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Item 7. Management’s Discussion and Analysis

2022-03-22 compared with 2021-02-25 · 70 added, 59 removed, 83 unchanged (61% of the section changed)

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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”).

• XOWNA ® (CLBS16), the subject of both a completed positive Phase 2a study (ESCaPE-CMD) and an ongoing follow-on Phase 2b study (FREEDOM Trial) 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 is being sought based on the current results of a clinical trial executed in Japan.

CLBS12 was the recipient of orphan drug designation in March 2021 from the U.S.

Food and Drug Administration (“FDA”) for Buerger's disease;

• 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”).

In addition, we also desire to diversify our pipeline of development product candidates and are exploring a range of strategic transactions in furtherance of that goal.

We have taken, and intend to continue to take, active steps to identify diligence-suitable assets and/or companies that would complement and de-risk our current development programs.

Such assets could potentially include indications beyond cardiovascular as well as product categories outside of cell therapy and transactions could include an acquisition, merger, business combination, in-license or other strategic transaction, any of which could result in the issuance of securities that could significantly dilute the shares of our existing stockholders.

There can be no assurance that this exploration of strategic alternatives will result in us entering into or completing any transaction or that such transaction, if completed, will add to shareholder value.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic continues to present substantial public health and economic challenges around the world, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by federal, state or local authorities.

In addition, we have taken steps to minimize the current environment’s impact on our business and strategy, including devising contingency plans and securing additional resources from third party service providers.

For the safety of our employees and families, we implemented a universal work from home policy 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 States of Emergency in effect in Japan for most of 2020 and reimplemented from January 7, 2021 through March 21, 2021 covering Tokyo and other regions in response to an increased number of COVID-19 infections.

Due to reported increases in COVID-19 cases and a low rate of vaccination in Japan, States of Emergency were renewed on April 25, 2021 through May 11, 2021 and then reimplemented in Tokyo from July 12, 2021 through September 30, 2021.

With our expectation that COVID-19 in Japan would continue to impact negatively enrollment of patients in the HONEDRA® clinical trial, we elected to suspend trial enrollment, seek a development partner and consult with the Japanese regulatory authorities regarding the submission of

patient data already accrued.

In addition, our phase 2b trial of XOWNA® in the United States has also experienced delays in enrolling patients as a result of COVID-19.

Beyond its impact on our development pipeline described above, the extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the emergence of new variants, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others.

If we or any of the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, financial condition and results of operations.

It is possible that our clinical development timelines could continue to be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations.

See “Risk Factors” for additional discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations.

Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

Year Ended December 31,

2021 2020 Change

Operating Expenses:

Research and development $ 17,680 $ 9,253 $ 8,427

General and administrative 11,370 9,892 1,478

Total operating expenses 29,050 19,145 9,905

Loss from operations (29,050) (19,145) (9,905)

Total other income (expense) 76 132 (56)

Benefit from income taxes (1,508) (10,872) (9,364)

Net loss $ (27,466) $ (8,141) $ (19,325)

Overall, net losses were $27.5 million and $8.1 million for the years ended December 31, 2021 and 2020, 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%.

For the year ended December 31, 2021, operating expenses totaled $29.1 million compared to $19.1 million for the year ended December 31, 2020, representing an increase of $9.9 million or 52%.

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 expenses were approximately $17.7 million for the year ended December 31, 2021 compared to $9.3 million for the year ended December 31, 2020, representing an increase of approximately $8.4 million, or 91%.

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 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;

◦ 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

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.

◦ 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 CLI 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 have suspended enrollment efforts and will focus 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 for filing an IND for the clinical study of CLBS201 for treatment of DKD.

A Phase 1, open-label, proof-of-concept trial has been initiated recently and is expected to include six subjects in total.

• General and administrative expenses were approximately $11.4 million for the year ended December 31, 2021, compared to $9.9 million for the year ended December 31, 2020, representing an increase of approximately $1.5 million, or 15%.

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.

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Other Income (Expense)

Total other income (expense) is primarily comprised of investment income on cash and marketable securities.

Total other income (expense) is comprised primarily 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 New Jersey net operating losses (“NJ NOLs”).

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").

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 its 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.

In April 2021, we received final approval from the NJEDA under the Program to sell a portion of our NJ NOLs, which subsequently were 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).

Analysis of Liquidity and Capital Resources

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Net cash used in operating activities $ (22,245) $ (8,823)

Net cash (used in) provided by investing activities (7,277) 21,432

Net cash used in investing activities (54,896) (7,277)

Net cash provided by financing activities 85,276 18,580

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, 2021 totaled approximately $22.2 million, comprising (i) our net loss of $27.5 million, as adjusted for non-cash income and expenses totaling $4.6 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 $0.6 million.

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Our cash used in investing activities during the year ended December 31, 2021 totaled approximately $54.9 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).

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).

Financing Activities

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.

Our cash provided by financing activities during the year ended December 31, 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 year ended December 31, 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 HCW, which was partially offset by tax withholding-related payments on net share settlement equity awards to employees.

Liquidity and Capital Requirements Outlook

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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”).

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 HCW, as sales agent, in connection with an “at the market offering” under which we may, from time to time offer and sell shares of our common stock, having an aggregate offering price of up to $50.0 million.

As of December 31, 2021, we had not issued any shares under the ATM Agreement.

Pursuant to the ATM Agreement, HCW is only obligated to make sales when we are in compliance with all Nasdaq listing standards.

On February 18, 2022, we received a deficiency notice from Nasdaq informing us that we are not in compliance with the Minimum Bid Price Requirement.

As such, we will not be able to sell shares under the ATM Agreement until we regain compliance, if ever.

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 were 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.

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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 connection with the registered direct offerings, we received gross proceeds of approximately $65.0 million.

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 net 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.

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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

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”).

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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;

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.

If we direct Lincoln Park to purchase the maximum number of shares of common stock we 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.

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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.

We do not believe that our operations are seasonal in nature.

Off-Balance Sheet Arrangements

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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 evaluate our estimates and assumptions on an ongoing basis.

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.

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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.

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 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis