Immix Biopharma, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and plan of operations together with and our accompanying consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted. Overview Immix Biopharma, Inc. is a clinical-stage biopharmaceutical company focused on the application of CAR-T in light chain (AL) Amyloidosis and autoimmune disease. Our lead cell therapy candidate is FDA IND cleared CAR-T NXC-201, currently being evaluated in our ongoing Phase 1b/2a NEXICART-1 (NCT04720313) clinical trial. Based on early clinical data, we believe NXC-201 has the potential to be the world’s first “Single-Day CRS” CAR-T (CRS median onset day 1, median duration 1 day), enabling the potential for a faster return home for patients. NXC-201 has been awarded Orphan Drug Designation (ODD) by the FDA in both AL Amyloidosis and multiple myeloma, and ODD by the European Commission (EMA) in AL Amyloidosis. Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our Company, business planning and raising capital. We operate as one business segment and have incurred recurring losses, the majority of which are attributable to research and development activities and negative cash flows from operations. We have funded our operations primarily through the sale of convertible debt and equity securities. Currently, our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenses on other research and development activities. AxioMx Master Services Agreement On December 22, 2014, we entered into a Master Service Agreement (“MSA”) with AxioMx, Inc. (“AxioMx”) which is in the business of developing and supplying custom affinity reagents. We entered into the MSA to serve as a master agreement governing multiple sets of projects as may be agreed upon us and AxioMx from time to time. Pursuant to the MSA, we granted AxioMx a non-exclusive, royalty-free, worldwide, non-transferable license to certain of our intellectual property to perform services pursuant to the MSA, and AxioMx granted us an exclusive product assignment option (“Option”) which granted us an exclusive, royalty-bearing right, with the right to sublicense, under the Deliverable (as defined in the MSA) to further research, develop, use, sell, offer for sale, import and export one or more assigned products pursuant to the MSA. We exercised the Option in 2017. Pursuant to the MSA, AxioMx is entitled to royalties on the sale of any Deliverable that is used for diagnostic, prognostic or therapeutic purposes, in humans or animals, or for microbiology testing, including food safety testing or environmental monitoring. Specifically, we shall pay AxioMx a royalty of 3.5% of Net Sales (as defined in the MSA) of assigned products for each Deliverable used in licensed products for therapeutic purposes. In addition, we shall pay AxioMx a royalty of 1.5% of Net Sales of assigned products for each Deliverable used in licensed products for diagnostic or prognostic purposes; provided, however, if three Deliverables are used in an assigned product for diagnostic or prognostic purposes, the royalty shall be 4.5%. As of December 31, 2022, the MSA has expired and we do not intend to extend the MSA; however, the royalty obligations described herein shall survive the termination of the MSA. 70 Research and License Agreement with Hadasit and BIRAD On December 8, 2022, Nexcella entered into the Agreement with the Licensors pursuant to which the Licensors granted to Nexcella an exclusive, worldwide, royalty-bearing license in the Territory to an invention entitled “Anti-BCMA CAR-T cells to target plasma cell” to develop, manufacture, have manufactured, use, market, offer for sale, sell, have sold, export and import Licensed Product. Pursuant to the Agreement, Nexcella paid the Licensors an upfront fee of $1,500,000 in December 2022. Additional quarterly payments totaling approximately $13.0 million are due through September 2026 along with an annual license fee of $50,000. Nexcella has agreed to pay royalties to the Licensors equal to 5% of Net Sales during the Royalty Period. In addition, Nexcella shall pay sales milestone payments of up to $20 million for Net Sales exceeding $700 million and Nexcella has committed to funding NXC-201 clinical trials in Israel over 4 years for an estimated total cost of approximately $13 million, spread on a quarterly basis over that period, which Nexcella believes will generate clinical trial data owned by Nexcella. The term of the Agreement commenced on December 8, 2022 and, unless earlier terminated pursuant to the terms thereof, shall continue in full force and effect until the later of the expiration of the last Valid Claim under a Licensed Patent or a Joint Patent or Exclusivity Right covering a Licensed Product or the expiration of a continuous period of 15 years during which there shall not have been a First Commercial Sale of any Licensed Product in any country in the world. Licensors may terminate the Agreement immediately if Nexcella or its affiliates or sublicensees commences an action in which it challenges the validity, enforceability or scope of any of the Licensed Patents or Joint Patents. In addition, either party may terminate the Agreement if the other party materially breaches the Agreement and fails to cure such breach within 30 days. Additionally, Licensors may terminate the Agreement if Nexcella becomes insolvent or files for bankruptcy. Recent Developments In February 2024, we conducted an underwritten public offering of 5,535,055 shares of common stock at the public offering price is $2.71 per shares, for the net proceeds, after underwriter discounts and offering expenses, of approximately $13,529,999. Pursuant to the underwriting agreement, we granted the underwriter a 30-day over-allotment option to purchase up to an additional 783,970 shares of our common stock, which was exercised in full on March 1, 2024 for the net proceeds, after underwiring discounts and offering expenses, of $1,954,594. Results of Operations Year Ended December 31, 2023 compared to the Year Ended December 31, 2022 General and Administrative Expenses General and administrative expenses were $7,406,082 for the year ended December 31, 2023 compared to $4,023,170 for the year ended December 31, 2022. The expenses incurred in both periods were related to salaries, patent maintenance costs and general accounting and other general consulting expenses, which were higher for the year ended December 31, 2023 due to increased professional fees of $516,271, increased investor relations services of $1,041,458, of which $622,423 was non-cash from shares issued for services, increased compensation of $203,274, and increased stock-based compensation of $1,419,217 from additional equity awards issued to the officers, directors and consultants. 71 Research and Development Expenses Research and development expenses were $8,735,031 for the year ended December 31, 2023 compared to $4,195,778 for the year ended December 31, 2022. The increased research and development expenses relate to our ongoing Phase 1b/2a clinical trial, including, but not limited to, contract research organization (“CRO”) and related costs for maintaining and treating patients in the clinical trial. We were able to increase spending on research and development in 2023 as a result of our increased fundings from the various equity offerings. Interest Income Interest income was $572,006 for the year ended December 31, 2023 compared to $0 interest income for the year ended December 31, 2022. Interest income in the current period was related to interest earned on investments in a money market fund. Provision for Income Taxes Provision for income taxes for the year ended December 31, 2023 was $26,415 compared to $10,268 for the year ended December 31, 2022, due to withholding taxes relating to our Australian subsidiary. Liquidity and Capital Resources Sources of Liquidity We do not have any approved products for commercial sale and have never generated revenue from product sales and have incurred significant net losses since our inception and expect to continue to incur net operating losses for the foreseeable future. We do not expect to receive any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our product candidates or enter into collaborative arrangements with third parties. We currently have no credit facility or committed sources of capital. Material Cash Requirements Our primary use of cash and cash equivalents is to fund operating expenses, which consist of clinical research and development expenses, manufacturing expenses, legal and compliance expenses, compensation and related expenses, and general overhead costs. Cash and cash equivalents used to fund operating expenses is impacted by the timing of when we pay or prepay these expenses. We expect our expenses to increase in connection with our ongoing activities, particularly as we expand our clinical programs, continue the research and development of, and seek marketing approval for our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As of December 31, 2023, we had total assets of approximately $19.9 million and working capital of approximately $16.1 million. As of December 31, 2023, our liquidity included approximately $17.5 million of cash and cash equivalents. In February and March 2024, we conducted an underwritten public offering of 6,319,025 shares of our common stock, inclusive of the underwriter’s exercise in full of its over allotment option, at $2.71 per share, for the net proceeds of approximately $15.5 million, after underwriting discounts and offering expenses. We believe that our cash and cash equivalents on hand as of the date of this report will be sufficient to fund our planned operations over the 12-month period following the date of this report; however, there can be no assurance we will not need additional capital sooner. In addition, we believe that we will need additional capital to continue our planned operations beyond the 12-month period following the date of this report. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, licensing fees for our product candidates and technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. The continuation of the Company as a going concern is dependent upon its ability to obtain continued financial support from its stockholders, necessary equity financing to continue operations and the attainment of profitable operations. In January 2024, the Company entered into a long-term operating lease agreement for biopharmaceutical manufacturing space in California under a non-cancelable operating lease that expires in December 2033. Under the terms of the lease we expect to make total lease payments of $1.6 million through December 2033. We enter into contracts in the normal course of business with third-party contract organizations for preclinical and clinical studies, manufacture and supply of our preclinical and clinical materials and providing other services and products for operating purposes. Contracts for preclinical and clinical studies and other services generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. We do not have any long-term manufacturing and supply agreements with our third-party contract manufacturers but enter into specific contracts on an as needed basis for individual batch production runs. Cash Flows Cash used in operating activities Net cash used in operating activities was $11,371,438 for the year ended December 31, 2023 and $7,408,303 for the year ended December 31, 2022. Net cash used for the year ended December 31, 2023 was primarily related to our net loss of $15,595,522 offset by non-cash items of stock-based compensation expense of $2,565,708 and depreciation expense of $5,468. Operating activities also included an increase in accounts payable of $2,434,467, an increase in the tax receivable of $893,401, and a decrease in prepaid expenses of $111,842. Net cash used for the year ended December 31, 2022, was primarily related to our net loss of $8,229,713 offset by non-cash items of stock-based compensation expense of $624,069 and depreciation expense of $2,135. Operating activities also included an increase in accounts payable of $1,131,736 and an increase in the tax receivable of $236,384, offset by an increase in prepaid expenses of $691,047 and decrease in accrued interest of $9,099. 72 Cash used in investing activities Net cash used in investing activities was $52,089 for the year ended December 31, 2023 and $0 for the year ended December 31, 2022. We purchased equipment during the year ended December 31, 2023. Cash provided by financing activities Net cash provided by financing activities was $15,463,512 for the year ended December 31, 2023 and $3,232,063 for the year ended December 31, 2022. Net cash provided by financing activities in 2023 was primarily related to $9,934,153 in net proceeds from the issuance of shares of our common stock and warrants in our August 2023 private placement and $5,438,970 in net proceeds from the sale of shares of our common stock pursuant to our ATM facilities. Critical Accounting Policies This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to prepaid/accrued research and development expenses, stock-based compensation, value of deferred tax assets and related valuation allowances, and fair value of the embedded derivative financial instrument related to our convertible promissory notes. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements. Stock-Based Compensation - We measure all stock-based awards granted based on their estimated fair value on the date of the grant and recognize the corresponding compensation expense for those awarded to employees and directors over the requisite service period, which is generally the vesting period of the respective award, and for those awarded to nonemployees over the period during which services are rendered by nonemployees until completed. We have typically issued stock options with service-based vesting conditions and we record the expense for these awards using the straight-line method. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. The following table reflects the weighted average assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2023 and 2022: 2023 2022 Volatility 114-120 % 117-124 % Expected life (years) 5.27-10 5.27-10.0 Risk-free interest rate 4.12-4.38 % 1.70-3.06 % Dividend rate — % — % 73 Research and Development Costs Research and development costs are expensed as incurred. Research and development costs consist primarily of clinical research fees paid to consultants and outside service providers, other expenses relating to design, development and testing of our therapy candidates, and for license and milestone costs related to in-licensed products and technology. Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. Such licenses purchased by us require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Clinical trial costs are a component of research and development expenses. The Company estimates expenses incurred for clinical trials that are in process based on services performed under contractual agreements with clinical research organizations and actual clinical investigators. Included in the estimates are (1) the fee per patient enrolled as specified in the clinical trial contract with each institution participating in the clinical trial and (2) progressive data on patient enrollments obtained from participating clinical trial sites and the actual services performed. Changes in clinical trial assumptions, such as the length of time estimated to enroll all patients, rate of screening failures, patient drop-out rates, number and nature of adverse event reports, and the total number of patients enrolled can impact the average and expected cost per patient and the overall cost of the clinical trial. We monitor the progress of the trials and their related activities and adjust expense accruals, when applicable. Adjustments to accruals are charged to expense in the period in which the facts give rise to the adjustments become known. Recent Accounting Pronouncements See Note 2 to our audited consolidated financial statements found elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our consolidated financial statements. JOBS Act On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with the requirement adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding the communication of critical audit matters in the auditor’s report on financial statements. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this item. As a smaller reporting company, we are not required to provide the information required by this item. 74