What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-07 · 61 added, 72 removed, 91 unchanged (59% of the section changed)

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Company Overview

We are a clinical-stage biopharmaceutical company developing novel ribonucleic acid (RNA)-modulating drug candidates, each designed to be a eukaryotic ribosomal selective glycoside (ERSG), for the treatment of rare and ultra-rare premature stop codon diseases.

We are a clinical-stage biopharmaceutical company engaged in the science of ribosome modulation, leveraging both its innovative TURBO-ZM™ chemistry technology platform in an effort to develop novel Ribosome Modulating Agents (RMAs) and its library of Eukaryotic Ribosome Selective Glycosides (ERSGs), for the treatment of rare and ultra-rare premature stop codon diseases.

Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (mRNA) and the protein synthesis from that mRNA.

Our lead clinical program, ELX-02, is currently in Phase 2 clinical development for the treatment of cystic fibrosis in patients with diagnosed nonsense mutations.

Our Phase 2 clinical trial for ELX-02 is being conducted at leading global investigator sites in Europe, Israel and the United States.

On March 25, 2020, we announced that enrollment in these trials had been paused temporarily in response to the global COVID-19 pandemic in order to avoid unnecessary exposure in at-risk populations, to maintain the integrity of our study data and to support global healthcare providers in their commitment to ensure patient safety.

On June 17, 2020, we announced that enrollment had been resumed in Israel and Europe and, on August 12, 2020, we announced that enrollment had been resumed in the United States.

The COVID-19 pandemic continues to evolve, and we continue to work closely with our clinical sites and investigators.

We are also evaluating additional clinical sites in other countries where patient enrollment may be feasible.

We expect to complete enrollment of the first four treatment arms by mid-2021 and report data in the second half of 2021.

The safety review committee for the trial has allowed dose escalation up to the top dose level with no drug-related serious adverse events reported to date.

Multiple patients have progressed through the four-dose escalation range set forth in the trial protocol.

The Cystic Fibrosis Foundation (“CF Foundation”) is providing funding for a portion of the clinical trial program.

The FDA has granted orphan drug designation to ELX-02 for the treatment of nephropathic cystinosis, MPS I, Rett syndrome, and cystic fibrosis.

Our lead clinical program, ELX-02, is currently in Phase 2 clinical development for the treatment of cystic fibrosis (CF) in patients with diagnosed nonsense mutations and is being conducted at leading investigator sites in Europe, Israel and the United States.

As of the end of June 2021, we believe that we have enrolled a sufficient number of patients to assess biological activity of ELX-02.

We expect to present data from the first four treatment arms of the study in the fourth quarter of 2021.

The Cystic Fibrosis Foundation (“CFF”) is providing funding for a portion of this clinical trial program.

The FDA has granted orphan drug designation to ELX-02 for the treatment of nephropathic cystinosis, MPS I, Rett syndrome, and CF.

Acquisition of Zikani Therapeutics, Inc.

On April 1, 2021, the Company acquired Zikani Therapeutics, Inc.

(“Zikani”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”).

Zikani is engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZM TM chemistry technology platform to develop novel Ribosome Modulating Agents (RMAs) as potential therapeutics for people with limited treatment options.

(“Zikani”), a company in preclinical development and engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZM TM chemistry technology platform to develop novel Ribosome Modulating Agents (RMAs) as potential therapeutics for people with limited treatment options.

The TURBO-ZM TM platform is designed to enable rapid synthesis of novel compounds that can be optimized to modulate the ribosome in a disease specific manner.

The TURRBO-ZM synthetic chemistry platform can design oral novel macrolide-based small molecules that are potent oral modulators with favorable therapeutic indices.

The TURRBO-ZM TM synthetic chemistry platform can design oral novel macrolide-based small molecules that are potent oral modulators with favorable therapeutic indices.

Macrolides are antibiotics that inhibit protein synthesis in bacteria.

Zikani is in pre-clinical development, with a plan to target rare diseases including genetic diseases and cancers caused by nonsense mutations.

We expect the combined company to emerge as a leader in the science of ribosome modulation through our complementary platforms and continued development of our library of RMAs and Eukaryotic Ribosome Selective Glycosides (ERSGs).

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The Phase 2 trials are designed to validate the safety of ELX-02 and assess its biological activity.

We look forward to completing enrollment in the first four treatment arms by mid-year and reporting data

from these treatment arms in the second half of this year .

ELX-02 is an investigational drug that has not been approved by any global regulatory body.

With the strength of our ELX-02 program for CF, the acquisition of Zikani provides us with the opportunity to amplify the potential of our innovative science by developing a new class of therapies to treat diseases with limited to no treatment options.

The CFF has agreed to provide funding for a portion of this research.

Our preclinical programs are focused on select rare diseases including inherited diseases, cancer caused by nonsense mutations, kidney diseases, including autosomal dominant polycystic kidney disease, as well as rare ocular genetic disorders.

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JEB is the most severe form of EB, with most patients dying in infancy.

By extending the application of ribosomal RNA modulation to the readthrough of nonsense mutations in tumor suppressor genes, we are also rapidly advancing preclinical research for familial adenomatous polyposis (FAP), an inherited pre-cancerous colorectal disease frequently caused by nonsense mutations in the adenomatous polyposis coli (APC) gene.

disease frequently caused by nonsense mutations in the adenomatous polyposis coli (APC) gene.

We plan to target rare diseases including genetic diseases and cancers caused by nonsense mutations.

Nonsense mutations cause approximately 10-12 percent of rare inherited diseases.

ELX-02 along with the TURBO-ZM TM library of compounds are anticipated to significantly expand to include the treatment of many other rare diseases and certain cancers.

Under the terms of the Merger Agreement, the Company issued 7,596,810 shares of common stock in exchange for all of the issued and outstanding equity interests of Zikani.

Under the terms of the Agreement and Plan of Merger (the “Merger Agreement”), the Company issued 7,596,810 shares of common stock in exchange for all of the issued and outstanding equity interests of Zikani.

(the “Merger Consideration”).

The Company is in the process of determining the purchase price allocation for the Merger Consideration and other assets acquired, which it expects to finalize in the second quarter of 2021.

In connection with the acquisition, on April 1, 2021, Martijn Kleijwegt, Silvia Noiman and Gregory Williams resigned from the Board of Directors.

Pursuant to the terms of the Merger Agreement, Sumit Aggarwal, Alan Walts and Rajesh Parekh were appointed to the Board of Directors.

Sumit Aggarwal was also appointed President and Chief Executive Officer, and Vijay Modur, M.D., Ph.D., was appointed the Head of Research and Development.

The Company also appointed Daniel Geffken to serve as interim Chief Financial Officer.

For more information concerning the acquisition of Zikani and the appointment of officers and directors, see the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2021.

The ongoing COVID-19 pandemic and the measures that we, our employees, consultants, suppliers, contract research organizations (“CROs”), and other partners or governments may take in response to the pandemic may significantly disrupt our business operations.

We are working to ensure that we can operate with minimal disruption, and mitigate the impact of the pandemic on the health and safety of our employees and the patients and healthcare professionals that participate in our clinical trials.

However, given the significant uncertainty regarding the ongoing impact of the COVID-19 pandemic, there remains a risk that we or our employees, contractors, suppliers, and other partners may be prevented or prohibited from conducting business activities for indefinite periods of time, for example due to a substantial percentage of personnel contracting the virus or due to government-mandated shutdowns.

We continue to focus on the operational challenges resulting from the COVID-19 pandemic.

The pandemic has not had a material adverse impact on our financial condition, and we have not had to furlough any employees.

Operations have continued, though our clinical trials were temporarily paused.

Both Phase 2 clinical trials have now resumed.

We are evaluating various alternatives to remain flexible and adapt to changing circumstances that may arise in the near and long term.

While the pandemic has not to date had a material adverse impact on our financial condition, and we have not had to furlough any employees, our clinical trials were temporarily paused.

Both Phase 2 clinical trials have resumed, and we believe that we have enrolled a sufficient number of patients to assess biological activity of ELX-02.

We continue to monitor our operations, states of affairs in the regions in which we and our business partners operate and conduct research and clinical trial activities, and applicable government recommendations.

As a result, we have made modifications to our normal operations, including restrictions on business travel and meetings, permitting employees to work remotely and the implementation of COVID-19 workplace safety guidelines.

The extent and severity of the impact of the pandemic on our business and clinical trials will be determined largely by the ability of patients and prospective patients in our clinical trials to access trial sites, the ability of personnel from our CROs to oversee the administration of our drug candidates in accordance with trial protocols and our ability to monitor and communicate effectively with our CROs, staff at clinical trial sites and principal investigators.

Results of Operations

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Three Months Ended

Six Months Ended

Operating expenses:

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General and administrative

Acquired in-process research and development

Restructuring charges

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Research and development expense

Research and development expenses were $4.1 million for the three months ended March 31, 2021 compared to $4.8 million for the same period in 2020, a decrease of $0.7 million.

The decrease was primarily related to a decrease in salaries and other personnel related costs of $0.5 million, and a $0.2 million decrease in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic as well as realignment actions taken by our Board of Directors in February 2020, including reductions in research and development headcount and in external spending.

Research and development expenses were $5.7 million for the three months ended June 30, 2021, compared to $3.7 million for the same period in 2020, an increase of $2.0 million.

The increase was primarily related to a $1.8 million increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, an increase in salaries and other personnel related costs of $0.3 million partially offset by a $0.1 million decrease in stock-based compensation expense.

Research and development expenses were $9.8 million for the six months ended June 30, 2021 compared to $8.5 million for the same period in 2020 , a n increase of $1.3 million.

The increase was primarily related to a $1.

5 0 million increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, partially offset by a decrease in salaries and other personnel related costs of $0.1 million, and a $0.1 million decrease in stock-based compensation expense.

General and administrative expenses

General and administrative expenses were $4.3 million for the three months ended March 31, 2021, compared to $5.0 million for the same period in 2020, a decrease of $0.7 million.

The decrease was primarily related to a $0.6 million decrease in stock-based compensation expense and a $0.3 million decrease in in salaries and other personnel related costs, partially offset by a $0.2 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

These decreases were all primarily related to realignment actions taken by our Board of Directors in February 2020, which included reductions in general and administrative headcount and in external spending.

General and administrative expenses were $7.4 million for the three months ended June 30, 2021, compared to $3.8 million for the same period in 2020, an increase of $3.5 million.

The increase was primarily related to a $2.2 million increase in stock-based compensation expense, a $1.2 million increase in in salaries and other personnel related costs related to the merger with Zikani, as well as an increase of $0.1 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

General and administrative expenses were $11.7 million for the six months ended June 30, 2021, compared to $8.9 million for the same period in 2020, an increase of $2.8 million.

The increase was primarily related to a $1.6 million increase in stock-based compensation expense, a $1.0 million increase in in salaries and other personnel related costs related to the merger with Zikani, as well as an increase of $0.2 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

Acquired in-process research and development

Acquired in-process research and development (“IPR&D”) expense of $22.7 million for the six months ended June 30, 2021 consists of the estimated fair value of the assets acquired and consideration given in connection with the acquisition of the Zikani’s IPR&D.

As the assets acquired were in the research and development phase and were determined to not have any alternative future use, it was expensed as acquired IPR&D.

There was no such expense for the six months ended June 30, 2020.

Restructuring charges

Restructuring charges of $4.0 million for the three months ended March 31, 2020 resulted from the leadership and organizational realignment during the first quarter of 2020.

Restructuring charges of $4.0 million for the six months ended June 30, 2020 resulted from the leadership and organizational realignment during the first quarter of 2020.

The total included $1.9 million related to contract termination and employee separation costs, primarily severance and benefits, and $2.1 million of stock-based compensation, relating to accelerated vesting of stock awards.

There were no similar charges during the three months ended March 31, 2021.

There were no similar charges during the six months ended June 30, 2021.

Other expense, net

We recorded $0.3 million in other expense, net for the three months ended March 31, 2021, compared to $0.2 million for the same period in 2020.

We recorded $0.3 million in other expense, net for each of the three months ended June 30, 2021, and 2020.

We recorded $0.6 million in other expense, net for the six months ended June 30, 2021, compared to $0.5 million for the same period in 2020.

The increase in other expense, net was primarily due to lower interest income.

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We have not generated revenue from sales of any product or service.

W e have incurred significant operating losses to date and have not generated revenue from sales of any products or services .

Our net losses were $8.7 million and $13.9 million for the three months ended March 31, 2021 , and 2020 .

As of March 31, 2021 , we had an accumulated deficit of $180.3 million.

We have incurred significant operating losses to date and have not generated revenue from sales of any products or services.

Our net losses were $44.8 million and $7.9 million for the six months ended June 30, 2021, and 2020.

As of June 30, 2021, we had an accumulated deficit of $216.3 million.

Further, we expect to incur additional costs related to our acquisition of Zikani .

W e have financed our operations primarily through the issuance of equity instruments , and to a lesser extent, from loans and grants.

We have financed our operations primarily through the issuance of equity instruments, and to a lesser extent, from loans and grants.

We have devoted substantially all of our financial resources and efforts to the development of our product candidates.

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

A successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support our cost structure.

A successful transition to profitable operations is dependent upon achieving a level of revenue

adequate to support our cost structure.

Our net losses may fluctuate significantly from quarter to quarter and year to year.

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advance ELX-02 and/or other product candidates further into clinical development;

experience additional delays in enrollment and completion of our clinical trials due to the COVID-19 pandemic;

experience any additional delays in enrollment and completion of our clinical trials due to the COVID-19 pandemic;

continue the preclinical development of our research programs and advance candidates into clinical trials;

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Our cash and cash equivalents are highly liquid investments with original maturities of one year or less at the date of purchase and consist of cash in operating accounts and secured investments, primarily money market funds .

Although the impact of the COVID-19 pandemic on clinical operations and trial enrollment cannot fully be determined, we believe that our cash and cash equivalents of $18.2 million at March 31, 2021, will enable us to meet anticipated cash needs into the third quarter of 2021.

This amount will not be sufficient to maintain our current and planned operations for at least the next twelve months following the filing of this Report.

Therefore, we will need to raise additional capital to finance our operations, which cannot be assured.

We have concluded that these conditions, in the aggregate, raise substantial doubt about our ability to continue as a going concern without additional funding.

We believe that our cash and cash equivalents of $56.7 million at June 30, 2021, will enable us to meet anticipated cash needs required to maintain our current and planned operations through at least the next 12 months from the issuance of this Report.

Management intends to fund future operations through private or public debt or equity financing transactions and may seek additional capital through arrangements with strategic partners or from other sources.

The availability of sufficient funding to alleviate the conditions that raise substantial doubt are not within management’s control and cannot be assessed as being probable of occurring.

If we are unable to obtain adequate financing, we will evaluate alternatives which may include reducing or deferring operating expenses, including by downsizing our workforce and curtailing certain development programs, which could have a material adverse effect on our operations and future prospects.

Principal Financing Activities

In April 2020, we entered into a loan agreement with SVB under the U.S.

In April 2020, we entered into a loan agreement with Silicon Valley Bank (“SVB”) under the U.S.

Small Business Administration (the “SBA”) Paycheck Protection Program (the “PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) and received loan proceeds of $0.8 million (the “PPP Loan”).

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A PPP loan may be partially or entirely forgiven based on employee retention for the 24-week period starting on the loan date through October 2020, and the use of loan proceeds for payroll or other specified costs during the same period.

Forgiveness is also based on the employer maintaining

or restoring headcount and maintaining salary levels.

Forgiveness is also based on the employer maintaining or restoring headcount and maintaining salary levels.

Forgiveness is reduced if headcount declines or if salaries decrease.

Any loan forgiveness will be made subject to SVB approval in accordance with SBA requirements.

On May 13, 2021, we completed an underwritten public offering of 38,333,334 shares of common stock at a price of $1.35 per share and received gross proceeds of approximately $51.8 million, before deducting underwriting discounts and commissions of $3.1 million and offering expenses of $0.8 million.

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):

Three Months Ended

Six Months Ended

Net cash used in operating activities

Net cash provided by investing activities

Net cash (used in) provided by financing activities

Our operating activities used cash of $7.7 million and $11.9 million during the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021, net cash used in operating activities resulted primarily from our net loss of $8.7 million and changes in working capital of $0.5 million, partially offset by total non-cash charges of $1.5 million.

Non-cash charges primarily related to $1.3 million of stock-based compensation, $0.1 million of amortization of lease assets, and $0.1 million of debt discount amortization.

Changes in working capital were primarily related to decreases of $0.4 million in prepaid expenses, and $0.1 million in operating lease liabilities.

For the three months ended March 31, 2020, net cash used in operating activities resulted primarily from our net loss of $13.9 million and total changes in working capital of $2.2 million, partially offset by total non-cash charges of $4.3 million.

Net cash provided by (used in) financing activities

Our operating activities used cash of $17.5 million and $18.2 million during the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021, net cash used in operating activities resulted primarily from our net loss of $44.8 million and changes in working capital of $0.3 million, partially offset by total non-cash charges of $28.5 million.

Non-cash charges primarily related to $22.7 million of acquired in-process research and development, $5.3 million of stock-based compensation, $0.3 million of amortization of lease assets, and $0.2 million of debt discount amortization.

Changes in working capital were primarily related to decreases of $0.1 million in prepaid expenses, $0.2 million in operating lease liabilities, and $1.0 million of merger related costs.

For the six months ended June 30, 2020, net cash used in operating activities resulted primarily from our net loss of $(21.8) million and total changes in working capital of $(3.0) million partially offset by total non-cash charges of $6.6 million.

Non-cash charges primarily related to $6.0 million of stock-based compensation, $0.3 million of amortization of lease assets, and $0.3 million of debt discount amortization.

Changes in working capital were primarily related to decreases in accrued expenses and accounts payable of $1.1 million and $0.5 million, respectively, and an increase in prepaid expenses and other current assets of $0.6 million.

Our investing activities provided cash of $15.8 million during the three months ended March 31, 2020.

For the three months ended March 31, 2020, cash provided in investing activities was primarily related to $15.8 million of proceeds from the maturity of marketable securities .

No investing activities occurred during the three months ended March 31, 2021.

Our financing activities provided cash of $1.3 million during the three months ended March 31, 2021 and used cash of $0.5 million during the three months ended March 31, 2020.

For the three months ended March 31, 2021, net cash provided by financing activities consisted primarily of $2.6 million in advances received from collaboration partners, offset by $1.3 million in term loan principal repayments.

For the three months ended March 31, 2020, net cash used in financing activities consisted primarily of $0.8 million in term loan principal repayments, net of $0.4 million in advances received from collaboration partners.

Changes in working capital were primarily related to decreases of $1.2 million in accrued expenses, $1.1 million in accounts payable and $0.3 million in operating lease liabilities, and in increase of $0.4 million in prepaid expenses and other current assets.

Our investing activities provided cash of $2.1 million and $27.0 million during the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021, cash provided in investing activities was primarily related to $2.1 million of cash acquired as part of the merger.

For the six months ended June 30, 2020, cash provided in investing activities was primarily related to $27.0 million of proceeds from the maturity of marketable securities .

Our financing activities provided cash of $47.6 million during the six months ended June 30, 2021 and used cash of $0.9 million during the six months ended June 30, 2020.

For the six months ended June 30, 2021, net cash provided by financing activities consisted primarily of net proceeds of $47.7 million from our public offering of common stock in May 2021, $2.6 million in advances received from collaboration partners, offset by $2.5 million in term loan principal repayments and $0.2 million related to the settlement of taxes upon vesting of restricted stock units.

For the six months ended June 30, 2020, net cash used in financing activities consisted primarily of $2.1 million in term loan principal repayments, offset by $0.8 million received from the PPP Loan and $0.4 million in advances received from collaboration partners.

Off-balance Sheet Arrangements

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The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

There have been no material changes to our critical accounting policies through March 31, 2021 from those discussed in our Annual Report filed with the SEC on March 12, 2021.

There have been no material changes to our critical accounting policies through June 30, 2021 from those discussed in our Annual Report filed with the SEC on March 12, 2021.

Quantitative and Qualitative Disclosures about Market Risk

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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