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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-04 · 145 added, 115 removed, 113 unchanged (70% of the section changed)

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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 2021 Form 10-K.

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 product development experience in a variety of therapeutic categories, including cardiovascular and oncology.

We are a clinical-stage pharmaceutical company dedicated to the discovery, development and commercialization of innovative therapies for the treatment of solid tumors and other major diseases.

Lisata’s lead investigational product candidate, LSTA1 (formerly known as CEND-1), is designed to activate a novel uptake pathway that allows anti-cancer drugs to penetrate solid tumors more effectively.

LSTA1 actuates this active transport system in a tumor-specific manner, resulting in systemically co-administered anti-cancer drugs more efficiently penetrating and accumulating in the tumor, while normal tissues are not affected.

LSTA1 also has the potential to modify the tumor microenvironment (“TME”), making tumors more susceptible to immunotherapies.

LSTA1 has demonstrated favorable safety, tolerability, and activity to date in completed and ongoing clinical trials to enhance delivery of standard-of-care chemotherapy for pancreatic cancer.

Lisata and its collaborators have also amassed significant non-clinical data demonstrating enhanced delivery of a range of emerging anti-cancer therapies, including immunotherapies and RNA-based therapeutics.

We are exploring the potential of LSTA1 to enable a variety of treatment modalities to treat a range of solid tumors more effectively.

In addition, Lisata also has clinical development programs based on its autologous CD34+ cell therapy technology platform.

Our leadership team has decades of collective biopharmaceutical and pharmaceutical product development experience across a variety of therapeutic categories and at all stages of development from preclinical through to product registration and launch.

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 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.

• LSTA1, the subject of phase 1b/2a and 2b clinical studies being conducted globally in a variety of solid tumor types, including metastatic pancreatic ductal adenocarcinoma (mPDAC), in combination with a variety of anti-cancer regimens;

• XOWNA ® (LSTA16 formerly CLBS16), the subject of both a completed positive Phase 2a study (ESCaPE-CMD) and follow on Phase 2b study (FREEDOM Trial) in the United States for the treatment of coronary microvascular dysfunction (“CMD”);

• HONEDRA ® (LSTA12 formerly 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, the subject of a study 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”).

On April 26, 2022, we, CS Cedar Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”), and Cend Therapeutics, Inc., a Delaware corporation (“Cend”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Cend, with Cend continuing as our wholly owned subsidiary and the surviving corporation of the merger (the “Merger”).

The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each outstanding share of Cend common stock and Cend preferred stock will be converted into the right to receive a number of shares of our common stock (“Caladrius Common Stock”) equal to an exchange ratio calculated pursuant to the terms of the Merger Agreement;

and (b) each outstanding Cend stock option that has not previously been exercised prior to the closing of the Merger will be assumed by us.

Under the exchange ratio formula, as of immediately after the Merger, the former Cend stockholders are expected to own approximately 50% of the outstanding shares of Caladrius Common Stock and our stockholders as of immediately prior to the Merger are expected to own approximately 50% of the outstanding shares of Caladrius Common Stock.

The actual allocation will be subject to adjustment based on our net cash balance at the time of closing and the amount of any transaction expenses of Cend in excess of $250 thousand at the time of closing.

Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of Caladrius and Cend, and Caladrius’ satisfaction of a minimum net cash threshold at closing, expected to be approximately $64.9 million assuming a closing at the end of the third quarter of 2022, and as described further in the Merger Agreement.

In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of Cend (solely in their respective capacities as Cend stockholders) holding approximately 77.5% of the outstanding Cend capital stock have entered into support agreements with Caladrius to vote all of their shares of Cend capital stock in favor of adoption of the Merger Agreement (the “Cend Support Agreements”) and (ii) certain executive officers and directors of Caladrius (solely

in their respective capacities as Caladrius stockholders) holding approximately 1.8% of the outstanding Caladrius common stock have entered into support agreements with Cend to vote all of their shares of Caladrius common stock in favor of approval of the Merger Agreement (the “Caladrius Support Agreements,” together with the Cend Support Agreements, the “Support Agreements”).

The Support Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals and place certain restrictions on the transfer of the shares of Caladrius and Cend held by the respective signatories thereto.

Concurrently with the execution of the Merger Agreement, certain officers and directors of Caladrius holding approximately 1.8% of the outstanding Caladrius common stock and certain officers, directors and stockholders of Cend holding approximately 77.5% of the Cend capital stock have entered into lock-up agreements (the “Lock-Up Agreements”) pursuant to which they accepted certain restrictions on transfers of shares of Caladrius Common Stock for the 120-day period following the closing of the Merger.

The Merger Agreement contains certain termination rights for both us and Cend, and further provides that, upon termination of the Merger Agreement under specified circumstances, we may be required to pay Cend a termination fee of $1.0 million, Cend may be required to pay us a termination fee of $4.0 million, or in some circumstances reimburse the other party’s expenses up to a maximum of $1.0 million.

At the effective time of the Merger, our Board of Directors is expected to consist of nine members, four of whom will be designated by us, four of whom will be designated by Cend and one member who will be mutually agreed between us and Cend.

Cend Investment and Collaboration Agreement

In order to provide Cend with capital for its development programs prior to the closing of the Merger, we and Cend entered into a Series D Preferred Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which we purchased from Cend 1,135,628 shares of Series D Preferred Stock, $0.00001 par value per share (the “Series D Preferred Stock”), of Cend at a purchase price per share equal to $8.8057 per share (the “Series D Original Issue Price”), or approximately $10 million in the aggregate.

The Purchase Agreement contains customary representations, warranties and agreements by us and Cend and customary conditions to closing.

The Series D Preferred Stock ranks senior to Cend’s common stock and the other series of preferred stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of Cend.

The Series D Preferred Stock has a liquidation preference equal to the Series D Original Issue Price plus an amount equal to any accrued and unpaid dividends to the date of payment and will participate with Cend’s common stockholders and other preferred stockholders thereafter on an as-converted basis.

The Series D Preferred Stock shall vote with the common stock on an as-converted basis on any matters presented to the stockholders of Cend.

Each share of Series D Preferred Stock is convertible, at the option of the holder thereof, into such number of shares of Cend common stock as is determined by dividing the Original Issue Price by the conversion price in effect at the time of conversion, which conversion price shall be the Original Issue Price as appropriately adjusted for stock splits, stock dividends, combinations, and subdivisions of Cend common stock, and as adjusted pursuant to a weighted-average antidilution adjustment.

The Series D Preferred Stock will automatically convert into shares of Cend common stock upon the closing of a firm-commitment underwritten initial public offering implying a pre-equity offering value of at least $250 million, resulting in at least $50 million of gross proceeds to Cend.

In connection with the Purchase Agreement, we and Cend entered into a Collaboration Agreement (the “Collaboration Agreement”), pursuant to which we agreed to collaborate with Cend on certain developmental and clinical activities prior to the closing of the Merger.

Pursuant to the Collaboration Agreement, we and Cend have formed a joint steering committee (the “Committee”) comprised of individuals from both entities.

The Committee meets regularly and is responsible for monitoring ongoing studies and making recommendations for development activity and trial planning.

Cend has agreed to pay each member of the Committee from Caladrius an hourly consulting fee for such service.

• LSTA201 (formerly CLBS201), the subject of a study designed to assess the safety and efficacy of CD34+ cell therapy as a regenerative treatment for patients with chronic kidney disease related to type 2 diabetes (diabetic kidney disease or “DKD”).

Targeted Solid Tumor Penetration via CendR Active Transport

Many solid tumor cancers, including pancreatic ductal adenocarcinoma (“PDAC”), gastric cancers and many other solid tumor cancers are surrounded by dense fibrotic tissue, or stroma.

This limits the efficacy of current chemotherapies for these cancers.

Emerging immunotherapy treatments, including checkpoint inhibitors, adoptive cell therapies such as chimeric antigen receptor T (“CAR-T”) cells, as well as nucleic acid-based therapies, such as short interfering RNA (“siRNA”), antisense oligonucleotides (“ASO”), and messenger RNAs (“mRNAs”) face particular challenges in penetrating solid tumors.

Many tumors also exhibit an immunosuppressive tumor microenvironment (“TME”), which suppresses patients’ immune systems’ ability to fight their cancer and can limit effectiveness of immunotherapies.

These factors negatively impact the ability of many therapeutic agents and immunotherapies to effectively treat these cancers.

To address the tumor stroma’s role as a primary impediment to effective treatment, Lisata’s approach is to activate the C-end rule (“CendR”) natural transport system that normally brings nutrients into a tissue under emergency situations such as an injury.

Cancers highjack this system to promote their own growth.

Lisata’s lead investigational drug, LSTA1 (a specific internalizing R-G-D or iRGD peptide) activates this transport system in a tumor-specific manner (Sugahara, Science, 2010).

This results in tumors taking up systemically administered anticancer drugs as if they were nutrients.

As a result, more drug accumulates in the tumor than would accumulate without LSTA1, while normal tissues are not affected.

Moreover, the drugs penetrate tumor cells farther away from blood vessels with LSTA1 than without.

The overall result is enhanced anticancer activity without an increase in side effects.

Anticancer drugs can be coupled/tethered or conjugated to LSTA1 or other CendR peptides in Lisata’s portfolio, but can be also simply given together with LSTA1.

Lisata believes that the co-administration option is an advantage because it is not necessary to create a new chemical entity with its attendant development and regulatory hurdles, providing a potentially faster-to-clinic and potentially faster-to-market product opportunity for a range of solid tumor cancers and for co-administration with a range of therapies.

Clinical progress with other approaches to address delivery to highly fibrotic tumors, such as PEGylated hyaluronidase and hedgehog inhibitors, has been limited by toxicity and side effects.

LSTA1 has demonstrated favorable safety/tolerability and activity in clinical trials to enhance delivery of standard-of-care chemotherapy for PDAC.

Lisata and its collaborators have also amassed non-clinical data demonstrating enhanced delivery of a range of emerging anticancer therapies, including immunotherapies, and RNA-based therapeutics.

LSTA1’s cancer-targeted delivery may enable such emerging treatment modalities to potentially more effectively treat a range of solid tumors.

LSTA1 as a treatment for solid tumor cancers in combination with other anti-cancer agents

LSTA1 is an investigational drug that actuates the CendR active transport mechanism while also having the potential to modify the TME and make it less immunosuppresive.

It is targeted to tumor vasculature by its affinity for alpha-v, beta-3 and beta-5 integrins that are selectively expressed in tumor vasculature, but not healthy tissue vasculature.

LSTA1 is a specific cyclic internalizing RGD (“iRGD”) peptide that, once bound to these integrins, is cleaved by proteases expressed in tumors to release a peptide fragment, called a CendR fragment, which binds to a second receptor, called neuropilin-1, to activate a novel uptake pathway that allows anticancer drugs to more selectively penetrate solid tumors.

The ability of LSTA1 and iRGD peptides to modify the TME to enhance delivery and efficacy of co-administered drugs has been demonstrated in models of a range of solid tumors with the results from Lisata, collaborators and research groups around the world having been the subject of over 200 scientific publications.

With regard to clinical development, LSTA1 is the subject of a completed Phase 1b clinical trial of 31 first-line metastatic pancreatic ductal adenocarcinoma patients, of which 29 were evaluable.

Results from the trial showed that the safety profile of the LSTA1 combination regimen was similar to standard of care (“SoC”) alone with LSTA1 being well-tolerated with no-dose limiting toxicities.

An Objective Response Rate (“ORR”) of fifty nine percent was observed, including a rare complete response, which compares favorably to the twenty three percent ORR observed in the “MPACT” clinical trial that served as the basis for approval of nab-paclitaxel for use in combination with gemcitabine for the treatment of first line, metastatic pancreatic ductal adenocarcinoma.

A Disease Control Rate (“DCR”);

(partial and complete responses plus stable disease) of over seventy nine percent was observed in comparison to a DCR of forty eight percent observed in the MPACT trial.

Reduction in the level of circulating tumor biomarker CA19-1 was observed in ninety six percent of patients versus sixty one percent in the MPACT trial.

Importantly, median progression-free survival and median overall survival of nearly ten months and over thirteen months was observed, respectively, vs.

less than six months and less than nine months, respectively, in the MPACT trial.

These results have been published in The Lancet Gastroenterology and Hepatology (Dean, et al.

Additionally, LSTA1 is the subject of multiple ongoing and planned clinical trials being conducted globally in a variety of solid tumor types and in combination with several chemotherapy and immunotherapy anti-cancer regimens.

The following diagram summarizes these studies.

Ischemic Repair (CD34+ Cell Technology)

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Ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted or reduced.

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.

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.

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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, placebo-controlled clinical trial designed to further evaluate the efficacy and safety of intracoronary artery delivery of autologous CD34+ cells in subjects with CMD and without obstructive coronary artery disease and was expected to complete enrollment in approximately 12 months.

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, including supply chain disruptions affecting the availability of qualified catheters used in the diagnosis of CMD and/or administration of XOWNA ® as well as with a contrast agent typically used in many catheter laboratories.

Protocol 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.

In May 2022, we announced that enrollment in the FREEDOM Trial had been suspended and that we intend to conduct an interim analysis of the data from not less than the first 20 patients enrolled using the 6-month follow-up data to evaluate the efficacy and safety of XOWNA ® in subjects with CMD and corroborate the ESCaPE-CMD study results.

The interim analysis is expected to be completed in the third quarter of 2022 and the next steps in development of XOWNA ® will subsequently be determined after appropriate regulatory and business review, expected to be announced prior to year-end 2022.

In December 2020, we commenced enrollment in our Phase 2b FREEDOM Trial of XOWNA ® , a double-blind, randomized, placebo-controlled clinical trial designed to further evaluate the efficacy and safety of intracoronary artery delivery of autologous CD34+ cells in subjects with Coronary Microvascular Dysfunction (CMD) and without obstructive coronary artery disease and was expected to complete enrollment in approximately 12 months.

While early enrollment proceeded to plan with the first patient treated in January 2021, the COVID-19 pandemic resulted in insurmountable enrollment rate challenges and population heterogenicity.

As a result, in May 2022, we announced that enrollment in the FREEDOM Trial had been suspended and that we intended to conduct an interim analysis of the data from not less than the first 20 patients enrolled using the 6-month follow-up data to evaluate the efficacy and safety of XOWNA ® in subjects with CMD.

Following the analysis of results of the FREEDOM Trial subjects completing 6-month follow-up along with Key Opinion Leaders’ input, our board of directors determined that execution of a redesigned FREEDOM-like trial would be the appropriate next step, but the cost of

such a trial would be prohibitively expensive to undergo without a strategic partner.

Accordingly, our board of directors concluded that XOWNA ® development will only be continued if a strategic partner that can contribute the necessary capital for a redesigned trial is identified and secured.

There can be no assurance that we will be able to identify such a partner and enter into an agreement with such partner on acceptable terms or at all.

HONEDRA ® for Treatment of Critical Limb Ischemia

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HONEDRA ® is now in the pre-consultation phase of the registration process with the Pharmaceuticals and Medical Devices Agency (“PMDA”) in Japan.

Data from the follow-up of all patients completed in the registration-eligible clinical trial in Japan has been compiled and is expected to be reviewed by PMDA during the third quarter of 2022 after which the PMDA is expected to provide important perspective to be considered in preparation for the formal consultation meetings which precede the Japanese new drug application.

We are focusing our efforts on consummating a partnership for the product in Japan.

Data from the follow-up of all patients completed in the registration-eligible clinical trial in Japan has been compiled and are being reviewed by the PMDA after which the PMDA is expected to provide important perspective to be considered in preparation for the formal consultation meetings which precede the Japanese new drug application.

If successful in the pre-consultation process, we expect formal clinical consultation to occur by mid-year 2023.

In the meantime, we are focusing our efforts on consummating a partnership for the product in Japan.

Such a partnership may become the basis for the completion of development and registration of HONEDRA ® in Japan.

This may include the completion of enrollment of the four remaining no-option CLI subjects stipulated in the original protocol, if necessary, and/or exploration of submitting the existing data to Japan's PMDA under Japan's regenerative medicine regulations, which allow for conditional approval of innovative regenerative medicine products.

Despite receipt of orphan designation from FDA in March 2021 in the United States for CLBS12 as a potential treatment for Buerger's disease, based on a response from the FDA in October 2021 regarding a development plan for U.S.

Despite receipt of orphan designation from the FDA in March 2021 in the United States for LSTA12 as a potential treatment for Buerger's disease, based on a response from the FDA in October 2021 regarding a development plan for U.S.

registration, we have decided not to pursue U.S.

development in Buerger's disease at this time.

CLBS201 for Treatment of Diabetic Kidney Disease

LSTA201 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 have elected to move forward with a Phase 1b, open-label, proof-of-concept trial evaluating CLBS201 dosed via intra-renal artery injections in subjects with DKD.

Based on these observations, we have elected to move forward with a Phase 1b, open-label, proof-of-concept trial evaluating LSTA201 dosed via intra-renal artery injections in subjects with DKD.

This protocol includes six subjects in total with the first two subjects sequentially dosed and followed for a two-week safety observation period.

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A read-out of data will occur after the six-month follow-up visit for all patients.

A key criterion for continued development of CLBS201 will be our 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.

The Company treated the first patient in the CLBS201 proof-of-concept study in April 2022

and completed treatment for all six subjects during the third quarter of 2022.

Top-line data is anticipated from all subjects by the first quarter of 2023.

A key criterion for continued development of LSTA201 will be our 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.

The Company treated the first patient in the LSTA201 proof-of-concept study in April 2022 and completed treatment for all six subjects during the third quarter of 2022.

Top-line data is anticipated from all subjects in the first quarter of 2023.

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 broad intellectual property portfolio of assets includes notable programs available for out-licensing in order to augment or 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.

Merger with Cend Therapeutics, Inc.

and Name Change

On September 15, 2022, the Company, then operating as Caladrius Biosciences, Inc.

(“Caladrius"), completed its acquisition of Cend Therapeutics, Inc.

(“Cend”), a Delaware corporation (the “Merger”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of April 26, 2022, by and among Caladrius, Cend and CS Cedar Merger Sub, Inc.

(“Merger Sub”).

Pursuant to the terms set forth in the Merger Agreement and effective September 15, 2022 (the “Effective Time”):

(i) Merger Sub merged with and into Cend, with Cend surviving as a wholly owned subsidiary of Caladrius, (ii) Caladrius changed its name to Lisata Therapeutics, Inc.

in connection with and immediately following to the Effective Time, and (iii) Caladrius

effected a 1:15 reverse stock split of its common stock (“Reverse Stock Split”) prior to the Effective Time.

At the Effective Time, each share of Cend's common stock outstanding immediately prior to the Effective Time was converted into the right to receive shares of Lisata’s common stock based on an exchange ratio of 0.5338 (the “Exchange Ratio”), after taking into account the Reverse Stock Split.

In connection with the Merger close, the Company issued an aggregate of 3,772,768 shares of common stock, based on the Exchange Ratio, to holders of Cend, in exchange for all of the Cend capital stock outstanding immediately prior to the closing of the Merger.

Pursuant to the Merger Agreement, we assumed all of the outstanding and unexercised options to purchase shares of Cend capital stock under the 2016 Equity Incentive Plan (the “Cend Plan”), and, in connection with the Merger, such options were converted into options to purchase shares of Lisata’s common stock based on the Exchange Ratio.

At the closing of the Merger at the Effective Time, we assumed Cend's stock options to purchase an aggregate of 1,227,776 shares of the Company's common stock.

Caladrius was considered to be the accounting acquirer based on the terms of the Merger Agreement and certain factors including:

(i) Caladrius owned approximately 52% of the Company's outstanding shares of common stock immediately following the close of the Merger;

(ii) although both entities contributed to the new management team of Lisata, the Caladrius team has more individuals on the management team and will hold the CEO, CMO and other senior management roles;

(iii) Caladrius paid a premium to acquire Cend’s assets;

and (iv) Caladrius was significantly larger than Cend regarding total assets, operations, and research and development activities.

The Merger was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”).

Cend’s assets (except for cash and working capital) were measured and recognized as an allocation of the transaction price based on their relative fair values as of the transaction date with any value associated with IPR&D with no alternative future use being expensed.

The prior reported operating results prior to the Merger close are those of Caladrius.

Impact of the COVID-19 Pandemic

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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, as described above.

Following the analysis of results of the FREEDOM Trial subjects completing 6-month follow-up along with Key Opinion Leaders’ input, the Company’s board of directors determined that execution of a redesigned FREEDOM-like trial would be the appropriate next step, but the cost of such a trial would be prohibitively expensive to undergo without a strategic partner.

Accordingly, the Company’s board of directors concluded that XOWNA ® development will only be continued if a strategic partner that can contribute the necessary capital for a redesigned trial is identified and secured.

There can be no assurance that we will be able to identify such a partner and enter into an agreement with such partner on acceptable terms or at all.

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.

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” in our 2021 Form 10-K 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

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and June 30, 2021:

Three Months Ended June 30,

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and September 30, 2021:

Three Months Ended September 30,

2022 2021 Change

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Research and development $ 3,380 $ 4,125 $ (745)

In-process research and development 30,393 — 30,393

General and administrative 3,947 2,843 1,104

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Loss from operations (37,720) (6,968) (30,752)

Total other income (expense) 94 (43) 137

Benefit from income taxes — (1,508) (1,508)

Total other income 337 41 296

Net loss $ (37,383) $ (6,927) $ (30,456)

Overall, net losses were $6.6 million for the three months ended June 30, 2022, compared to $5.7 million for the three months ended June 30, 2021.

Overall, net losses were $37.4 million for the three months ended September 30, 2022, compared to $6.9 million for the three months ended September 30, 2021.

Operating Expenses

For the three months ended June 30, 2022, operating expenses totaled $6.7 million compared to $7.1 million for the three months ended June 30, 2021, representing a decrease of 6%.

For the three months ended September 30, 2022, operating expenses totaled $37.7 million compared to $7.0 million for the three months ended September 30, 2021, representing an increase of 441.3%.

Excluding the in-process research and development expense of $30.4 million relating to the Merger, operating expenses increased by $0.4 million, or 5.2% compared to the three months ended September 30, 2021 .

Operating expenses comprised the following:

• Research and development expenses were approximately $3.2 million for the three months ended June 30, 2022, compared to $4.3 million for the three months ended June 30, 2021, representing a decrease of $1.1 million or 25%.

This decrease was primarily due to a decrease in expenses associated with HONEDRA ® in Japan, revenue received from the Collaboration Agreement and one off recruiting expenses in the prior year.

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 most of 2020, 2021 and 2022.

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 and study start-up expenses for the clinical study of CLBS201 for treatment of diabetic kidney disease.

A Phase 1b, open-label, proof-of-concept trial which includes six subjects in total.

The trial commenced in the first quarter of 2022 with the first patient in the study treated in April 2022 and completed treatment for all six subjects during the third quarter of 2022.

Top-line data is anticipated from all subjects by the first quarter of 2023.

• General and administrative expenses were approximately $3.5 million for the three months ended June 30, 2022, compared to $2.8 million for the three months ended June 30, 2021, representing an increase of 24%.

This increase was primarily due to an increase in fees associated with the proposed merger with Cend Therapeutics, Inc.

• Research and development expenses were approximately $3.4 million for the three months ended September 30, 2022, compared to $4.1 million for the three months ended September 30, 2021, representing a decrease of $0.7 million or 18.1%.

This was primarily due to a decrease in expenses associated with our XOWNA ® Phase 2b study (the FREEDOM Trial) as a result of the suspension in enrollment which commenced in the second quarter of 2022 and study close out activities in the third quarter of 2022, a decrease in expenses associated with HONEDRA ® in Japan related to study close out costs partially offset by the addition of Chemistry, Manufacturing, and Controls (“CMC”) activities for LSTA1 and enrollment activities for Australasian Gastrointestinal Trials Group (“AGITG”) ASCEND study.

Research and development in both periods related to:

◦ expenses associated with our XOWNA ® Phase 2b study (the FREEDOM Trial);

◦ expenses associated with our registration-eligible study for HONEDRA ® in critical limb ischemia in Japan as well as corresponding regulatory discussions support expenses;

◦ expenses associated with the preparation of our filing of an Investigational New Drug Application (“IND”), as well as study execution expenses for the clinical study of LSTA201 for treatment of DKD, A Phase 1b, open-label, proof-of-concept trial which includes six subjects in total;

◦ expenses associated with the addition of CMC activities for LSTA1, enrollment activities for the LSTA1 Phase 2b ASCEND study and preparatory activities associated with the design of a planned LSTA1 proof-of-concept basket trial in various solid tumors and in combination with the corresponding standards of care.

• General and administrative expenses were approximately $3.9 million for the three months ended September 30, 2022, compared to $2.8 million for the three months ended September 30, 2021, representing an increase of 39.0%.

This increase was primarily due to an increase in equity expense as a result of performance stock unit vesting, Merger option assumption expense and departing board member restricted stock unit vesting in addition to an increase in

expenses associated with our annual stockholder meeting.

Our general and administrative expenses focus on general corporate-related activities.

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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 related to the sale of our NJ NOLs.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and June 30, 2021:

Six Months Ended June 30,

Total other income is comprised of investment income on cash, cash equivalents and marketable securities.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and September 30, 2021:

Nine Months Ended September 30,

2022 2021 Change

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Research and development $ 9,898 $ 13,530 $ (3,632)

In-process research and development 30,393 — 30,393

General and administrative 10,770 8,671 2,099

4 unchanged sentences

Net loss $ (48,235) $ (20,672) $ (27,563)

Overall, net losses were $10.9 million for the six months ended June 30, 2022, compared to $13.7 million for the six months ended June 30, 2021.

For the six months ended June 30, 2022, operating expenses totaled $13.3 million compared to $15.2 million for the six months ended June 30, 2021, representing a decrease of 12%.

Overall, net losses were $48.2 million for the nine months ended September 30, 2022, compared to $20.7 million for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, operating expenses totaled $51.1 million compared to $22.2 million for the nine months ended September 30, 2021, representing an increase of 130.0%.

Excluding the one-off in-process research and development expense of $30.4 million, operating expenses decreased by $1.5 million or 6.9% compared to the nine months ended September 30, 2021.

Operating expenses comprised the following:

• Research and development expenses were approximately $6.5 million for the six months ended June 30, 2022, compared to $9.4 million for the six months ended June 30, 2021, representing a decrease of $2.9 million or 31%.

This decrease was primarily due to a decrease in expenses associated with manufacturing start-up costs and process development expenses for our XOWNA ® Phase 2b study (the FREEDOM Trial), a decrease in expenses associated with HONEDRA ® in Japan, revenue received from the Collaboration Agreement and one off recruiting expenses in the prior year.