Item 2. Management’s Discussion and Analysis
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information included elsewhere in this Quarterly
Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2023 (the
“2022 10-K”). The following discussion contains or is based on assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the
2022 10-K and as described from time to time in our other filings with the SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines. We have in-licensed a portfolio of over 100
patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSlice TM and UltraSlice TM gene-editing proteins, and the ToRNAdo TM mRNA delivery system, which we collectively
refer to as our “mRNA technology platform.” We plan to develop and advance a pipeline of therapeutic products, both internally and through strategic partnerships, with the near-term focus on deploying our mRNA technology platform through strategic
partnerships. We license our mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under the Exclusive Factor License Agreement (as defined below).
Through strategic partnerships, we expect that our mRNA technology platform will be used for preclinical and eventual clinical development of product candidates for a variety of clinical indications.
We expect that the initial product candidates developed by our strategic partners utilizing our mRNA technology platform will include hypoimmune induced pluripotent stem cell (“iPSC”)-derived product candidates for the treatment of neurological
indications and iPSC-derived immune-modulating cells (“iIMCs”) for indications such as acute myeloid leukemia (“AML”) and solid tumors.
We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.”
mRNA Delivery
Nucleic acids, such as mRNA, can be used to induce cells to express desired proteins, including proteins that are capable of re-writing genetic and epigenetic cellular programs. However, the plasma
membrane surrounding cells normally protects cells from exogenous nucleic acids, preventing efficient uptake and protein translation. Delivery systems can be used to enhance the uptake of nucleic acids by cells. Conventional delivery systems, such
as lipid nanoparticle (“LNP”)-based delivery, often suffer from endosomal entrapment and toxicity, which can limit their therapeutic use. Our mRNA delivery technology is designed to use a novel chemical substance that is designed to deliver nucleic
acids, including mRNA, to cells both ex vivo and in vivo . Our nucleic acid delivery technology is also designed for ex vivo
delivery of mRNA encoding gene-editing proteins and reprogramming factors, including to primary cells, insertion of exogenous sequences into genomic safe-harbor loci, and in vivo delivery of mRNA to the
brain, eye, skin, and lung, which may be useful for the development of mRNA-based therapeutics.
mRNA Gene Editing
Our mRNA gene-editing technology is designed to delete, insert, and repair DNA sequences in living cells, which may be useful for correcting disease-causing mutations, making cells resistant to
infection and degenerative disease, modulating the expression of immunoregulatory proteins to enable the generation of durable allogeneic cell therapies, and engineering immune cells to more effectively fight cancer.
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Conventional gene-editing technologies typically employ plasmids or viruses to express gene-editing proteins, which can result in low-efficiency editing and unwanted mutagenesis when an exogenous
nucleic acid fragment is inserted at random locations in the genome. Our mRNA gene-editing technology is instead designed to employ mRNA to express gene-editing proteins, which can potentially enable gene editing without unwanted insertional
mutagenesis, because unlike conventional gene-editing technologies that employ viruses or DNA-based vectors, mRNA does not typically cause unwanted insertional mutagenesis. We believe the efficiency of our mRNA gene-editing technology has the
potential to support development of product candidates that could create new therapeutic approaches. For example, we anticipate that our mRNA gene-editing technology can be used to generate allogeneic chimeric antigen receptor T-cell (“CAR-T”)
therapies for the treatment of cancer. In such allogeneic CAR-T therapies, mRNA encoding gene-editing proteins would be used to inactivate the endogenous T-cell receptor to prevent therapeutic T-cells from causing graft-versus-host disease (“GvHD”).
GvHD occurs when transplanted cells view the patient’s (i.e. the host’s) cells as a threat and attack the host’s cells. We expect that this same mechanism of action can generate allogeneic stem cell-derived therapies in which mRNA encoding
gene-editing proteins could be used to inactivate one or more components of the human leukocyte antigen complex to render the cells immuno-nonreactive or “stealth,” which may be useful for the development of allogeneic cell-based therapies.
mRNA Cell Reprogramming
Our mRNA cell-reprogramming technology can generate clonal lines of pluripotent stem cells that can be expanded and differentiated into many desired cell types that may be useful for the development
of regenerative cell therapies.
Conventional cell-reprogramming technologies (e.g., using Sendai virus or episomal vectors) can result in low efficiency reprogramming, can select for cells with abnormal growth characteristics, and
can leave traces of the vector in reprogrammed cells. Our mRNA cell-reprogramming technology instead is designed to employ mRNA to express reprogramming factors, which can enable cell reprogramming without
leaving traces of the vector in reprogrammed cells, because unlike conventional cell-reprogramming technologies that employ viruses or DNA-based vectors, mRNA does not typically leave traces of the vector in reprogrammed cells.
Recent Developments
Private Placement of Convertible Notes and Warrants
On July 13, 2023, we entered into a purchase agreement with certain purchasers for the private placement of $8.7 million in aggregate principal amount of convertible notes (the “Convertible Notes”)
and the issuance of the warrants (the “Note Warrants” and together with the Convertible Notes, the “July 2023 Financing”) to purchase an aggregate of approximately 6.1 million shares of Common Stock. The July 2023 Financing closed on July 14, 2023
(the “Closing Date”), and we are using the net proceeds from the transaction for general working capital purposes.
The Convertible Notes bear interest at 6% per annum, payable quarterly in arrears. At our election, we may pay interest either in cash or in-kind by increasing the outstanding principal amount of
the Convertible Notes. The Convertible Notes mature on July 14, 2028, unless earlier converted or repurchased. We may not redeem the Convertible Notes at our option prior to maturity.
At the option of the holders, the Convertible Notes may be converted from time-to-time in whole or in part into shares of common stock at an initial conversion rate of $2.86 per share, subject to
customary adjustments for stock splits, stock dividends, recapitalization and the like.
The Convertible Notes do not contain any ratchet or other financial antidilution provisions. The Convertible Notes purchased by the Purchasers contain conversion limitations, providing that no
conversion may be made if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after conversion thereof, subject to certain increases not in excess of either 9.99%
or 19.99% at the option of such holder.
The Convertible Notes provide for customary events of default (subject in certain cases to customary grace and cure periods), which include, among others, the following: nonpayment of principal or
interest; breach of covenants or other agreements in the Convertible Notes; the occurrence of a material adverse effect event and certain events of bankruptcy. Generally, if an event of default occurs and is continuing under the Convertible Notes,
the holder thereof may require us to repurchase some or all of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes being repurchased, plus accrued and unpaid interest thereon.
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The Note Warrants are immediately exercisable, have an exercise price of $2.61 per share, expire five years following the Closing Date and are subject to customary adjustments. The Note Warrants
purchased by the Purchasers contain a provision pursuant to which such Note Warrants may not be exercised if the aggregate number of shares of Common Stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately
after exercise thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.
Basis of Presentation
Revenues
We are a pre-clinical stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive regulatory approval of our product
candidates and successfully commercialize our products.
In February 2023, we entered into an exclusive option and license agreement (the “Agreement” with Lineage
Cell Therapeutics, Inc. (“Lineage”), which provided Lineage with the option (the “Option Right”) to obtain an exclusive sublicense to certain related technology for preclinical, clinical and commercial purposes, which would permit Lineage to further
sublicense such intellectual property, subject to payment of certain sublicense royalty fees. Lineage paid us a $0.3 million non-refundable up-front payment (the “Option Fee”) for the Option Right.
Under the Agreement, Lineage could also request that we develop for, and deliver to, Lineage certain induced
pluripotent stem cell lines, which Lineage would use to evaluate the possible development of cell transplant therapies for treatment of diseases of the central nervous system in humans, excluding certain indications. Lineage had until August 22,
2023 to request that we develop the customized cell line, at which point, we would be entitled to certain cell line customization fees.
Upon Lineage’s request for us to develop the customized cell line, Lineage would then have six months from
delivery to Lineage of such induced pluripotent stem cell lines to exercise the Option Right and obtain the sublicense. If Lineage obtains the sublicense, we would be entitled to receive additional license fees, including milestone payments and
royalties.
On August 21, 2023, we entered into an
amendment of the Agreement with Lineage, which provided for changes specifically related to the cell line
customization activities such as (i) payment terms, (ii) certain definitions, (iii) certain courses of action if the customized cell line selected by Lineage is not successful and (iv) documentation requirements.
Also on August 21, 2023, Lineage requested that we begin developing certain induced pluripotent stem cell
lines in exchange for a cell line customization fee. This agreement could also include additional licensing revenues at Lineage’s discretion. There can be no assurances that we will recognize such additional revenues or that we will enter into other
agreements with customers in the future. For additional information, see Note 5 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
License Costs
We recognize certain license costs payable to Factor Limited under the Exclusive Factor License Agreement in connection with contracts with customers.
Research and Development Expenses
We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as
support for selected investigator-sponsored research. Upfront payments and milestone payments we make for the in-licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not
expected to have any alternative future uses other than the specific research and development project for which it was intended. In-process research and development (“IPR&D”) that we acquire and which has no alternative future uses and,
therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.
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The major components of research and development costs have included preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials,
expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product
development efforts.
We have contracted with third parties to perform various clinical study and trial activities in the development and testing of potential products. The
financial terms of these agreements vary from contract to contract and may result in uneven payment flows. We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual
timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected
to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the
agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant up-front
expenditures.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other
professional fees, travel, insurance, and other corporate costs.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022
Three months ended September 30,
Nine months ended September 30,
(In thousands)
2023
2022
Change
2023
2022
Change
Revenue
$
51
$
-
$
-
$
51
$
-
$
-
Cost of revenues
120
-
80
170
-
130
Gross loss
(69
)
-
(80
)
(119
)
-
(130
)
Operating expenses:
Research and development
1,457
4,963
(3,463
)
4,710
8,430
(3,677
)
General and administrative
3,979
3,341
642
10,081
14,060
(3,975
)
Acquisition of Exacis in-process research and development
-
-
-
460
-
460
Impairment of in-process research and development
-
-
-
-
5,990
(5,990
)
Total operating expenses
5,436
8,304
(2,821
)
15,251
28,480
(13,182
)
Loss from operations
(5,505
)
(8,304
)
2,741
(15,370
)
(28,480
)
13,052
Other (expense) income, net:
Change in fair value of warrant liabilities
20
1,024
(1,004
)
166
10,493
(10,327
)
Change in fair value of contingent consideration
-
-
-
118
-
118
Loss on non-controlling investment
-
(21
)
21
(59
)
(932
)
873
Other expense, net
(114
)
(10
)
(104
)
(369
)
(1,166
)
797
Total other (expense) income, net
(94
)
993
(1,087
)
(144
)
8,395
(8,539
)
Loss before income taxes
(5,599
)
(7,311
)
1,654
(15,514
)
(20,085
)
4,513
Benefit (provision) for income taxes
8
(5
)
13
(1
)
(5
)
4
Net loss
$
(5,591
)
$
(7,316
)
$
1,667
$
(15,515
)
$
(20,090
)
$
4,517
Revenue
During the three and nine months ended September 30, 2023, we recognized revenue related to the cell line customization activities that we are performing for Lineage. The agreement with Lineage was
not in place during the three and nine months ended September 30, 2022.
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Cost of Revenue
During the three and nine months ended September 30, 2023, our cost of revenues include direct labor and materials to perform the customization cell line activities, as well as royalty expense owed
to Factor Limited in accordance with the Exclusive Factor License Agreement. There were no comparable expenses for the three and nine months ended September 30, 2022.
Research and Development Expenses
Three months ended September 30,
2023
2022
Change
(in thousands)
MSA expense
$
813
$
3,699
$
(2,886
)
Payroll-related
134
735
(601
)
Stock-based compensation
57
183
(126
)
Professional fees
295
57
238
Other expenses, net
158
289
(131
)
Total research and development expenses
$
1,457
$
4,963
$
(3,506
)
Nine months ended September 30,
2023
2022
Change
(in thousands)
Payroll-related
$
504
$
2,337
$
(1,833
)
MSA expense
2,438
3,699
(1,261
)
Stock-based compensation
177
1,075
(898
)
Professional fees
825
177
648
Other expenses, net
766
1,142
(376
)
Total research and development expenses
$
4,710
$
8,430
$
(3,720
)
Total research and development expenses decreased by approximately $3.5 million and $3.7 million for the three and nine months ended September 30, 2023, respectively, when compared to the three and
nine months ended September 30, 2022. The decrease was primarily related to a reduction in the MSA fees paid to Factor Bioscience, as the three and nine months ended September 30, 2022 included $3.5 million of expense allocated to the license, which
has no alternative future use. The research and development expenses incurred during the three and nine months ended September 30, 2023 also include a reduction in payroll expense and stock-based compensation expense due to employee terminations,
offset by an increase in professional fees related to consulting activities when compared to the three and nine months ended September 30, 2022.
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General and Administrative Expenses
Three months ended September 30,
2023
2022
Change
(in thousands)
Occupancy expense
$
1,563
$
189
$
1,374
Professional fees
1,656
1,628
28
Insurance
209
528
(319
)
Stock-based compensation
117
293
(176
)
Payroll-related
254
424
(170
)
Other expenses, net
180
279
(99
)
Total general and administrative expenses
$
3,979
$
3,341
$
638
Nine months ended September 30,
2023
2022
Change
(in thousands)
Payroll-related
$
1,312
$
2,706
$
(1,394
)
Professional fees
4,904
6,251
(1,347
)
Impairment of ROU asset
-
772
(772
)
Stock-based compensation
900
1,463
(563
)
Insurance
936
1,422
(486
)
Loss on disposal of fixed assets
1
431
(430
)
Occupancy expense
1,606
541
1,065
Other expenses, net
422
474
(52
)
Total general and administrative expenses
$
10,081
$
14,060
$
(3,979
)
Our general and administrative expenses increased by approximately $0.6 million for the three ended September 30, 2023 when compared to the three months ended September 30, 2022 primarily due to
increased occupancy expense related to the Somerville sublease that began being incurred during the three months ended September 30, 2023, offset by decreases in payroll expenses and stock-based compensation expense resulting from lower headcount and
decreases in insurance premiums.
Our general and administrative expenses decreased by approximately $4.0 million for the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to decreases
in payroll expenses and stock-based compensation expense resulting from lower headcount, a non-recurring impairment expense recognized during the nine months ended September 30, 2022 related to the ROU asset for our former San Diego facility lease,
decreased professional fees resulting from less legal and consulting fees and a reduction in the loss on disposal of fixed assets. These decreases were offset by increased occupancy expenses related to the Somerville sublease.
Acquisition of Exacis In-Process Research and Development
As discussed in Note 3 to the unaudited accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, we acquired
from Exacis Biotherapeutics Inc. (“Exacis”) substantially all of Exacis’ intellectual property assets, including all of Exacis’ right, title and interest in and to an exclusive license agreement by and between Exacis and Factor Limited (the
“Purchased License”). The Purchased License was determined to be an IPR&D asset that has no alternative future use and no separate economic value from its original intended purpose, which is expensed in the period the cost is incurred. As a
result, we expensed the fair value of the Purchased License during the nine months ended September 30, 2023 of approximately $0.5 million.
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Impairment of In-Process Research and Development
During the nine months ended September 30, 2022, we received the results from the INSPIRE phase 2 trial of IRX-2. The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair
value assigned to the technologies of IRX that we acquired in 2018. Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of event-free survival at two years of follow up. Significant
additional clinical development work would be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor therapies.
Based on the totality of available information, we determined we would not further develop the IRX-2 product candidate and that the carrying value of the IPR&D asset was impaired. Accordingly, we recognized a non-cash impairment charge of
approximately $6.0 million during the nine months ended September 30, 2022, which reduced the value of this asset to zero.
Change in Fair Value of Warrant Liabilities
For the three and nine months ended September 30, 2023 and 2022, we recognized credits to expense related to the change in the fair value of warrant liabilities due to a decrease in the market price
of our common stock.
Change in Fair Value of Contingent Consideration
On the closing date of the Exacis Acquisition, we recognized a contingent consideration liability of $0.2 million for future payments that may be payable to Exacis, which was included as part of the
$0.5 million fair value of the Purchased License asset and expensed as IPR&D for the nine months ended September 30, 2023. This contingent consideration liability is remeasured at each period end, and any change in the fair value of the
contingent liability is recognized in the statement of operations. As of September 30, 2023, we determined that the change in fair value for the contingent consideration liability from the June 30, 2023 remeasurement was immaterial, and therefore,
we did not recognize a credit or expense for the three months ended September 30, 2023. For the nine months ended September 30, 2023, we recognized expense related to the decrease in the fair value of the contingent consideration liability from the
closing date. There were no contingent consideration liabilities during the same periods in 2022.
Loss on Non-Controlling Investment
We account for our 25% non-controlling investment in NoveCite, Inc. (“NoveCite”) under the equity method. We have not guaranteed any obligations of NoveCite, nor are we otherwise committed to
providing further financial support for NoveCite. Therefore, we only record 25% of NoveCite’s losses up to our investment carrying amount. As a result, we did not recognize additional losses related to NoveCite for the three months ended September
30, 2023. For the nine months ended September 30, 2023, we recognized approximately $0.1 million of loss and for the three and nine months ended September 30, 2022, we recognized losses of approximately $21,000 and $0.9 million, respectively.
Other Expense, Net
Three months ended September 30,
2023
2022
Change
(in thousands)
Interest expense, net
(114
)
(10
)
(104
)
Total other expense, net
$
(114
)
$
(10
)
$
(104
)
Nine months ended September 30,
2023
2022
Change
(in thousands)
PIPE transaction fees
$
-
$
(1,007
)
$
1,007
Liquidated damages
-
(240
)
240
SEPA fees
(280
)
-
(280
)
Interest expense, net
(88
)
(24
)
(64
)
Other income, net
(1
)
105
(106
)
Total other expense, net
$
(369
)
$
(1,166
)
$
797
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For the three months ended September 30, 2023, total other expense, net increased in expense by $0.1 million as a result of an increase in interest expense related to our Convertible Notes payable,
which was offset by increased interest income on our cash balances when compared to the three months ended September 30, 2022.
For the nine months ended September 30, 2023, we recognized approximately $0.3 million related to a stand-by equity purchase agreement (the “SEPA”) with Lincoln Park Capital Fund LLC (“Lincoln Park”)
for the commitment fees and other fees. We also recognized interest expense related to the Convertible Notes, which was offset by interest income on our cash. For the nine months ended September 30, 2022, we expensed fees associated with the March
2022 Private Placement, as all of the fees incurred were allocated to the warrants issued in connection with such transaction, and we accrued for a loss for the estimated liquidated damages we incurred as a result of not timely filing with the SEC
our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.
Provision for Income Taxes
During 2023, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our net operating loss
carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation allowance.
Liquidity and Capital Resources
At September 30, 2023, we had cash, cash equivalents and restricted cash of approximately $8.6 million, of which approximately $4.6 million was restricted cash, as discussed below.
In October 2022, we entered into a facility sublease agreement (the “Sublease”) for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts. The term of the
Sublease is approximately 10 years, and we will pay approximately $63.0 million in base rental payments over the 10-year term, plus our share of the Sublessor’s parking spaces and operating expenses. As part of the Sublease, we delivered a security
deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the lease. The letter of credit was issued by our commercial bank, which required that we cash
collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank. The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of
credit over the term of the sublease.
In February 2023, we entered into the Lineage Agreement, pursuant to which we received a $0.3 million upfront, nonrefundable payment for an option right to obtain a sublicense of intellectual
property from Factor Limited under the Exclusive Factor License Agreement. As provided for in such agreement, in August 2023, Lineage requested that we develop certain customized cell line activities, and as a result, the Company received $0.4
million in an upfront, nonrefundable progress payment for the development activities. If Lineage exercises its right to obtain the sublicense, then the Company is entitled to receive a license fee, milestone payments, royalties, and sublicense fees.
In April 2023, we entered into the SEPA, pursuant to which Lincoln Park committed to purchase up to $10.0 million of our common stock. Such sales of common stock by us, if any,
are subject to certain conditions and limitations set forth in the SEPA, and may occur from time to time, at our sole discretion, over a period of up to 24 months, commencing April 25, 2025, which was the date on which each of the conditions to the
Lincoln Park’s purchase obligations set forth in the SEPA were initially satisfied. To date, we have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the 74,000 commitment shares, and have received
approximately $0.3 million in gross proceeds from such sales.
Under applicable Nasdaq listing rules, the aggregate number of shares of common stock that we had been able to issue to Lincoln Park under the SEPA could not exceed 19.99% of our
shares of common stock issued and outstanding immediately prior to the execution of the SEPA (the “Exchange Cap”) unless certain conditions were met, including obtaining stockholder approval to issue shares of common stock in excess of the Exchange
Cap in accordance with applicable Nasdaq listing rules. On June 16, 2023, at the Company’s 2023 Annual Meeting of Stockholders, the Company’s stockholders approved, for purposes of complying with applicable Nasdaq listing rules, the Company’s
potential issuance of shares of common stock under the SEPA in excess of the Exchange Cap. As a result, the Exchange Cap limitation no longer applies to issuances and sales of common stock by us to Lincoln Park under the SEPA. However, we may not
direct Lincoln Park to purchase any shares of common stock under the SEPA if such purchase would result in Lincoln Park beneficially owning more than 4.99% of our issued and outstanding shares of common stock.
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On July 14, 2023, we closed the July 2023 Financing of $8.7 million in aggregate principal amount of Convertible Notes and the issuance of the Note Warrants. We intend to use the net proceeds from
the July 2023 Financing for general working capital purposes.
The Convertible Notes bear interest at 6% per annum, payable quarterly in arrears. At our election, we may pay interest either in cash or in-kind by increasing the outstanding principal amount of
the Convertible Notes. The Convertible Notes mature on July 14, 2028, unless earlier converted or repurchased. We may not redeem the Convertible Notes at our option prior to maturity.
At the option of the holders, the Convertible Notes may be converted from time-to-time in whole or in part into shares of common stock at an initial conversion rate of $2.86 per share, subject to
customary adjustments for stock splits, stock dividends, recapitalization and the like. As of September 30, 2023, no portion of the Convertible Notes have been converted to our common stock.
We have to date incurred operating losses, and we expect these losses to continue in the future as we further develop our product development programs and operate as a publicly
traded company. In the near-term, we intend to focus on licensing opportunities for our in-licensed technology, but there can be no assurance that we will enter into agreements with respect to such opportunities on such terms and within a timeframe
necessary to satisfy our need for working capital. While we are not presently pursuing product development, we may do so in the future, and current and potential licensing partners may seek to do so. Developing product candidates, conducting
clinical trials and commercializing products are expensive, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates Based on our current financial condition and forecasts of
available cash, we do not believe that we have sufficient funds to fund our operations for the next twelve months from the filing of the financial statements contained in this Quarterly Report on Form 10-Q for the three and nine months ended
September 30, 2023. We can provide no assurance that we will be able to satisfy our near- or long-term cash needs through licensing transactions, or that we will obtain any additional financing that we require in the future or, even if such financing
is available, that it will be obtainable on terms acceptable to us. These conditions raise substantial doubt about our ability to continue as a going concern.
In that regard, our future funding requirements will depend on many factors, including:
•
the terms and timing of any collaborative, licensing and other agreements that we may establish;
•
the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;
•
the cost and timing of regulatory approvals;
•
the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;
•
the cost and timing of establishing sales, marketing and distribution capabilities;
•
the effect of competition and market developments;
•
the scope, rate of progress and cost of clinical trials and other product development activities; and
•
future clinical trial results.
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We plan to raise additional funds to support our product development activities and working capital requirements through public or private equity offerings, debt financings, strategic partnerships,
out-license collaborations or other means. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at
all or available on terms acceptable to us.
Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not
favorable to us. If we are not able to secure additional funding when needed, we may have to delay the commercialization of our products or reduce the scope of or eliminate one or more research and development programs, either of which could have an
adverse effect on our business.
Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized as follows:
For the nine months ended
September 30,
(in thousands)
2023
2022
Change
Cash (used in) provided by:
Operating activities
$
(15,747
)
$
(15,541
)
$
(206
)
Investing activities
-
(176
)
176
Financing activities
8,852
11,986
(3,134
)
Net decrease in cash and cash equivalents
$
(6,895
)
$
(3,731
)
$
(3,164
)
Net Cash Used in Operating Activities
The increase of approximately $0.2 million in cash used in operating activities for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily
due to an increase in cash used in operating assets and liabilities of $6.5 million, primarily related to MSA fees, insurance premiums and accrued severance payments. This $6.5 million increase in cash used in operating activities for the nine
months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was offset by a decrease in net loss of approximately $6.3 million, after giving effect to adjustments made for non-cash transactions.
Net Cash Used in Investing Activities
The decrease of $0.2 million in cash used in investing activities during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily related to a
decrease in the purchase of capitalized equipment as well as a decrease in the sale of fixed assets.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 includes approximately $8.5 million in net proceeds from the July 2023 Financing that closed in July 2023 and
proceeds of approximately $0.3 million received under the SEPA with Lincoln Park. For the nine months ended September 30, 2022, net cash provided by financing activities included approximately $12.0 million related to proceeds received in connection
with the March 2022 Private Placement.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2023 from those described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section of the 2022 10-K, except as follows.
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Contingent Consideration
Contingent consideration from an asset acquisition that is indexed to or settled in shares of our common stock and that is classified as a liability is initially measured at fair value, with
subsequent changes in fair value recognized in earnings. Measuring the fair value requires various inputs, and a significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair
value of the contingent consideration liability, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.
Recent Accounting Pronouncements
There have been no recent Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board that would apply to us since the ASUs
disclosed in the 2022 10-K except for the following:
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements – Codification Amendment in Response to the SEC’s
Disclosure Update and Simplification Initiative. This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. The amendments to the various topics should
be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X
or Regulation S-K by June 30, 2027, then this ASU will not become effective. Early adoption is prohibited. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.