GRI Bio, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the Quarterly Report), the audited financial statements and notes thereto, as well as management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the SEC) on March 14, 2025 (the Annual Report). Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 12E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that involve risks and uncertainties. As a result of many factors, including those factors set out under the section entitled “Risk Factors” included in the Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements. Overview We are a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing innovative therapies that target serious diseases associated with dysregulated immune responses leading to inflammatory, fibrotic and autoimmune disorders. Our goal is to be an industry leader in developing therapies to treat these diseases and to improve the lives of patients suffering from such diseases. Our lead product candidate, GRI-0621, is an oral inhibitor of type 1 invariant Natural Killer T (iNKT) cells. GRI-0621 is also an oral formulation of tazarotene, a synthetic retinoid acid receptor-beta and gamma selective agonist, that is approved in the United States for topical treatment of psoriasis and acne. As of March 31, 2025, it has been evaluated in over 1,700 patients as an oral product for up to 52-weeks. We are developing GRI-0621 for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF), a life-threatening progressive fibrotic disease of the lung that affects approximately 140,000 people in the United States, with up to 40,000 new cases per year in the United States. Some estimate that IPF affects 3 million globally. While there are currently two approved therapies for the treatment of lung fibrosis, neither has been associated with improvements in overall survival, and both therapies have been associated with significant side effects leading to poor therapeutic adherence. In preliminary data from our trials to date with GRI-0621, and earlier trials with oral tazarotene, we have observed GRI-0621 to be well-tolerated and to inhibit iNKT cell activity in subjects. We and others have shown that activated iNKT are upregulated in IPF, primary sclerosing cholangitis, metabolic dysfunction-associated steatohepatitis, alcoholic liver disease, systemic lupus erythematosus (SLE), multiple sclerosis (MS), ulcerative colitis patients as well as other indications. In these patients activated iNKT cells are correlated with more severe disease. The U.S. Food and Drug Administration has cleared our Investigative New Drug (IND) application, and we have received authorization of our clinical trial application from both the United Kingdom Medicines and Healthcare Products Regulatory Agency and the Australian Therapeutic Goods Administration to initiate the Phase 2a biomarker study evaluating GRI-0621 for the treatment of IPF in the, U.S., United Kingdom and Australia, respectively. We are evaluating GRI-0621 in a randomized, double-blind, multi-center Phase 2a biomarker study, for which we commenced enrollment in December 2023. Based on our current enrollment projections, we expect interim data from this trial to be available in the second quarter of 2025 and topline results to be available in the third quarter of 2025. Our product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds. GRI-0803, the lead molecule selected from the library, is a novel oral agonist of type 2 diverse Natural Killer T (dNKT) cells and would be developed for the treatment of autoimmune disorders, with much of our preclinical work in SLE or lupus and MS. In lupus, the immune system mistakenly attacks its own healthy tissues, especially joints and skin, but can affect almost every organ and tissue of the body. The condition can be fatal and often causes debilitating bouts of fatigue and pain that prevent nearly half of adult patients from working. Lupus affects between 160,000 - 200,000 patients in the United States, with around 80,000 – 100,000 patients in the United States suffering from kidney nephritis, one of the most serious manifestations of SLE, typically within five years of diagnosis. There is no cure for lupus, but medical interventions and lifestyle changes can help control it. SLE treatment consists primarily of immunosuppressive drugs that inhibit the activity of the immune system. Only two drugs have been approved for lupus in the past 50 years, and new treatment options are sorely needed. In order to focus our resources on our GRI-0621 program, we have limited our development of GRI-0803 pending additional funding. Subject to obtaining the requisite additional funding and IND clearance, we intend to evaluate GRI-0803 in a Phase 1a and 1b trial initially targeting SLE. We expect to file an IND application with respect to this Phase 1a and 1b trial in 2025. We expect to continue to evaluate indications to select the best fit for further development of the program, but our initial focus would be on lupus. 17 Table of Contents Recent Developments Reverse Stock Splits On February 11, 2025, our stockholders approved a reverse stock split of our common stock, par value $0.0001 per share (Common Stock), within the range of not less than one-for-2 and not more than one-for-23, and our board of directors subsequently approved the February 2025 Reverse Stock Split at the ratio of one-for-17. Following these approvals, we filed an amendment to our amended and restated certificate of incorporation, as amended with the Secretary of State of the State of Delaware to effect the February 2025 Reverse Stock Split as of 4:01 p.m. Eastern Time on February 21, 2025. Shares of our Common Stock began trading on a post-split basis on February 24, 2025. The February 2025 Reverse Stock Split had the effect of reducing the aggregate number of outstanding shares of Common Stock from 8,933,366 shares on a pre-reverse split basis to a total of 525,358 shares outstanding on a post-reverse split basis. On February 21, 2025, our stockholders approved the February 2025 Reverse Stock Split. April 2025 Securities Purchase Agreement On April 1, 2025, we entered into a securities purchase agreement (the April 2025 Purchase Agreement), pursuant to which we issued and sold, in a public offering (the April 2025 Offering), (i) 202,000 shares (the April 2025 Shares) of Common Stock, (ii) 1,186,888 pre-funded warrants (the April 2025 Pre-Funded Warrants) exercisable for an aggregate of 1,186,888 shares of Common Stock, (iii) 1,388,888 Series E-1 common stock warrants (the Series E-1 Common Warrants) to purchase up to 1,388,888 shares of Common Stock, (iv) 1,388,888 Series E-2 common stock warrants (the Series E-2 Common Warrants) to purchase up to 1,388,888 shares of Common Stock, and (v) 1,388,888 Series E-3 common stock warrants (the Series E-3 Common Warrants, and collectively with the Series E-1 Warrants and the Series E-2 Warrants, the Series E Common Warrants) to purchase up to 1,388,888 shares of Common Stock, for gross proceeds of $5,000, before deducting offering expenses. The securities were offered in combinations of (a) one April 2025 Share or one April 2025 Pre-Funded Warrant, together with (b) one Series E-1 Common Warrant, one Series E-2 Common Warrant and one Series E-3 Common Warrant, for a combined purchase price of $3.60 (less $0.0001 for each April 2025 Pre-Funded Warrant). The April 2025 Pre-Funded Warrants are exercisable for one share of Common Stock at a price of $0.0001 per share, are exercisable immediately and will expire when exercised in full. Each Series E Common Warrant is exercisable into one share of Common Stock at a price per share of $3.20 and is immediately exercisable. The Series E-1 Common Warrants will expire on the five-year anniversary of the date of issuance. The Series E-2 Common Warrants will expire on the 18-month anniversary of the date of issuance. The Series E-3 Common Warrants will expire on the nine-month anniversary of the date of issuance. May 2024 At The Market Offering On May 20, 2024, we entered into an At The Market Offering Agreement (the Sales Agreement) with H.C. Wainwright & Co., LLC (Wainwright), pursuant to which we may sell and issue, subject to the limitations in the Sales Agreement, shares up to $10.0 million of our Common Stock from time to time through Wainwright as our sales agent (the ATM Offering). Under the Sales Agreement, Wainwright is entitled to compensation of 3.0% of the gross offering proceeds of all shares of Common Stock sold through it pursuant to the Sales Agreement. As of March 31, 2025, we have sold 325,618 shares of our Common Stock in the ATM Offering at a weighted-average price of $11.07 per share, raising $3.6 million of gross proceeds and net proceeds of $3.5 million, after deducting commissions to the sales agent and other ATM Offering related expenses. On May 5, 2025, we filed a prospectus supplement to our registration statement on Form S-1 (File No. 333-279348) to increase the amount of shares of Common Stock that we may offer and sell under the Sales Agreement and applicable registration statement to an aggregate offering price of up to $1.7 million, which amount does not include the shares of Common Stock having an aggregate gross sales price of approximately $3.6 million that were sold under the ATM Offering through March 31, 2025, in accordance with the limitations set forth in Instruction I.B.6 of Form S-3. 18 Table of Contents Nasdaq Compliance - Bid Price Deficiency The rules of The Nasdaq Capital Market also require that we maintain a closing price for shares of our Common Stock of at least $1.00 per share (the Minimum Bid Price Rule). On September 10, 2024, we received a letter from the Listings Qualification Department (the Staff) of The Nasdaq Stock Market LLC, indicating that we no longer met the Minimum Bid Price Rule because the closing bid price for our Common Stock was less than $1.00 for the previous 30 consecutive business days prior thereto. We subsequently effected the February 2025 Reverse Stock Split. On March 10, 2025, we received a letter from the Staff indicating that we were once again in compliance with the Minimum Bid Price Rule. Financial Operations Overview Research and Development Expenses Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. Our research and development expenses have consisted primarily of costs related to our development program for our lead product candidate GRI-0621. These expenses include: • employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead-related expenses and travel-related expenses for our research and development personnel; and • expenses incurred under agreements with contract research organizations, contract manufacturing organizations and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities as well as consultants that support the implementation of our clinical and non-clinical studies. Although our direct research and development expenses are tracked by product candidate, we do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates as these costs are deployed across multiple programs. We expect our research and development expenses to increase over the next several years as we conduct our planned clinical and preclinical activities for our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to corporate matters. We expect our general and administrative expenses will continue to increase as we incur costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors’ and officers’ insurance, legal and accounting costs and investor relations costs, as well as an increase in personnel expenses as we hire additional personnel. Warrant Liability In May 2022, Vallon Pharmaceuticals, Inc. (Vallon) issued warrants (the May 2022 Warrants) in connection with a securities purchase agreement. Vallon evaluated the May 2022 Warrants in accordance with Accounting Standards Codification (ASC) 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC 815-40), and concluded that a provision in the May 2022 Warrants related to the reduction of the exercise price in certain circumstances precludes the May 2022 Warrants from being accounted for as components of equity. As a result, the May 2022 Warrants were measured at fair value upon issuance using a Black-Scholes valuation model and are recorded as a liability on the consolidated balance sheet. The fair value of the May 2022 Warrants is measured at each reporting date and changes in fair value are recognized in the consolidated statements of operations in the period of change. Interest Income Interest income consists of interest earned on our cash and cash equivalents held with institutional banks. 19 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2025 and 2024 The following table summarizes the results of our operations for the periods indicated (in thousands): Three Months Ended March 31, 2025 2024 Operating expenses: Research and development $ 1,640 $ 933 General and administrative 1,411 962 Total operating expenses 3,051 1,895 Loss from operations (3,051) (1,895) Change in fair value of warrant liability — 2 Interest income 5 6 Net loss $ (3,046) $ (1,887) Research and Development Expenses Research and development expenses were $1.6 million and $0.9 million for the three months ended March 31, 2025 and 2024, respectively. The $0.7 million increase in research and development expenses was primarily due to an increase of $0.7 million in expenses related to the registration development program of GRI-0621. General and Administrative Expenses General and administrative expenses were $1.4 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. The $0.4 million increase was primarily related to a $0.3 million increase in personnel expense including stock based compensation expense and a $0.2 million increase in professional fees. Interest Income Interest income was $5,000 and $6,000 for the three months ended March 31, 2025 and 2024, respectively. Liquidity and Capital Resources Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future. We incurred net losses of $3.0 million and $1.9 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had an accumulated deficit of $42.8 million. We have financed our working capital requirements to date through the issuance of Common Stock, warrants, convertible notes and promissory notes. As of March 31, 2025, we had $3.3 million in cash. The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2025 2024 Net cash provided by (used in): Operating activities $ (1,736) $ (2,203) Financing activities (11) 4,486 Net increase (decrease) in cash and cash equivalents $ (1,747) $ 2,283 20 Table of Contents Cash Flows from Operating Activities For the three months ended March 31, 2025 and 2024, $1.7 million and $2.2 million were used in operating activities, respectively. The $0.5 million decrease was primarily due to an increase in non-cash adjustments of $0.2 million related to stock-based compensation expenses, as well as a $1.1 million increase in accounts payable and a $0.7 million increase in accrued expenses, offset by a $1.2 million increase in net loss and a $0.4 million decrease in prepaid and other assets. Cash Flows from Financing Activities Net cash used in financing activities was $11,000 for the three months ended March 31, 2025 and was primarily related to stock issuance costs related to the April 2025 Purchase Agreement. Net cash provided by financing activities was $4.5 million for the three months ended March 31, 2024 and was primarily related to $5.5 million of proceeds from the February 2024 Offering (defined below). The increase was offset by $1.0 million of stock issuance costs. April 2025 Securities Purchase Agreement On April 1, 2025, we entered the April 2025 Purchase Agreement, pursuant to which we issued and sold, in the April 2025 Offering, (i) 202,000 April 2025 Shares, (ii) 1,186,888 April 2025 Pre-Funded Warrants exercisable for an aggregate of 1,186,888 shares of Common Stock, (iii) 1,388,888 Series E-1 Common Warrants to purchase up to 1,388,888 shares of Common Stock, (iv) 1,388,888 Series E-2 Common Warrants to purchase up to 1,388,888 shares of Common Stock, and (v) 1,388,888 Series E-3 Common Warrants, to purchase up to 1,388,888 shares of Common Stock, for gross proceeds of $5,000, before deducting offering expenses. May 2024 At The Market Offering As of March 31, 2025, we have sold 325,618 shares of our Common Stock in the ATM Offering at a weighted-average price of $11.07 per share, raising $3.6 million of gross proceeds and net proceeds of $3.5 million, after deducting commissions to the sales agent and other ATM Offering related expenses. On May 5, 2025, we filed a prospectus supplement to our registration statement on Form S-3 (File No. 333-279348) to increase the amount of shares of Common Stock that we may offer and sell under the Sales Agreement and applicable registration statement to an aggregate offering price of up to $1.7 million, which amount does not include the shares of Common Stock having an aggregate gross sales price of approximately $3.6 million that were sold under the ATM Offering through March 31, 2025, in accordance with the limitations set forth in Instruction I.B.6 of Form S-3. February 2024 Securities Purchase Agreement On February 1, 2024, we entered into securities purchase agreement , pursuant to which we issued and sold, in a public offering (the February 2024 Offering), (i) 1,495 shares of Common Stock, (ii) 21,131 pre-funded warrants exercisable for an aggregate of 21,131 shares of Common Stock, (iii) 22,631 Series B-1 common warrants exercisable for an aggregate of 22,631 shares of Common Stock, and (iv) 22,631 Series B-2 common warrants exercisable for an aggregate of 22,631 shares of Common Stock for net proceeds of $4.4 million, after deducting offering expenses of $1.1 million. Future Funding Requirements Our net losses were $3.0 million and $1.9 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had $3.3 million in cash and an accumulated deficit of $42.8 million. We expect to devote substantial financial resources to our planned activities, particularly as we prepare for, initiate, and conduct our planned clinical trials of GRI-0621 and GRI-0803, advance our discovery programs and continue our product development efforts. In addition, we expect to incur additional costs associated with operating as a public company. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through the third quarter of 2025. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. We intend to raise capital through additional issuances of equity securities and/or short-term or long-term debt arrangements, but there can be no assurances any such financing will be available when needed, even if our research and development efforts are successful. If we are 21 Table of Contents unable to secure adequate additional funding, we will need to reevaluate our operating plans and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of our development programs, or relinquish rights to our technology on less favorable terms than we would otherwise choose or cease operations entirely. These actions could materially impact our business, results of operations and future prospects and the value of shares of our Common Stock. In addition, attempting to secure additional financing may divert the time and attention of management from day-to-day activities and distract from our discovery and product development efforts. As a result, there is substantial doubt about our ability to continue as a going concern. We expect to continue to incur significant and increasing operating losses at least for the foreseeable future. We do not expect to generate product revenue unless and until we successfully complete development, obtain regulatory approval for and successfully commercialize our current, or any future, product candidates. Off-Balance Sheet Arrangements We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. Critical Accounting Policies and Estimates Our management’s discussion and analysis of its financial condition and results of operations is based on its unaudited interim consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The preparation of these unaudited interim consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the unaudited interim consolidated financial statements and accompanying notes. Management evaluates these estimates and judgments on an ongoing basis. Management bases its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances. Actual results could differ from those estimates. Our significant accounting policies are described in more detail in Note 3, “Summary of Significant Accounting Policies”, in our Annual Report. Emerging Growth Company Status We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not applicable to emerging growth companies. These exemptions include: • reduced disclosure about our executive compensation arrangements; • no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and • exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We have taken advantage of reduced reporting requirements in this report and may continue to do so until such time that we are no longer an emerging growth company. We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the completion of Vallon’s initial public offering, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable to a smaller reporting company. 22 Table of Contents