What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-14 · 44 added, 56 removed, 148 unchanged (40% 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.

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 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 expected to be affected.

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

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

LSTA1 also has the potential to modify the tumor microenvironment (“TME”), thereby making tumors more susceptible to immunotherapies and inhibiting the metastasis cascade (i.e., the spread of cancer to other parts of the body).

We and our collaborators have amassed significant non-clinical data demonstrating enhanced delivery of a range of existing and emerging anti-cancer therapies, including chemotherapeutics, immunotherapies and RNA-based therapeutics.

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

Our current development pipeline includes:

• LSTA1, the subject of our 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.

Our current development pipeline includes our product candidate LSTA1, which is 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) and other forms of pancreatic cancer, cholangiocarcinoma, esophageal cancer, head and neck cancer, appendiceal cancer, colon cancer and glioblastoma multiforme in combination with a variety of anti-cancer regimens.

Targeted Solid Tumor Penetration via CendR Active Transport

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While it is possible to couple/tether or conjugate some anticancer drugs to LSTA1, we believe that the co-administration approach is an advantage because it does not create a new chemical entity with its attendant development and regulatory hurdles, thereby providing an anticipated faster-to-clinic and faster-to-market product opportunity for a range of co-administration 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 mPDAC.

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

It is targeted to tumor vasculature, endothelial cells, 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.

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The CendR fragment then binds to an adjacent receptor, called neuropilin-1 receptor, to activate a novel uptake pathway that allows circulating moieties such as anticancer drugs to more selectively and effectively penetrate solid tumors.

The ability of LSTA1 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 300 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”);

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Our randomized, open-label, registration-eligible study of HONEDRA ® in Japan for the treatment of CLI and Buerger's disease has, to date, demonstrated positive trends in both safety and efficacy.

The HONEDRA ® study's enrollment, however, has been significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency in Japan that have persisted for much of 2020, 2021, and 2022.

The HONEDRA ® study's enrollment, however, was significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency in Japan that persisted for much 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 unpredictability of the timing of site enrollment re-initiation, we suspended further enrollment in the fourth quarter of 2021.

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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.

Impact of the COVID-19 Pandemic

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.

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.

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and June 30, 2022:

Three Months Ended June 30,

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and September 30, 2022 (in thousands):

Three Months Ended September 30,

2023 2022 Change

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Research and development $ 3,380 $ 3,335 $ 45

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

General and administrative 2,584 3,992 (1,408)

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Net loss $ (5,261) $ (37,383) $ 32,122

Overall, net losses were $4.0 million for the three months ended June 30, 2023, compared to $6.6 million for the three months ended June 30, 2022.

For the three months ended June 30, 2023, operating expenses totaled $6.9 million compared to $6.7 million for the three months ended June 30, 2022, representing an increase of 2.3%.

Overall, net losses were $5.3 million for the three months ended September 30, 2023, compared to $37.4 million for the three months ended September 30, 2022.

Operating Expenses

For the three months ended September 30, 2023, operating expenses totaled $6.0 million, compared to $37.7 million for the three months ended September 30, 2022, representing a decrease of 84.2%.

Excluding the in-process research and development expense of $30.4 million relating to the Merger, operating expenses decreased by $1.4 million, or 18.6% compared to the three months ended September 30, 2022.

Operating expenses comprised the following:

• Research and development expenses were approximately $3.2 million for the three months ended June 30, 2023, compared to $3.2 million for the three months ended June 30, 2022, representing a decrease of $0.1 million or 2.2%.

This was primarily due to expenses associated with our study start up activities in the current year associated with the 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 being offset by expenses associated with our Ischemic Repair programs (XOWNA ® Phase 2b study, HONEDRA ® and diabetic kidney disease) in the prior year.

• General and administrative expenses were approximately $3.7 million for the three months ended June 30, 2023, compared to $3.5 million for the three months ended June 30, 2022, representing an increase of $0.2 million or 6.5%.

This was primarily due to severance costs associated with the elimination of the Chief Business Officer position on May 1, 2023, partially offset by non-recurring merger related costs in the prior year.

• Research and development expenses were approximately $3.4 million for the three months ended September 30, 2023, compared to $3.3 million for the three months ended September 30, 2022, representing an increase of $45.0 thousand or 1.3%.

This was primarily due to expenses associated with our study activities in the current year for our LSTA1 Phase 2a proof-of-concept Bolster trial in various solid tumors in combination with the corresponding standards of care, enrollment activities for the LSTA1 Phase 2b ASCEND study, chemistry, manufacturing and control (“CMC”) activities for LSTA1 and study start up activities for the LSTA1 Phase 2a study for the treatment of glioblastoma multiforme being offset by expenses associated with our Ischemic Repair programs (XOWNA ® Phase 2b study, HONEDRA ® and diabetic kidney disease) in the prior year.

• General and administrative expenses were approximately $2.6 million for the three months ended September 30, 2023, compared to $4.0 million for the three months ended September 30, 2022, representing a decrease of $1.4 million or 35.3%.

This was primarily due to non-recurring merger related costs in the prior year, a decrease in equity expense due to prior year performance stock unit vesting, Merger option assumption expense and departing board member restricted stock unit vesting and timing of our annual stockholder meeting versus the prior year.

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

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Other Income (Expense)

Total other income (expense) is comprised of investment income from cash, cash equivalents and marketable securities for both three months ended June 30, 2023 and 2022 and a loss on sale related to the sale of our New Jersey net operating losses (“NJ NOLs”) in the three months ended June 30, 2023.

Income Tax Benefit

In April 2023, 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 $2.2 million.

The $2.3 million of NJ NOLs related tax benefits (“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).

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and June 30, 2022:

Six Months Ended June 30,

Total other income (expense) is comprised primarily of investment income from cash, cash equivalents and marketable securities for both three months ended September 30, 2023 and 2022.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and September 30, 2022 (in thousands):

Nine Months Ended September 30,

2023 2022 Change

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Research and development $ 9,721 $ 9,853 $ (132)

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

General and administrative 9,962 10,815 (853)

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Net loss $ (15,475) $ (48,235) $ 32,760

Overall, net losses were $10.2 million for the six months ended June 30, 2023, compared to $10.9 million for the six months ended June 30, 2022.

For the six months ended June 30, 2023, operating expenses totaled $13.7 million compared to $13.3 million for the six months ended June 30, 2023, representing an increase of 2.8%.

Overall, net losses were $15.5 million for the nine months ended September 30, 2023, compared to $48.2 million for the nine months ended September 30, 2022.

Operating Expenses

For the nine months ended September 30, 2023, operating expenses totaled $19.7 million compared to $51.1 million for the nine months ended September 30, 2022, representing a decrease of 61.5%.

Excluding the in-process research and development expense of $30.4 million relating to the Merger, operating expenses decreased by $1.0 million, or 4.8% compared to the nine months ended September 30, 2022.

Operating expenses comprised the following:

• Research and development expenses were approximately $6.3 million for the six months ended June 30, 2023, compared to $6.5 million for the six months ended June 30, 2022, representing a decrease of $0.2 million or 2.7%.

• General and administrative expenses were approximately $7.4 million for the six months ended June 30, 2023, compared to $6.8 million for the six months ended June 30, 2022, representing an increase of $0.6 million or 8.1%.

• Research and development expenses were approximately $9.7 million for the nine months ended September 30, 2023, compared to $9.9 million for the nine months ended September 30, 2022, representing a decrease of $0.1 million or 1.3%.

• General and administrative expenses were approximately $10.0 million for the nine months ended September 30, 2023, compared to $10.8 million for the nine months ended September 30, 2022, representing a decrease of $0.9 million or 7.9%.

This was primarily due to non-recurring Merger related costs in the prior year, a decrease in equity expense due to prior year performance stock unit vesting, Merger option assumption expense and departing board member restricted stock unit vesting, lower annual stockholder meeting expenses and a decrease in directors and officers insurance premiums, partially offset by severance costs associated with the elimination of the Chief Business Officer position on May 1, 2023.

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

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Other Income (Expense)

Total other income (expense) is comprised of investment income from cash, cash equivalents and marketable securities for both six months ended June 30, 2023 and 2022 and a loss on sale related to the sale of our NJ NOLs in the six months ended June 30, 2023 and 2022.

Total other income (expense) is comprised of investment income from cash, cash equivalents and marketable securities for both nine months ended September 30, 2023 and 2022 and a loss on sale related to the sale of our NJ NOLs in the nine months ended September 30, 2023 and 2022.

Income Tax Benefit

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Analysis of Liquidity and Capital Resources

As of June 30, 2023, we had cash, cash equivalents and marketable securities of approximately $57.6 million, working capital of approximately $57.1 million, and stockholders’ equity of approximately $58.0 million.

During the six months ended June 30, 2023, we met our immediate cash requirements through existing cash balances.

As of September 30, 2023, we had cash, cash equivalents and marketable securities of approximately $54.4 million, working capital of approximately $52.1 million, and stockholders’ equity of approximately $53.0 million.

During the nine months ended September 30, 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities $ (15,963) $ (14,702)

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Operating Activities

Our cash used in operating activities during the six months ended June 30, 2023 was $12.4 million, which is comprised of (i) our net loss of $10.2 million, adjusted for non-cash expenses totaling $0.9 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 $3.1 million.

Our cash used in operating activities during the six months ended June 30, 2022 was $10.7 million, which is comprised of (i) our net loss of $10.9 million, adjusted for non-cash expenses totaling $2.0 million (which includes adjustments for equity-based compensation, depreciation and amortization, and amortization/accretion of marketable securities) and (ii) changes in operating assets and liabilities using approximately $1.9 million.

Our cash used in operating activities during the nine months ended September 30, 2023 was $16.0 million, which is comprised of (i) our net loss of $15.5 million, adjusted for non-cash expenses totaling $1.0 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 $1.5 million.

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.

Investing Activities

Our cash provided by investing activities during the six months ended June 30, 2023 totaled $3.6 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 six months ended June 30, 2022 totaled $19.5 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities) partially offset by our investment in Cend.

Our cash provided by investing activities during the nine months ended September 30, 2023 totaled $15.8 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities).

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 and purchase of property and equipment.

Financing Activities

Our cash provided by financing activities during the six months ended June 30, 2023 totaled $0.4 million and consisted of proceeds from the issuance of shares through our ATM Agreement of $0.3 million, option exercise proceeds of $0.2 million partially offset by tax withholding-related payments of $0.1 million on net share settlement equity awards to employees.

Our cash used in financing activities during the six months ended June 30, 2022 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 nine months ended September 30, 2023 totaled $0.4 million and consisted of proceeds from the issuance of shares through our ATM Agreement (as defined below) of $0.3 million, option exercise proceeds of $0.2 million partially offset by tax withholding-related payments of $0.1 million on net share settlement equity awards to employees.

Our cash used in financing activities during the nine months ended September 30, 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

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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 six months ended June 30, 2023, compared to those reported in our 2022 Form 10-K.

There have been no material changes in our critical accounting policies and estimates during the three and nine months ended September 30, 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