LISATA THERAPEUTICS, INC. 10-Q

ITEM 2. 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 and under “Risk Factors” in our 2020 Form 10-K. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report and in our 2020 Form 10-K. Overview Caladrius Biosciences, Inc. (“we,” “us,” "our," “Caladrius” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to the development of treatments and reversal of severe diseases. We are developing what are intended to be 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 is intended to leverage 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. Our current product candidates include: • XOWNA ® (CLBS16), the subject of both a recently completed positive Phase 2a study (ESCaPE-CMD) and a newly initiated Phase 2b (FREEDOM Trial) study in the United States 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 a clinical trial being executed in Japan. Additionally, CLBS12 was the recipient of orphan drug designation in March 2021 from the U.S. Food and Drug Administration ("FDA") for Buerger's disease; and • CLBS201, designed to assess the safety and efficacy of CD34+ cell therapy as a treatment for patients with chronic kidney disease related to type 2 diabetes (diabetic kidney disease or “DKD”). Ischemic Repair (CD34 Cell Technology) The CD34+ cell was discovered as a result of the deliberate search for a cell capable of stimulating the development and/or repair of blood vessels. All tissues in the body maintain their function by replacing cells over time. In addition to the maintenance function, the body must also be capable of building new blood vessels after injury. A CD34+ cell is an endothelial progenitor cell that has the ability to stimulate new blood vessel formation at the level of the microvasculature. No other native cell discovered to date has demonstrated this same capability. Our proprietary cell technology using autologous (a patient’s own naturally occurring) CD34+ cells has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia. Ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted. Through the administration of CD34+ cells, we seek to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area. We believe that a number of conditions caused by underlying ischemic injury can be improved through our CD34+ cell technology including but not limited to Buerger's disease, CLI, CMD, and DKD. XOWNA ® for Treatment of Coronary Microvascular Dysfunction In 2017, with the assistance of a $1.9 million grant from the National Institutes of Health (Award Number R44HL135889), we initiated our program for XOWNA ® for the treatment of CMD, a disease that afflicts as many as 1.5 million patients in the United States alone, with no current targeted treatment options. That study, the ESCaPE-CMD Trial, was a Phase 2a proof-of-concept open label study that enrolled patients at the Mayo Clinic in Rochester, MN and Cedars-Sinai Medical Center in Los Angeles, CA. Those data showed a positive therapeutic effect with a statistically significant improvement in angina frequency, coronary flow reserve, Canadian Cardiovascular Society Angina Class and Seattle Angina Questionnaire scores, as well as an acceptable safety profile. The full data set from that study was presented at the SCAI 2020 Scientific Sessions Virtual Conference on May 14, 2020 by Dr. Timothy Henry, FACC, of the Christ Hospital in Cincinnati, Ohio. In December 2020, we commenced enrollment in our Phase 2b FREEDOM Trial of XOWNA ® : a double-blind, randomized and placebo-controlled clinical trial designed to further evaluate the efficacy and safety of intracoronary delivery of autologous CD34+ cells in subjects with CMD and without obstructive coronary artery disease. While early enrollment proceeded to plan with the first patient treated in January 2021, the impact of the COVID-19 pandemic contributed to a general slowing of enrollment. Protocol Index amendments to the initial FREEDOM Trial protocol, as agreed to by the FDA, were implemented with the goal of enhancing breadth and speed of subject enrollment. Actual improvement in enrollment rate will be assessed during the fourth quarter of 2021. There can be no assurance that there will be an improvement in enrollment in the near future or at all. As part of program optimization, we convened an advisory board meeting of key opinion leaders in the fields of cardiology, drug development, and payer access and reimbursement in mid-October 2021 with the objective of assuring the most efficient and effective development program for XOWNA ® . CLBS201 for Treatment of Diabetic Kidney Disease Progressive kidney failure is associated with attrition of the microcirculation of the kidney. Pre-clinical studies in kidney disease and injury models have demonstrated that protection or replenishment of the microcirculation results in improved kidney function. Based on these observations, we proposed an initial development plan for CLBS201 contemplating an adaptive design. However, after multiple conversations with key opinion leaders in the fields of nephrology and drug development, we have elected to move forward with a Phase 1, open-label, proof-of-concept trial evaluating CLBS201 dosed via intra-renal artery injections in subjects with DKD. This new protocol, pending approval of the Institutional Review Board (the "IRB") is expected to include six subjects in total with the first two subjects sequentially dosed and followed for a two-week safety observation period. Clearance by the independent Data Safety Monitoring Board overseeing the study will then permit the treatment of the next four patients, with all patients being followed for safety and therapeutic effect A key read-out of data will occur at the six-month follow-up visit for all patients. We project enrollment of this study will begin in the first quarter of 2022. A key criterion for continued development of CLBS201 will be its ability to demonstrate a therapeutic effect that will make it competitive in the field of DKD treatment, i.e. kidney function regeneration, as indicated by increased glomerular filtration rate. There can be no assurance that we will be able to enroll patients in this study during the first quarter of 2022 or at all. HONEDRA ® for Treatment of Critical Limb Ischemia Our randomized, open-label, registration-eligible study of HONEDRA ® in Japan for the treatment of CLI and Buerger's disease continues to demonstrate positive trends in both safety and efficacy. These data remain consistent with the efficacy and safety from previously published clinical trials in Japan. The HONEDRA ® study's enrollment, however, has been significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency in Japan that have persisted for much of the past 18 months. Due to the significant and continued operational and financial burden incurred as a result of these COVID-19 delays, coupled with the unpredictability of the timing of site enrollment re-initiation, we are suspending further enrollment and focusing our efforts on consummating a partnership with a Japanese company that could complete the study enrollment of the three remaining no-option CLI subjects and/or explore the possibility of submitting the existing data to Japan's Pharmaceuticals and Medical Devices Agency ("PMDA") under the SAKIGAKE designation, which allows for accelerated approval of innovative medical products. There can be no assurance that the PMDA will accept the existing data under SAKIGAKE designation. Also, as previously noted, in March 2021 CLBS12 was awarded an orphan designation in the U.S. by FDA as a potential treatment for Buerger's disease. However, based on a recent response from the FDA regarding a development plan for U.S. registration, we have decided not to pursue U.S. development in Buerger's disease at this time. Additional Out-licensing Opportunities Our broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing in order to continue their clinical development. Our current long-term strategy focuses on advancing our therapies through development with the ultimate objective of obtaining market authorizations and entering commercialization, either alone or with partners, to provide treatment options to patients suffering from life-threatening medical conditions. We believe that we are well-positioned to realize potentially meaningful value increases within our own proprietary pipeline if we are successful in advancing our product candidates to their next significant development milestones. Coronavirus Considerations In December 2019, a novel strain of coronavirus (SARS-CoV-2), which causes COVID-19, was reported to have surfaced in China. In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, and the world's economies began to experience pronounced effects. Despite the FDA approval of multiple COVID-19 vaccines in late 2020, there remains uncertainty around the extent and duration of disruption and any future related financial impact cannot reasonably be estimated at this time. In response to the COVID-19 pandemic, we have implemented universal work from home as well as stringent social distancing and other hygiene policies for employees when they must be in the office. Our clinical study of HONEDRA ® in Japan has experienced significant delays in enrollment due to the “State of Emergency” in effect in Japan for most of 2020 and reimplemented in Japan on January 7, 2021 through March 21, 2021 covering Tokyo and other regions in response to an increased number of COVID-19 patients. Due to reported large increases in COVID-19 cases and a low rate of vaccinations in Japan, a “State of Emergency” was renewed on April 25, 2021 through May 11, 2021 and then reimplemented Index in Tokyo from July 12, 2021 through September 30, 2021. We expect that COVID-19 in Japan will continue to negatively impact enrollment of the HONEDRA ® clinical trial. Results of Operations Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Overall, net losses were $6.9 million for the three months ended September 30, 2021, compared to $5.3 million for the three months ended September 30, 2020. Operating Expenses For the three months ended September 30, 2021, operating expenses totaled $7.0 million, compared to $5.4 million for the three months ended September 30, 2020, representing an increase of 30%. Operating expenses comprised the following: • Research and development expenses were approximately $4.1 million for the three months ended September 30, 2021, compared to $3.0 million for the three months ended September 30, 2020, representing an increase of $1.1 million or 36%. This increase was primarily due to an increase in expenses associated with the enrollment of our XOWNA ® Phase 2b study (the FREEDOM Trial). Research and development in both periods focused on the advancement of our ischemic repair platform and related to: ◦ expenses associated with our XOWNA ® Phase 2b study (the FREEDOM Trial) which commenced in the fourth quarter of 2020 with the first patient in the study treated in January 2021; ◦ ongoing registration-eligible study expenses for HONEDRA® in critical limb ischemia in Japan which focused on patient enrollment completion. The study's enrollment has been significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency that have persisted there for over 18 months. Due to the significant and continued operational and financial burden incurred as a result of these COVID-19 delays, coupled with the complete unpredictability of the timing of site enrollment re-initiation, we will focus our efforts on consummating a partnership with a Japanese company in order to complete the study enrollment as well as to explore the possibility of submitting the existing data to PMDA under the SAKIGAKE designation; ◦ expenses associated with the preparation of our filing of an IND for the clinical study of CLBS201 for treatment of diabetic kidney disease. A Phase 1, open-label, proof-of-concept trial is being planned and is expected to include six subjects in total with projected enrollment commencing in the first quarter of 2022. • General and administrative expenses were approximately $2.8 million for the three months ended September 30, 2021, compared to $2.3 million for the three months ended September 30, 2020, representing an increase of 22%. This increase was primarily due to an increase in Directors and Officers insurance premiums and strategic consulting expenses. 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 to compensate employees, consultants and other service providers. The use of these instruments has resulted in charges to the results of operations, which have been significant in the past. Other Income (Expense) Total other income (expense) is comprised of investment income on cash, cash equivalents and marketable securities. Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Overall, net losses were $20.7 million for the nine months ended September 30, 2021, compared to $2.7 million for the nine months ended September 30, 2020. Operating Expenses For the nine months ended September 30, 2021, operating expenses totaled $22.2 million compared to $13.7 million for the nine months ended September 30, 2020, representing an increase of 62%. Operating expenses comprised the following: • Research and development expenses were approximately $13.5 million for the nine months ended September 30, 2021, compared to $6.3 million for the nine months ended September 30, 2020, representing an increase of $7.2 million or 113%. This increase was primarily due to an increase in expenses associated with the enrollment of our XOWNA ® Phase 2b study (the Index FREEDOM Trial). Research and development in both periods focused on the advancement of our ischemic repair platform and related to: ◦ expenses associated with our XOWNA ® Phase 2b study (the FREEDOM Trial) which commenced in the fourth quarter of 2020 with the first patient in the study treated in January 2021; ◦ ongoing registration-eligible study expenses for HONEDRA® in critical limb ischemia in Japan which focused on patient enrollment completion. The study's enrollment has been significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency that have persisted there for over 18 months. Due to the significant and continued operational and financial burden incurred as a result of these COVID-19 delays, coupled with the complete unpredictability of the timing of site enrollment re-initiation, we will focus our efforts on consummating a partnership with a Japanese company in order to complete the study enrollment as well as to explore the possibility of submitting the existing data to PMDA under the SAKIGAKE designation; ◦ expenses associated with the preparation of our filing of an IND for the clinical study of CLBS201 for treatment of diabetic kidney disease. A Phase 1, open-label, proof-of-concept trial is being planned and is expected to include six subjects in total with projected enrollment commencing in the first quarter of 2022. . • General and administrative expenses were approximately $8.7 million for the nine months ended September 30, 2021, compared to $7.4 million for the nine months ended September 30, 2020, representing an increase of 18%. This increase was primarily due to an increase in Directors and Officers insurance premiums and strategic consulting expenses. 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 to compensate employees, consultants and other service providers. The use of these instruments has resulted in charges to the results of operations, which have been significant in the past. Other Income (Expense) Total other income (expense) is comprised of investment income on cash, cash equivalents and marketable securities and a loss on sale of $0.1 million related to the sale of our NJ NOLs. Income Tax Benefit In April 2020, we received final approval from the New Jersey Economic Development Authority ("NJEDA") under the Technology Business Tax Certificate Transfer Program ("Program") to sell a percentage of our 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. In April 2021, we received final approval from the NJEDA under the Program to sell a portion of our NJ NOLs, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $1.4 million. The $1.5 million of our NJ NOL Tax Benefits have been recorded as a benefit from income taxes and the loss on sale of $0.1 million recorded in other income (expense). Index Analysis of Liquidity and Capital Resources As of September 30, 2021, we had cash, cash equivalents and marketable securities of approximately $100.1 million, working capital of approximately $98.0 million, and stockholders’ equity of approximately $98.7 million. During the nine months ended September 30, 2021, 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 used in or provided by, operating, investing and financing activities were as follows (in thousands): Nine Months Ended September 30, 2021 2020 Net cash used in operating activities $ (17,641) $ (3,256) Net cash used in investing activities (71,354) (8,187) Net cash provided by financing activities 85,255 18,567 Operating Activities Our cash used in operating activities during the nine months ended September 30, 2021 was $17.6 million, which is comprised of (i) our net loss of $20.7 million, adjusted for non-cash expenses totaling $3.6 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 using approximately $0.6 million. Our cash used in operating activities during the nine months ended September 30, 2020 was $3.3 million, which is comprised of (i) our net loss of $2.7 million, adjusted for non-cash expenses totaling $1.3 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 using approximately $1.9 million. Investing Activities Our cash used in investing activities during the nine months ended September 30, 2021 totaled $71.4 million and was primarily due to net purchases of marketable securities (net of sales of marketable securities). Our cash used in investing activities during the nine months ended September 30, 2020 totaled $8.2 million and was primarily due to net purchases of marketable securities (net of sales of marketable securities). Financing Activities Our cash provided by financing activities during the nine months ended September 30, 2021 primarily consisted of (i) net proceeds of $23.1 million through the issuance of common shares and warrants in our January 2021 private placement, (ii) net proceeds of $1.8 million in connection with warrant exercises, (iii) net proceeds of $60.6 million through the issuance of common shares and warrants in both of our February 2021 registered direct offerings, 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 nine months ended September 30, 2020 primarily 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, and (iii) net proceeds of $1.9 million through the issuance of common shares and warrants in our July 2020 private placement offering, and (iv) 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. 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. Index 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. On June 4, 2021, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“HCW”), as sales agent, in connection with an “at the market offering” under which we from time to time may offer and sell shares of our common stock, having an aggregate offering price of up to $50.0 million. As of September 30, 2021, we had not issued any shares under the ATM Agreement. In February 2021, we received preliminary approval from the NJEDA to participate in the Program. The Program permits qualified companies to sell a percentage of their NJ NOLs to unrelated profitable corporations. On April 12, 2021,we received final approval from NJEDA to sell $1.5 million of our NJ NOLs, which was subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $1.4 million. In February 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 gross proceeds of approximately $65.0 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 HCW. As of termination date 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. 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 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 $26.0 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 our 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 September 30, 2021, we had not made any sales of common stock to Lincoln Park under the Purchase Agreement other than the Initial Purchase. Index 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. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates There have been no material changes in our critical accounting policies and estimates during the three and nine months ended September 30, 2021, compared to those reported in our 2020 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.