Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” herein. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report.
Overview
We are a clinical-stage pharmaceutical company dedicated to the discovery, development and commercialization of innovative therapies for the treatment of solid tumors and other major diseases. Our lead investigational product candidate, LSTA1 (formerly known as CEND-1), is designed to activate a novel uptake pathway that allows co-administered or tethered 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”), with the objective of making tumors more susceptible to immunotherapies. Lisata and its collaborators have amassed significant non-clinical data demonstrating enhanced delivery of a range of emerging anti-cancer therapies, including immunotherapies and RNA-based therapeutics. To date, LSTA1 has also demonstrated favorable safety, tolerability, and activity in completed and ongoing clinical trials designed to enhance delivery of standard-of-care chemotherapy for pancreatic cancer. 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, we have clinical development programs based on our autologous CD34+ cell therapy technology platform that are advancing toward their next development milestone while incurring no capital outlay.
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 development pipeline includes:
• 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;
• HONEDRA ® (LSTA12 formerly CLBS12), recipient of SAKIGAKE designation, pursuant to which 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. HONEDRA ® was the recipient of orphan drug designation in March 2021 from the U.S. Food and Drug Administration (“FDA”) for Buerger's disease; and
• LSTA201 (formerly CLBS201), the subject of a recently completed 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”).
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 experienced significant delays in enrollment due to the States of Emergency in effect in Japan for most of 2020, 2021 and 2022 covering Tokyo and other regions in response to an increased number of COVID-19 infections. With our expectation that COVID-19 in Japan would continue to negatively impact 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 also experienced delays in enrolling patients as a result of COVID-19, as described above. In May 2022, we announced that enrollment in the FREEDOM Trial was 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
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efficacy and safety of XOWNA ® in subjects with CMD. Following this analysis along with Key Opinion Leaders’ input, we 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.
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, 2022 Compared to Year Ended December 31, 2021
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
2022 2021 Change
Operating Expenses:
Research and development $ 13,067 $ 17,576 $ (4,509)
In-process research and development 30,393 — 30,393
General and administrative 14,141 11,474 2,667
Total operating expenses 57,601 29,050 28,551
Loss from operations (57,601) (29,050) (28,551)
Total other income 897 76 821
Benefit from income taxes (2,479) (1,508) 971
Net loss $ (54,225) $ (27,466) $ (26,759)
Overall, net losses were $54.2 million and $27.5 million for the years ended December 31, 2022 and 2021, respectively.
Operating Expenses
For the year ended December 31, 2022, operating expenses totaled $57.6 million compared to $29.1 million for the year ended December 31, 2021, representing an increase of $28.6 million or 98.3%. Excluding the non-routine in-process research and development expense of $30.4 million associated with the Merger, operating expenses decreased by $1.8 million or 6.3% compared to the year ended December 31, 2021.
Operating expenses comprise the following:
• Research and development expenses were approximately $13.1 million for the year ended December 31, 2022 compared to $17.6 million for the year ended December 31, 2021, representing a decrease of approximately $4.5 million, or 25.7%. 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 and one off recruiting expenses and interim CMO consulting expenses in the prior year partially offset by the addition of CMC activities for LSTA1 and enrollment activities for AGITG ASCEND study. Research and development in both periods related to:
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▪ 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 $14.1 million for the year ended December 31, 2022, compared to $11.5 million for the year ended December 31, 2021, representing an increase of approximately $2.7 million, or 23.2%. This was primarily due to a one-time increase in fees associated with the review of potential strategic transactions and Merger related costs, 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 is comprised of general corporate-related activities.
Historically, to minimize our use of cash, we have used a variety of equity instruments as compensation to employees, consultants, directors and other service providers. The use of these equity instruments has resulted in non-cash charges to the results of operations, which has been significant in the past.
Other Income
Total other income is comprised primarily of investment income on cash, cash equivalents and marketable securities and a loss on sale related to the sale of our New Jersey net operating losses (“NJ NOLs”).
Income Tax Benefit
In February 2022, 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, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $2.3 million. The $2.5 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).
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
At December 31, 2022, we had cash, cash equivalents, and marketable securities of approximately $69.2 million, working capital of approximately $65.5 million, and stockholders’ equity of approximately $66.6 million.
During the year ended December 31, 2022, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation.
Net cash provided by or (used in) operating, investing and financing activities were as follows (in thousands):
Year Ended December 31,
2022 2021
Net cash used in operating activities $ (21,170) $ (22,245)
Net cash provided by (used in) investing activities 28,911 (54,896)
Net cash (used in) provided by financing activities (224) 85,276
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Operating Activities
Our cash used in operating activities during the year ended December 31, 2022 totaled approximately $21.2 million, comprising (i) our net loss of $54.2 million, as adjusted for non-cash income and expenses totaling $33.9 million (which includes adjustments for equity-based compensation, depreciation and amortization, in process research and development expenses, and amortization/accretion of marketable securities), and (ii) changes in operating assets and liabilities of approximately $0.8 million.
Our cash used in operating activities during the year ended December 31, 2021 totaled approximately $22.2 million, which is the sum of (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.
Investing Activities
Our cash provided by investing activities during the year ended December 31, 2022 totaled approximately $28.9 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities) and partially offset by asset acquisition costs, net of cash acquired related to the Merger of $3.3 million.
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).
Financing Activities
Our cash used in financing activities during the year ended December 31, 2022 totaled $0.2 million, consisting primarily of 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.
Liquidity and Capital Requirements Outlook
To meet our short and long-term liquidity needs, we expect to use existing cash balances, marketable securities 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 pharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During times of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional capital could materially and adversely affect our business operations. We will also continue to seek, as appropriate, grants for scientific and clinical studies from various governmental agencies and foundations, and other sources of non-dilutive funding. We believe that our cash on hand and marketable securities will enable us to fund operating expenses for at least the next 12 months following the issuance of our financial statements. Our future capital requirements are difficult to forecast and will depend on many factors including the timing and nature of any other strategic transactions that we undertake; and our ability to establish and maintain collaboration partnerships, in-license/out-license or other similar arrangements and the financial terms of such agreements.
On June 4, 2021, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC 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. Subsequent to the filing of our Form 10-K on March 22, 2022, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $43.6 million. Pursuant to General Instruction I.B.6 of Form S-3, since the aggregate market value of our outstanding common stock held by non-affiliates was below $75.0 million at the time of such Form 10-K filing, the aggregate amount of securities that we are permitted to offer and sell was reduced to $17,698,943, which was equal to one-third of the aggregate market value of our common stock held by non-affiliates as of September 21, 2022. As of December 31, 2022, we had not issued any shares under the ATM Agreement.
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
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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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements. 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. Actual results could differ from these estimates.
An accounting policy is considered to be critical if it is important to our financial condition and results of operations and if it requires management’s most difficult, subjective and complex judgments in its application. For a summary of all of our significant accounting policies, see Note 2 to our Consolidated Financial Statements.
Merger with Cend Therapeutics
On September 15, 2022, we, then operating as Caladrius Biosciences, Inc. (“Caladrius"), completed our acquisition of Cend (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 us, Cend and CS Cedar Merger Sub, Inc. (“Merger Sub”). We concluded that the Merger was an asset acquisition, as substantially all of the fair value of the non-monetary assets acquired was concentrated in in-process research and development (“IPR&D”). We determined that the cost to acquire the Cend assets was $36.1 million, based on the fair value of the equity consideration issued, our initial investment, assumption of stock options and direct costs of the acquisition. The net assets acquired in connection with the Merger were recorded at their estimated fair values as of September 15, 2022, which was the date Merger was completed. 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 as reported in the consolidated statement of operations.
Share-Based Compensation
We expense all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, we estimate the probability of achievement of the performance criteria and recognize compensation expense related to those awards expected to vest. We determine the fair value of option awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. The fair value of our restricted stock and restricted stock units is based on the closing market price of our common stock on the date of grant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.