What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-10 · 72 added, 150 removed, 108 unchanged (67% of the section changed)

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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.

Our lead investigational product candidate, LSTA1, is designed to activate a novel uptake pathway that allows co-administered or tethered anti-cancer drugs to penetrate solid tumors more effectively.

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

We and our 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, Lisata also has clinical development programs based on its autologous CD34+ cell therapy technology platform.

In addition, we have development programs based on our autologous CD34+ cell therapy technology platform that we will look to partner while incurring no additional 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 product candidates include:

Our goal is to develop and commercialize products that address important unmet medical needs.

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.

• 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;

• 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.

Many solid tumor cancers, including pancreatic ductal adenocarcinoma (“PDAC”), 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.

These factors negatively impact the ability of many therapeutic agents 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”), or CendR system, a naturally occurring active transport system.

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.

This results in tumors selectively and more efficiently 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.

Moreover, the drugs penetrate tumor cells farther away from blood vessels with LSTA1 present 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.

Anticancer drugs can be coupled/tethered or conjugated to LSTA1 or other CendR peptides in Lisata’s portfolio, but can be also co-administered 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 has demonstrated favorable safety/tolerability and activity in clinical trials to enhance delivery of standard-of-care chemotherapy for mPDAC.

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 treat a range of solid tumors potentially more effectively.

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.

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 immunosuppressive, thereby making the tumor more susceptible to attack by the immune system.

It is targeted to tumor vasculature, tumor cells and some intratumoral immunosuppressive cells by its affinity for alpha-v, beta-3 and beta-5 integrins that are upregulated on these cells.

LSTA1 is a nine amino acid 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 receptor, to activate a novel uptake pathway that allows circulating moieties such as 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 many preclinical models in 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.

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(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.

Reduction in the level of circulating tumor biomarker CA19-9 was observed in 96% of patients versus 61% in the MPACT trial.

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

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

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Through the administration of CD34+ cells, we seek to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area.

We believe that a number of conditions caused by underlying ischemic injury can be improved through our CD34+ cell technology, including, but not limited to, Buerger's disease, CLI, CMD, and DKD.

XOWNA ® for Treatment of Coronary Microvascular Dysfunction

In 2017, with the assistance of a $1.9 million grant from the National Institutes of Health (Award Number R44HL135889), we initiated our program for XOWNA ® for the treatment of CMD, a disease that afflicts as many as 1.6 million patients in the United States alone, with no current targeted treatment options.

That study, the ESCaPE-CMD Trial, was a Phase 2a proof-of-concept, open label study that enrolled patients at the Mayo Clinic in Rochester, MN and Cedars-Sinai Medical Center in Los Angeles, CA.

Those data showed a positive therapeutic effect with a statistically significant improvement in angina frequency, coronary flow reserve, Canadian Cardiovascular Society Angina Class and Seattle Angina Questionnaire scores, as well as an acceptable safety profile.

The full data set from that study was presented at the SCAI 2020 Scientific Sessions Virtual Conference on May 14, 2020 by Dr.

Timothy Henry, FACC, of the Christ Hospital in Cincinnati, Ohio.

In December 2020, we commenced enrollment in our Phase 2b FREEDOM Trial of XOWNA ® , a double-blind, randomized, 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.

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, critical limb ischemia (“CLI”), coronary microvascular dysfunction (“CMD”), and diabetic kidney disease (“DKD”).

HONEDRA ® for Treatment of Critical Limb Ischemia

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Due to the significant and continued operational and financial burden incurred as a result of these COVID-19 delays, coupled with the unpredictability of the timing of site enrollment re-initiation, we suspended further enrollment in the fourth quarter of 2021.

Following study suspension, we completed all protocol-defined patient observations and are preparing the clinical study report.

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 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 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.

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 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.

Clearance by an independent Data Safety Monitoring Board (“DSMB”) overseeing the study then permitted the treatment of the next four patients, with all patients being followed for safety and therapeutic effect.

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

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 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.

Following study suspension, we completed all protocol-defined patient observations and completed the clinical study report.

Data from the follow-up of all patients completed in the registration-eligible clinical trial in Japan have been compiled and are the subject of discussions with the Pharmaceuticals and Medical Devices Agency (“PMDA”) in Japan as part of the Japanese regulatory pre-consultation process and in preparation for the formal clinical consultation meetings which precede a Japanese new drug application.

To date, the PMDA has provided advice on how to prepare for the formal consultation meeting, which we expect to occur later this year.

Concomitantly, the Company has reinforced its efforts to secure a Japanese partner to complete the remaining steps of development/registration as well as eventual commercialization in Japan.

Merger with Cend Therapeutics, Inc.

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(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.

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.

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

Additional Out-licensing Opportunities

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

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 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, as described above.

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.

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.

Our phase 2b trial of XOWNA ® in the United States experienced delays in enrolling patients as a result of COVID-19.

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 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.

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.

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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” 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.

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

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

Operating Expenses:

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

Total operating expenses 37,720 6,968 30,752

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

Total other income 337 41 296

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

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 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 $3.4 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.

Historically, to minimize our use of cash, we have used a variety of equity and equity-linked instruments to compensate employees, consultants and other service providers.

The use of these instruments has resulted in charges to the results of operations, which have been significant in the past.

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,

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

2023 2022 Change

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Research and development $ 3,179 $ 3,283 $ (104)

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

General and administrative 3,665 3,337 328

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Net loss $ (6,187) $ (4,226) $ (1,961)

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.

Overall, net losses were $6.2 million for the three months ended March 31, 2023, compared to $4.2 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, operating expenses totaled $6.8 million compared to $6.6 million for the three months ended March 31, 2022, representing an increase of 3.4%.

Operating expenses comprised the following:

• Research and development expenses were approximately $9.9 million for the nine months ended September 30, 2022, compared to $13.5 million for the nine months ended September 30, 2021, representing a decrease of $3.6 million or 26.8%.

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:

◦ 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;

• General and administrative expenses were approximately $10.8 million for the nine months ended September 30, 2022, compared to $8.7 million for the nine months ended September 30, 2021, representing an increase of 24.0%.

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 focus on general corporate-related activities.

Historically, to minimize our use of cash, we have used a variety of equity and equity-linked instruments to compensate employees, consultants and other service providers.

• Research and development expenses were approximately $3.2 million for the three months ended March 31, 2023, compared to $3.3 million for the three months ended March 31, 2022, representing a decrease of $0.1 million or 3.2%.

This was primarily due to expenses associated with our XOWNA ® Phase 2b study (the FREEDOM Trial) in the prior year (study was suspended in 2022), partially offset by study start up activities in the current year associated with the planned LSTA1 Phase 2 proof-of-concept basket trial in various solid tumors in combination with the corresponding standards of care, enrollment activities for the LSTA1 Phase 2b ASCEND study and chemistry, manufacturing and control (CMC) activities for LSTA1.

• General and administrative expenses were approximately $3.7 million for the three months ended March 31, 2023, compared to $3.3 million for the three months ended March 31, 2022, representing an increase of $0.3 million or 9.8%.

This was primarily due to the addition of an employee acquired through the Merger with Cend, an increase in external legal fees and an increase in accounting and tax related fees.

Historically, to minimize our use of cash, we have used a variety of equity instruments to compensate employees, consultants and other service providers.

The use of these instruments has resulted in charges to the results of operations, which have been significant in the past.

Other Income (Expense)

Total other income (expense) is comprised of investment income on cash, cash equivalents and marketable securities and a loss on sale related to the sale of our NJ NOLs.

Total other income (expense) is comprised of investment income from cash, cash equivalents and marketable securities for both three months ended March 31, 2023 and 2022 and a loss on sale related to the sale of our NJ NOLs in the three months ended March 31, 2022.

Income Tax Benefit

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Analysis of Liquidity and Capital Resources

As of September 30, 2022, we had cash, cash equivalents and marketable securities of approximately $75.5 million, working capital of approximately $70.9 million, and stockholders’ equity of approximately $72.0 million.

During the nine months ended September 30, 2022, we met our immediate cash requirements through existing cash balances.

As of March 31, 2023, we had cash, cash equivalents and marketable securities of approximately $61.1 million, working capital of approximately $60.0 million, and stockholders’ equity of approximately $61.0 million.

During the three months ended March 31, 2023, we met our immediate cash requirements through existing cash balances.

Additionally, we used equity and equity-linked instruments to pay for services and compensation.

Net cash (used in) or provided by, operating, investing and financing activities were as follows (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (8,196) $ (5,642)

Net cash provided by (used in) investing activities 4,289 (6,090)

Net cash (used in) provided by financing activities (238) 85,255

Net cash used in financing activities (85) (168)

Operating Activities

Our cash used in operating activities during the nine months ended September 30, 2022 was $14.7 million, which is comprised of (i) our net loss of $48.2 million, adjusted for non-cash expenses totaling $33.5 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 providing approximately $0.1 million.

Our cash used in operating activities during the nine months ended September 30, 2021 was $17.6 million, which is comprised of (i) our net loss of $20.7 million, adjusted for non-cash expenses totaling $3.6 million (which includes adjustments for equity-based compensation, depreciation and amortization, and amortization/accretion of marketable securities) and (ii) changes in operating assets and liabilities using approximately $0.6 million.

Our cash used in operating activities during the three months ended March 31, 2023 was $8.2 million, which is comprised of (i) our net loss of $6.2 million, adjusted for non-cash expenses totaling $0.6 million (which includes adjustments for equity-based compensation, depreciation and amortization, a loss on disposal of fixed assets, and amortization/accretion of marketable securities), and (ii) changes in operating assets and liabilities using approximately $2.6 million.

Our cash used in operating activities during the three months ended March 31, 2022 was $5.6 million, which is comprised of (i) our net loss of $4.2 million, adjusted for non-cash expenses totaling $1.3 million (which includes adjustments for equity-based compensation, depreciation and amortization, and amortization/accretion of marketable securities) and (ii) changes in operating assets and liabilities using approximately $2.7 million.

Investing Activities

Our cash provided by investing activities during the nine months ended September 30, 2022 totaled $21.8 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities) partially offset by the asset acquisition costs, net of cash acquired related to the Merger with Cend.

Our cash used in investing activities during the nine months ended September 30, 2021 totaled $71.4 million and was primarily due to net purchases of marketable securities (net of sales of marketable securities).

Our cash provided by investing activities during the three months ended March 31, 2023 totaled $4.3 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities).

Our cash used in investing activities during the three months ended March 31, 2022 totaled $6.1 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 nine months ended September 30, 2022 totaled $0.2 million, consisted primarily of tax withholding-related payments on net share settlement equity awards to employees.

Our cash provided by financing activities during the nine months ended September 30, 2021 totaled $85.3 million, 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 used in financing activities during the three months ended March 31, 2023 totaled $0.1 million and consisted primarily of tax withholding-related payments on net share settlement equity awards to employees.

Our cash provided by financing activities during the three months ended March 31, 2022 totaled $0.2 million and consisted primarily of tax withholding-related payments on net share settlement equity awards to employees.

Liquidity and Capital Requirements Outlook

To meet our short and long-term liquidity needs, we expect to use existing cash balances and a variety of other means.

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.

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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.

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;

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.

As of September 30, 2022, we had not issued any shares under the ATM Agreement.

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 March 31, 2023, 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.

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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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Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates during the three and nine months ended September 30, 2022, compared to those reported in our 2021 Form 10-K with the exception of the valuation of the Merger which was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”).

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2023, compared to those reported in our 2022 Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis