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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-12 · 98 added, 94 removed, 119 unchanged (62% of the section changed)

1 unchanged sentence

Caution Concerning Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 29, 2023 (the “Annual Report”) and our unaudited interim condensed consolidated financial statements and related notes appearing in this Quarterly Report on Form 10-Q (the “Quarterly Report”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to the Company’s plans and strategy for its business, includes forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 29, 2023 (the “Annual Report”) and our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to the Company’s plans and strategy for its business, includes, and our officers and representatives may from time to time make, forward looking statements, within the meaning of the of the safe harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.

Forward-looking statements can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.

Forward-looking statements can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “seeks,” “goals,” “projects,” “strategy,” “likely,” “will,” “would,” “could,” “can,” “may,” and similar terms.

Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements.

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This approval makes PEDMARK ® the first and only treatment approved by the FDA in this area of unmet medical need.

On October 17, 2022, we announced commercial availability of PEDMARK ® in the United States.

We sell our product through an experienced field force including Regional Pediatric Oncology Specialists and medical science liaisons who are helping to educate the medical communities and patients about cisplatin induced ototoxicity and our programs supporting patient access to PEDMARK ® .

On October 17, 2022, we announced commercial availability of PEDMARK ® in the U.

In June 2023, we announced European Commission Marketing Authorization for PEDMARQSI TM – known as PEDMARK in the U.S.

Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (“EU”) with up to 10 years of data and market protection.

In the U.S., we sell our product through an experienced field force including Regional Pediatric Oncology Specialists and medical science liaisons who are helping to educate the medical communities and patients about cisplatin induced ototoxicity and our programs supporting patient access to PEDMARK ® .

Now that we have obtained applicable regulatory approval to sell PEDMARK® in the U.

and authorization from the European Commission Marketing Authorization for Pedmarqsi TM in the EU, we recognize there may still be a need to establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties, or other revenue.

Further, we have established Fennec HEARS™, a comprehensive single source program designed to connect PEDMARK ® patients to both patient financial and product access support.

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We received Orphan Drug Exclusivity for PEMARK in January 2023, which provides seven years of market exclusivity from its FDA approval on September 20, 2022 until September 20, 2029.

We currently have four patents listed for PEDMARK ® in the FDA’s Orange Book.

In March 2020, the United States Patent and Trademark Office (“USPTO”) allowed Patent No.

10,596,190 (“US ‘190 Patent”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method using our PEDMARK ® product.

We currently have three patents listed for PEDMARK ® in the FDA’s Orange Book.

In September 2022, the USPTO issued Patent No.

11,291,728 (the “US ‘728 Patent”), in December 2022, the USPTO issued Patent No.

11,510,984 (“US ‘984 Patent”) and in April 2023, the USPTO issued Patent No.

11,510,984 (“US ‘984 Patent”) and in April 2023, the USPTO

issued Patent No.

11,671,793 (“US ‘793 Patent”) that covers PEDMARK ® pharmaceutical formulation.

The US ‘728 Patent, US ‘984 Patent and US ‘793 Patent will expire in 2039 and the US ‘190 Patent will expire in 2038.

The US ‘728 Patent, US ‘984 Patent and US ‘793 Patent will expire in 2039.

We are also pursuing additional patent applications in both the U.S.

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Food and Drug Administration (“FDA”) indicated to reduce the risk of ototoxicity associated with cisplatin treatment in pediatric patients with localized, non-metastatic, solid tumors.

It is a unique formulation of sodium thiosulfate in single-dose, ready-to-use vials for intravenous use in pediatric patients.

Further, Pedmarqsi, known as PEDMARK in the U.S.

was granted marketing authorization by the European Commission in June 2023.

PEDMARK is a unique formulation of sodium thiosulfate in single-dose, ready-to-use vials for intravenous use in pediatric patients.

PEDMARK ® is also the only therapeutic agent with proven efficacy and safety data with an established dosing paradigm, across two open-label, randomized Phase 3 clinical studies, the Clinical Oncology Group (“COG”) Protocol ACCL0431 and SIOPEL 6.

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Infants and young children that are affected by ototoxicity at critical stages of development lack speech and language development and literacy, and older children and adolescents often lack social-emotional development and educational achievement.

European Marketing Authorization Application

In August 2018, the Pediatric Committee (“PDCO”) of the European Medicines Agency (“EMA”) accepted our pediatric investigation plan (“PIP”) for sodium thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss.

An accepted PIP is a prerequisite for filing a Marketing Authorization Application (“MAA”) for any new medicinal product in Europe.

The indication targeted by our PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma (“SR-HB”).

Additional tumor types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use (“CHMP”) assessment at the time of the MAA.

No deferred clinical studies were required in the positive opinion given by PDCO.

We were also advised that Pedmarqsi is eligible for submission of an application for a Pediatric Use Marketing Authorization (“PUMA”).

A PUMA is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed exclusively for use in the pediatric population and provides market protection up to 10 years.

Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (“EU”) with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection.

In February 2020, we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients one month to < 18 years of age with localized, non-metastatic, solid tumors.

In March 2023, the CHMP issued a positive opinion and recommended granting a Marketing Authorization for Pedmarqsi for the prevention of ototoxicity (hearing loss) induced by cisplatin chemotherapy in patients one month to <18 years of age with localized, non-metastatic, solid tumors.

When formally approved by the European Commission, Pedmarqsi will be the first and only treatment approved in the European Union

EU to address this area of significant unmet medical need.

The CHMP’s recommendation will now be reviewed by the European Commission and ratification of the CHMP recommendation is expected by early June 2023.

Now that we have obtained applicable regulatory approval to sell PEDMARK ® in the United States and a positive CHMP opinion in the EU, we recognize there may still be a need to establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties, or other revenue.

We generated a net loss of approximately $6.1 million for the three months ended March 31, 2023, and a net loss of $3.7 million for the same period in 2022.

As of March 31, 2023, our accumulated deficit was approximately $209.3 million ($203.2 million at December 31, 2022).

We believe that our cash and cash equivalents as of March 31, 2023, which totaled $18.4 million, cash from product sales, plus the remaining Petrichor Financing of $20 million in convertible notes subject to mutual agreement between the Company and Petrichor (see Note 1 and Note 7 to our unaudited interim condensed consolidated financial statements contained elsewhere in this Quarterly Report), will be sufficient to meet our cash requirements through at least the next twelve months.

We generated a net loss of approximately $11.3 million for the six months ended June 30, 2023, and a net loss of $8.8 million for the same period in 2022.

As of June 30, 2023, our accumulated deficit was approximately $214.5 million ($203.2 million at December 31, 2022).

We believe that our cash and cash equivalents as of June 30, 2023, which totaled $15.0 million, cash from product sales, plus the remaining Petrichor Financing of $20 million in convertible notes subject to mutual agreement between us and Petrichor (see Note 1 and Note 7 to our unaudited interim condensed consolidated financial statements contained elsewhere in this Quarterly Report), will be sufficient to meet our cash requirements through at least the next twelve months.

Our projections of our capital requirements are subject to substantial uncertainty, and more capital than we currently anticipate may be required thereafter.

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Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the commercialization of our product, will depend on the availability of financial resources, the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict.

Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated in support primarily of our commercialization of PEDMARK ® .

Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, which include legal fees, consulting fees, insurance and other administrative matters associated in support primarily of our commercialization of PEDMARK ® .

Results of Operations

Three months ended March 31, 2023 versus three months ended March 31, 2022:

Three months ended June 30, 2023 versus three months ended June 30, 2022:

Three Months Ended

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In thousands of U.S.

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

PEDMARK product sales, net

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General and administration

Total operating expenses

Total operating expense

Loss from operations

Unrealized loss on securities

Other gain/(losses)

Amortization expense

Interest expense

Unrealized foreign exchange loss

Interest income

Research and development expenses decreased by $1,433 for the three months ended March 31, 2023, compared to the same period in 2022.

The Company’s research and development activities for the first three months of 2023 consisted of costs associated with investigator initiated clinical trials.

We reported net product sales for the three month period ended June 30, 2023 of $3,325 and gross profit of $3,177 after applying cost of product sales of $148.

Research and development expenses decreased by $1,123 for the three months ended June 30, 2023, compared to the same period in 2022.

Our research and development activities for this period consisted of costs associated with investigator initiated clinical trials.

During the same period in 2022 and prior to approval of PEDMARK, manufacturing costs pertaining to PEDMARK were expensed to R&D expense in the period incurred, and following approval are reflected in inventory.

Selling and marketing expenses were $2,531 for the three months ended March 31, 2023.

Selling and marketing expenses were $2,340 for the three months ended June 30, 2023.

Selling and marketing expenses include remuneration of our sales and marketing employees, dollars spent on marketing campaigns (sponsorships, trade shows, presentations, etc.), and any activities to support marketing and sales activities.

General and administrative expenses increased by $2,208 compared to the same period in 2022, which was primarily driven by an increase of non-cash employee remuneration of $656, an increase of ongoing product support such as quality control and assurance of $482, an increase of professional and legal expenses of $488, and an increase of salaries and benefits of $432.

Interest expense was up $740 compared to the same period in 2022.

General and administrative expenses increased by $1,617 compared to the same period in 2022, which was primarily driven by an increase of non-cash employee remuneration of $1,500, an increase of salaries and benefits of $331 from an increased headcount and a decrease of professional and legal expenses of $161.

Interest expense increased $768 compared to the same period in 2022.

This increase is associated with higher interest rates and $20,000 more in funded debt than in the same period in 2022.

The Company holds shares of Processa (NASDAQ:

Further, we hold shares of Processa (NASDAQ:

PCSA) which are marked to market each balance sheet date and unrealized gains or losses are recognized at that time.

The unrealized loss on those shares for the three months ended March 31, 2023 was $30.

Other losses were driven mainly by losses related to the Company’s foreign currency transactions.

The Company has vendors that transact in Euros, Great British Pounds and Canadian Dollars.

There was an decrease of $70 in other losses for the three months ended March 31, 2023, compared to the same period in 2022.

Amortization expense is also a non-cash expense and relates to amortization of the deferred issuance cost of the loan facilities with Petrichor.

Amortization expense increased by $65 for the three months ended March 31, 2023 compared to the same period in 2022.

Interest income was up $100 for the three months ended March 31, 2023, compared to the same period in 2022.

This was driven mainly by higher interest rates for the three months ended March 31, 2023 compared to the same period in 2022.

Quarterly Information

The following table presents selected condensed financial data for each of the last eight quarters through March 31, 2023, as prepared under U.S.

dollars in thousands, except per share information):

Net (Loss)/Income for the

Basic Net (Loss)/Income per

Diluted Net (Loss)/Income per

There was no change in the unrealized loss on those shares for the three months ended June 30, 2023.

Other losses were driven mainly by unrealized losses related to the our foreign currency transactions.

We have vendors that transact in Euros, Great British Pounds and Canadian Dollars.

There was an increase of $4 in other losses for the three months ended June 30, 2023, compared to the same period in 2022.

Amortization expense is also a non-cash expense and relates to amortization of the deferred issuance costs of the loan facilities with Petrichor.

Amortization expense increased by $65 for the three months ended June 30, 2023 compared to the same period in 2022.

Interest income was up $106 for the three months ended June

30, 2023, compared to the same period in 2022.

This was driven mainly by higher interest rates for the three months ended June 30, 2023 compared to the same period in 2022.

Six months ended June 30, 2023 versus six months ended June 30, 2022:

Six Months Ended

In thousands of U.S.

June 30, 2023

September 30, 2021

December 31, 2021

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

March 31, 2023

PEDMARK product sales, net

Cost of product sales

Operating expenses:

Research and development

Selling and marketing

General and administration

Total operating expenses

Loss from operations

Unrealized loss on securities

Other gain/(losses)

Amortization expense

Interest expense

Interest income

We reported net product sales for the six month period ended June 30, 2023 of $5,002 and gross profit of $4,759 after applying cost of product sales of $243.

Research and development expenses decreased by $2,556 for the six months ended June 30, 2023, compared to the same period in 2022.

Research activities, since the launch of PEDMARK ® have been limited to investigator initiated clinical trials.

Selling and marketing expenses were $4,871 for the six months ended June 30, 2023.

General and administrative expenses increased by $3,825 over the same period in 2022 primarily related to legal expenses, non-cash equity compensation and higher wages from increased headcount.

The unrealized loss on our shares of Processa for the six months ended on June 30, 2023 was $30, which is in contrast to the $99 loss for the same period in 2022.

Foreign currency transaction gain was $14 for the six months ended June 30, 2023 ($2 loss for same period in 2022).

Amortization expense was $145 for the six months ended June 30, 2023, compared to $15 for the same period in 2022.

Our amortization expense relates to the capitalized debt issuance costs associated with the Petrichor notes.

Interest expense increased $1,508 for the six months ended June 30, 2023, over same period in 2022.

We replaced the $5 million loan facility with Bridge Bank with a larger facility, $25 million, with Petrichor.

We took on this convertible debt load in a rising interest rate environment.

Interest income was $206 higher for the six months ended June 30, 2023, compared to the same period in 2022.

This was driven mainly by higher interest rates for the six months ended June 30, 2023 compared to the same period in 2022.

Liquidity and Capital Resources

Selected Asset and Liability Data (thousands):

March 31, 2023

June 30, 2023

December 31, 2022

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Stockholders’ deficit

Cash and cash equivalents were $18,390 at March 31, 2023 and $23,774 at December 31, 2022.

The decrease in cash and cash equivalents between March 31, 2023, and December 31, 2022, is the result of cash outlays for operating expenses related to the promotion of our product, small amounts of research and development and general and administrative expenses, which were offset by cash inflows from product sales of $1,220 and cash inflows of $213 from various option exercises.

There was an increase of $318 in other current assets between March 31, 2023, and December 31, 2022, and a decrease in current liabilities of $589.

The overall result was a reduction in working capital of $4,478.

The following table illustrates a summary of cash flow data for the three month periods of March 31, 2023 and 2022:

Cash and cash equivalents were $14,958 at June 30, 2023 and $23,774 at December 31, 2022.

The decrease in cash and cash equivalents between June 30, 2023 and December 31, 2022 is the result of expenses related to our normal operations, offset by inflows of cash generated from net product sales of $5,002 and $754 from various option exercises.

There was an increase of $1,419 in other current assets between June 30, 2023 and December 31, 2022.

Current liabilities decreased by $830 between June 30, 2023, and December 31, 2022.

The decrease was driven mainly by an increase in accounts payable ($615), offset by a large decrease of $1,446 in accrued expenses.

Working capital decreased between December 31, 2022, and June 30, 2023, by $6,567.

The decrease relates to a net cash inflow from product sales and various option exercises, offset by expenditures for operating activities for the six months ended June 30, 2023.

The following table illustrates a summary of cash flow data for the six month period ended June 30, 2023 and 2022:

Selected Cash Flow Data

Three Months Ended

Six Months Ended June 30,

(dollars and shares in thousands)

March 31, 2023

March 31, 2022

Net cash used in operating activities

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Net cash flow

Net cash used in operating activities for the three months ended March 31, 2023 primarily reflected a net loss of $6,052.

The three month loss was adjusted for the add back of non-cash items consisting of $1,089 in stock-based compensation expense, with unrealized loss on securities of $30 and amortization expense of $72 for the three months ended March 31, 2023.

For the three months ended March 31, 2023, there was a net change in prepaid and other assets of $318;

coupled with a net decrease in current liabilities of $589.

Three month negative cash flows from operating activities were $5,799 and $2,856, respectively, for the periods ended March 31, 2023 and 2022.

Net cash provided by financing activities for the three months ended March 31, 2023 was $193.

During the same period in 2022, there was various option exercises resulting in cash inflows from financing activities of $15.

Net cash flows from the three month-periods ended March 31, 2023 and 2022, were negative $5,384 and $2,841, respectively.

Net cash used in operating activities for the six months ended June 30, 2023 and 2022, primarily reflected a net loss of $11,496 and $8,768, respectively.

The six month losses were adjusted for the add back of non-cash items consisting of $3,632 and $1,476, respectively, in stock-based compensation expense, with unrealized loss on securities of $30 and $99, respectively, and amortization expense of $145 and $15, respectively for the six months ended June 30, 2023, and 2022.

For the six months ended June 30, 2023 there was an increase in current assets of $1,450 and a decrease of $648 during the same period in 2022.

For the six months ended June 30, 2023 there was a net decrease in current liabilities of $831, with a net increase of $1,383 during that same period in 2022.

Six month negative cash flows from operating activities were $9,523 and $6,246, respectively, for the periods ended June 30, 2023 and 2022.

Net cash provided by financing activities for the six months ended June 30, 2023, were $707 and $61, respectively.

Net cash flows from the six month period ended June 30, 2023 and 2022, were negative $8,816, and $6,185, respectively.

We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies.

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headcount expense;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims;

involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims;

competitive and technological advances;

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Outstanding Share Information

Our outstanding share data as of March 31, 2023 and December 31, 2022 was as follows (in thousands):

Our outstanding share data as of June 30, 2023 and December 31, 2022 was as follows (in thousands):

Outstanding Share Type

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We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment.

At March 31, 2023, we had approximately $5.7 million in our cash accounts and $12.7 million in savings and money market accounts.

At June 30, 2023, we had approximately $3.5 million in our cash accounts and $11.5 million in savings and money market accounts.

While we have never experienced any loss or write down of our money market investments since our inception, the amounts we hold in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value.

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Contractual Obligations and Commitments

None, other than the OHSU royalty agreement mentioned in the financial statements, and the severance amounts as disclosed in our 2022 annual report (10-K) published March 29, 2023.

None, other than the OHSU Agreement and lease agreements described in our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report, and the severance amounts as disclosed in the Annual Report.

Critical Accounting Policies and Estimates

A summary of our critical accounting policies and use of estimates are presented in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report.

There have been no material changes to our critical accounting policies and use of estimates during the three months ended March 31, 2023.

Controls and Procedures .

(a) Evaluation of Disclosure Controls and Procedures .

We maintain "disclosure controls and procedures,"

as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Based on this evaluation at the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023.

(b) Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

OTHER INFORMATION

There have been no material changes to our critical accounting policies and use of estimates during the six months ended June 30, 2023.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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