinical trials, and the development of new biological and pharmaceutical technologies.

In December 2023, we began enrolling patients in the first of two Phase 3 clinical trials of DMT310 in moderate-to-severe acne.

We are currently on track to complete enrollment of the first Phase 3, referred to as STAR-1, by the end of 2024 with top-line results from the first Phase 3 trial in Q1 2025.

Both Phase 3 studies will be double blinded, randomized, placebo controlled, and enroll about 550 patients, age 9 years or older across sites in the United States and Latin America.

The primary endpoints include absolute reduction in inflammatory and noninflammatory lesions and the improvement in investigators global assessment (IGA) of acne.

Patients will be treated once a week for 12 weeks with either DMT310 or placebo and will be evaluated monthly.

Critical Accounting Policies and Use of Estimates

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The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses, stock-based compensation expense, and the fair value of equity instruments which result in deemed dividends.

On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses.

We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances.

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Depending on the timing of payments to vendors and estimated services provided, we will record net prepaid or accrued expenses related to these costs.

Fair Value of Common Stock and Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.

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 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 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.

Fluctuations in Operating Results

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Results of Operations

Three Months Ended September 30, 2023, and 2022

Three Months Ended March 31, 2024, and 2023

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

Three Months Ended

September 30,

Three Months Ended March 31,

Operating expenses:

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Research and Development Expenses

Research and development expenses decreased by $0.7 million from $1.6 million for the three months ended September 30, 2022, to $0.9 million for the three months ended September 30, 2023.

The decrease in research and development expenses from the third quarter of 2023 as compared the same period in 2022 resulted from $0.5 million of decreased clinical expenses from the DMT310 rosacea study completed in late 2022 and $0.3 million of decreased non-clinical expenses, offset by $0.1 million of increased chemistry, manufacturing, and controls, or CMC, expenses in preparation for the DMT310 Phase 3 program.

General and Administrative Expenses

General and administrative expenses were $0.9 million for the three months ended September 30, 2023, and 2022, respectively.

Other Income and Expenses

Other income and expenses increased by $71,281 from the three months ended September 30, 2023, as result of interest income earned from cash sweep accounts that were opened during the third quarter of 2022.

Nine Months Ended September 30, 2023, and 2022

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

Nine Months Ended September 30,

Operating expenses:

Research and development

$ (1,827,145 )

General and administrative

Total operating expenses

Loss from operations

Other income and expenses:

Interest income, net

$ (5,660,717 )

$ (7,941,311 )

Research and Development Expenses

Research and development expenses decreased by approximately $1.9 million from $4.8 million for the nine months ended September 30, 2022, to $2.9 million for the nine months ended September 30, 2023.

The decrease in research and development expenses resulted from a $2.0 million decrease in clinical expenses and a $0.3 million decrease in non-clinical expenses, offset by $0.4 million of increased CMC expenses in preparation for the DMT310 Phase 3 program.

Research and development expenses increased by $0.4 million from $1.2 million for the three months ended March 31, 2023, to $1.6 million for the three months ended March 31, 2024.

The increase in research and development expenses from the first quarter of 2024 as compared the same period in 2023 resulted from $0.7 million of increased clinical expenses from the DMT310 STAR-1 acne study initiated in late 2023, and $0.2 million of increased stock-based compensation expense, offset by $0.3 million of decreased non-clinical expenses and $0.2 million of decreased chemistry, manufacturing, and controls, or CMC, expenses.

General and Administrative Expenses

General and administrative expenses decreased by $0.3 million from $3.2 million for the nine months ended September 30, 2022, to $2.9 million for the nine months ended September 30, 2023.

This decrease resulted from decreased insurance costs of $0.2 million, as well as decreased stock-based compensation expense of $0.3 million, offset by an increase in public company expenses of $0.2 million primarily related to professional services.

General and administrative expenses increased by $0.5 million from $1.1 million for the three months ended March 31, 2023, to $1.6 million for the three months ended March 31, 2024.

The increase in general and administrative costs resulted from $0.3 million of increased stock-based compensation expense and $0.2 million of increased public company costs, related primarily to audit fees.

Other Income and Expenses

Other income and expenses increased by $139,871 from the nine months ended September 30, 2023, as result of interest income earned from cash sweep accounts, which were opened during the third quarter of 2022.

Other income and expenses increased by $31,758 from $37,540 for the three months ended March 31, 2023, to $69,298 for the three months ended March 31, 2024.

The increase in interest income resulted from interest rate increases.

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 $5.3 million for the nine months ended September 30, 2023, was the result of the net loss of $5.7 million, offset by non-cash stock-based compensation of $0.4 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 and cash equivalents used in operations of $2.7 million for the three months ended March 31, 2024, was the result of the net loss of $3.1 million, offset by $0.6 million in non-cash stock-based compensation expense, a decrease in prepaid expenses and other current assets of $0.1 million, and decreases in accounts payable and accrued and other current liabilities of $0.3 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.

Financing activities

Cash provided by financing activities of $5.7 million for the nine months ended September 30, 2023, was the result of $4.2 million of net proceeds received from the issuance of Common Stock and warrants issued in the March 2023 Offering, as well as $1.5 million of net proceeds received from the May 2023 Offering.

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.

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 have any financing activities during the three months ended March 31, 2024.

Liquidity and Capital Resources

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

As of September 30, 2023, our cash and cash equivalents totaled $6.6 million, and we had an accumulated deficit of $51.3 million.

For the nine months ended September 30, 2023, and the year ended December 31, 2022, we used cash of $5.3 million and $8.8 million, respectively, in operations.

As a result of the sales of our Common Stock and warrants to purchase Common Stock in the March 2023 Offering and the May 2023 Offering for net proceeds of $4.2 million and $1.5 million, respectively, our cash balances are expected to fund operations into the second quarter of 2024.

As of March 31, 2024, our cash and cash equivalents totaled $4.7 million, and we had an accumulated deficit of $56.5 million.

For the three months ended March 31, 2024, and the year ended December 31, 2023, we used cash of $2.7 million and $6.4 million, respectively, in operations.

We expect our cash resources to fund operations into the third quarter of 2024.

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

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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 the private placement in May 2023, will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the third 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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These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial statements were issued.

We will require additional capital to conduct Phase 3 studies for DMT310 for the treatment of acne, continue development of DMT310, and to pursue in licenses or acquisitions of other drug candidates.

We will require additional capital to complete the Phase 3 studies for DMT310 for the treatment of acne, continue development of DMT310, and to pursue in-licenses or acquisitions of other drug candidates.

Therefore, based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and the need to raise additional capital to finance future operations, we are developing plans to mitigate this risk, which may consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations, business transactions, and reducing cash expenditures.

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We may raise additional capital through the sale of equity or convertible debt securities.

In such an event, the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our Common Stock.

In such an event, the terms of these securities may include liquidation or other preferences that adversely affect the rights of the holders of our Common Stock.

Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements.

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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