Inmune Bio, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships. Description of Business Overview 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 immune dysfunction associated with chronic diseases such as cancer and neurodegenerative diseases. The Company’s drugs are still in the clinical trial stage 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 pSar DN-TNF” ) and a Natural Killer (“NK”, or “INKmune™”) platform. The DN-TNF platform neutralizes soluble tumor necrosis factor (“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 potentially 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; these safety problems are due to off-target effects on inhibiting tmTNF. 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 to prevent cancer and in preventing relapse by eliminating residual disease. Residual disease is the cancer left behind after therapy is finished. Residual disease can grow to cause relapse. The mechanism by which INKmune may improve the ability of the patient’s NK cells to kill their cancer is complex. The NK cells of cancer patients lose the ability to bind and kill cancer cells. A measure of NK cell binding to cancer cells is avidity. The higher the avidity, the greater the bond between the NK cell to cancer cell and thus the greater NK killing of cancer cells. INKmune increases NK avidity and further improves mitochondrial function and upregulates nutrient receptors. These metabolic changes may help the INKmune primed NK cell to function in the hostile tumor microenvironment and persist much longer in the patient. These mechanisms thus may improve the ability of INKmune primed NK cells to overcome the immune evasion of the patient’s cancer cells. We believe INKmune would best be used to eliminate residual disease after the patient has completed other cancer therapies. Both the DN-TNF platform and the INKmune platform have the potential to be used to treat multiple diseases. The DN-TNF platform is being developed to be used as an immunotherapy for the treatment of cancer and neurodegenerative disease. INKmune is being developed to treat NK sensitive hematologic malignancies and solid tumors. We believe our DN-TNF platform can be used as a cancer therapy to reduce resistance in immunotherapy and as a CNS (“central nervous system”) therapy to target glial activation to prevent progression of Alzheimer’s disease (“AD”), to target neuroinflammation in treatment resistant depression (“TRD”), and as a drug to prevent muscle degeneration, prevent fibrosis and promote muscle regeneration in Duchene muscular dystrophy (“DMD”). The drug is named differently for the oncology and CNS indications; INB03™ or XPro™, respectively, but it is the same drug product. For DMD, the company is exploring pSar DN-TNF compounds optimized for the treatment of DMD. The pSar DN-TNF compound has the same mechanism of action, a different half-life extender and novel IP protection. In each case, we believe neutralizing sTNF is a cornerstone to the treatment of these diseases. As an immunotherapy for cancer, we are developing INB03 to neutralize sTNF produced by HER2+ trastuzumab resistant breast cancers to reverse resistance to targeted therapy. sTNF produced by the tumor causes an up-regulation of MUC4 expression causing steric hindrance of trastuzumab binding to the HER receptor on HER2+ breast cancer cells. Without binding, trastuzumab based therapies are not effective. Neutralizing sTNF reverses MUC4 expression converting a trastuzumab resistant breast cancer cell into a trastuzumab sensitive breast cancer cell. In addition, INB03 may change the immunobiology of the tumor microenvironment by decreasing the number of immunosuppressive myeloid cells, both myeloid derived suppressor cells and tumor active macrophages, and increasing the number of cytotoxic lymphocytes and phagocytic macrophages in the TME. Recently, the Company has shown the combination of INB03 with trastuzumab-deruxtecan (Enhertu), decreases tumor growth in the multi-resistant JIMT-1 tumor model. The Company has completed an open label dose escalation trial in cancer patients with metastatic solid tumors that have failed multiple lines of therapy. The trial informs the design of the planned Phase II trial by demonstrating that INB03 was safe and well tolerated, defining the dose of INB03 to carry into Phase II trials, and demonstrating a pharmacodynamic endpoint – a decrease in inflammatory cytokines in the blood. A Phase II trial is planned in patients with advanced MUC4+ expressing cancer. 18 Likewise, we believe the DN-TNF platform can be used to treat selected neurodegenerative diseases by modifying the brain microenvironment (“BME”). The Company believes the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. Neurodegeneration is nerve cell death that may include demyelination. Synaptic dysfunction means the connections between nerve cells stop working efficiently and may decrease in number or become disconnected. The combination of neurodegeneration and synaptic dysfunction causes cognitive decline and behavioral changes associated with Alzheimer’s disease (“AD”). XPro completed a Phase I trial treating patients with Alzheimer’s disease that was partially funded by a Part-the-Clouds Award from the Alzheimer’s Association. We believe XPro targets activated microglia and astrocytes of the brain that produce sTNF that promotes nerve cell loss and synaptic dysfunction, key elements in the development of dementia. In animal models, elimination of sTNF prevents nerve cell dysfunction and reverses synaptic pruning. The Phase I trial in patients with biomarkers of inflammation with AD has been completed. The open label, dose escalation trial was designed to demonstrate that XPro can safely decrease neuroinflammation in patients with ADi. ADi is the term used to delineate patients with AD with biomarkers of inflammation. This appears to be more than 40% of patients with AD. The endpoints of the trial are measures of neuroinflammation and neurodegeneration in blood and cerebral spinal fluid by measuring changes in inflammatory cytokine levels in the CNS and using MRI-DTI to measure white matter free water. White matter free water is a validated measure of neuroinflammation in the brain. XPro, at the 1mg/kg/week dose decreased inflammatory cytokines in the CSF and decreased white matter free water in the brain demonstrating that XPro can decrease neuroinflammation in patients with ADi. We also studied downstream benefits of decreasing neuroinflammation by measuring changes in the CSF proteome and quantifying changes in novel white matter MRI biomarkers. XPro significantly decreased biomarkers of neurodegeneration as measured by changes in the CSF proteome including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91% respectively were observed after 3 months of therapy. Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome including a 222% increase in contactin 2 and a 56% decrease of neurogranin, changes that contribute to improved synaptic function. The successful completion of the Phase I trial in AD has informed the design of a blinded randomized, placebo-controlled Phase II trial in patients with early ADi. Early ADi includes patients with AD and MCI who have at least one biomarker of inflammation (ADi and MCI 2 respectively). The early ADi trial is a blinded randomized trial to test if treatment of early AD patients with neuroinflammation with XPro will affect cognitive decline. The Phase II trial in early ADi has six important elements. Two hundred and ten patients will be enrolled in a 2:1 ratio (XPro vs placebo). The patients will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical to the successful strategy used in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have one or more enrichment criteria: elevated blood level of at least one of C-reactive protein, hemoglobin A1c, erythrocyte sedimentation and/or at least one allele of ApoE4. The primary endpoint will be Early/ild Alzheimer’s Cognitive Composite (“EMACC”), a validated cognitive measure that is more sensitive than traditional end-points used in many studies of patients with early AD. The trial is open in Australia, Canada and the United Kingdom and will open in the US pending the lift of a clinical hold by the FDA. 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. 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. This study involved patients with elevated TNF levels who were treated with infliximab for 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 endpoints 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. The Company completed an extensive series of studies in murine models of DMD. The data shows DN-TNF decreased muscle fiber inflammation and degeneration, and increased muscle fiber regeneration in an acute model of DMD. Cardiac function was studied using echocardiography after 30 weeks of treatment. Cardiac function did not change compared to placebo treated or prednisone treated animals. These data strongly suggest DN-TNF may be a therapy for treatment of patients with DMD that may have unique biologic attributes, muscle fiber regeneration, without corticosteroid associated metabolic toxicity such as insulin resistance, diabetes, obesity, hirsutism, short stature and muscle weakness. 19 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 attack 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. We believe INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung, ovary, breast, renal, nasopharyngeal 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. Two patients have been treated in the Phase I trial for MDS and three patients have been treated compassionately in AML. In the five patients, INKmune therapy showed a favorable safety profile, produced memory-like NK cells that killed cancer in vitro, and promoted development of cancer killing memory-like NK cells that were found in the patient’s circulation after 4 months. The Company will continue to enroll patients in the Phase I trial. The Company intends to initiate a separate Phase I/II trial of INKmune in a metastatic castration resistant prostate cancer (“mCRPC”) tumor during 2024. An IND for a Phase I/II trial in men with mCRPC was filed in May 2023. The trial will treat up to 30 patients with mCRPC in an open label trial. The trial has four goals: i) demonstrate safety of INKmune in men with mCRPC; ii) determine what dose of INKmune should be used in a blinded randomized Phase II trial on men with mCRPC; iii) determine tumor response using traditional biomarkers of mCRPC including blood PSA level and iv) use exploratory biomarkers of tumor response including circulating tumor DNA and PET PMSA imaging studies. The first patients should be treated 9 months after the IND is open. Since our inception in 2015, we have devoted substantially all 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 September 30, 2023, we had an accumulated deficit of approximately $112.6 million. Our net losses were $21,600,000 and $21,466,000 for the nine months ended September 30, 2023 and 2022, 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 substantial losses for the foreseeable future. There may be significant uncertainty resulting from the impact of other geopolitical and macroeconomic factors, including the ongoing COVID-19 (coronavirus) pandemic, inflation, supply chain issues, rising interest rates, future bank failures, a potential US government shutdown, and the impact of the conflicts in Russia/Ukraine and Israel, in addition to geopolitical, trade and investment tensions between the United States and China. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval prior to commercialization. These efforts require significant amounts of additional resources, adequate personnel, infrastructure and extensive compliance and reporting. The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate any revenue from any of its products. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. The Company relies and expects to continue to rely on a small number of vendors to manufacture supplies and materials for its use in the clinical trial programs. These programs could be adversely affected by a significant interruption in these manufacturing services. We classify our operating expenses into two categories: research and development; and general and administrative expenses. Personnel costs including salaries, benefits and stock-based compensation expense comprise a significant component of our research and development and general and administrative expense categories. We qualify as an “emerging growth company” under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: ● only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; ● reduced disclosure about our executive compensation arrangements; ● no non-binding advisory votes on executive compensation or golden parachute arrangements; ● exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and ● delaying the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. 20 We have elected to take advantage of the above-referenced exemptions and we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.235 billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. Research and Development Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consist of: ● clinical trial and regulatory-related costs; ● expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials; ● manufacturing and testing costs and related supplies and materials; and ● employee-related expenses, including salaries, benefits, travel and stock-based compensation. The following table summarizes our research and development expenses by product candidate for the periods indicated (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 External Costs DN-TNF - Alzheimer’s disease $ 3,823 $ 3,319 $ 8,498 $ 8,328 INKmune - High Risk MDS/AML & Prostate cancer 840 413 1,697 790 Preclinical and other programs 214 94 632 1,379 Accrued research and development rebate (224 ) 132 (493 ) (316 ) Total external costs 4,653 3,958 10,334 10,181 Internal costs 1,332 1,201 3,932 3,476 Total $ 5,985 $ 5,159 $ 14,266 $ 13,657 We typically use our employee resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate internal costs personnel costs including salaries and stock-based compensation to specific product candidates or development programs. We participate, through our wholly owned subsidiary in Australia, in the Australian research and development tax incentive program, such that a percentage of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives are reflected as a reduction of research and development expense. The Australian research and development tax incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We participate, through our wholly owned subsidiary in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as a reduction of research and development expense. The United Kingdom research and development tax incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. 21 Substantially all our research and development expenses to date have been incurred in connection with our current and future product candidates. We expect our research and development expenses to increase significantly for the foreseeable future as we advance an increased number of our product candidates through clinical development, including the conduct of our planned clinical trials and manufacturing drug to be used in those clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following: ● per patient trial costs; ● the number of sites included in the clinical trials; ● the countries in which the clinical trials are conducted; ● the length of time required to enroll eligible patients; ● the number of patients that participate in the clinical trials; ● the number of doses that patients receive; ● the cost of comparative agents used in clinical trials; ● the drop-out or discontinuation rates of patients; ● potential additional safety monitoring or other studies requested by regulatory agencies; ● the duration of patient follow-up; ● the efficacy and safety profile of the product candidate; and ● the cost of manufacturing, finishing, labelling and storage drug used in the clinical trial. We do not expect any of our product candidates to be commercially available for at least the next several years, if ever. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially as we: ● continue research and development, including preclinical and clinical development of our existing product candidates; ● potentially seek regulatory approval for our product candidates; ● seek to discover and develop additional product candidates; ● establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval; ● seek to comply with regulatory standards and laws; ● maintain, leverage and expand our intellectual property portfolio; ● hire clinical, manufacturing, scientific and other personnel to support our product candidates development and future commercialization efforts; ● add operational, financial and management information systems and personnel; and ● incur additional legal, accounting and other expenses in operating as a public company. 22 General and Administrative Expenses General and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services; overhead, including rent and utilities; and other general operating expenses not otherwise classified as research and development expenses. Other income (expense) Other income (expense consists) primarily of interest expense incurred on debt and interest income on investments in money market accounts. Results of Operations Comparison of the Three Months Ended September 30, 2023 and 2022 The following table summarizes our results of operations for the periods indicated: Three Months Ended September 30, (in thousands) 2023 2022 Change Revenues $ 43 $ 98 $ (55 ) Operating expenses: Research and development 5,985 5,159 826 General and administrative 2,586 2,382 204 Total operating expenses 8,571 7,541 1,030 Loss from operations (8,528 ) (7,443 ) (1,085 ) Other expense, net (35 ) (282 ) 247 Net loss $ (8,563 ) $ (7,725 ) $ (838 ) Revenues During the three months ended September 30, 2023 and 2022, the Company sold MSC’s to one third-party and recognized $43,000 and $98,000, respectively, of revenues. General and Administrative General and administrative expenses were approximately $2.6 and $2.4 million during the three months ended September 30, 2023 and 2022, respectively. The $0.2 million increase in general and administrative expenses was due to higher consulting expense in 2023. Research and Development Research and development expenses were approximately $6.0 million during the three months ended September 30, 2023, compared to approximately $5.2 million during the three months ended September 30, 2022. The change in research and development expenses during the three months ending September 30, 2023 compared to the three months ending September 30, 2022 is largely due to incurring $0.5 million of additional expenses related to our Alzheimer’s clinical program, $0.4 million of additional expenses on our INKmune clinical program, $0.1 million of additional other clinical program expenses and $0.1 million of higher employee compensation costs, partially offset by an increase of $0.4 million of accrued rebate. Other Expense, net The Company’s other expense, net is lower during the three months ended September 30, 2023, due to the Company earning higher interest income on its money market accounts, which partially offsets the interest expense incurred on our debt. 23 Comparison of the Nine Months Ended September 30, 2023 and 2022 The following table summarizes our results of operations for the periods indicated: Nine Months Ended September 30, (in thousands) 2023 2022 Change Revenues $ 127 $ 277 $ (150 ) Operating expenses: Research and development 14,266 13,657 609 General and administrative 7,223 6,929 294 Total operating expenses 21,489 20,586 903 Loss from operations (21,362 ) (20,309 ) (1,053 ) Other expense, net (238 ) (1,157 ) 919 Net loss $ (21,600 ) $ (21,466 ) $ (134 ) Revenues During the nine months ended September 30, 2023, and 2022, the Company sold MSC’s to one third-party and recognized $127,000 and $277,000, respectively, of revenues. General and Administrative General and administrative expenses were approximately $7.2 million and $6.9 million during the nine months ended September 30, 2023 and 2022, respectively. The $0.3 million increase in general and administrative expenses was due to higher stock-based compensation expense and higher consulting fees in 2023. Research and Development Research and development expenses were approximately $14.3 million and $13.7 million during the nine months ended September 30, 2023 and 2022, respectively. The increase in research and development expenses during the nine months ending September 30, 2023 compared to the nine months ending September 30, 2022 is largely due to incurring $0.9 million of additional expenses related to our INKmune clinical program, incurring $0.2 million of additional expenses with our Alzheimer’s clinical program and $0.5 million of additional employee compensation, partially offset by incurring $0.7 million less expenses associated with other clinical programs and $0.2 million of additional accrued rebate. 24 Other Expense, net The Company’s other expense, net is lower during the nine months ended September 30, 2023, due to the Company earning higher interest income on its money market accounts, which partially offsets the interest expense incurred on our debt. Liquidity and Capital Resources Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We incurred a net loss of $21.6 million and $21.5 million for the nine months ended September 30, 2023 and 2022, respectively. Net cash used in operating activities was $8.6 million and $17.0 million for the nine months ended September 30, 2023 and 2022, respectively. Since inception, we have funded our operations primarily with proceeds from the sales of our common stock. As of September 30, 2023, we had cash and cash equivalents of approximately $41.8 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 are, and we expect will continue to be, third-party clinical and preclinical research and development services, compensation and related expenses, professional fees, patent and other regulatory expenses and general overhead costs. We believe our use of CROs provides us with flexibility in managing our spending. The Company incurs various expenses in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States dollar and the pound sterling as well as the Australian dollar could adversely affect our financial results, including our expenses as well as assets and liabilities. We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate. As of September 30, 2023, the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was less than $0.1 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, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and The Nasdaq Stock Market, require public companies to implement specified corporate governance practices that were inapplicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. As of September 30, 2023, the Company had an accumulated deficit of $112.6 million and working capital of $31.3 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 September 30, 2023, we had cash and cash equivalents of approximately $41.8 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 September 30, 2023. 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 approval. We will need to raise additional capital to fund our operations and complete our ongoing and planned clinical trials. 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. 25 Cash Flows The following table summarizes our cash flows for the periods indicated: Nine Months Ended September 30, (in thousands) 2023 2022 Net cash and cash equivalents (used in) provided by: Operating activities $ (8,579 ) $ (16,991 ) Financing activities (1,725 ) 729 Change in cash and cash equivalents (10,304 ) (16,262 ) Impact on cash from foreign currency translation (36 ) (1,143 ) Cash and cash equivalents, beginning of period 52,153 74,810 Cash and cash equivalents, end of period $ 41,813 $ 57,405 Operating Activities Our cash used in operating activities was primarily driven by our net loss. Operating activities used approximately $8.6 million of cash during the nine months ended September 30, 2023, resulting from our loss of $21.6 million, partially offset by changes in our net operating assets and liabilities of $7.4 million and non-cash stock-based compensation of $5.5 million. The change in our net operating assets and liabilities was mainly due to a decrease in research and development tax credit receivable of $6.0 million and a decrease in prepaid expenses of $2.5 million, partially offset by a decrease in accounts payable and accrued liabilities of $1.5 million. Operating activities used 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. The 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 million. Financing Activities During the nine months ended September 30, 2023, the Company sold 75,697 shares of its common stock for net proceeds of $775,000 under the Company’s ATM program with BTIG. The Company suspended its Sales Agreement with BTIG during September 2023. During the nine months ended September 30, 2023, the Company repaid $2,500,000 of its debt. 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. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. Actual results may differ from these estimates. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and there have been no material changes during the nine months ended September 30, 2023. 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).