LISATA THERAPEUTICS, INC. 10-Q

ITEM 2. 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 are subject to significant risks and uncertainties. There is no guarantee that our clinical development programs will be successful or result in the necessary regulatory approvals. 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 and under “Risk Factors” in our 2023 Form 10-K. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report and in our 2023 Form 10-K. 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 investigational product, certepetide (LSTA1), is designed to activate a novel uptake pathway that allows co-administered or tethered (i.e., molecularly bound) anti-cancer drugs to target and penetrate solid tumors more effectively. Certepetide 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 expected to be unaffected. Certepetide has also been shown to modify the tumor microenvironment (“TME”) by reducing T-regulatory cells and augmenting cytotoxic T cells, thereby making tumors more susceptible to immunotherapies and inhibiting the metastatic 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. To date, certepetide 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 certepetide as a means to enable a variety of treatment modalities to treat a range of solid tumors more effectively. Currently, certepetide is the subject of several Phase 2 clinical studies being conducted globally in a variety of solid tumor types, including metastatic pancreatic ductal adenocarcinoma (mPDAC), cholangiocarcinoma, appendiceal cancer, colon cancer and glioblastoma multiforme in combination with a variety of anti-cancer regimens. 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. Targeted Solid Tumor Penetration via CendR Active Transport Many solid tumor cancers, including, for example, pancreatic ductal adenocarcinoma (“PDAC”) and cholangiocarcinoma, are surrounded by dense fibrotic tissue, known as the tumor stroma. This stroma often limits the efficacy of current chemotherapies for these cancers. Emerging immunotherapies, including but not limited to checkpoint inhibitors and adoptive cell therapies (e.g., chimeric antigen receptor T cells (CAR-Ts)), also face challenges in penetrating solid tumors. Many tumors also exhibit an immunosuppressive TME, which suppresses a patient's immune system and can thus limit the effectiveness of immunotherapies and/or contribute to metastases. 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, our approach is to activate the C-end rule (“CendR”), or CendR active transport mechanism, a naturally occurring transport system. Our investigational drug, certepetide (a specific internalizing R-G-D or iRGD peptide), activates this transport system in a tumor-specific manner (Sugahara, Science, 2010). Certepetide enables more selective and efficient uptake of systemically administered anti-cancer drugs resulting in more intratumoral drug accumulation. The overall expected result is enhanced anticancer activity without an increase in adverse side effects. While it is possible to couple/tether or conjugate some anticancer drugs to certepetide, we believe that our initial approach of co-administration of certepetide with anti-cancer therapies is advantageous. Co-administration does not create a new chemical entity (“NCE”) 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. That said, an attractive life-cycle management strategy for certepetide would be to molecularly bind it to a variety of anti-cancer agents (as an alternative to co-administration), thereby creating new NCEs with the potential for distinct patent protection, compositionally or otherwise. Certepetide has demonstrated favorable safety, tolerability, and activity to date in clinical trials enhancing the delivery of standard-of-care chemotherapies for mPDAC. Certepetide’s cancer-targeted delivery may also enable emerging solid tumor treatment modalities to prove more effective. 26 Index Certepetide as a treatment for solid tumor cancers in combination with other anti-cancer agents Certepetide is an investigational drug that actuates the CendR active transport mechanism. Certepetide has been shown to modify the TME, making it less immunosuppressive and thereby making the tumor more susceptible to attack by the immune system while also inhibiting the metastastic cascade. It targets tumor vasculature, endothelial cells, tumor cells and some intratumoral immunosuppressive cells by its selective affinity for alpha-v beta-3 and beta-5 integrins that are upregulated on these cells. Certepetide is a nine amino acid cyclic internalizing RGD (“iRGD”) peptide that, once bound to these integrins, undergoes proteolytic cleavage to release a linear peptide fragment, called a CendR peptide fragment. The CendR peptide fragment then binds with high selectivity and affinity to an adjacent receptor, called neuropilin-1, also upregulated in solid tumors, to activate a novel uptake pathway that allows circulating anticancer drugs to more selectively and effectively penetrate solid tumors. The ability of certepetide 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. Lisata, its collaborators, and research groups around the world have published over 350 related scientific papers in this regard. Clinically, certepetide was the subject of a completed Phase 1b/2a trial inclusive of 31 first-line mPDAC patients, of which 29 were evaluable. Results from the trial showed that the safety profile of the certepetide combination regimen was similar to standard of care (“SoC”) alone with certepetide being well-tolerated with no-dose limiting toxicities. An Objective Response Rate (“ORR”) of 59% was observed, compared to the 23% 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, mPDAC (Von Hoff, et al. 2013). A Disease Control Rate (“DCR”) (partial and complete responses plus stable disease) of over 79% was also observed in comparison to a DCR of 48% observed in the MPACT trial. 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 versus less than six months and less than nine months, respectively, in the MPACT trial. These results have been published in The Lancet Gastroenterology and Hepatology (Dean, et al. 2022). Additionally, certepetide is currently the subject of multiple ongoing and planned clinical trials being conducted globally in a variety of solid tumor types and in combination with several chemotherapy and immunotherapy anti-cancer regimens. The following diagram summarizes these studies. 27 Index Additional Out-licensing Opportunities Our intellectual property portfolio is comprised of notable programs available for out-licensing and/or partnering 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. Results of Operations Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 The following table summarizes our results of operations for the three months ended June 30, 2024 and June 30, 2023 (in thousands): Three Months Ended June 30, 2024 2023 Change Operating Expenses: Research and development $ 2,601 $ 3,162 $ (561) General and administrative 2,922 3,713 (791) Total operating expenses 5,523 6,875 (1,352) Loss from operations (5,523) (6,875) 1,352 Total other income 479 518 (39) Benefit from income taxes — (2,330) (2,330) Net loss $ (5,044) $ (4,027) $ (1,017) Overall, net losses were $5.0 million for the three months ended June 30, 2024, compared to $4.0 million for the three months ended June 30, 2023. Operating Expenses For the three months ended June 30, 2024, operating expenses totaled $5.5 million, compared to $6.9 million for the three months ended June 30, 2023, representing a decrease of $1.4 million or 19.7%. Operating expenses are comprised of the following: • Research and development expenses were approximately $2.6 million for the three months ended June 30, 2024, compared to $3.2 million for the three months ended June 30, 2023, representing a decrease of $0.6 million or 17.7%. This was primarily due to a reduction in expenses associated with the Phase 2b ASCEND trial which completed enrollment in the prior year, lower spend on chemistry, manufacturing and control (“CMC”) related expenses and lower equity expense partially offset by an increase in expenses associated with our enrollment activities in the current year for our certepetide Phase 2a proof-of-concept Bolster trial. • General and administrative expenses were approximately $2.9 million for the three months ended June 30, 2024, compared to $3.7 million for the three months ended June 30, 2023, representing a decrease of $0.8 million or 21.3%. This was primarily due to one-off related severance costs in the prior year associated with the elimination of the Chief Business Officer position on May 1, 2023, a reduction in equity expense and a decrease in directors and officers insurance premiums in the current year. 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. 28 Index Other Income (Expense) Total other income (expense) is comprised primarily of investment income from cash, cash equivalents and marketable securities for the three months ended June 30, 2024 and 2023. Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 The following table summarizes our results of operations for the six months ended June 30, 2024 and June 30, 2023: Six Months Ended June 30, 2024 2023 Change Operating Expenses: Research and development $ 5,842 $ 6,341 $ (499) General and administrative 6,282 7,378 (1,096) Total operating expenses 12,124 13,719 (1,595) Loss from operations (12,124) (13,719) 1,595 Total other income 881 1,175 (294) Benefit from income taxes (798) (2,330) (1,532) Net loss $ (10,445) $ (10,214) $ (231) Overall, net losses were $10.4 million for the six months ended June 30, 2024, compared to $10.2 million for the six months ended June 30, 2023. Operating Expenses For the six months ended June 30, 2024, operating expenses totaled $12.1 million compared to $13.7 million for the six months ended June 30, 2023, representing a decrease of 11.6%. Operating expenses are comprised of the following: • Research and development expenses were approximately $5.8 million for the six months ended June 30, 2024, compared to $6.3 million for the six months ended June 30, 2023, representing a decrease of $0.5 million or 7.9%. This was primarily due to a reduction in expenses associated with the Phase 2b ASCEND trial which completed enrollment in the prior year, lower spend on chemistry, manufacturing and control (“CMC”) related expenses and lower equity expense partially offset by an increase in expenses associated with our enrollment activities in the current year for our certepetide Phase 2a proof-of-concept Bolster trial. • General and administrative expenses were approximately $6.3 million for the six months ended June 30, 2024, compared to $7.4 million for the six months ended June 30, 2023, representing a decrease of $1.1 million or 14.9%. This was primarily due to one-off related severance costs in the prior year associated with the elimination of the Chief Business Officer position on May 1, 2023, a reduction in equity expense, a decrease in directors and officers insurance premiums, and a reduction in spend on legal fees partially offset by one-off settlement related costs. 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 primarily of investment income from cash, cash equivalents and marketable securities and losses on sales related to the sales of our New Jersey net operating losses (“NJ NOLs”) for the six months ended 29 Index June 30, 2024 and 2023 and an investment in Impilo which was fully expensed under the equity method of accounting within the current year period. Income Tax Benefit In March 2024, we received final approval from the New Jersey Economic Development Authority (“NJEDA”) under the Technology Business Tax Certificate Transfer Program (the “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 $0.7 million. The $0.8 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 2023, we received final approval from the NJEDA under the 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 have been recorded as a benefit from income taxes and the loss on sale of $0.1 million recorded in other income (expense). 30 Index Analysis of Liquidity and Capital Resources As of June 30, 2024, we had cash, cash equivalents and marketable securities of approximately $38.3 million, working capital of approximately $37.5 million, and stockholders’ equity of approximately $38.2 million. During the six months ended June 30, 2024, 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, 2024 2023 Net cash used in operating activities $ (12,310) $ (12,380) Net cash provided by investing activities 18,149 3,564 Net cash (used in) provided by financing activities (110) 367 Operating Activities Our cash used in operating activities during the six months ended June 30, 2024 was $12.3 million, which is comprised of (i) our net loss of $10.4 million, adjusted for non-cash expenses totaling $0.6 million (which includes adjustments for equity-based compensation, depreciation and amortization, loss from equity method investment, and amortization/accretion of marketable securities), and (ii) changes in operating assets and liabilities using approximately $2.5 million. 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. Investing Activities Our cash provided by investing activities during the six months ended June 30, 2024 totaled $18.1 million and was primarily due to net sales of marketable securities (net of purchases of marketable securities) partially offset by an investment of $0.1 million in Impilo. 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). Financing Activities Our cash used in financing activities during the six months ended June 30, 2024 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 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. 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 current 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. 31 Index On June 4, 2021, we entered into 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 the date of this filing and so long as our public float remains below $75.0 million, we are subject to limitations pursuant to General Instruction I.B.6 of Form S-3 (the “Baby Shelf Limitation”), which limits the amount we can offer to up to one-third of our public float during any trailing 12-month period. Subsequent to the filing of our Registration Statement on Form S-3 (File No. 333-279034) on May 1, 2024, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $26.7 million. Pursuant to the Baby Shelf Limitation, since the aggregate market value of our outstanding common stock held by non-affiliates was below $75.0 million at the time of such S-3 filing, the aggregate amount of securities that we are permitted to offer and sell is now $8,915,094, which was equal to one-third of the aggregate market value of our common stock held by non-affiliates as of March 21, 2024. If our public float exceeds $75.0 million on a future measurement date, the Company will no longer be subject to the Baby Shelf Limitation. There were no issuances of common stock under the ATM Agreement for the three and six months ended June 30, 2024. Since inception we have issued 64,394 shares of common stock under the ATM Agreement for net proceeds of $270,774. 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 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 There have been no material changes in our critical accounting policies and estimates during the three and six months ended June 30, 2024, compared to those reported in our 2023 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.