LISATA THERAPEUTICS, INC. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” herein. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report. Overview We are a clinical-stage biopharmaceutical company dedicated to the development and commercialization of cellular therapies designed to reverse disease and/or promote the regeneration of damaged tissue. We are developing first-in-class therapeutics based on the characteristics of naturally occurring CD34+ cells and their ability to stimulate the growth of new microvasculature. Our technology leverages these cells to enable the body's natural repair mechanisms using formulations unique to each medical indication. Our leadership team has decades of collective biopharmaceutical development experience. Our goal is to develop and commercialize products that address important unmet medical needs based on a broad and versatile portfolio of candidates. The Company’s current product candidates include: CLBS16, the subject of both a recently completed positive Phase 2a study and a newly initiated Phase 2b study in the U.S. for the treatment of coronary microvascular dysfunction (“CMD”); HONEDRA® (CLBS12), recipient of SAKIGAKE designation and eligible for early conditional approval in Japan for the treatment of critical limb ischemia (“CLI”) and Buerger’s Disease based on the results of an ongoing clinical trial; CLBS201, designed to assess the safety and efficacy of CD34+ cell therapy as a treatment for pre-dialysis patients with chronic kidney disease (“CKD”) and OLOGO™ (CLBS14), a Regenerative Medicine Advanced Therapy (“RMAT”) designated therapy for which the Company is in discussion with the U.S. Food and Drug Administration (the “FDA”) to finalize a Phase 3 protocol of reduced size and scope for a confirmatory trial in subjects with no-option refractory disabling angina (“NORDA”). Results of Operations Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Overall, net losses were $8.1 million and $19.4 million for the years ended December 31, 2020 and 2019, respectively. Operating Expenses For the year ended December 31, 2020, operating expenses totaled $19.1 million compared to $20.1 million for the year ended December 31, 2019, representing a decrease of $0.9 million or 5%. Operating expenses comprise the following: • Research and development expenses were approximately $9.3 million for the year ended December 31, 2020 compared to $10.8 million for the year ended December 31, 2019, representing a decrease of approximately $1.5 million, or 14%. Research and development in both periods focused on the advancement of our ischemic repair platform and related to: ◦ expenses associated with investigational new drug application and planning for commencement in the third quarter of 2020 of a pilot study of CLBS119, a CD34+ cell therapy for repair of COVID-19 induced lung damage targeting patients with severe SARS-CoV-2 infection that required ventilatory support due to respiratory failure; ◦ ongoing registration-eligible study expenses for HONEDRA® in critical limb ischemia in Japan, whereby we continue to focus spending on our patient enrollment. We may continue to experience delays in enrollment in that study due to the “State of Emergency” issued in Japan on Jan 7, 2021 and now extending through March 7, 2021 covering Tokyo and other regions in response to increased number of COVID-19 patients as well as a severe shortage of beds in intensive care units (and other hospital beds) affecting all of our clinical sites. We expect to complete enrollment during the second quarter of 2021; ◦ expenses associated with the proof-of-concept study for CLBS16 in coronary microvascular dysfunction, whereby study enrollment was completed in the second quarter of 2019 and full results reported in May 2020 and continuing efforts to advance CLBS16 into a Phase 2b study (the FREEDOM study) in the second half of 2020; and ◦ expenses associated with the preparation of our confirmatory Phase 3 study of OLOGO TM in NORDA in the second quarter of 2019. In late 2019, we projected that the Phase 3 study then agreed with the FDA would 41 Index cost approximately $70 million in external expenses over the next several years, and as a result, we elected to postpone the initiation of the study until we have confidence that we can access sufficient capital to allow us to complete the study uninterrupted. Discussions with FDA aimed at reducing the size and scope of the Phase 3 requirement continue. • General and administrative expenses were approximately $9.9 million for the year ended December 31, 2020, compared to $9.3 million for the year ended December 31, 2019, representing an increase of approximately $0.6 million, or 6%. Our general and administrative expenses focus on general corporate-related activities. Historically, to minimize our use of cash, we have used a variety of equity and equity-linked instruments as compensation to employees, consultants, directors and other service providers. The use of these instruments has resulted in charges to the results of operations, which has been significant in the past. Other Income (Expense) Total other income (expense) is primarily comprised of investment income on cash and marketable securities. Income Tax Benefit In April 2020, we received approval from the New Jersey Economic Development Authority ("NJEDA") to participate in the Technology Business Tax Certificate Transfer Program (the "Program"), whereby we qualified to sell a percentage of our New Jersey net operating losses ("NJ NOLs"). We subsequently sold a portion of our NJ NOLs to a qualifying and approved buyer pursuant to the Program for net proceeds of $10.9 million. Analysis of Liquidity and Capital Resources At December 31, 2020, we had cash, cash equivalents, and marketable securities of approximately $34.6 million, working capital of approximately $31.8 million, and stockholders’ equity of approximately $32.5 million. During the year ended December 31, 2020, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. Net cash provided by or used in operating, investing and financing activities were as follows (in thousands): Year Ended December 31, 2020 2019 Net cash used in operating activities $ (8,823) $ (18,882) Net cash (used in) provided by investing activities (7,277) 21,432 Net cash provided by financing activities 18,580 1,183 Operating Activities Our cash used in operating activities during the year ended December 31, 2020 totaled approximately $8.8 million, which is the sum of (i) our net loss of $8.1 million, as adjusted for non-cash income and expenses totaling $1.6 million (which includes adjustments for equity-based compensation, depreciation and amortization, and amortization/accretion of marketable securities), and (ii) changes in operating assets and liabilities of approximately $2.3 million. Our cash used in operating activities during the year ended December 31, 2019 totaled approximately $18.9 million, which is the sum of (i) our net loss of $19.4 million, as adjusted for non-cash income and expenses totaling $1.6 million (which includes adjustments for equity-based compensation, depreciation and amortization, and amortization/accretion of marketable securities), and (ii) changes in operating assets and liabilities of approximately $1.1 million. Investing Activities Our cash used in investing activities during the year ended December 31, 2020 totaled approximately $7.3 million and was primarily due to net purchases of marketable securities (net of sales of marketable securities). Our cash provided by investing activities during the year ended December 31, 2019 totaled approximately $21.4 million and was primarily due to net proceeds from the sale of marketable securities (net of purchases of marketable securities). Financing Activities 42 Index Our cash provided by financing activities during the year ended December 31, 2020, consisted of (i) net proceeds of $4.5 million through the issuance of common shares and warrants in our April 2020 registered direct offering, (ii) net proceeds of $3.8 million through the issuance of common shares and warrants in our May 2020 registered direct offering, (iii) net proceeds of $1.9 million through the issuance of common shares and warrants in our July 2020 private placement offering, and (iii) net proceeds of $8.4 million through the issuance of common shares under our common stock sales agreement with H.C. Wainwright, which was partially offset by tax withholding-related payments on net share settlement equity awards to employees. Our cash provided by financing activities during the year ended December 31, 2019 consisted of proceeds of $1.0 million through the issuance of shares of our common stock under the provisions of our common stock purchase agreement with Lincoln Park Capital, and proceeds of $0.3 million through the issuance of shares of our common stock under the provisions of our Common Stock Sales Agreement with H.C. Wainwright, which was partially offset by tax withholding-related payments on net share settlement equity awards to employees. Liquidity and Capital Requirements Outlook To meet our short and long-term liquidity needs, we expect to use existing cash balances and a variety of other means. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings, partnerships and/or collaborations and/or sale of assets. Our history of operating losses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all. The demand for the equity and debt of biopharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During times of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional capital could materially and adversely affect our business operations. We will also continue to seek, as appropriate, grants for scientific and clinical studies from various governmental agencies and foundations, and other sources of non-dilutive funding. We believe that our cash on hand will enable us to fund operating expenses for at least the next 12 months following the issuance of our financial statements considering the assumption that any initiation of an OLOGO TM Phase 3 study is contingent on our acquisition of additional capital to fund such a study. On February 12, 2021, we entered into a Securities Purchase Agreement (the “Institutional Purchase Agreement”) with certain institutional investors (the “Institutional Purchasers”). Pursuant to the terms of the Institutional Purchase Agreement, we sold to the Institutional Purchasers in a registered direct offering an aggregate of 24,906,134 shares of our common stock and warrants to purchase an aggregate of 12,453,067 shares of our common stock at a combined purchase price equal to $2.45 per share and associated warrant. Each warrant features an exercise price equal to $2.90 per share, is exercisable immediately upon issuance and will expire five years from the issuance date. Additionally, in a concurrent non-brokered registered direct offering, we entered into a Securities Purchase Agreement (the “Additional Purchase Agreement”) with certain accredited investors (the “Additional Purchasers”). Pursuant to the terms of the Additional Purchase Agreement, we sold to the Additional Purchasers an aggregate of 1,632,652 shares of our common stock and warrants to purchase an aggregate of 816,326 shares of our common stock at a combined purchase price equal to $2.45 per share and associated warrant. Each warrant features an exercise price equal to $2.90 per share, is exercisable immediately upon issuance and will expire five years from the issuance date. The closing of the offerings occurred on February 17, 2021. In connection with the registered direct offerings, we received net proceeds of approximately $60.7 million. On February 12, 2021, we suspended the use of the at-the-market transactions facility (the “ATM”) and terminated the continuous offering pursuant to the Common Stock Sales Agreement (“Sales Agreement”) entered into in February 2018 with H.C. Wainwright & Co., LLC (“HCW”). In accordance with the terms of the Sales Agreement, we could offer and sell shares of our common stock having an aggregate offering price of up to $25.0 million from time to time through HCW pursuant to the ATM program. As of February 12, 2021, we had sold an aggregate of 3,784,912 shares of our common stock pursuant to the Sales Agreement for aggregate gross proceeds of $9.5 million. We will no longer make any sales of our common stock pursuant to the Sales Agreement unless and until a new prospectus supplement is filed with the Securities and Exchange Commission. In January 2021, we entered into a Securities Purchase Agreement (the “January Purchase Agreement”) with certain institutional and accredited investors (the “January Purchasers”), pursuant to which the Company issued and sold to the January Purchasers in a private placement an aggregate of (i) 12,500,000 shares of common stock, and (ii) warrants exercisable for up to an aggregate of 6,250,000 shares of common stock at a combined offering price of $2.00 per share of common stock and associated warrant. The warrants have an exercise price of $2.90 per share. Each warrant will be immediately exercisable and will expire five and one-half years from the issuance date. The closing of the offering occurred on January 25, 2021. We received gross proceeds of $25.0 million in connection with the private placement, before deducting placement agent fees and related offering expenses. In July 2020, we entered into a securities purchase agreement (the “July Private Placement”) with certain investors (the “July Purchasers”). Pursuant to the terms of the July Private Placement, we sold to the July Purchasers an aggregate of 969,694 43 Index shares of our common stock at a purchase price equal to $2.0625 per share, along with warrants to purchase an aggregate of 484,847 shares of our common stock. In connection with the July Private Placement, we received gross proceeds of $2.0 million. Each warrant is exercisable for one share of common stock and features an exercise price equal to $2.0625 per share. The warrants are exercisable immediately upon issuance and will expire five and one-half years from the issuance date. In May 2020, we entered into a securities purchase agreement (the “May Purchase Agreement”) with certain investors (the “May Purchasers”). Pursuant to the terms of the May Purchase Agreement, we sold to the May Purchasers an aggregate of 2,084,850 shares of our common stock at a purchase price equal to $2.0625 per share. In a concurrent private placement, we issued to the May Purchasers warrants to purchase an aggregate of 1,042,425 shares of our common stock. In connection with the registered direct offering and concurrent private placement, we received gross proceeds of $4.3 million. Each warrant is exercisable for one share of common stock and features an exercise price equal to $2.0625 per share. The warrants are exercisable immediately upon issuance and will expire five and one-half years from the issuance date. In April 2020, we entered into a securities purchase agreement (the “April Purchase Agreement”) with certain investors (the “April Purchasers”). Pursuant to the terms of the April Purchase Agreement, we sold to the Purchasers an aggregate of 2,162,166 shares of our common stock at a purchase price equal to $2.3125 per share. In a concurrent private placement, we issued to the April Purchasers warrants to purchase an aggregate of 1,081,083 shares of our common stock. In connection with the registered direct offering and concurrent private placement, we received gross proceeds of $5.0 million. Each warrant is exercisable for one share of common stock and features an exercise price equal to $2.25 per share. The warrants are exercisable immediately upon issuance and will expire five and one-half years from the issuance date. In December 2019, we received preliminary approval from the New Jersey Economic Development Authority ("NJEDA") to participate in the Technology Business Tax Certificate Transfer Program (the "Program"). The Program permits qualified companies to sell a percentage of their New Jersey net operating losses ("NJ NOLs") to unrelated profitable corporations. On April 21, 2020, we received final approval from NJEDA, and we subsequently sold a portion of our NJ NOLs to a qualifying and approved buyer pursuant to the Program for net proceeds of $10.9 million. In March 2019, we and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”), pursuant to which we have the right to sell to Lincoln Park shares of our common stock having an aggregate value of up to $26 million, subject to certain limitations and conditions set forth in the Purchase Agreement (the “Offering”). As consideration for entering into the Purchase Agreement, we issued to Lincoln Park an additional 181,510 shares of common stock as commitment shares. Pursuant to the Purchase Agreement, Lincoln Park purchased 250,000 shares of common stock, at a price of $4.00 per share, for a total gross purchase price of $1.0 million (the “Initial Purchase”) upon commencement. Thereafter, as often as every business day from and after one business day following the date of the Initial Purchase and over the 36-month term of the Purchase Agreement, we have the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 100,000 shares of common stock, with such amount increasing as the closing sale price of the common stock increases; provided Lincoln Park’s obligation under any single such purchase will not exceed $2,500,000, unless we and Lincoln Park mutually agree to increase the maximum amount of such single purchase (each, a “Regular Purchase”). If we direct Lincoln Park to purchase the maximum number of shares of common stock it then may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the Purchase Agreement, we may direct Lincoln Park in an “accelerated purchase” to purchase an additional amount of common stock that may not exceed the lesser of (i) 300% the number of shares purchased pursuant to the corresponding Regular Purchase or (ii) 30% of the total number of shares of our common stock traded during a specified period on the applicable purchase date as set forth in the Purchase Agreement. Under certain circumstances and in accordance with the Purchase Agreement, we may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day. As of December 31, 2020, the Company had not made any sales of common stock to Lincoln Park under the Purchase Agreement other than the Initial Purchase. While we continue to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and our negotiating position in capital generating efforts may worsen as existing resources are used. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; our stock price may not reach levels necessary to induce option or warrant exercises; and asset sales may not be possible on terms we consider acceptable. If we are unable to access capital necessary to meet our long-term liquidity needs, we may have to delay the expansion of our business or raise funds on terms that we currently consider unfavorable. SEASONALITY We do not believe that our operations are seasonal in nature. 44 Index OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. An accounting policy is considered to be critical if it is important to our financial condition and results of operations and if it requires management’s most difficult, subjective and complex judgments in its application. For a summary of all of our significant accounting policies, see Note 2 to our Consolidated Financial Statements. Share-Based Compensation We expense all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, we estimate the probability of achievement of the performance criteria and recognize compensation expense related to those awards expected to vest. We determine the fair value of option awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. The fair value of our restricted stock and restricted stock units is based on the closing market price of our common stock on the date of grant. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.