Lunai Bioworks Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statement Notice Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements of Enochian Biosciences Inc. (“Enochian,” and together with its subsidiaries, the “Company”, “we” or “us”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC on February 27, 2023. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of the business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Our Business We are a biotechnology company committed to developing advanced cell and gene therapies to promote stronger immune system responses potentially for long-term or life-long cancer remission in some of the deadliest cancers, and potentially to treat or cure serious infectious diseases such as Human Immunodeficiency Virus (HIV) and potentially Hepatitis B virus (HBV) infection. Our product development strategy is anchored in the use of “non-self” or allogeneic cells that enhance the immune response that we seek to elicit. Over the past several years, Enochian BioSciences has evolved from a company with a single product candidate as a potential cure for HIV (ENOB-HV01), adding two additional pipeline candidates for HIV (ENOB-HV12 and ENOB-HV21), a pipeline for HBV (ENOB-HB01), and with a significant expansion into cancer immune therapies to address high unmet needs from difficult-to- treat solid tumors (ENOB-DC11.) The oncology platform is now at the forefront of our development activities, beginning with pancreatic cancer and potentially other solid tumors with poor treatment and short life expectancy. Many operational aspects of our platforms can be quickly adapted to multiple disease states from a single therapeutic approach, potentially streamlining and accelerating development, and regulatory process, as well as manufacturing operations. Moreover, because our product candidates do not require specialized delivery devices, our potentially groundbreaking interventions could have worldwide applicability. The Company responds quickly to new data and perceived development opportunities and risks assessments. Based on the maturation of our pipelines, the Company makes business decisions to prioritize the programs that could move more rapidly through development and commercial processes. Therapeutic Platforms The Company’s general approach with gene- and/or cell-therapy is to enhance the immune system to allow a person to better fight diseases. The Company is leveraging general principles and advances in the knowledge of the immune response to genetically or otherwise engineered cells with enhanced attributes to promote the recognition and elimination of diseased cells. 27 Advanced Allogeneic Cell Therapy The strategic benefit of cell therapy platforms is to potentially allow for manufacture of large, “off-the-shelf” banks of therapeutic cells that could be accessed on demand by health care professionals to potentially decrease the time between diagnosis and treatment. In addition, because we focus on cells from donors the strategy could potentially enhance the ability of the therapeutic candidates to induce a more robust response once injected into patients. The human immune system is designed to recognize and distinguish “self” from “non-self” and destroy “otherness” such as bacteria, viruses, and damaged or diseased cells such as cancer cells. Alloreactivity (reacting against another person’s cells) is the most powerful response the immune system generates. Several of our technologies take advantage of the alloreactivity to hyper stimulate a person’s immune response to better attack a chronic infection (e.g., HIV) or solid tumor. In certain treatments (e.g., HIV and cancer), cells taken from healthy donors are sometimes genetically modified to introduce signaling molecules that are designed to enhance the ability of specific immune cells to recognize diseased cells, and to help recruit other cells that will destroy cancer or virus infected cells. The Company believes that the combination of off-the-shelf allogeneic cells, combined with genetic modifications designed to enhance immune signaling, could potentially generate therapeutic candidates that have unique attributes that will increase the likelihood of success. Cell Therapy enabling technology In addition to the platform described above, Enochian BioSciences has an innovative gene therapy approach to enhance the selection and engraftment (uptake) of cells carrying therapeutic attributes. Enhanced uptake or engraftment could play a critical role in some cases to increase the likelihood of therapeutic benefit. This technology was initially developed for autologous cell therapy from a person living with HIV, and genetically modifying those cells so they cannot be infected with most variants of HIV plus a gene modification to enhance uptake. We have sublicensed under a profit-sharing agreement our technology to potentially increase engraftment for potential use in CAR-T therapy as a potential cure for HIV. HBV Gene Therapy Enochian BioSciences is exploring various approaches for gene therapy design elements to potentially eliminate virus-infected cells with an innovative use of the allogenic cell model molecular mechanism that co-opts the virus’ machinery to induce the death of infected cells rather than reproducing and causing more infection to exacerbate disease. Oncology: ENOB-DC11: Genetically modified Allogeneic Dendritic Cell Therapeutic Vaccine as Potential Product for Long-term Remission of Solid Tumors – Starting with Pancreatic Cancer Allogeneic Cell Therapy Platform –moderately Advanced Pre-Clinical Based on learning from peer-reviewed publications of Phase I/IIa trials, we have designed an innovative therapeutic vaccination platform that could potentially be used to induce life-long remission from some of the deadliest solid tumors. The survival rate in pancreatic cancer is currently only 5 to 10 percent at 5 years. Initial preclinical in vitro and proof of concept in vivo studies have been encouraging. The platform might also allow for non-specific immune enhancement that could have impact against a broad array of solid tumors. We initially plan to target pancreatic cancer. However, we intend to seek IND approval to include safety assessment in a wide range of solid tumors in phase 1/2a, and narrow down to a few promising candidates such as pancreatic, triple negative breast, oral cancers, mesothelioma etc., based on early clinical signals. As with HIV, our approach would potentially allow for outpatient therapy without wiping out or significantly impairing the patient’s immune system, as many current approaches require. Enochian BioSciences has initiated a collaboration with Dr. Anahid Jewett from UCLA to study further the in vitro and in vivo effectiveness of the approach in pancreatic cancer. Dr. Jewett created an innovative pancreatic cancer mouse model that mimics the human immune system in combination with implanted human cancer cells. Early results show promising substantial tumor size reduction. With reproducible outcome in human pancreatic tumor animal studies, we are now fully committed to process development IND submission early/mid 2024. If successful, clinical trials in humans could be possible by the first half of 2024. 28 ENOB-DC12--XX: Genetically modified Allogeneic Dendritic Cell Therapeutic Vaccine as Potential Product for Long-term Remission of Additional Indications The technology is a platform that could potentially be adapted to other solid tumors first line and/or salvage therapy, by itself or, potentially, in combination with other cancer treatments. Additional indications are being evaluated strategically to balance risk and opportunity to advance therapeutic development quickly in cancer indications with few treatment options. Infectious Diseases: HIV: ENOB-HV12: HIV Therapeutic Vaccines for Potential Long-term Remission/Cure Allogeneic Cell Therapy Platform - Advanced Pre-Clinical Stage; Non-Human Primate Studies Ongoing. In persons living with HIV who are controlling the spread of virus with anti-retroviral (ARV) treatment, boosting the immune system in a different way than the virus already has through infection, could allow for control of HIV after stopping ARVs. Enochian BioSciences is developing ENOB-HV12 that utilizes a novel cellular and immunotherapy approach that could potentially provide therapeutic vaccines for HIV (ENOB-HV12). A non-human primate study of the therapeutic vaccine in primates at the Fred Hutchinson Cancer Research Center is ongoing. Animals began receiving the first injections of the potential therapeutic vaccine in August, 2022. Preliminary results could potentially be available by mid-2023. A Pre-IND request could be submitted by late 2023 to early 2024 with IND submission and the beginning of Phase I clinical trials by mid- to late 2024. ENOB-HV01: Autologous Transplant with Genetically Modified Cells : FDA INTERACT Meeting Held February 2020 - Advanced Pre-Clinical Stage We have pioneered a novel enabling technology (ALDH gene modification) that we believe will allow sufficient engraftment of the CCR5 gene-modified Hematopoietic Stem Cell (HSC) to eliminate the need for Antiretroviral Treatment (ART.) Management conducted a successful FDA INTERACT Meeting in alignment with the Company’s experimental plan. Although in vitro and in vivo studies have demonstrated promising results, further development of ENOB-HV01 at this time was deemed costly and a long-term undertaking. While the Company plans to return to full development of the approach when resources are available, it has become less attractive and been deprioritized for business reasons, while pipelines that could move more quickly have been prioritized (e.g., DC11). Therefore, a business decision was made to sub-license the ALDH gene modification. ENOB-HV01 was sub-licensed to Caring Cross with a profit share arrangement. Caring Cross is developing a CAR-T approach that they believe, when combined with Enochian Biosciences ALDH gene modification, could enhance engraftment of their CAR-T cell therapy and enhance their likelihood of success. ENOB-HV21: Immunotherapy with Allogeneic NK/GDT Cells Allogeneic Cell Therapy Platform -Pre-IND conducted - Advanced Pre-Clinical with Human Data through a Collaboration We are also exploring ENOB-HV21, an innovative treatment for HIV with allogeneic Natural Killer (NK) and Gamma Delta T-Cells (GDT). It is believed that the GDT cells, a small subset of immune cells that can be infected with HIV, could both be infected by, and be a key factor in controlling the virus. The initial scientific findings were presented during the American Society of Gene & Cell Therapy (ASCGT) Annual Meeting in 2021. Enochian BioSciences has an exclusive license to use the underlying patent to develop ENOB-HV21 for potential treatment or cure of HIV. A successful investigator-initiated Pre-IND was completed in October 2021. However, due to a shift in priorities to the Oncology pipeline, Enochian BioSciences does not plan to pursue the IND and potential clinical trial in the medium to long term. 29 HBV: ENOB-HB01: Potential Cure for HBV HBV Gene Therapy -Pre-Clinical ENOB-HB01 is in an early pre-clinical phase as we explore various approaches for gene therapy design elements. If those explorations are successful, it is possible we could begin the regulatory process at the earliest in the first half of 2024. However, our highest priority is currently the oncology platform, beginning with pancreatic cancer. Corporate History We were incorporated under the laws of the State of Delaware on January 18, 2011, under the name Putnam Hills Corp. and in 2014 we merged with and changed our name to DanDrit Biotech USA, Inc. In 2018, we acquired Enochian Biopharma and changed our name to Enochian BioSciences Inc. Going Concern and Management’s Plans The financial statements included elsewhere herein for the period ended March 31, 2023, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. As of March 31, 2023, we had cash and cash equivalents of $2,948,042, an accumulated deficit of $220,831,001, and total liabilities of $12,602,576. We have incurred losses from continuing operations, have used cash in our continuing operations, and are dependent on additional financing to fund operations. These conditions raise substantial doubt about our ability to continue as a going concern for one year after the date the financial statements are issued. The financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 30 Management has reduced overhead and administrative costs by streamlining the organization to focus around two of its therapies (oncology and a HIV therapeutic vaccine). The Company has tailored its workforce to focus on these therapies. In addition, management has extended its $1.2 million convertible notes 12 months out to be payable on February 28, 2024, and the Company was able to secure $2.7 million in additional funding through a Private Placement and intends to attempt to secure additional required funding through equity or debt financing. However, there can be no assurance that the Company will be able to obtain any sources of funding. Such additional funding may not be available or may not be available on reasonable terms, and, in the case of equity financing transactions, could result in significant additional dilution to our stockholders. If we do not obtain required additional equity or debt funding, our cash resources will be depleted and we could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us. Funding that we may receive during fiscal 2023 is expected to be used to satisfy existing and future obligations and liabilities and working capital needs, to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates, and to begin building working capital reserves. 31 Results of Operations for the three and nine months ended March 31, 2023, compared to the three and nine months ended March 31, 2022 The following table sets forth our revenues, expenses, and net loss for the three and nine months ended March 31, 2023, and 2022. The financial information below is derived from our unaudited condensed consolidated financial statements. For the Three Months Ended For the Nine Months Ended March 31, Increase/(Decrease) March 31, Increase/(Decrease) 2023 2022 $ % 2023 2022 $ % Operating Expenses General and administrative 3,796,057 2,790,456 1,005,601 36 % 12,365,960 11,169,724 1,196,236 11 % Research and development 239,137 1,212,380 (973,243 ) (80 )% 3,170,471 6,605,038 (3,434,567 ) (52 )% Depreciation and amortization 28,242 31,720 (3,478 ) (11 )% 85,487 95,258 (9,771 ) (10 )% Total Operating Expenses 4,063,436 4,034,556 28,880 1 % 15,621,918 17,870,020 (2,248,102 ) (13 )% LOSS FROM OPERATIONS (4,063,436 ) (4,034,556 ) (28,880 ) 1 % (15,621,918 ) (17,870,020 ) 2,248,102 (13 )% Other Income (Expenses) Change in fair value of contingent consideration — (2,078,994 ) 2,078,994 (100 )% — (5,070,891 ) 5,070,891 (100 )% Loss on extinguishment of contingent consideration — — — 0 % (419,182 ) — (419,182 ) (100 )% Interest expense (122,289 ) (95,206 ) (27,083 ) 28 % (310,766 ) (278,327 ) (32,439 ) 12 % Interest and other income (expense) (142,571 ) 7,291 (149,862 ) (2,055 )% (133,938 ) 22,897 (156,835 ) (685 )% Total Other Income (Expenses) (264,860 ) (2,166,909 ) 1,902,049 (88 )% (863,886 ) (5,326,321 ) 4,462,435 (84 )% Loss Before Income Taxes (4,328,296 ) (6,201,465 ) 1,873,169 (30 )% (16,485,804 ) (23,196,341 ) 6,710,537 (29 )% Income Tax (Provision) Benefit — — — 0 % — (34 ) 34 (100 )% NET LOSS $ (4,328,296 ) $ (6,201,465 ) $ 1,873,169 (30 )% $ (16,485,804 ) $ (23,196,375 ) $ 6,710,571 (29 )% Revenues We are a pre-revenue, pre-clinical biotechnology company. We have never generated revenues and have incurred losses since inception. We do not anticipate earning any revenues until our therapies or products are approved for marketing and sale. Expenses Our operating expenses for the three months ended March 31, 2023, and 2022, were $4,063,436 and $4,034,556 respectively, representing an increase of $28,880, or approximately 1%. The increase in operating expenses primarily relates to an increase in general and administrative expenses of $1,005,601 partially offset by a decrease in research and development expenses of $973,243. Our operating expenses for the nine months ended March 31, 2023, and 2022, were $15,621,918 and $17,870,020, respectively, representing a decrease of $2,248,102 or approximately 13%. The decrease in operating expenses primarily relates to a decrease in research and development expenses of $3,434,567, partially offset by an increase in general and administrative expenses of $1,196,236. 32 General and administrative expenses for the three months ended March 31, 2023, and 2022, were $3,796,057 and $2,790,456, respectively, representing an increase of $1,005,601 or approximately 36%. The variance is primarily related to increases in accounting related expenses of $443,212, legal expenses of $378,421 and stock-based compensation of $498,529, partially offset by decreases in recruiting fees of $140,708. General and administrative expenses for the nine months ended March 31, 2023, and 2022, were $12,365,960 and $11,169,724, respectively, representing an increase of $1,196,236 or approximately 11%. The variance primarily relates to increases in legal expenses of $2,611,749, accounting related expenses of $579,249, and compensation and related expenses of $981,671, partially offset by a decrease in stock-based compensation of $2,426,777, security costs of $405,000 and recruiting fees of $281,407. Research and development expenses for the three months ended March 31, 2023, and 2022, were $239,137 and $1,212,380, respectively, representing a decrease of $973,243 or approximately 80%. The variance is primarily driven by a decrease of $730,000 in collaboration expenses with CDMO and CRO partners, and $219,500 R&D consulting expenses incurred in the prior period for abandoned product candidates. Research and development expenses for the nine months ended March 31, 2023, and 2022, were $3,170,471 and $6,605,038, respectively, representing a decrease of $3,434,567 or approximately 52%. The variance is primarily driven by a decrease of $2,578,754 in expenses related to collaboration partner expenses for abandoned product candidates, $537,434 in R&D consulting expenses, and $228,185 in lab related expenses. The Company recorded other expense of $264,860 for the three months ended March 31, 2023, compared to other expense of $2,166,909 for the three months ended March 31, 2022, representing a decrease in other expense of $1,902,049 or 88%. The variance is primarily due to the change in fair value of the contingent consideration liability expense of $2,078,994 incurred in the prior period. The contingent consideration liability was settled in the period ending September 30, 2022. The Company recorded other expense of $863,886 for the nine months ended March 31, 2023, compared to other expense of $5,326,321 for the nine months ended March 31, 2022, representing a decrease in other expense of $4,462,435 or 84%. The variance is primarily due to the change in fair value of the contingent consideration liability expense of $5,070,891, in the prior period net of a loss of $419,182 related to the extinguishment of the contingent consideration liability during the period ending September 30, 2022. Net Loss Net loss for the three months ended March 31, 2023, and 2022, was $4,328,296 and $6,201,465, respectively, representing a decrease in loss of $1,873,169 or approximately 30%. The decrease in net loss was primarily due to a decrease in expense related to the change in fair value of contingent consideration of $2,078,994. Net loss for the nine months ended March 31, 2023, and 2022, was $16,485,804 and $23,196,375, respectively, representing a decrease in loss of $6,710,571 or approximately 29%. The decrease in net loss was primarily due to a decrease in research and development expenses of $3,434,567, and a decrease in expense related to the change in fair value of contingent consideration of $5,070,891, partially offset by a loss of $419,182 related to the extinguishment of the contingent consideration liability and an increase in general and administrative expenses of $1,196,236. Liquidity and Capital Resources We have historically satisfied our capital and liquidity requirements through funding from stockholders, the sale of our Common Stock and warrants, and debt financing. We have never generated any sales revenue to support our operations and we expect this to continue until our therapies or products are approved for marketing in the United States and/or Europe. Even if we are successful in having our therapies or products approved for sale in the United States and/or Europe, we cannot guarantee that a market for the therapies or products will develop. We may never be profitable. As noted above under the heading “Going Concern and Management’s Plans,” through March 31, 2023, we have incurred substantial losses. We will need additional funds for (a) research and development, (b) increases in personnel, and (c) the purchase of equipment, specifically to advance towards an Investigational New Drug Application (IND) following Pre-IND readouts from the FDA for ENOB-DC11, ENOB-HV-12, ENOB-HV-01, ENOB-HV-21 and ENOB-HB-01. The availability of any required additional funding cannot be assured. In addition, an adverse outcome in legal or regulatory proceedings in which we are currently involved or in the future may be involved could adversely affect our liquidity and financial position. We may raise such funds from time to time through public or private sales of our equity or debt securities. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely affect our growth plans and our financial condition and results of operations. 33 As of March 31, 2023, the Company had $2,948,042 in cash and working capital of $(7,846,438) as compared to $9,172,142 in cash and working capital of $3,114,170 as of June 30, 2022, a decrease of 68% and 352%, respectively. Assets Total assets at March 31, 2023, were $78,730,729 compared to $84,632,663 as of June 30, 2022. The decrease in total assets was primarily due to the decrease in cash of $6,224,100. The change in cash is primarily attributed to $3,170,471 in research and development costs related primarily to CDMO and CRO costs, along with approximately $9,358,307 in general and administrative expenses, net of non-cash items, partially offset by an increase in accounts payable of $3,069,487 due to the timing of cash payments, funding totaling $1,625,000 related to warrants exercised and $2,483,000 cash received from a private placement during the period. Liabilities Total liabilities at March 31, 2023, were $12,602,576 compared to $12,013,815 as of June 30, 2022. The increase in total liabilities was primarily related to an increase of $3,069,487 in accounts payable due to the timing of cash payments, partially offset by the reduction in the contingent consideration liability of $2,343,318. The following is a summary of the Company’s cash flows (used in) or provided by operating, investing, and financing activities: Nine Months Ended March 31, 2023 Nine Months Ended March 31, 2022 Net Cash Used in Operating Activities $ (9,512,937 ) $ (12,681,849 ) Net Cash Used in Investing Activities (23,633 ) (5,156 ) Net Cash Provided by Financing Activities 3,267,008 3,180,274 Effect of exchange rates on cash 45,462 (6,762 ) Change in Cash and Cash Equivalents $ (6,224,100 ) $ (9,513,493 ) Cash Flows Cash used in operating activities for the nine months ended March 31, 2023, and 2022 was ($9,512,937) and ($12,681,849), respectively. Cash used in operating activities during the current period included $3,170,471 in research and development expenses for related CDMO and CRO costs, along with approximately $9,358,307 in general and administrative expenses, net of non-cash items, partially offset by an increase in accounts payable of $3,069,487 due to the timing of cash payments. Cash provided by financing activities for the nine months ended March 31, 2023, was $3,267,008 as compared to cash provided by financing activities of $3,180,274 during the nine months ended March 31, 2022. During the nine months ended March 31, 2023, the Company received financing from the exercise of warrants held by shareholders of $1,625,000 and $2,483,000 from a private placement that was partially offset by repayments of a financing agreement of $840,992. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 34 Significant Accounting Policies and Critical Accounting Estimates The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. For a summary of our accounting policies, see Note 1 to the unaudited condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.