What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 177 added, 149 removed, 351 unchanged (48% of the section changed)

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Description of Business

We are a clinical-stage immunology company focused on developing drugs

that may reprogram the patient’s innate immune system to treat disease.

We believe this may be done by targeting cells of the innate

immune system that cause acute and chronic inflammation and are involved in the immune dysfunction associated with chronic diseases such

as cancer and neurodegenerative diseases.

The Company’s drugs are in clinical trials and have not been approved by a regulatory

The Company has two therapeutic platforms – dominant-negative TNF platform (“DN-TNF”, “XPro™”,

“XPro1595™” or “ pegipanermin” ) and the Natural Killer (“NK”, or “INKmune™”)

The DN-TNF platform neutralizes soluble TNF (“sTNF”) without affecting trans-membrane TNF (“tmTNF”)

or TNF receptors -TNFR1 and TNFR2.

This unique biologic mechanism differentiates the DN-TNF drugs from currently approved non-selective

TNF inhibitors that inhibit both sTNF and tmTNF.

Protecting the function of tmTNF and TNF receptors while neutralizing the function of

sTNF is a potent anti-inflammatory strategy that does not cause immunosuppression or demyelination which occur in the currently approved

non-selective TNF inhibitors.

Currently approved non-selective TNF inhibitors treat autoimmune disease, but are contraindicated in patients

with infection, cancer and neurologic diseases because they increase the risk of infection, cancer and demyelinating neurologic diseases,

respectively;

We are a clinical-stage immunology

company focused on developing drugs that may reprogram the patient’s innate immune system to treat disease.

We believe this may

be done by targeting cells of the innate immune system that cause acute and chronic inflammation and are involved in the immune dysfunction

associated with chronic diseases such as cancer and neurodegenerative diseases.

The Company’s drugs are in clinical trials and have

not been approved by a regulatory authority.

The Company has two therapeutic platforms – a dominant-negative TNF platform (“DN-TNF”,

“XPro™”, “XPro1595™” or “ pegipanermin” ) and a Natural Killer (“NK”,

or “INKmune™”) platform.

The DN-TNF platform neutralizes soluble TNF (“sTNF”) without affecting trans-membrane

TNF (“tmTNF”) or TNF receptors -TNFR1 and TNFR2.

This unique biologic mechanism differentiates the DN-TNF drugs from currently

approved non-selective TNF inhibitors that inhibit both sTNF and tmTNF.

Protecting the function of tmTNF and TNF receptors while neutralizing

the function of sTNF is a potent anti-inflammatory strategy that does not cause immunosuppression or demyelination which occur in the

currently approved non-selective TNF inhibitors.

Currently approved non-selective TNF inhibitors treat autoimmune disease, but are contraindicated

in patients with infection, cancer and neurologic diseases because they increase the risk of infection, cancer and demyelinating neurologic

diseases, respectively;

all the safety problems are due to off-target effects on inhibiting tmTNF.

The NK platform targets the dysfunctional natural

killer cells in patients with cancer.

The NK platform targets the dysfunctional

natural killer cells in patients with cancer.

NK cells are part of the normal immunologic response to cancer with important roles in immunosurveillance

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in North America and Australia and enrolled its first patient in April 2022.

We expect top-line clinical data to be available late-2023.

All patients will be offered to stay on therapy for at least 12 months in an extension trial.

Clinical and biomarker data will be collected

during the extension trial.

All patients will be offered to stay on therapy for at least

12 months in an extension trial.

Clinical and biomarker data will be collected during the extension trial.

The second Phase II trial

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Patients will be treated for 3 months.

Patients must have at least one ApoE4 allele to qualify for the trial.

end-point is EMACC, a sensitive cognitive end-point validated for use in patients with early AD.

Secondary clinical endpoints include

the CDR-SB, Cogstate Battery, E-Cog, NPI, and ADCS-ADL.

Imaging endpoints of neuroinflammation (White matter free water), white matter

integrity (apparent fiber density, radial diffusivity), and gray matter quality (cortical disarray measurement) will be assessed via MRI.

Changes in brain metabolism will be assessed via FDG-PET.

Patients must have at least one of the enrichment criteria used in the mild ADi

trial to qualify for the trial.

The primary end-point is EMACC, a sensitive cognitive end-point validated for use in patients with early

Secondary clinical endpoints include the CDR-SB, Cogstate Battery, E-Cog, NPI, and ADCS-ADL.

Imaging endpoints of neuroinflammation

(white matter free water) and white matter quality (apparent fiber density and radial diffusivity in Alzheimer’s disease tracts)

and gray matter quality (cortical disarray measurement) will be will be assessed via MRI.

Changes in brain metabolism will be assessed

Additional secondary measures of function include EEG, and speech and language.

All patients in both trials will be eligible to continue on XPro for at least 6 additional months.

Clinical and MRI metrics will be followed

during the extension trial.

The Company may amend the clinical trial design from time-to-time to improve the quality of the data

or the probability of success.

Effective therapy for TRD is a large unmet need.

Twenty percent of

patients with a Major Depressive Disorder have TRD.

Once third of TRD patients have peripheral biomarkers to inflammation (elevated CRP).

All patients in this trial will be eligible

to continue on XPro for at least 12 additional months.

Clinical and MRI metrics will be followed during the extension trial.

Company may amend the clinical trial design from time-to-time to improve the quality of the data or the probability of success.

Effective therapy for TRD

is a large unmet need.

Twenty percent of patients with a Major Depressive Disorder have TRD.

Once third of TRD patients have peripheral

biomarkers to inflammation (elevated CRP).

This is a large patient population.

The role of TNF and anti-TNF therapeutics was explored in a small open label clinical trial by Prof.

Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels and treatment with infliximab treated their depression

(Miller, 2011).

The Company received a $2.9M USD award from the National Institute of Mental Health (“NIMH”) to treat TRD

The blinded, randomized Phase II trial will use biomarkers of peripheral inflammation to select patients with TRD for enrollment.

The role of TNF and anti-TNF therapeutics was explored

in a small open label clinical trial by Prof.

Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels

and treatment with infliximab treated their depression (Miller, 2011).

The Company received a $2.9M USD award from the National Institute

of Mental Health (“NIMH”) to treat TRD with XPro.

The blinded, randomized Phase II trial will use biomarkers of peripheral

inflammation to select patients with TRD for enrollment.

Patients will be treated for 6 weeks.

Primary end-points include both clinical and neuroimaging measures.

The final trial design is ongoing

and discussions with the FDA are not complete.

The Company anticipates receiving authorization to initiate the clinical trial in the second

Primary end-points include both clinical

and neuroimaging measures.

The final trial design is ongoing and discussions with the FDA are not complete.

The Company anticipates receiving

authorization to initiate the clinical trial once the pending clinical hold is lifted.

We believe that INKmune improves

the ability of the patient’s own NK cells to attack their tumor.

INKmune interacts with the patient’s NK cells to convert

them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells.

INKmune is a replication incompetent

proprietary cell line that is given to the patient after determining that i) the patient has adequate NK cells in their circulation and

ii) those NK cells are functional when exposed to INKmune in vitro.

INKmune is designed to be given to patients after their immune system

has recovered after cytotoxic chemotherapy to target the residual disease the remains after treatment with cytotoxic therapy.

INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,

ovary, breast, renal and prostate cancer.

The Company has initiated a Phase I trial using INKmune to treat patients with high risk MDS/AML,

a form of leukemia.

One patient has been treated in the Phase I trial for MDS and three patients have been treated compassionately in

In the four patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, promotes development of

cancer killing memory-like NK cells that can be found in the patient’s circulation of 4 months.

The Company will continue to enroll

patients in the Phase I trial.

The Company intends to initiate a separate Phase I/2 trial of INKmune in a solid tumor during the first

half of 2023.

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a form of leukemia.

One patient has been treated in the Phase I trial for MDS and two patients have been treated compassionately in AML.

In the three patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, promotes development of cancer

One patient has been treated in the Phase I trial for MDS and three patients have been treated compassionately in

In the four patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, promotes development of cancer

killing memory-like NK cells that can be found in the patient’s circulation of 4 months.

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in the Phase I trial.

The Company intends to initiate a separate Phase I trial of INKmune in a solid tumor late 2022 or early 2023.

Since our inception in 2015, we have devoted substantially all of our

resources to the discovery and development of our product candidates, including clinical trials and preclinical studies as well as general

and administrative support for these operations.

To date, we have generated no significant revenue.

We have incurred net losses in each

year since our inception and, as of June 30, 2022, we had an accumulated deficit of approximately $77.5 million.

Our net losses were $13,741,000

and $11,211,000 for the six months ended June 30, 2022 and 2021, respectively.

Substantially all of our net losses resulted from costs

incurred in connection with our research and development programs and from general and administrative costs associated with our operations,

including stock-based compensation.

We anticipate that we will continue to generate losses for the foreseeable future.

Since our inception in 2015,

we have devoted substantially all of our resources to the discovery and development of our product candidates, including clinical trials

and preclinical studies as well as general and administrative support for these operations.

To date, we have generated no significant

We have incurred net losses in each year since our inception and, as of September 30, 2022, we had an accumulated deficit of

approximately $85.2 million.

Our net losses were $21,466,000 and $20,669,000 for the nine months ended September 30, 2022 and 2021, respectively.

Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general

and administrative costs associated with our operations, including stock-based compensation.

We anticipate that we will continue

to generate losses for the foreseeable future.

The Company is subject to

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Results of Operations

Comparison of the Three Months Ended June

Comparison of the Three Months Ended September

30, 2022 and 2021

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Three Months Ended

September 30,

(in thousands)

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Loss from operations

Other expense

During the six months ended

June 30, 2022, the Company sold MSC’s to one third-party and recognized $16,000 of revenues.

Other expense, net

During the nine months ended

September 30, 2022 and 2021, the Company sold MSC’s to one third-party and recognized $98,000 and $14,000, respectively, of revenues.

General and Administrative

General and administrative

expenses were approximately $2.2 million during the six months ended June 30, 2022, compared to approximately $2.1 million during the

six months ended June 30, 2021.

The increase in general and administrative expenses is largely due to higher compensation, including stock-based

compensation ($0.6 million higher during the three months ended June 30, 2022), partially offset by lower consulting expense ($0.6 million

lower during the three months ended June 30, 2022).

expenses were approximately $2.4 million during the nine months ended September 30, 2022, compared to approximately $2.5 million during

the nine months ended September 30, 2021.

The decrease in general and administrative expenses is largely due to $0.4 million lower consulting

fees, partially offset by $0.3 million higher compensation, including stock-based compensation.

Research and Development

Research and development expenses

were approximately $4.2 million during the three months ended June 30, 2022, compared to approximately $4.5 million during the three months

ended June 30, 2021.

The decrease in research and development expenses during the three months ending June 30, 2022 compared to the three

months ending June 30, 2021 is largely due to lower costs associated with manufacturing additional drugs ($0.9 million decrease), and

incurring lower costs in connection with the Company’s terminated COVID-19 clinical trial ($1.2 million decrease), partially offset

by higher compensation, including stock-based compensation ($0.7 million) and higher costs incurred on the Company's Alzheimer’s

and mild cognitive impairment clinical trials ($0.7 million higher).

were approximately $5.2 million during the three months ended September 30, 2022, compared to approximately $6.5 million during the three

months ended September 30, 2021.

The decrease in research and development expenses during the three months ending September 30, 2022 compared

to the three months ending September 30, 2021 is largely due to incurring $1.8 million less expenses associated with our Alzheimer’s

and mild cognitive impairment clinical trials.

Other Expense

The Company’s other

expense is higher in 2022 due to the Company incurring interest expense from a loan the Company obtained in June 2021.

Comparison of the Six Months Ended June

expense is lower during the nine months ended September 30, 2022 due to the Company incurring higher interest income on its cash.

Comparison of the Nine Months Ended September

30, 2022 and 2021

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our results of operations for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Loss from operations

Other expense

During the six months ended

June 30, 2022, and 2021, the Company sold MSC’s to one third-party and recognized $179,000 and $4,000, respectively, of revenues.

Other expense, net

During the nine months ended

September 30, 2022, and 2021, the Company sold MSC’s to one third-party and recognized $277,000 and $18,000, respectively, of revenues.

General and Administrative

General and administrative

expenses were approximately $4.5 million during the three months ended June 30, 2022, compared to approximately $4.2 million during the

six months ended June 30, 2021.

The increase in general and administrative expenses is largely due to higher compensation, including stock-based

compensation ($1.1 million higher during the six months ended June 30, 2022), partially offset by lower consulting expense ($1.0 million

lower during the six months ended June 30, 2022).

expenses were approximately $6.9 million during the three months ended September 30, 2022, compared to approximately $6.7 million during

the nine months ended September 30, 2021.

The increase in general and administrative expenses is largely due to higher compensation, including

stock-based compensation ($1.4 million higher during the nine months ended September 30, 2022), partially offset by lower consulting expense

($1.4 million lower during the nine months ended September 30, 2022).

Research and Development

Research and development expenses

were approximately $8.5 million during the six months ended June 30, 2022, compared to approximately $7.0 million during the six

months ended June 30, 2021.

The increase in research and development expenses during the six months ending June 30, 2022 compared

to the six months ending June 30, 2021 is largely due to additional amounts incurred related to the Company’s Alzheimer’s

and mild cognitive impairment clinical trials ($2.8 million higher), higher compensation expense, including stock-based compensation ($1.3

million increase), partially offset by incurring less costs in connection with the Company’s terminated COVID-19 clinical trial

($1.9 million decrease), and incurring lower costs manufacturing additional drug ($1.2 million decrease).

were approximately $13.7 million during the nine months ended September 30, 2022, compared to approximately $13.5 million during

the nine months ended September 30, 2021.

The increase in research and development expenses during the nine months ending September

30, 2022 compared to the nine months ending September 30, 2021 is largely due to additional amounts incurred related to the Company’s

Alzheimer’s and mild cognitive impairment clinical trials ($1.2 million higher), higher compensation expense, including stock-based

compensation ($1.6 million increase), partially offset by incurring less costs in connection with the Company’s terminated COVID-19

clinical trial ($2.3 million decrease).

Other Income (Expense)

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We incurred a net loss of

$13.7 million and $11.2 million for the six months ended June 30, 2022 and 2021, respectively.

Net cash used in operating activities was

$13.6 million and $10.8 million for the six months ended June 30, 2022 and 2021, respectively.

Since inception, we have funded our operations

primarily with proceeds from the sales of our common stock.

As of June 30, 2022, we had cash and cash equivalents of approximately $61.2

We anticipate that operating losses and net cash used in operating activities will increase over the next few years as we advance

our products under development.

$21.5 million and $20.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Net cash used in operating activities

was $17.0 million and $18.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Since inception, we have funded

our operations primarily with proceeds from the sales of our common stock.

As of September 30, 2022, we had cash and cash equivalents

of approximately $57.4 million.

We anticipate that operating losses and net cash used in operating activities will increase over the next

few years as we advance our products under development.

Our primary uses of capital

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We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate.

As of June 30, 2022, the

cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately $0.4 million.

not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.

As of September 30, 2022,

the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately $0.3 million.

We do not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.

As a publicly traded company,

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make some activities more time-consuming and costly.

As of June 30, 2022, the Company had an accumulated deficit of $77.5

As of September 30, 2022, the Company had an accumulated deficit of

$85.2 million and working capital of $59.8 million.

Losses have principally occurred as a result of stock-based compensation expense as well

as the substantial resources required for research and development of the Company’s products which included the general and administrative

expenses associated with its organization and product development, as well as the lack of sources of revenues until such time as the Company’s

products are commercialized.

As of June 30, 2022, we had cash and cash equivalents of approximately $61.2 million.

We believe our cash

and cash equivalents will be sufficient to fund our operations for at least the next 12 months following the filing date of this Quarterly

Report on Form 10-Q based on the balance of cash available as of June 30, 2022.

We anticipate, however,

that we will continue to generate losses for the foreseeable future, and we expect the losses to increase materially as we continue the

development of, and seek regulatory approvals for, our drug candidates, and seek to commercialize any drugs for which we receive regulatory

We will need to raise additional capital to fund our operations and complete our ongoing and planned clinical trials.

we expect to finance future cash needs through public equity or debt offerings, funding may not be available to us on acceptable terms,

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay,

limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market drug candidates

that we would otherwise prefer to develop and market ourselves.

Losses have principally occurred as a result of stock-based compensation expense as

well as the substantial resources required for research and development of the Company’s products which included the general and

administrative expenses associated with its organization and product development, as well as the lack of sources of revenues until such

time as the Company’s products are commercialized.

As of September 30, 2022, we had cash and cash equivalents of approximately $57.4

We believe our cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months following

the filing date of this Quarterly Report on Form 10-Q based on the balance of cash available as of September 30, 2022.

anticipate, however, that we will continue to generate losses for the foreseeable future, and we expect the losses to increase materially

as we continue the development of, and seek regulatory approvals for, our drug candidates, and seek to commercialize any drugs for which

we receive regulatory approval.

We will need to raise additional capital to fund our operations and complete our ongoing and planned clinical

Although we expect to finance future cash needs through public equity or debt offerings, no assurance can be given that any future

funding will be available to us, or if available that such proposed funding will be on terms that are acceptable to us.

If we are unable

to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce or terminate

our drug development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise

prefer to develop and market ourselves.

Common Stock – Issuance to Directors

During the six months ended

June 30, 2022, certain directors and officers of the Company purchased 82,900 shares of the Company’s common stock for $0.7 million.

During the nine months ended

September 30, 2022, certain directors and officers of the Company purchased 82,900 shares of the Company’s common stock for $0.7

ATM Sales Agreement

During the six months ended

June 30, 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the 2020 ATM program.

During the nine months ended

September 30, 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the 2020 ATM program.

The aggregate net proceeds were approximately $28.4 million after BTIG’s commission and other offering expenses.

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million of common stock.

The Company had no sales of common stock during the six months ended June 30, 2021 under the 2021 ATM program.

The Company had no sales of common stock during the nine months ended September 30, 2021 under the 2021 ATM program.

During July 2021, the Company sold 713,192 shares at an average price per share of $21.73 for net proceeds of approximately $15.0 million

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our cash flows for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Operating activities used

approximately $13.6 million of cash during the six months ended June 30, 2022, resulting from our loss of $13.7 million and changes in

our net operating assets and liabilities of $3.4 million, partially offset by non-cash stock-based compensation of $3.4 million.

in our net operating assets and liabilities was mainly due to an increase in prepaid expenses of approximately $1.9 million, and a decrease

in accounts payable and accrued liabilities of $2.0 million, partially offset by a decrease in other tax receivable of $0.5 million.

Operating activities used approximately $10.8 million of cash during the six months ended June 30,

2021, resulting from our loss of $11.2 million and changes in our net operating assets and liabilities of $1.3 million, partially offset

by non-cash stock-based compensation of $1.7 million.

The change in our net operating assets and liabilities was mainly due to an increase

in prepaid expenses of approximately $1.2 million, and an increase in research and development tax credit receivable of $1.4 million,

partially offset by an increase in deferred liabilities of approximately $0.4 million.

approximately $17.0 million of cash during the nine months ended September 30, 2022, resulting from our loss of $21.5 million and changes

in our net operating assets and liabilities of $1.1 million, partially offset by non-cash stock-based compensation of $5.4 million.

change in our net operating assets and liabilities was mainly due to an increase in prepaid expenses of approximately $2.3 million, partially

offset by a decrease in other tax receivable of $0.5 million and a decrease in research and development tax credit receivable of $0.5

activities used approximately $18.7 million of cash during the nine months ended September 30, 2021, resulting from our loss of $20.7

million and changes in our net operating assets and liabilities of $1.4 million, partially offset by non-cash stock-based compensation

of $3.3 million.

The change in our net operating assets and liabilities was mainly due to an increase in prepaid expenses of approximately

$1.1 million, and an increase in research and development tax credit receivable of $3.3 million, partially offset by an increase in accounts

payable and accrued liabilities of $2.7 million and an increase in deferred liabilities of approximately $0.4 million.

Investing Activities

the six months ended June 30, 2021, the Company paid Xencor $15.0 million to settle an option to acquire 10% of the Company’s common

stock on a fully diluted basis which was issued to acquire the Company’s acquired in-process research and development intangible

the nine months ended September 30, 2021, the Company paid Xencor $15.0 million to settle an option to acquire 10% of the Company’s

common stock on a fully diluted basis which was issued to acquire the Company’s acquired in-process research and development intangible

Financing Activities

During the six months ended

June 30, 2022, the Company sold 82,900 shares of its common stock to certain officers and directors for approximately $0.7 million.

the six months ended June 30, 2021, the Company sold 1,439,480 shares of its common stock under its 2020 ATM program for net proceeds

During the nine months ended

September 30, 2022, the Company sold 82,900 shares of its common stock to certain officers and directors for approximately $0.7 million.

the nine months ended September 30, 2021, the Company sold 1,439,480 shares of its common stock under its 2020 ATM program for net proceeds

of approximately $28.4 million.

The Company also obtained $15.0 million in cash proceeds from the issuance of debt.

the nine months ended September 30, 2021, the Company sold 713,192 shares of its common stock under the 2021 ATM program for net proceeds

of approximately $14.9 million.

July 2021, the Company completed a registered direct offering whereby the Company sold 1,818,182 shares of its common stock to investors

for net proceeds of $36.9 million.

Critical Accounting Policies

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Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year

ended December 31, 2021 and there have been no material changes during the six months ended June 30, 2022.

ended December 31, 2021 and there have been no material changes during the nine months ended September 30, 2022.

Quantitative and Qualitative Disclosures

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis