Item 7. Management’s Discussion and Analysis
Item 7. 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 consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could 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 “Risk Factors” included elsewhere in this Annual Report. As used in this report, unless the context suggests otherwise, “we,” “us,” our” or “the Company” refer to Immunic, Inc. and its subsidiaries.
Overview
Immunic, Inc. ("Immunic," “we,” “us,” “our” or the "Company") is a biotechnology company developing a clinical pipeline of selective oral immunology therapies focused on treating chronic inflammatory and autoimmune diseases. We are headquartered in New York City with our main operations in Gräfelfing near Munich, Germany. We had 77 employees as of February 1, 2024.
We are pursuing clinical development of orally administered, small molecule programs, each of which has unique features intended to directly address the unmet needs of patients with serious chronic inflammatory and autoimmune diseases. These include the vidofludimus calcium (IMU-838) program, which is in Phase 3 clinical development for patients with multiple sclerosis (“MS”) and which has shown therapeutic activity in Phase 2 clinical trials in patients suffering from relapsing-remitting MS, progressive MS and moderate-to-severe ulcerative colitis (“UC”); the IMU-856 program, which is targeted to regenerate bowel epithelium and restore intestinal barrier function, which could potentially be applicable in numerous gastrointestinal diseases, such as celiac disease, inflammatory bowel disease, short bowel syndrome and irritable bowel syndrome with diarrhea; and the IMU-381 program, which is a next generation molecule being developed to specifically address the needs of gastrointestinal diseases.
We have incurred net losses since inception and have an accumulated deficit of $410.9 million through December 31, 2023. We anticipate that we will continue to incur losses for at least the next several years. Due to the uncertainties involved with therapeutic product development and the clinical trial process, we cannot predict the timing or level of future expenses with certainty, when product approval might occur, if ever, or when profitability may be achieved or sustained.
Recent Events
Private Placement of up to $240 Million
On January 4, 2024, Immunic entered into a Securities Purchase Agreement with select accredited investors, pursuant to which the Company agreed to issue and sell to the Investors in a three-tranche private placement shares of the Company’s common stock, $0.0001 par value per share or in lieu thereof, pre-funded warrants to purchase shares of Common Stock. The Pre-Funded Warrants are exercisable immediately for $0.0001 per share and until exercised in full.
• The first tranche, which closed on January 8, 2024, resulted in the purchase by the Investors of an aggregate of $80 million of Common Stock (or Pre-Funded Warrants) from the Company at a price of $1.43 per share;
• The second tranche is a conditional mandatory purchase by the Investors of an additional $80 million of Common Stock (or Pre-Funded Warrants) from the Company at a price of $1.716 per share, equal to 120% of the price paid in the first tranche and is subject to the satisfaction of three conditions:
◦ release by the Company of topline data from its Phase 2b clinical trial of vidofludimus calcium (IMU-838) in progressive multiple sclerosis, which data is currently expected in or around April 2025;
◦ the 10-day volume-weighted average price of the Common Stock is at least $8.00 per share during the 6 months following the data release; and
◦ aggregate trading volume during the same 10-day period is at least $100 million.
• The third tranche must occur no later than three years after the second tranche and is conditioned on the same volume-weighted average share price and minimum trading volumes as the second tranche. The third tranche provides for the issuance of $80 million of shares of common stock (or pre-funded warrants) at the same price per share as the second tranche, but permits investors to fund their purchase obligations on a “cashless” or net settlement basis, which would reduce the cash proceeds to be raised by the Company in the Private Placement.
Any of the conditions in the second or third tranches can be waived by holders of a majority of the outstanding securities (including the lead Investor).
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The Private Placement resulted in gross proceeds to the Company of approximately $80 million in the first tranche, and an additional $80 million if and when the second tranche occurs. Assuming that the second tranche is completed and conditions for the third tranche are satisfied or waived, the Company could receive up to an additional $80 million in the third tranche. However, the amount of cash received in the third tranche would depend on the extent to which the Investors elect to fund the third tranche through a “cashless” or net settlement basis. Therefore, total gross proceeds from the offering to the Company could actually be between $80 million and $240 million. Gross proceeds to the Company will be reduced by fees paid to the placement agents, capital markets advisors and payments of transaction expenses. The Company intends to use the net proceeds from the Private Placement to fund the ongoing clinical development of its three lead product candidates, vidofludimus calcium (IMU-838), IMU-856 and IMU-381, and for other general corporate purposes.
Notice of Allowance for United States Patent Protecting Vidofludimus Calcium's Dosing Regimens in Multiple Sclerosis
On November 21, 2023, we announced that we have received a Notice of Allowance from the United States Patent and Trademark Office (“USPTO”) for patent application 17/992,162, entitled, “Compounds and Dosage Regimen for Use in the Prevention or Treatment of Chronic Inflammatory and/or Autoimmune Diseases.” Specifically, the resulting patent covers dosing regimens associated with vidofludimus calcium and other salt forms as well as free acid forms for the treatment of MS, including all regimens tested in the company’s MS clinical program. The patent is expected to provide protection into 2038, unless extended further. The patent was previously granted to us in Japan and certain other countries.
Notice of Allowance for United States Patent Protecting the Treatment of Relapsing Multiple Sclerosis with Vidofludimus and Its Salts
On November 2, 2023, we announced that we have received a Notice of Allowance from the USPTO for patent application 17/391,442, entitled, “Treatment of Multiple Sclerosis Comprising DHODH Inhibitors,” covering a daily dose of about 10 mg to 45 mg of vidofludimus calcium and other salt as well as free acid forms for the treatment of RMS. The claims are expected to provide protection into 2041, unless extended further.
Positive Interim Data from Phase 2 CALLIPER Trial of Vidofludimus Calcium in Progressive Multiple Sclerosis
On October 9, 2023, we announced positive interim data from our Phase 2 CALLIPER trial of vidofludimus calcium in patients with progressive multiple sclerosis ("PMS"). The predefined interim analysis examined the change from baseline to 24 weeks in serum neurofilament light chain (“NfL”) and glial fibrillar acidic protein ("GFAP") levels among approximately the first half of patients enrolled in this trial. We believe that this data showed biomarker evidence that vidofludimus calcium's activity extends beyond the previously observed anti-inflammatory effects, thereby further reinforcing its neuroprotective potential.
Serum NfL responses were consistently observed for vidofludimus calcium across progressive MS disease and all subpopulations. In the overall PMS population at 24 weeks (N=203), vidofludimus calcium was associated with a 6.7% reduction from baseline in serum NfL, compared to a 15.8% increase over baseline in placebo (p=0.01, post hoc). At 48 weeks (N=79), vidofludimus calcium reduced serum NfL by 10.4% from baseline, compared to a 6.4% increase in placebo. Substantial reductions were also seen across all PMS subtypes, as well as in patients that show or do not show disease and/or magnetic resonance imaging ("MRI") activity.
Although early, interim GFAP data also showed a promising signal: at 24 weeks (N=203), GFAP increased by 3.7% for vidofludimus calcium, and 4.4% for placebo. At 48 weeks (N=79), the change was only 2.7% for vidofludimus calcium, with a 6.4% increase for placebo. Progression of GFAP response is generally thought to evolve more slowly than NfL, and we believe that a longer follow-up may further strengthen this signal.
Completion of Enrollment of Phase 2 CALLIPER Trial of Vidofludimus Calcium in Progressive Multiple Sclerosis
On August 17, 2023, we announced completion of enrollment of our Phase 2 CALLIPER trial of vidofludimus calcium in patients with PMS. In total, 467 patients with primary PMS, or active or non-active secondary PMS have been randomized to either 45mg of vidofludimus calcium or placebo. A top-line data readout of the full 467 patients is expected in April 2025.
Vidofludimus Calcium Acts as Potent Nurr1 Activator, Reinforcing Neuroprotective Potential in MS
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On May 17, 2023, we announced the publication of preclinical data showing that vidofludimus calcium acts as a potent Nurr1 activator, in addition to its known mode of action as a DHODH inhibitor. Activation of Nurr1 could be responsible for the drug’s postulated neuroprotective effects and may contribute to the previously reported reduction of confirmed disability worsening events in MS patients. Specifically, preclinical data shows potent Nurr1 activation by vidofludimus calcium at low concentrations in several test systems. The data was published in the peer-reviewed, high impact Journal of Medicinal Chemistry, in a paper entitled, “Development of a potent Nurr1 agonist tool for in vivo applications” (Vietor et al., 2023).
Presentation of Clinical and Preclinical Data for IMU-856 at Digestive Disease Week 2023, Including Its Molecular Mode of Action
On May 6, 2023, we announced the presentation of clinical and preclinical data for IMU-856 as a virtual e-poster at Digestive Disease Week 2023. Included in this presentation were new data on IMU-856’s mode of action as a potent modulator of SIRT6, a protein which serves as a transcriptional regulator of intestinal barrier function and regeneration of bowel epithelium.
Positive Results From Phase 1b Clinical Trial of IMU-856 in Celiac Disease
On May 4, 2023, we announced positive results from our Phase 1b clinical trial of IMU-856 in patients with celiac disease. The data demonstrated positive effects for IMU-856 over placebo in four key dimensions of celiac disease pathophysiology: protection of the gut architecture, improvement of patients’ symptoms, biomarker response, and enhancement of nutrient absorption. IMU-856 was also observed to be safe and well-tolerated in this trial.
We believe that this data set provides initial clinical proof-of-concept for an entirely new therapeutic approach to gastrointestinal disorders by promoting regeneration of bowel architecture. The data provides first clinical evidence that IMU-856’s ability, observed in preclinical studies, to induce physiological gut cell renewal translates into clinical benefits for patients with celiac disease. Most importantly, the observed protection of intestinal villi from gluten-induced destruction, independent of targeting immune mechanisms involved specifically in celiac disease, appears to be unique among proposed therapeutic approaches and may be applicable to other gastrointestinal diseases such as inflammatory bowel disease, short bowel syndrome and irritable bowel syndrome with diarrhea.
Appointment of Richard Rudick, M.D. to Board of Directors
On April 27, 2023, we announced the appointment of Dr. Richard Rudick as a member of our Board of Directors, effective as of April 26, 2023. As a Class III director, Dr. Rudick’s initial term lasted until our 2023 Annual Meeting of Stockholders held on June 28, 2023, at which meeting he was elected to a three year term expiring at the 2026 Annual Meeting of Stockholders.
Dr. Richard Rudick, age 72, has over 35 years of experience in the biopharmaceutical industry and academic medicine. Since January 2023, Dr. Rudick has been the President and CEO of Astoria Biologic, a private biotechnology company developing novel therapies for MS. Previously, Dr. Rudick served as the Vice President of Development Science at Biogen, Inc., a biotechnology company which engages in discovering, developing, and delivering therapies for neurological and neurodegenerative diseases, from May 2014 until September 2020. Dr. Rudick also served as a staff neurologist and director of the Mellen Center for the Cleveland Clinic from January 1987 until May 2014. Dr. Rudick holds an M.D. from Case Western Reserve University School of Medicine. The Nominating and Corporate Governance Committee and the Board believe that Dr. Rudick‘s extensive leadership in clinical research and development of MS treatments provides valuable clinical, strategy and management skills to the Board.
Director Resignation
Dr. Vincent Ossipow retired from the Board of Directors on June 28, 2023. Dr. Ossipow’s decision not to stand for re-election was not the result of any disagreement with the Company or its management on any matter relating to the Company’s operations, policies or practices.
Positive Data from Maintenance Phase of Phase 2 CALDOSE-1 Trial of Vidofludimus Calcium in Moderate-to-Severe UC
On April 5, 2023, we reported positive data from the maintenance phase of our Phase 2b CALDOSE-1 trial of vidofludimus calcium in patients with moderate-to-severe UC. The data showed a dose-linear increase in clinical remission as compared to placebo at week 50. Moreover, an exploratory statistical analysis confirmed the 30 mg dose of vidofludimus
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calcium to be statistically superior (p=0.0358) in achieving clinical remission at week 50, with a 33.7% absolute improvement over placebo. A similar effect on clinical remission rates at week 50 was also found among those patients who received corticosteroids during the induction phase. Finally, a dose-linear increase in endoscopic healing was observed, with the 30 mg dose of vidofludimus calcium being associated with a 37.8% absolute improvement over placebo and also achieving statistical significance in an exploratory statistical analysis (p=0.0259).
We believe that the maintenance phase data of CALDOSE-1 confirms vidofludimus calcium's activity in the absence of chronic corticosteroid co-administration. Consistent with prior data sets in other patient populations, administration of vidofludimus calcium in the maintenance phase of this trial was observed to be safe and well-tolerated.
Deprioritization of Izumerogant (IMU-935) Development Program
In order to focus on the rapidly advancing vidofludimus calcium and IMU-856 programs, and considering the totality of available data for izumerogant, including changes in expected time to market and increased complexity of potential further development in this competitive field, we announced on April 5, 2023 to focus our resources and, therefore, deprioritized the clinical portion of our izumerogant development program in psoriasis and castration-resistant prostate cancer.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("US"), or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an on-going basis, management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are typically recognized in the period when new information regarding estimates becomes available to management. Actual results could differ from those estimates.
Our significant accounting policies are described in more detail in Note 2, "Summary of Significant Accounting Policies," in the notes to the consolidated financial statements. See below for what we believe are our Critical Accounting Policies.
Foreign Currency Translation and Presentation
Our reporting currency is US dollars. During the twelve months ended December 31, 2023 and 2022, Immunic AG’s operations were located in Germany with the euro being its functional currency. Immunic Australia Pty Ltd.’s functional currency is the Australian dollar. All amounts in the financial statements where the functional currency is not the US dollar are translated into US dollar equivalents at exchange rates as follows:
• assets and liabilities at reporting period-end rates;
• income statement accounts at average exchange rates for the reporting period; and
• components of equity at historical rates.
Gains and losses from translation of the financial statements into US dollars are recorded in stockholders’ equity net of the anticipated income tax effects as a component of accumulated other comprehensive income (loss). Realized and unrealized gains and losses resulting from foreign currency transactions denominated in currencies other than the functional currency are reflected as general and administrative expenses in the Consolidated Statements of Operations. Foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future are recorded in Other Income (loss). The Consolidated Statements of Cash Flows were prepared by using the average exchange rate in effect during the reporting period which reasonably approximates the timing of the cash flows.
Goodwill
Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the
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use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, an unfavorable clinical trial result, a significant adverse change in legal or business climate, industry or market conditions, an adverse regulatory action, sustained decrease in stock price or unanticipated competition.
On October 20, 2022, we announced the outcome of a significant interim analysis of our Phase 1b clinical trial of izumerogant in patients with moderate-to-severe psoriasis, which was not deemed positive progress. On October 21, 2022, we experienced a significant decrease in our market capitalization. We considered this to be a triggering event as the fair market value of the company was less than its book value, indicating that it is more likely than not that goodwill is impaired. Upon further evaluation, we recorded an approximately $33.0 million goodwill impairment charge in the fourth quarter of 2022, which represents a full write down of our previous goodwill balance.
Research and Development Expenses
These costs primarily include external development expenses and internal personnel expenses for the three development programs, vidofludimus calcium, IMU-856 and IMU-381. Immunic has spent the majority of its research and development resources on vidofludimus calcium, the Company's lead development program for clinical trials in MS and UC.
Research and development expenses consist of expenses incurred in research and development activities, which include clinical trials, contract research services, certain milestone payments, salaries and related employee benefits, allocated facility costs and other outsourced services. Research and development expenses are charged to operations as incurred.
The Company enters into agreements with contract research organizations (“CROs”) to provide clinical trial services for individual studies and projects by executing individual work orders governed by a Master Service Arrangement (“MSA”). The MSAs and associated work orders provide for regular recurrent payments and payments upon the completion of certain milestones. The Company regularly assesses the timing of payments against actual costs incurred to ensure a proper accrual of related expenses in the appropriate accounting period.
Collaboration Arrangements
Certain collaboration and license agreements may include payments to or from the Company of one or more of the following: non-refundable or partially refundable upfront or license fees; development, regulatory and commercial milestone payments; payment for manufacturing supply services; partial or complete reimbursement of research and development costs; and royalties on net sales of licensed products. The Company assesses whether such contracts are within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Update (“ASU”) 2014-09 “ Revenue from Contracts with Customers ” and ASU No. 2018-18, “ Collaborative Arrangements” ("ASU 2018-18"). ASU 2018-18, clarifies that certain elements of collaborative arrangements could qualify as transactions with customers in the scope of ASC 606.
In October 2018, the Company entered into an option and license agreement (the "Daiichi Sankyo Agreement") with Daiichi Sankyo Co., Ltd. ("Daiichi Sankyo") which granted the Company the right to license a group of compounds, designated by the Company as IMU-856, as a potential new oral treatment option for gastrointestinal diseases such as celiac disease, inflammatory bowel disease, irritable bowel syndrome with diarrhea and other barrier function associated diseases. During the option period, the Company performed agreed upon research and development activities for which it was reimbursed by Daiichi Sankyo up to a maximum agreed-upon limit. Such reimbursement was recorded as other income. There are no additional research and development reimbursements expected under this agreement.
On January 5, 2020, the Company exercised its option to obtain the exclusive worldwide right to commercialization of IMU-856. Among other things, the option exercise grants Immunic AG the rights to Daiichi Sankyo’s patent application related to IMU-856, for which the Company received a notice of allowance from the U.S. Patent & Trademark Office in August 2022. In connection with the option exercise, the Company paid a one-time upfront licensing fee to Daiichi Sankyo. Under the Daiichi Sankyo Agreement, Daiichi Sankyo is also eligible to receive future development, regulatory and sales milestone payments, as well as royalties related to IMU-856.
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Stock-Based Compensation
The Company measures the cost of employee and non-employee services received in exchange for equity awards based on the grant-date fair value of the award recognized generally as an expense (i) on a straight-line basis over the requisite service period for those awards whose vesting is based upon a service condition, and (ii) on an accelerated method for awards whose vesting is based upon a performance condition, but only to the extent it is probable that the performance condition will be met. Stock-based compensation is (i) estimated at the date of grant based on the award’s fair value for equity classified awards and (ii) final measurement date for liability classified awards. Forfeitures are recorded in the period in which they occur.
The Company estimates the fair value of stock options using the Black-Scholes-Merton option-pricing model ("BSM"), which requires the use of estimates and subjective assumptions, including the risk-free interest rate, the fair value of the underlying common stock, the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future.
Income Taxes
The Company is subject to corporate income tax laws and regulations in the U.S., Germany and Australia. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment in their application.
The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the audited consolidated financial statements. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or the entire deferred tax asset will not be realized. As of December 31, 2023 and 2022, respectively, the Company maintained a full valuation allowance against the balance of deferred tax assets.
It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company is subject to U.S. federal, New York, California, Texas, German and Australian income taxes. The Company is subject to U.S. federal or state income tax examination by tax authorities for tax returns filed for the years 2003 and forward due to the carryforward of NOLs. Tax years 2016 through 2022 are subject to audit by German and Australian tax authorities. The Company is not currently under examination by any tax jurisdictions.
Components of Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates or achieving market acceptance and commercial success for any product that does receive regulatory approval.
Research and Development Expenses
Research and development expenses consist of costs associated with our research activities, including our product discovery efforts and the development of our product candidates. Our research and development expenses include:
• external research and development expenses and milestone payments incurred under arrangements with third parties, such as CROs, contract manufacturing organizations, collaborations with partners, consultants, and our scientific advisors; and
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• internal personnel expenses.
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used in future research and development activities are capitalized as prepaid expenses and expensed when the service has been performed or when the goods have been received.
Since our inception in March 2016, we have spent a total of approximately $298.1 million in research and development expenses through December 31, 2023.
These costs primarily include external development expenses and internal personnel expenses for the three development programs, vidofludimus calcium, izumerogant and IMU-856. We have spent the majority of our research and development resources on vidofludimus calcium, our lead development program, for clinical trials in MS and UC.
In August 2019, Immunic AG received a grant of up to approximately $726,000 from the German Federal Ministry of Education and Research, in support of the InnoMuNiCH (Innovations through Munich-Nippon Cooperation in Healthcare) project. The grant funds have been used to fund a three-year research project relating to autoimmune diseases by us and our three project partners. Since the inception of the grant, we have recorded $726,000 of income in total of which $100,000 and $254,000 were recorded in the twelve months ended December 31, 2023 and 2022, respectively, and were classified in Other Income in the accompanying consolidated statement of operations. The funding of this grant is now completed.
Our research and development expenses are expected to increase in the foreseeable future as we continue to conduct ongoing research and development activities, initiate new preclinical and clinical trials and build our pipeline of product candidates. Our research and development expenses may also increase in the foreseeable future due to the current inflationary environment as well as supply chain shortages, which result in increased costs. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving regulatory approval for any of our product candidates.
Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the development and regulatory success of each product candidate, and ongoing assessments as to each product candidate’s commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, professional fees for legal, accounting, tax and business consulting services, insurance premiums and stock-based compensation.
Other Income (Expense), Net
Interest Income
Interest income consists of interest earned on our money market funds and bank accounts which are a portion of our cash and cash equivalents balance. Our interest income has been increasing throughout 2022 and 2023 as global interest rates have been increasing.
Other Income (Expense), Net
Other income (expense) consists primarily of a research and development tax incentive related to clinical trials performed in Australia, a German Government research and development grant and foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future. The intercompany loan between Immunic, Inc. and Immunic AG was settled on September 28, 2022 through an equity infusion from Immunic, Inc. to Immunic AG.
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Results of Operations
Comparison of Fiscal Years Ended December 31, 2023 and 2022
The following table summarizes our operating expenses for the years ended December 31, 2023 and 2022 (dollars in thousands):
Years Ended December 31, Change
2023 2022 $ %
Operating expenses:
Research and development $ 83,215 $ 71,255 $ 11,960 17 %
General and administrative 16,008 15,263 745 5 %
Goodwill impairment (see Note 2) — 32,970 (32,970) NM
Total operating expenses 99,223 119,488 (20,265) (17) %
Loss from operations (99,223) (119,488) 20,265 (17) %
Total other income (expense), net 5,611 (919) 6,530 (711) %
Net loss (93,612) (120,407) 26,795 (22) %
Research and development expenses increased by $12.0 million during the twelve months ended December 31, 2023, as compared to the twelve months ended December 31, 2022. The increase reflects (i) a $10.2 million increase in external development costs related to the Phase 3 clinical program of vidofludimus calcium in relapsing multiple sclerosis, (ii) a $5.2 million increase in external development costs related to the Phase 2 clinical trial of vidofludimus calcium in progressive multiple sclerosis, (iii) a $2.2 million increase in drug supply costs for vidofludimus calcium to support our ongoing trials, (iv) a $2.2 million increase in personnel expense in research and development related to an increase in headcount, $0.2 million of which was due to non-cash stock based compensation and (v) a $1.5 million increase in external development costs related to IMU-856. The increases were partially offset by (i) a decrease of $6.5 million from deprioritizing the izumerogant program in psoriasis and castration-resistant prostate cancer, (ii) a decrease of $2.5 million in external development costs related to the Phase 2 clinical trial of vidofludimus calcium in ulcerative colitis and (iii) a $0.3 million increase in related costs across numerous categories.
General and administrative expenses increased by $0.7 million during the twelve months ended December 31, 2023, as compared to the twelve months ended December 31, 2022. The increase was primarily due to (i) a $0.4 million increase in legal and consultancy expense, (ii) a $0.3 million increase in travel expense, (iii) a $0.2 million increase in facility expenses primarily due to additional lease space and (iv) a $0.3 million increase across numerous categories. The increases were partially offset by a decrease of $0.5 million in personnel expense in general and administrative which was primarily due to non-cash stock based compensation decrease.
On October 20, 2022, we announced the outcome of a significant interim analysis of our Phase 1b clinical trial of izumerogant in patients with moderate-to-severe psoriasis, which was not deemed positive progress. On October 21, 2022, we experienced a significant decrease in the Company's market capitalization. The Company considered this to be a triggering event, indicating that it is more likely than not that goodwill is impaired. Upon further evaluation, we recorded an approximately $33.0 million non-cash goodwill impairment charge in the fourth quarter of 2022, which represented a full write down of our previous goodwill balance.
Other income increased by $6.5 million during the twelve months ended December 31, 2023, as compared to the twelve months ended December 31, 2022. The increase was primarily attributable to (i) a $3.9 million decrease in foreign exchange losses, (ii) a $2.3 million research allowance attributable to tax year 2021 and 2022 from the German Federal Ministry of Finance and (iii) a $2.0 million increase in interest income as a result of higher interest rates. The increase was partially offset by (i) a $1.6 million decrease in research and development tax incentives for clinical trials in Australia as a result of decreased spending on clinical trials in Australia and (ii) a $0.1 million decrease across numerous categories.
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Liquidity and Capital Resources
Overview
We have no products approved for commercial sale and have not generated any revenue from product sales. We have never been profitable and have incurred operating losses in each year since our inception in 2016. Our net losses were approximately $93.6 million and $120.4 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of approximately $410.9 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we initiate and continue the preclinical and clinical development of our product candidates and add personnel necessary to operate as a company with an advanced clinical pipeline of product candidates. To the extent additional funds are necessary to meet long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, additional equity financings or a combination of these potential sources of funds, although we can provide no assurance that these sources of funding will be available on reasonable terms, if at all.
From inception through January 31, 2024, Immunic has raised net cash of approximately $431.4 million from private and public offerings of preferred and common stock. As of December 31, 2023, the Company had cash and cash equivalents of approximately $46.7 million. On January 4, 2024, we raised net cash proceeds in a private placement of approximately $75.0 million. With these funds we expect to be able to fund our operations beyond twelve months from the date of the issuance of the accompanying consolidated financial statements.
In November 2023, we filed a shelf registration statement on Form S-3 (the "2023 Shelf Registration Statement"). The 2023 Shelf Registration Statement permits the offering, issuance and sale of up to $250.0 million of common stock, preferred stock, warrants, debt securities, and/or units in one or more offerings and in any combination of the foregoing. As of January 31, 2024, the 2023 Shelf Registration statement has not been made effective, however, we can (i) continue to sell, subject to applicable SEC requirements, unsold securities remaining on the expiring 2020 Shelf Registration Statement; and (ii) offer and sell additional securities to be registered on the new Form S-3.
In November 2020, we filed a shelf registration statement on Form S-3 (the "2020 Shelf Registration Statement"). The 2020 Shelf Registration Statement permitted the offering, issuance and sale of up to $250.0 million of common stock, preferred stock, warrants, debt securities, and/or units in one or more offerings and in any combination of the foregoing. As of January 31, 2024, there is $75.0 million of unsold securities remaining on from the 2020 Shelf Registration Statement.
In December 2020, we filed a Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $50.0 million of common stock that may be issued and sold under an at-the-market sales agreement with SVB Leerink LLC (now Leerink Partners LLC) as agent ("December 2020 ATM"). We have used and intend to continue to use the net proceeds from the December 2020 ATM to continue to fund the ongoing clinical development of our product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates. The December 2020 ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through Leerink Partners LLC on the terms and subject to the conditions set forth in the December 2020 ATM or (ii) termination of the December 2020 ATM as otherwise permitted thereby. The December 2020 ATM may be terminated at any time by either party upon ten days’ prior notice, or by Leerink Partners LLC at any time in certain circumstances, including the occurrence of a material adverse effect on us. As of January 31, 2024, $7.5 million in capacity remains under the December 2020 ATM.
In May 2022, we filed a Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $80.0 million of common stock that may be issued and sold under another at-the-market sales agreement ("May 2022 ATM") with SVB Securities LLC (now Leerink Partners LLC) as the sales agent. We intend to use the net proceeds from the offering to continue to fund the ongoing clinical development of our product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates. The May 2022 ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through Leerink Partners LLC on the terms and subject to the conditions set forth in the May 2022 ATM or (ii) termination of the May 2022 ATM as otherwise permitted thereby. The May 2022 ATM may be terminated at any time by either party upon ten days’ prior notice, or by Leerink Partners LLC at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. As of January 31, 2024, $80.0 million in capacity remains under the May 2022 ATM.
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For the year ended December 31, 2023, we raised gross proceeds of $0.9 million pursuant to the December 2020 ATM through the sale of 657,012 shares of common stock at a weighted average price of $1.34 per share. The net proceeds from the December 2020 ATM were $0.9 million after deducting underwriter commissions of $26,000.
For the year ended December 31, 2022, we raised gross proceeds of $40.9 million pursuant to the December 2020 ATM through the sale of 4,204,113 shares of common stock at a weighted average price of $9.72 per share. The net proceeds from the December 2020 ATM were $39.6 million after deducting underwriter commissions of $1.2 million.
Equity Offerings
Private Placement of up to $240 Million
On January 4, 2024, Immunic entered into a Securities Purchase Agreement with select accredited investors, pursuant to which the Company agreed to issue and sell to the Investors in a three-tranche private placement shares of the Company’s common stock, $0.0001 par value per share or in lieu thereof, pre-funded warrants to purchase shares of Common Stock. The Pre-Funded Warrants are exercisable immediately for $0.0001 per share and until exercised in full.
The first tranche, which closed on January 8, 2024, resulted in the purchase by the Investors of an aggregate of $80 million of Common Stock (or Pre-Funded Warrants) from the Company at a price of $1.43 per share; The second tranche is a conditional mandatory purchase by the Investors of an additional $80 million of Common Stock (or Pre-Funded Warrants) from the Company at a price of $1.716 per share, equal to 120% of the price paid in the first tranche and is subject to the satisfaction of three conditions:
• release by the Company of topline data from its Phase 2b clinical trial of vidofludimus calcium (IMU-838) in progressive multiple sclerosis, which data is currently expected in or around April 2025;
• the 10-day volume-weighted average price of the Common Stock is at least $8.00 per share during the 6 months following the data release; and
• aggregate trading volume during the same 10-day period is at least $100 million.
The third tranche must occur no later than three years after the second tranche and is conditioned on the same volume-weighted average share price and minimum trading volumes as the second tranche. The third tranche provides for the issuance of $80 million of shares of common stock (or pre-funded warrants) at the same price per share as the second tranche, but permits investors to fund their purchase obligations on a “cashless” or net settlement basis, which would reduce the cash proceeds to be raised by the Company in the Private Placement.
Any of the conditions in the second or third tranches can be waived by holders of a majority of the outstanding securities (including the lead Investor).
The Private Placement resulted in gross proceeds to the Company of approximately $80 million in the first tranche, and an additional $80 million if and when the second tranche occurs. Assuming that the second tranche is completed and conditions for the third tranche are satisfied or waived, the Company could receive up to an additional $80 million in the third tranche. However, the amount of cash received in the third tranche would depend on the extent to which the Investors elect to fund the third tranche through a “cashless” or net settlement basis. Therefore, total gross proceeds from the offering to the Company could actually be between $80 million and $240 million. Gross proceeds to the Company will be reduced by fees paid to the placement agents, capital markets advisors and payments of transaction expenses. The Company intends to use the net proceeds from the Private Placement to fund the ongoing clinical development of its three lead product candidates, vidofludimus calcium (IMU-838), IMU-856 and IMU-381, and for other general corporate purposes
Future Capital Requirements
As noted above, we have not generated any revenue from product sales and we do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates. We expect our expenses to continue to increase as we continue the ongoing research, development, manufacture and clinical trials of, and seek regulatory approval for, our product candidates. We also incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.
Our future expenses and capital requirements are difficult to forecast and will depend on many factors, including, but not
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limited to:
• the timing and structure of any strategic options and transactions, if any;
• personnel-related expenses, including salaries, benefits, stock-based compensation expense and other compensation expenses related to retention and termination of personnel;
• the scope, progress, duration, results and costs of research and development and ongoing clinical trials;
• the cost and timing of future regulatory submissions;
• the cost and timing of developing and validating the manufacturing processes for any potential product candidates;
• the cost and timing of any commercialization activities, including reimbursement, marketing, sales and distribution costs;
• our ability to establish new collaborations, licensing or other arrangements and the financial terms of such agreements;
• the number and characteristics of any future product candidates we pursue;
• the costs involved with being a public company;
• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation;
• the cost, timing and outcome of any future litigation; and
• the timing, receipt and amount from the sales of, or royalties on, any future products.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of stock offerings, debt financings, strategic alliances, collaborations and licensing arrangements. Recent developments, however, will make it more difficult and costly for us to obtain funding for our cash needs. We do not expect to achieve revenue from product sales prior to the use of all the net proceeds from our public and private offerings to date. We do not have any committed external source of funds. Additional funds may not be available on acceptable terms, if at all. To the extent that we raise additional capital through the sale of equity securities, the ownership interest of our stockholders will be diluted and it may be on terms that are not favorable to us or our stockholders. Sales of equity securities will also be more difficult for at least the foreseeable future because of general volatility in the equity markets for companies like us, as well as the significant decline in the trading price of our stock following our announcement on October 21, 2022 of the Phase 1b interim analysis of izumerogant in moderate-to-severe psoriasis. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or other terms that are not favorable to us or our stockholders. Also, the cost of debt financing has increased due to the rise in interest rates beginning in March 2022. If we raise additional funds through collaborations and licensing arrangements with third parties, we would expect to relinquish substantial rights to our technologies or our future products, or grant licenses on terms that may not be favorable to us. If we were to complete a merger, or other business combination, we may relinquish all control over the organization and could experience detrimental tax effects. If we are unable to raise adequate funds, we may have to curtail our product development programs and liquidate some or all of our assets. Any of these factors could harm our operating results and could result in substantial declines in the trading price of our common stock.
As of December 31, 2023, we had cash and cash equivalents of approximately $46.7 million. On January 4, 2024, we raised net cash proceeds in a private placement of approximately $75.0 million.
Cash Flows
The following table shows a summary of our cash flows for the years ended December 31 (in thousands):
2023 2022
Cash (used in) provided by:
Operating activities $ (70,828) $ (65,144)
Investing activities 9,462 (9,741)
Financing activities 1,033 95,760
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Net cash used in operating activities
During the year ended December 31, 2023, operating activities used $70.8 million of cash. The use of cash related to our net loss of $93.6 million adjusted for non-cash charges of $7.1 million of stock-based compensation and a $0.5 million foreign currency loss as well as a $15.0 million net change in our operating assets and liabilities. Changes in our operating assets and liabilities consisted primarily of a decrease of $3.9 million in prepaid expenses and other current assets combined with a $11.2 million increase in other current liabilities, accrued expenses and accounts payable. The decrease in prepaid expenses and other current assets is primarily due to lower prepaid clinical costs. The increase in liabilities is primarily due to an increase in clinical costs as a result of our Phase 3 clinical studies for RMS and Phase 2 clinical studies for PMS.
During the year ended December 31, 2022, operating activities used $65.1 million of cash. The use of cash related to our net loss of $120.4 million adjusted for non-cash charges of $45.7 million related to $33.0 million of goodwill impairment, $7.9 million of stock-based compensation and a $4.8 million foreign currency loss as well as a $9.5 million net change in our operating assets and liabilities. Changes in our operating assets and liabilities consisted primarily of a decrease of $7.5 million in prepaid expenses and other current assets combined with a $2.0 million increase in other current liabilities, accrued expenses and accounts payable. The decrease in prepaid expenses and other current assets is primarily due to lower prepaid clinical costs. The increase in liabilities is primarily due to an increase in clinical costs as a result of the start of our Phase 3 clinical studies for RMS and Phase 2 clinical studies for PMS.
Net cash used in investing activities
During the year ended December 31, 2023, net investing activities provided $9.5 million of cash, primarily due to the sale of $9.8 million of time deposits partially offset by the purchase of $0.3 million of property and equipment.
During the year ended December 31, 2022, net investing activities used $9.7 million of cash, primarily due to purchase of $9.6 million of time deposits that had an original maturity of greater than three months and the purchase of equipment.
Net cash provided by financing activities
During the year ended December 31, 2023, financing activities provided $1.0 million due primarily to net cash proceeds from the sale of common stock under our December 2020 ATM.
During the year ended December 31, 2022, financing activities provided $95.8 million of cash consisting of net cash proceeds from the sale of common stock under the $60 Million Private Placement Equity Financing and the December 2020 ATM.
Off-Balance Sheet Arrangements
Through December 31, 2023, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.
Other Commitments and Obligations
See Note 2 - Collaboration Arrangements of the Notes to the Financial Statements regarding the Company’s obligations under the option agreement with Daiichi Sankyo, which includes the potential payment of future development, regulatory and sales milestone payments, as well as royalties related to IMU-856 .
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Maturities of the operating lease obligation are as follows as of December 31, 2023 (in thousands):
2024 $ 758
2025 $ 451
2026 $ 78
2027 $ 82
2028 $ 79
Thereafter $ —
Total lease payments $ 1,448
Less: interest portion $ 114
Present value of lease obligation $ 1,334
Contractual Obligations
As of December 31, 2023, the Company has non-cancelable contractual obligations under certain agreements related to its development programs for vidofludimus calcium, izumerogant and IMU-856 totaling approximately $4.2 million, all of which is expected to be paid in 2024.
Recently Adopted Accounting Standards
There are no recently issued accounting standards that would have a significant impact on the Company's consolidated financial statements.