INTENSITY THERAPEUTICS, INC. 10-K

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 together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K,including information with respect to our plans and strategy for our business and financing needs, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.” Overview Intensity Therapeutics, Inc. is a late-stage clinical biotechnology company passionately committed to applying scientific leadership in the field of localized cancer reduction leading to anti-cancer immune activation. Our new approach involves the direct injection into tumors of a unique product created from our DfuseRx SM discovery platform. IT treatment, or treatment designed to contain a drug inside a tumor without spreading to the rest of the body, has been an objective of clinicians since discovery of chemotherapeutic agents. The challenge with IT treatment approaches is that a tumor’s lipophilic, high fat, dense and pressurized microenvironment is incompatible with and does not absorb water-based products. We believe that this drug delivery challenge limits the effectiveness of prior and current IT treatments, which involve injecting aqueous drugs into a tumor without sufficient consideration of the tumor environment (regardless of the drug’s mechanism or approach, i.e. the stimulation of an inflammatory response or efforts to attract immune cells into a hostile live tumor). Accordingly, there remains a continued unmet need for the development of direct IT therapies for solid tumors that provide high local killing efficacy coupled with nontoxic systemic anti-cancer effects. We believe we have created a product candidate with the necessary chemistry to overcome this local delivery challenge. Evidence shows the mechanism of tumor killing achieved by our drug candidate also leads to systemic immune activation and T-cell repertoire expansion in certain cancers. Our platform creates patented anti-cancer product candidates comprising active anti-cancer agents and amphiphilic molecules. Amphiphilic molecules have two distinct components: one part is soluble in water and the other is soluble in fat or oils. When an amphiphilic compound is mixed with therapeutic agents, such as chemotherapies, the agents also become soluble in both fat and water. Our product candidates include novel formulations consisting of potent anti-cancer drugs mixed together with these amphiphilic agents. Our lead product candidate, INT230-6, is primarily comprised of three components: (i) cisplatin, a proven anti-cancer cytotoxic agent, (ii) vinblastine sulfate, also a proven anti-cancer cytotoxic agent, and (iii) SHAO which enables the two cytotoxic agents to disperse through a tumor and diffuse into cancer cells following a direct intratumoral injection. These three components are mixed and combined into one vial at a fixed ratio. Cisplatin and vinblastine sulfate are both generic and available to purchase in bulk supply commercially. The FDA has approved both drugs as intravenous agents for several types of cancers. Cisplatin was first approved in 1978 for testicular cancer, and is also approved in ovarian and bladder cancer. The drug is also used widely in several other cancers including pancreatic and bile duct cancer. Vinblastine 79 Table of Contents sulfate was first approved in 1965 and is also approved in generalized Hodgkin’s disease, lymphocytic lymphoma, advanced carcinoma of the testis, and certain types of sarcoma. The drug is also used in breast and lung cancer. In 2017, we initiated clinical study IT-01 using INT230-6 in the United States under an IND authorized by the FDA and in Canada under a CTA approved by Health Canada. Study IT-01 tested the safety and efficacy of INT230-6 in patients with refractory or metastatic cancers, and enrolled 110 patients in three arms: (i) INT230-6 used as a monotherapy, (ii) INT230-6 in combination with Merck’s Keytruda® (pembrolizumab), and (iii) INT230-6 in combination with BMS Yervoy® (ipilimumab). We completed enrollment of IT-01 in June 2022, locked the IT-01 database in February 2023 and finalized the clinical study report in September 2023. We delivered the combination-specific reports and other information to our partners in the fourth quarter of 2023. In 2021, we initiated the INVINCIBLE 2 Study. The study enrolled 91 subjects and the database was locked in November 2023. The key endpoint was whether INT230-6 could reduce a patient’s cancer compared to no treatment (the current SOC) or a saline injection. Substantial reduction of cancer presurgically in aggressive forms of cancer has been shown to correlate with delaying disease recurrence. Other endpoints of the INVINCIBLE 2 Study were to understand the percentage of necrosis that can be achieved in tumors for a given dose, especially tumors larger than 2 centimeters in longest diameter, and whether either a local or whole body anti-cancer immune response could be induced. The INVINCIBLE 2 Study demonstrated a high order of necrosis in presurgical breast cancer tumors in the period from diagnosis to surgery, with some patients experiencing greater than 95% necrosis of the tumor. Data from the INVINCIBLE 2 Study demonstrated that INT230-6 had a favorable safety profile. An increase of certain types of immune cells (CD4+ and NK T-cells) in the tumor and blood was also shown. There was also an increase in the T-cells repertoire relative to control. In mid-2024, we intend on initiating the INVINCIBLE-3 Study in certain metastatic soft tissue sarcoma subtypes. We plan to enroll 333 patients with an endpoint of overall survival. Also in mid-2024, we intend on initiating IT-04. The endpoint for the Phase 2 portion of the IT-04 study is the change in the pathological complete response rate for the combination compared to the SOC alone. We expect to initiate the Phase 2 portion of the IT-04 study in mid-2024, which will provide data to size the Phase 3 portion of the IT-04 study. We have also successfully developed Phase 3 quality analytical methods for the three INT230-6 components and successfully manufactured a large-scale batch of INT230-6. In a meeting with the FDA in the fourth quarter of 2023, we agreed on a CMC plan for Phase 3 and product registration for our three key ingredients and INT230-6. If we successfully execute the agreed upon plan, the CMC portion of an NDA should be acceptable to the FDA for product approval and registration (subject to final NDA review). Since our inception in 2012, our operations have included business planning, hiring personnel, raising capital, building our intellectual property portfolio, and performing both research and development on our product candidates. We have incurred net losses since inception and expect to incur net losses in the future as we continue our research and development activities. To date, we have funded our operations primarily through approximately $54.5 million in cash received from the net proceeds of sales of our common stock, preferred stock and convertible notes. As of December 31, 2023, we had approximately $8.6 million of cash and cash equivalents plus approximately $6.2 million in investments in U.S. Treasury bills. Since our inception, we have incurred significant operating losses. We incurred net losses of $10.5 million and $7.6 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022 we had an accumulated deficit of approximately $50.5 million and $38.7 million, respectively. We expect to incur significant expenses and operating losses for the next several years. See “Funding Requirements” below. We expect our expenses to increase as we continue to: • Initiate Phase 3 programs in sarcoma and/or breast cancer; • Incur manufacturing costs for additional GMP batches of our product candidates and enhancer molecules; • Seek regulatory approvals for any of our product candidates that successfully complete clinical trials; • Hire additional personnel; • Expand our operational, financial, and management systems; • Invest in measures to protect our existing and new intellectual property; and • Establish a sales, marketing, medical affairs, and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize. Our ability to ultimately generate revenue to achieve profitability will depend heavily on the development, approval, and subsequent commercialization of our product candidates. If we fail to become profitable or are unable to sustain 80 Table of Contents profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financing, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we would have to significantly delay, reduce, or eliminate the development and commercialization of one or more of our product candidates. Components of Results of Operations Revenue To date, we have not generated any revenue from product sales and we do not expect any revenue from the sale of product in the foreseeable future. We have not generated any revenue from licensing of our technology or product candidates yet either. If our development efforts for any of our product candidates are successful and result in regulatory approval, then we may generate revenue in the future from product sales or licensing. We cannot predict if, when, or to what extent we will generate revenue from the commercialization, licensing or sale of any of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. Research and Development Expenses Salaries and Benefits Salaries and benefits include employee-related expenses such as salaries and related benefits for employees engaged in research and development functions. Clinical Trial Expenses Clinical trial expenses includes payments to third parties in connection with the clinical development of our product candidates, including CROs, and costs due to clinical trials for patient care. Contract Manufacturing Contract manufacturing includes: • Manufacturing of products for use in our preclinical studies and clinical trials, including payments to CMOs; • Manufacture of new enhancer compounds; • Manufacture and labelling of GMP product candidate; • Product candidate stability testing of GMP batches; and • Other costs such as shipping, storage, and analytical testing. Consulting Scientific consulting costs related to non-employees involved in research, including statistical analysis, clinical trial operations, development of product manufacturing techniques, and internet research related to oncology and chemistry issues that may impact our preclinical or clinical research. Stock-Based Compensation Stock-based compensation is the expense related to stock options granted to employees and warrants granted to independent consultants engaged in research and development functions. 81 Table of Contents General and Administrative Expenses Salaries and Benefits Salaries and benefits include employee-related expenses such as salaries and related benefits for employees engaged in fund raising, management, and corporate administration functions. Legal Fees Legal fees include to expenses for corporate, patent and trademark fees with outside law firms. Accounting Fees Accounting fees primarily include the cost of our independent auditors for our annual audit, quarterly reviews, and services related Securities and Exchange Commission filings, along with costs for income tax returns preparation, and the cost of maintaining our accounting system. Consulting Consulting are services provided by non-employees for general and administrative tasks. This includes human resources, finance, investor relations, board compensation, and internet support. Insurance Insurance includes directors and officers’ insurance, workers compensation insurance, product liability insurance, business insurance, employee and cyber liability insurance. Other Other general and administrative costs include facility expenses, office supplies, computer related costs, public relations costs, recruiting costs and conferences. Stock-Based Compensation Stock-based compensation is the expense related to stock options granted to our employees and board members and warrants granted to our independent consultants who work in the general and administrative aspects. Other income and expenses We earned interest income on our cash balances and investments in U.S. treasury bills. We incurred interest expense on our convertible notes through June 29, 2023. Accrued interest was converted into common stock upon commencement of our IPO. We accumulated federal research and development tax credits in prior tax years that are recoverable through a refund of Social Security taxes paid in current fiscal periods. 82 Table of Contents Results of Operations The following tables summarize our results of operations for the years ended December 31, 2023 and 2022 (in thousands): Years Ended December 31, Change 2023 2022 Operating expenses: Research and development $ 4,786 $ 5,132 $ (346) General and administrative 3,533 2,418 1,115 Total operating expenses 8,319 7,550 769 Loss from operations (8,319) (7,550) (769) Interest income 324 2 322 Interest expense (305) (82) (223) Loss on debt extinguishment (2,262) - (2,262) Other 24 48 (24) Net loss $ (10,538) $ (7,582) $ (2,956) Preferred stock deemed dividend (1,324) - (1,324) Net loss attributable to common stockholders $ (11,862) $ (7,582) $ (4,280) Years Ended December 31, Change 2023 2022 Research and development expenses: Salaries and benefits related costs $ 896 $ 1,180 $ (284) Clinical trial expenses 1,987 2,838 (851) Contract manufacturing 922 98 824 Consulting 267 213 54 Stock-based compensation 714 803 (89) $ 4,786 $ 5,132 $ (346) Years Ended December 31, Change 2023 2022 General and administrative expenses: Salaries and benefits related costs $ 559 $ 340 $ 219 Legal fees 424 623 (199) Accounting fees 427 347 80 Consulting 407 326 81 Insurance 608 75 533 Other 424 342 82 Stock-based compensation 684 365 319 $ 3,533 $ 2,418 $ 1,115 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Research and development expenses decreased $0.3 million or 7%, and were primarily due to the following: • Salaries and benefits related costs decreased $0.3 million due to four research employees leaving the Company in 2022 and 2023, which was partially offset by two new hires in late 2023 and bonus increases. • Clinical trial expenses in our IT-01 study decreased $1.4 million due to the completion of enrollment in this study in mid-2022. This decrease was partially offset by $0.6 million in higher expenses for preliminary work related to our Phase 3 sarcoma study (IT-03). 83 Table of Contents • Contract manufacturing increased by $0.8 million due to costs for a new manufacturing batch of INT230-6 in 2023. General and administrative expenses increased $1.1 million or 46%, and were primarily due to the following: • Salaries and benefits related costs increased by $0.2 million due to salary and bonus increases and the hiring of a new chief financial officer in the fourth quarter of 2023, along with $0.3 million in higher stock-based compensation expense. • Insurance increased by $0.5 million due to the additional directors and officers insurance as a publicly held company. • Higher accounting fees, consulting and other expenses were partially offset by lower legal fees, as we completed our IPO in mid-2023 and transitioned into a publicly traded company. Interest income increased $0.3 million due to interest earned on higher cash and investment balances from our IPO in June 2023. Interest expense decreased by $0.2 million due to convertible notes converting to common stock at the time of our IPO. In addition, we also recognized a $2.3 million loss on debt conversion at the time of the IPO. At the time of our IPO, a preferred stock deemed dividend of $1.3 million was recognized, representing the value that was transferred to the Series B and C preferred stockholders upon triggering of anti-dilution provisions. Liquidity and Capital Resources Our financial statements have been prepared assuming we will continue as a going concern. We have incurred losses from operations and negative cash flows that raise substantial doubt about our ability to continue as a going concern. Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials for our product candidates, developing our manufacturing capabilities and building and qualifying our manufacturing facility to support clinical trials and commercialization and providing general and administrative support for our operations, including the cost associated with operating as a public company. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. We have financed our operations primarily through an initial investment from our founder, the issuance and sale of convertible debt notes, private equity financings, and the IPO, after which shares of our common stock began trading on Nasdaq under the symbol “INTS” on June 30, 2023. As of December 31, 2023, our cash, cash equivalents and investments were approximately $14.8 million. Based on our balances in cash, cash equivalents, and investments, we project to have sufficient cash to fund our current operating plan through the end of the first quarter of 2025. The following table summarizes the net cash provided by (used in) operating activities and financing activities for the periods indicated (in thousands): Years Ended December 31, 2023 2022 Net cash used in operating activities $ (7,205) $ (5,477) Net cash used in investing activities (6,023) — Net cash provided by financing activities 20,472 2,250 Net increase (decrease) in cash and cash equivalents $ 7,244 $ (3,227) Operating Activities Our cash used in operating activities for the year ended December 31, 2023 was $7.2 million, comprising of (i) our net loss of $10.5 million, as adjusted for $4.0 million in non-cash expenses (including $2.3 million for the conversion of convertible notes into shares of common stock, and $1.4 million for non-cash stock based compensation), and (ii) net changes in operating assets and liabilities of $0.6 million. 84 Table of Contents Our cash used in operating activities for the year ended December 31, 2022 was $5.5 million, comprising of (i) our net loss of $7.6 million, as adjusted for $1.3 million in non-cash expenses (including non-cash stock based compensation of $1.2 million), and (ii) net changes in operating assets and liabilities of $0.8 million. Investing Activities Our cash used in investing activities during the year ended December 31, 2023 totaled approximately $6.0 million and was primarily due to net purchases of marketable debt securities (net of redemptions of marketable debt securities). There was no cash provided by or used in investing activities for the year ended December 31, 2022. Financing Activities Our cash provided by financing activities during the year ended December 31, 2023 was $20.5 million, primarily comprising of net proceeds of $20.2 million from our IPO in 2023, and $0.2 million from the sale of convertible notes prior to the IPO. Our cash provided by financing activities during the year ended December 31, 2022 was $2.3 million from the issuance of convertible notes. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2023. Seasonality Our business experiences limited seasonality. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may materially differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are those most significant to the judgments and estimates used in the preparation of our financial statements. Accrued Research and Development Expenses Research and development costs are expensed as incurred. We record the estimated CRO, CMO, and patient care costs as services are provided but not yet invoiced and include these costs in the accrued expenses in the balance sheet and within research and development expense in the statement or operations. Equity-Based Compensation We recognize compensation costs related to stock option grants to employees and board members and warrant grants to nonemployees based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value and the resulting stock-based compensation expense using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur. 85 Table of Contents We historically have been a private company and lack company-specific historical and implied volatility information for our shares. Therefore, we estimate our expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price. JOBS Act Accounting Election We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data The information required by this Item is set forth beginning on page F-1 of this report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.