Pasithea Therapeutics Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed on March 29, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of this report captioned “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q as well as the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below. Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Pasithea Therapeutics Corp. and its subsidiaries, Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, Pasithea Clinics Inc., Alpha-5 Integrin, LLC (“Alpha-5”), and AlloMek Therapeutics, LLC (“AlloMek”). Pasithea Therapeutics Limited (U.K.), legally dissolved as of January 2, 2024 was a private limited Company, registered in the United Kingdom (U.K.). Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, is a private limited Company registered in Portugal. Pasithea Clinics Inc. is incorporated in Delaware. Alpha-5 and AlloMek, are both Delaware limited liability companies. The operations of Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, and Pasithea Clinics Inc. have been discontinued. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “continue,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. These forward-looking statements speak only as of the date of filing this Quarterly Report with the SEC, and include, without limitation, statements about the following: ● our lack of operating history; ● the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital; ● the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements; ● our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; ● our plans to develop and commercialize our product candidates involves a lengthy and expensive process, with an uncertain outcome; ● the initiation, enrollment, timing, progress, results, and cost of our research and development programs and our current and future preclinical studies and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available; ● the timing of interim data and final results from our clinical trials for PAS-004; ● the potential safety and efficacy of our product candidates and the therapeutic implications of clinical and preclinical data; ● the timing and focus of our future preclinical studies and clinical trials, and the reporting of data from those studies and trials; ● the size of the market opportunity for our future product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting; 16 ● the success of competing therapies that are or may become available; ● the beneficial characteristics, safety, efficacy and therapeutic effects of our future product candidates; ● our ability to obtain and maintain regulatory approval of our future product candidates; ● our plans relating to the further development of our future product candidates, including additional disease states or indications we may pursue; ● existing regulations and regulatory developments in the United States and other jurisdictions; ● our dependence on third parties; ● the need to hire additional personnel and our ability to attract and retain such personnel; ● our plans and ability to obtain or protect intellectual property rights, including extensions of patent terms where available and our ability to avoid infringing the intellectual property rights of others; ● our financial performance and sustaining an active trading market for our Common Stock and Public Warrants; ● our ability to restructure our operations to comply with any potential future changes in government regulation; ● disruptions to the development of our product candidates due to public health crises, such as epidemics and pandemics, including the COVID-19 global pandemic; ● the impact of global economic and market conditions and political developments on our business, including, among others, rising inflation and capital market disruptions, economic sanctions, bank failures, regional conflicts around the world, and economic slowdowns or recessions that may result from such developments which could harm our research and development efforts as well as the value of our Common Stock and our ability to access capital markets; ● business interruptions resulting from geopolitical actions and global events, including political instability, natural disasters and events of terrorism and wars such as the war between Ukraine and Russia, and the corresponding tensions created from such conflict between Russia, the United States and countries in Europe as well as other countries such as China, and the conflict between Hamas and Israel; and ● our reliance on foreign contract research organizations (CROs) and contract manufacturing organizations (CMOs), including WuXi, that may be subject to U.S. legislation, including the proposed BIOSECURE bill, trade restrictions and other foreign regulatory requirements which could increase the cost or reduce the supply of material available to us, delay the procurement or supply of such material or have an adverse effect on our ability to secure significant commitments from governments to purchase our potential therapies Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “ Risk Factors ” section of this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC. Company Summary We are a clinical-stage biotechnology company primarily focused on the discovery, research and development of innovative treatments for CNS disorders and other diseases, including RASopathies. Our primary operations ,the Therapeutics segment, are focused on developing our lead therapeutic candidate, PAS-004, a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that we believe may address the limitations and liabilities associated with existing drugs with a similar mechanism of action. PAS-004 is a small molecule allosteric inhibitor of MEK 1 and MEK 2 for potential use in the treatment of a range of RASopathies, including neurofibromatosis type 1 (“NF1”)- associated neurofibromas and a number of oncology indications, among others that we acquired from AlloMek Therapeutics, LLC in October 2022. In December 2023, the FDA cleared our IND for PAS-004 and the Company received a study may proceed letter from the FDA for the Company’s Phase 1 multicenter, open-label, dose escalation trial of PAS-004 in patients with MAPK pathway-driven advanced tumors with a documented RAS, NF1 or RAF mutation or patients who have failed BRAF/MEK inhibition. The Company is currently conducting the Phase 1 clinical trial at four clinical sites in the United States and plans to open an additional three sites in Eastern Europe in the third quarter of 2024. The Company’s clinical development plan for PAS-004 is to begin a Phase 1 clinical trial in adult and pediatric NF1-associated plexiform and/or cutaneous neurofibroma and ultimately seek FDA marketing approval in these patient populations. 17 Additionally, the Company has two programs that are in the discovery stage, which the Company believes address limitations in the treatment paradigm of the indications the Company plans to address with these programs, which are currently ALS for PAS-003 and schizophrenia for PAS-001. During the year ended December 31, 2023, we determined to cease further development of our PAS-002 program for multiple sclerosis due to several factors including the significant capital, resources and time required to develop the program, and the current and projected availability of effective treatment options for MS patients, among others. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. 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 financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we: ● continue our ongoing and planned research and development of our product candidates; ● initiate nonclinical studies and clinical trials for any additional product candidates that we may pursue; ● scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization; ● establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs; ● develop, maintain, expand, protect and enforce our intellectual property portfolio; ● acquire or in-license product candidates and technologies; and ● add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts. Recent Developments Reverse Stock Split On December 28, 2023, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation reflecting a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Common Stock which became effective at 12:01 a.m. Eastern Time on January 2, 2024. As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock, with a corresponding reduction in the number of authorized shares of Common Stock from 495,000,000 to 100,000,000. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive a fractional share instead received a cash payment (without interest) equal to such fraction multiplied by the average of the closing sales prices of Common Stock on The Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split (with such average closing sales prices adjusted to give effect to the Reverse Stock Split). All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, convertible debt and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. The accompanying condensed consolidated financial statements reflect the Reverse Stock Split. All share and per share information data herein that relates to our Common Stock prior to the effective date has been retroactively restated to reflect the Reverse Stock Split. Impact of Inflation We have recently experienced higher costs across our business as a result of inflation, including higher costs related to employee compensation and outside services. We expect inflation to continue to have a negative impact throughout 2024, and it is uncertain whether we will be able to offset the impact of inflationary pressures in the near term. 18 Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 Our financial results for the three months ended March 31, 2024 and 2023 are summarized as follows: For the Three Months Ended March 31, 2024 2023 Change % Change General and administrative $ 2,291,646 $ 2,116,266 $ 175,380 8.3 % Research and development 1,749,128 1,096,286 652,842 59.6 % Loss from operations (4,040,774 ) (3,212,552 ) (828,222 ) 25.8 % Other income (expense), net 179,934 (53,258 ) 233,192 (437.9 )% Net loss from continuing operations (3,860,840 ) (3,265,810 ) (595,030 ) 18.2 % Net loss from discontinued operations, net of tax - (271,869 ) 271,869 (100.0 )% Net loss $ (3,860,840 ) $ (3,537,679 ) $ (323,161 ) 9.1 % General and administrative General and administrative expenses consist primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expenses also include corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation, amortization, and maintenance, as well as legal fees related to intellectual property and corporate matters, fees for accounting and consulting services and other expenses, including insurance, public company and corporate communications, information technology, and board fees. General and administrative expenses increased by approximately $175,000, or 8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily driven by increases in (i) non-cash amortization and depreciation and stock-based compensation of approximately $78,000, (ii) legal expenses of approximately $219,000, (iii) public company and corporate communications expenses of approximately $105,000, (iv) insurance costs of approximately $30,000 and (v) other expenses totaling approximately $69,000, offset by decreases in (vi) personnel related expenses of approximately $257,000, (vii) accounting and auditing fees of approximately $44,000, and (viii) business development and consulting costs of approximately $25,000. We expect general and administrative expenses to decrease in fiscal year 2024 as compared to fiscal year 2023 due to the non-recurring expenses that were incurred in 2023 related to the unsolicited, non-binding proposal to acquire all outstanding shares of the Company from a third party and the tender offer we completed in September 2023. Research and Development Research and development expenses relate to activities primarily focused on the development of PAS-004 for the three months ended March 31, 2024, and PAS-004, PAS-003, and PAS-001 for the three months ended March 31, 2023. Research and development expenses increased by approximately $652,000, or 60%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily driven by increases in (i) clinical development costs of approximately $683,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) CMC expenses of approximately $342,000 related to the manufacturing of PAS-004 drug substance and drug product, and (iii) non-cash stock-based compensation of approximately $92,000, offset by decreases in preclinical research and development expenses related to our discovery programs of approximately $463,000. We expect research and development expenses to increase in fiscal year 2024 as compared to fiscal year 2023 primarily due to the clinical development of PAS-004 as well as PAS-004 CMC activities. 19 Other income (expense), net For the three months ended March 31, 2024, other income (expense), net increased by approximately $233,000 compared to the three months ended March 31, 2023. The increase in other income (expense), net is due primarily to dividend income of $153,000 during the three months ended March 31, 2024 that did not occur in the three months ended March 31, 2023. The remaining increase in other income (expense), net is related to the decrease in the fair value of warrant liabilities. See “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for more information on the accounting treatment of the Public Warrants and the Representative Warrants. Discontinued Operations During the year ended December 31, 2023, we discontinued our support services to anti-depression clinics in the U.K. and related at-home services in New York, NY. We also discontinued our clinical operations in Los Angeles, CA and disposed of the related property. Accordingly, we discontinued the operations of our Clinics segment provided by our subsidiaries, and currently have one reportable segment, the Therapeutics segment, related to the research and development of our therapeutic product candidates. As of March 31, 2023, all activity related to our discontinued subsidiaries is included in Net loss from discontinued operations, net of tax in the condensed consolidated statements of operations and comprehensive loss. Working Capital As of March 31, 2024 As of December 31, 2023 Current assets $ 13,192,898 $ 16,692,154 Current liabilities 2,466,980 2,634,040 Working capital $ 10,725,918 $ 14,058,114 Working capital decreased by approximately $3.3 million between December 31, 2023 and March 31, 2024 due primarily to cash used to fund operations for the three months ended March 31, 2024. Liquidity and Financial Condition Three Months Ended March 31, 2024 2023 Net loss $ (3,860,840 ) $ (3,537,679 ) Net cash used in operating activities $ (4,321,085 ) $ (3,202,278 ) Net cash used in investing activities - (53,888 ) Net cash provided by financing activities - 264,103 Effect of foreign currency translation (620 ) (2,483 ) Net cash used in discontinued operations - (179,255 ) Decrease in cash and cash equivalents $ (4,321,705 ) $ (3,173,801 ) Cash and cash equivalents decreased by approximately $4.3 million for the three months ended March 31, 2024, compared to a decrease of approximately $3.2 million for the three months ended March 31, 2023, which was primarily attributable to cash used to fund operations and an increase in prepaid expenses. 20 Liquidity & Capital Resources Outlook As of March 31, 2024, we had approximately $12.0 million in operating bank accounts and money market funds, with working capital of approximately $10.7 million. We have incurred significant operating losses and negative cash flows from operations. On March 31, 2024, we had an accumulated deficit of approximately $39.1 million. We have incurred recurring losses, have experienced recurring negative operating cash flows, and require significant cash resources to execute our business plans. Historically, our major sources of cash have been comprised of proceeds from various public and private offerings of our capital stock. We are dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute our development plans and continue operations. Subsequent to the consummation of the Initial Public Offering, our liquidity was and continues to be satisfied through the net proceeds from the Initial Public Offering, the private placement we consummated in November 2021 and the receipt of cash upon the prior exercise of our outstanding warrants. Based on the foregoing, management believes that we will not have sufficient working capital to meet our needs through twelve months from the issuance date of the financial statements included in this annual report, without raising additional capital. Liquidity & Capital Resources Outlook Our primary use of cash is to fund operating expenses, primarily general and administrative and research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: ● the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates; ● the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization; ● the extent to which we enter into collaborations or other arrangements with third parties in order to further develop our product candidates; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; ● the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies; ● expenses needed to attract and retain skilled personnel; ● the costs required to scale up our clinical, regulatory and manufacturing capabilities; ● the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and ● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval. We will need significant additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. 21 Contractual Obligations See Note 9 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Exchange Act. Critical Accounting Estimates Our critical accounting estimates, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2023, as filed on March 29, 2024. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies and estimates from those described in our Form 10-K. We believe that the following critical accounting estimates are particularly subject to management’s judgment and could materially affect our financial condition and results of operations. ● Assumptions used in the Black-Scholes pricing model for valuation of stock option awards, such as expected volatility, risk-free interest rate, expected term and expected dividends. ● Valuation of the liability for Representative Warrants, for which there is no active market, based on the relative fair value to the quoted market price of the Public Warrants, accounting for a small difference in the exercise price. Recent Accounting Pronouncements See Note 2 – Summary of Significant Accounting Policies in the Notes to our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.