Moleculin Biotech, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Forward-looking statements include, but are not limited to, statements about: • Our ability to continue our relationship with MD Anderson, including, but not limited to, our ability to maintain current licenses and license future intellectual property resulting from our sponsored research agreements with MD Anderson; • The success or the lack thereof, including the ability to recruit subjects on a timely basis, for a variety of reasons, of our clinical trials through all phases of clinical development; • Our ability to satisfy any requirements imposed by the US Food & Drug Administration (FDA) (or its foreign equivalents) as a condition of our clinical trials proceeding or beginning as planned; • World-wide events including the wars in Ukraine and in Israel, the COVID-19 pandemic, and the general supply chain shortages effects on our clinical trials, clinical drug candidate supplies, preclinical activities and our ability to raise future financing; • Our ability to obtain additional funding to commence or continue our clinical trials, fund operations and develop our product candidates; • The need to obtain and retain regulatory approval of our drug candidates, both in the United States and in Europe, and in countries deemed necessary for future trials; • Our ability to complete our clinical trials in a timely fashion in line with our stated milestones and within our expected budget and resources; • Our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market; • Our ability to source our drug products at reasonable prices; • Compliance with obligations under intellectual property licenses with third parties; • Any delays in regulatory review and approval of drug candidates in clinical development; • Potential efficacy of our drug candidates; • Our ability to commercialize our drug candidates; • Market acceptance of our drug candidates; • Competition from existing therapies or new therapies that may emerge; • Potential product liability claims; • Our dependency on third-party manufacturers to successfully, and timely, supply or manufacture our drug candidates for our preclinical work and our clinical trials; • Our ability to establish or maintain collaborations, licensing or other arrangements; • Our ability and third parties’ abilities to protect intellectual property rights; • Our ability to adequately support future growth; and • Our ability to attract and retain key personnel to manage our business effectively. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Our Business We are a clinical stage pharmaceutical company with a growing pipeline, including Phase 2 and 3 clinical programs for hard-to-treat cancers and viruses. We have three core technologies, each of which have had one or more drugs successfully complete a Phase 1 clinical trial, based substantially on discoveries made at and licensed from the University of Texas MD Anderson Cancer Center (MD Anderson) in Houston, Texas. Three of our six drug candidates have shown human activity in clinical trials and are currently or have been in Phase 1B/2 or Phase 2 clinical trials. Since our inception and as of March 2024, our drugs have completed, are currently in, or have been permitted to proceed in, thirteen clinical trials. Annamycin is our lead molecule and is in three Phase 1B/2 clinical trials - one for treating Acute Myeloid Leukemia (AML) and two for treating Soft Tissue Sarcoma metastasized to the lungs (STS lung metastases, STS lung mets, or Advanced STS). One of our core management beliefs is that anthracyclines represent the most important treatment for AML and Advanced STS, and we believe Annamycin may, for the first time ever, allow a majority of these patients to benefit from this treatment. This belief, coupled with our limited resources, leads us to currently focus mainly on the development of Annamycin. We intend to advance our other drug candidates via investigator led studies – both clinically and preclinically. 13 Table of Contents Our Core Technologies Our core technologies consist of the following programs: a) Annamycin or L-Annamycin is a “next generation” anthracycline (one of the most widely used classes of chemotherapy), designed to be different than currently approved anthracyclines, which are limited in utility because of cardiotoxicity risks and their susceptibility to multidrug resistance mechanisms. Annamycin was designed to avoid multidrug resistance and to be non-cardiotoxic and has shown no cardiotoxicity in subjects treated in our clinical trials to date. Furthermore, we have demonstrated safe dosing beyond the dose limitations imposed by regulatory authorities upon commonly prescribed anthracyclines due to their inherent cardiotoxicity. Annamycin has demonstrated efficacy in two of its Phase 1B/2 trials in subjects with AML and Advanced STS. We believe that Annamycin has potential to fill an unmet need as a second line therapy (2nd line or 2L) in AML and potentially as first line therapy in Advanced STS. As part of our Annamycin clinical trials, we have engaged an independent expert to assess cardiotoxicity associated with chemotherapy at the Cleveland Clinic (Expert or Independent Expert). The data made available to the Expert includes left ventricular ejection fraction (LVEF) as determined by echocardiograms, and ECHO strain imaging, as well as Troponin levels (a biochemical marker of acute heart damage). “ECHO strain imaging” is a method in echocardiography (medical ultrasound) for measuring regional or global deformation (contraction or beating) of the myocardium (heart muscle). By strain rate imaging, the simultaneous function of different regions can be displayed and measured. Cardiac health biomarkers such as blood Troponin levels are considered an indicator of potential long-term heart damage. The Expert has issued and will continue to issue periodic reports as additional data are provided to him in batches of subject data. Such data include some data which are preliminary and subject to change. In our discussions regarding the lack of Annamycin's cardiotoxicity, we rely on the Expert's assessment. Annamycin benefits from a promising advancement in lipid enabled drug delivery developed in collaboration with and exclusively licensed from MD Anderson. The unique patented lipid composition allows us to combine a new concept in chemotherapeutic agents within a lipid structure that helps target the delivery of the payload and reduce the potential for toxicity. In the case of Annamycin, our unique use of lipid technology enables improved tissue/organ distribution, and as demonstrated in multiple clinical trials, dramatically reduced toxicity, including cardiotoxicity. b) Our WP1066 Portfolio includes WP1066, WP1193 and WP1220, three of several Immune/Transcription Modulators in the portfolio designed to inhibit p-STAT3 (phosphorylated signal transducer and activator of transcription) among other transcription factors associated with tumor activity. These also stimulate a natural immune response to tumors by inhibiting the errant activity of Regulatory T-Cells (TRegs). WP1066, in oral formulation, has been in two clinical trials for central nervous system (CNS) tumors, including compassionate use cases, in pediatric subjects. WP1066 and WP1193 are being tested in preclinical programs in intravenous (IV) formulations. WP1066 and WP1220 have been in clinical trials in a topical formulation. WP1066 and WP1220 have both independently successfully completed Phase 1 clinical trials and have demonstrated efficacy in their varied indications. c) Our WP1122 Portfolio contains compounds (including WP1122, WP1096, and WP1097) designed to exploit the potential uses of inhibitors of glycolysis such as 2-deoxy-D-glucose (2-DG). We believe such compounds may provide an opportunity to cut off the energy supply of tumors by taking advantage of their high degree of dependence on glucose in comparison to healthy cells, as well as viruses that also depend upon glycolysis and glycosylation to infect and replicate. WP1122 has completed a Phase 1 clinical study in normal volunteers, successfully establishing a Recommended Phase 2 Dose or RP2D. Recent Business Developments Below are recent business developments. Annamycin We held a conference call on August 6, 2024, along with Dr. Michael Andreeff, a member of our Science Advisory Board, to discuss the results of the most recent meeting with the FDA and the plans for the MIRACLE trial. That meeting, the MIRACLE trial and the current data from the MB-106 trial are discussed further below. On August 1, 2024, we announced the discussion in and our resulting plans from our End of Phase 1B/2 (EOP1B/2) meeting held in late June with the FDA supporting the advancement of Annamycin in combination with Cytarabine (also known as “Ara-C” and for which the combination of Annamycin and Ara-C is referred to as “AnnAraC”) to a Phase 3 pivotal trial for the treatment of AML patients who are refractory to or relapsed after induction therapy (R/R AML). This Phase 3 “MIRACLE” trial (derived from (M)olecul(i)n (R)/(r) AML (A)nnAraC (Cl)inical (E)valuation) will be a global trial, including sites in the US. Consistent with the FDA’s recommendations, the adaptive Phase 3 trial is expected to rely solely on CR (complete remission) at day 35 (+/- 14 days) as the primary endpoint versus placebo. We plan to utilize a double-blind, placebo-controlled design, where the control arm is high dose cytarabine (HiDAC) plus placebo. The MIRACLE trial will initially focus on 2 nd line treatment for R/R AML subjects and then follow-up with treatment for 3 rd line R/R AML. Based on our discussions with the FDA, we intend to amend our current investigational new drug application or IND to allow dosing above the lifetime maximum allowable dose (LTMAD) for currently prescribed anthracyclines in this trial in the US. The MIRACLE study, subject to appropriate future filings with and potential additional feedback from the FDA and their foreign equivalents, is expected to initially utilize an adaptive design whereby the first 75 subjects will be randomized to receive HiDAC combined with either placebo, 190 mg/m 2 of Annamycin, or 230 mg/m 2 of Annamycin. At that point, the trial will be unblinded to select the optimum dose for Annamycin. For the second half of the trial, approximately 120 subjects will be randomized to receive either HiDAC plus placebo or HiDAC plus the optimum dose of Annamycin. The selection of the optimum dose will be based not only on the absence of dose limiting toxicities but also on the overall balance of safety, pharmacokinetics and efficacy, consistent with the FDA’s new Project Optimus initiative. 14 Table of Contents We believe the FDA wants to see the durability of response (DoR) and overall survival (OS) as secondary endpoints. In addition, we believe the FDA wants to see data for subjects beyond 2 nd line and, accordingly, our plan includes a follow-on MIRACLE2 trial in 3 rd line subjects starting once the optimum dose is established in the MIRACLE trial. We have established plans for the following milestones with regard to the MIRACLE trial: ● 2024 2H – Begin contracting with MIRACLE trial sites ● 2025 Q1 – First subject treated in MIRACLE trial ● 2025 Q4 – Recruitment update (n=40) ● Mid 2026 – Interim data (n=75) unblinded and Optimum Dose set for MIRACLE trial ● 2026 – Begin enrollment of 3 rd line subjects in MIRACLE2 ● 2027 – Enrollment ends in 2 nd line subjects ● 2028 – Final Data for 2 nd line subjects in MIRACLE ● 2028 2H – Begin submission of a new drug application (NDA) the treatment of R/R AML for accelerated approval on primary endpoint of CR from MIRACLE Clinical Trial for the Treatment of AML in Combination with Cytarabine (MB-106) Table 1 Line of Therapy All Lines (Range 1 st -7 th ) 1 st Line 2 nd Line 2 nd and 3 rd Line Subjects Evaluable To Date 22 4 10 14 Subjects Evaluable Not Dosed Per Protocol 2 0 1 1 Median Age - Years (Range) 67.5 (19-78) 56.5 (19-69) 71 (53-78) 69.5 (53.78) Complete Remission (CR) 8 (36%) 2 (50%) 5 (50%) 6 (43%) Complete Remission Composite (CRc) 9 (41%) 2 (50%) 6 (60%) 7 (50%) Partial Response (PR) 2 0 1 2 CRc Relapsed To Date 3 0 3 3 BMT To Date 2 0 1 2 See Note 1 below Note 1 for Table 1: Data from MB-106 is for Intent To Treat (ITT) subjects; is as of August 3, 2024; and, is preliminary and subject to change. Median Durability of all CRc's is ~7 months and climbing. On May 7, 2024, our management held a Key Opinion Leader conference call with Dr. Martin Tallman and Dr. Michael Andreeff. Management made a presentation of the data above and discussion ensued with Drs Tallman and Andreeff on the significance of this data. Both Drs. Tallman and Andreeff are members of our Science Advisory Board. The call included a discussion of the results to date for MB-106. We believe that the Phase 1B/2 trial has been successful in establishing safety and efficacy of Annamycin in combination with Cytarabine (AnnAraC) for the treatment of AML, and in providing sufficient data to support a Phase 3 registration-directed clinical trial (MB-108) to further provide data for efficacy which we intend to use to support an eventual application for New Drug Approval (NDA). Preliminary Safety, Efficacy and Durability Data The preliminary data for MB-106 demonstrate a CR rate of 36% and a CRc rate of 41% for all subjects (N=22), regardless of the number of prior treatments, up to 6 prior treatments. Segmenting the MB-106 subject population for 2 nd line subjects (N=10) yields a CR rate of 50% and CRc rate of 60%. Further segmenting for 2 nd and 3 rd line subjects (N=14) yields a CR rate of 43% and a CRc rate of 50%. We believe the results demonstrated by AnnAraC in 2 nd line subjects substantially exceeds the performance reported by any drug currently approved for use in 2 nd line AML. Median durability of remission (DoR) for the 9 CRcs is approximately 7 months and developing with one death (related to pneumonia) and two relapses to date out of the ten CRcs. The first subject with a CR (and who has yet to relapse) was treated in February 2023. The DoR is being measured from the initiation of treatment to relapse or death. Cardiovascular safety of Annamycin is thoroughly monitored as independent assessments are made by an independent expert cardio-oncologist from Cleveland Clinic. As of April 1, 2024, data from 84 subjects across five trials (AML & STS, internal and externally funded trials) have been reviewed. Of note, most of these subjects have received greater than the lifetime cumulative anthracycline dose above 550 mg/m2 associated with increased risk of cardiomyopathy. Some subjects have received four times this amount following Annamycin administration(s). No signal of cardiotoxicity has been identified. 15 Table of Contents U.S Patents for Annamycin On April 9, 2024, the United States Patent and Trademark Office (USPTO) issued U.S. Patent number 11,951,118 titled, “ Preparation of Preliposomal Annamycin Lyophilizate ” (the ‘118 patent’) to Moleculin and The University of Texas System Board of Regents. Additionally on May 14, 2024, the USPTO issued an additional patent (U.S. Patent number 11,980,634) titled “ Method of Reconstituting Liposomal Annamycin ” (the ‘634 patent’). We have global, exclusive licenses to both patents. The ‘118 patent provides claims to compositions that contain Annamycin, and the ‘634 patent, when issued, will provide claims to liposomal Annamycin suspension compositions, both with a base patent term extending until June 2040, subject to extension to account for time required to fulfill regulatory requirements for FDA approval. Moleculin’s novel candidate for the treatment of acute myeloid leukemia (AML) and soft tissue sarcoma lung metastases (STS lung mets) uses a unique lipid-based delivery technology. In addition to the issued ‘118 and expected ‘634 U.S. patents, we have additional patent applications pending in major jurisdictions worldwide. EMA issues ODD to Annamycin for the treatment of AML We announced that the European Medicines Agency (EMA) has granted Orphan Drug Designation (ODD) to Annamycin for the treatment of AML. Combined with the Orphan Drug Designation we have in the US and with the new composition of matter and formulation patents just awarded by the US Patent and Trademark Office with coverage through 2040, we believe the commercial exclusivity of Annamycin is now well protected. The EMA grants orphan drug designation to drugs and biologics intended for the treatment, diagnosis or prevention of rare, life-threatening or chronically debilitating diseases or conditions that affect fewer than five in 10,000 people in the European Union. Orphan designation potentially allows companies certain benefits, including reduced regulatory fees, clinical protocol assistance, research grants and up to 10 years of potential market exclusivity in the European Union if approved. AACR Presentation of Data Demonstrating High Anti-Cancer Activity of Annamycin and Non-Cardiotoxic Properties Preclinical data regarding the Company’s next-generation anthracycline, Annamycin, was presented at the American Association for Cancer Research (AACR) Annual Meeting, which took place April 5-10, 2024 in San Diego, CA. The poster titled, Non-cardiotoxic Properties of Annamycin, a Clinically Evaluated Anthracycline and Potent Topoisomerase 2β Poison, was presented in the “Late-Breaking Research: Experimental and Molecular Therapeutics 2” session held on Monday, April 8 th . The presented poster outlined results from the assessment and comparison of the potency of doxorubicin (a commonly prescribed anthracycline) and Annamycin, Moleculin’s next-generation anthracycline, against topoisomerase II-alpha and II-beta and determine their impact on physiology of human cardiomyocytes demonstrating no pathologic changes in mice hearts following chronic in vivo exposure. WP1066 We continue discussions with two US academic institutions and another foreign academic institution for externally funded trials for the use of WP1066 for the treatment of glioblastomas and/or pediatric brain tumors. Of note, we have finalized an agreement with Northwestern University (NU) and NU has begun recruitment in an investigator initiated glioblastoma study. NU should be treating the first subject in the near-term (Clinicaltrials.gov ID: NCT05879250). We do not expect a pediatric study to begin until this adult brain tumor trial commences and generates additional data. Regarding an intravenous formula for WP1066, we believe that substantial progress has been made and that we will be able to announce a patent application process being initiated and a license to us for an IV formulation in the near term . WP1122 With the data generated from the MB-301 clinical trial setting an RP2D for WP1122 and additional sponsored research, we continue to explore avenues of external funding for further development of this portfolio. For this study, we submitted the final clinical study report in late October 2023. 16 Table of Contents Results of Operations The following table sets forth, for the periods indicated, data derived from our statement of operations (table in thousands) and such changes in the periods are discussed below in approximate amounts: Moleculin Biotech, Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues $ — $ — $ — $ — Operating expenses: Research and development 4,090 3,888 8,342 9,576 General and administrative 2,064 2,492 4,457 5,129 Depreciation and amortization 31 31 63 61 Total operating expenses 6,185 6,411 12,862 14,766 Loss from operations (6,185 ) (6,411 ) (12,862 ) (14,766 ) Other income: Gain from change in fair value of warrant liability 1,696 36 3,151 75 Other income, net 11 9 22 17 Interest income, net 159 390 400 783 Net loss $ (4,319 ) $ (5,976 ) $ (9,289 ) $ (13,891 ) Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Research and Development Expense. Research and development (R&D) expense was $4.1 million and $3.9 million for the three months ended June 30, 2024 and 2023 , respectively. The increase of $0.2 million is mainly related t o sponsored research costs. General and Administrative Expense. General and administrative e xpense was $2.1 million and $2.5 million for the three months ended June 30, 2024 and 2023 , respectively. The decrease of $0.4 million is mainly related to a decrease in regulatory and legal fees. Gain from Change in Fair Value of Warrant Liability. We recorded a net gain of $1.7 million in the second quarter of 2024 as compared to a net gain of $0.04 million in the second quarter of 2023, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with certain of our previous stock offerings. We are required to revalue our liability-classified warrants at the time of each warrant exercise, if applicable, and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We calculated the fair value of the warrants outstanding using the Black-Scholes model. A gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price. Interest income, net. Interest income, ne t decreased by approximately $0.2 million f or the comparable quarterly periods due to a decreasing cash balance during the past year. Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Research and Development Expense. Research and development (R&D) expense was $8.3 million and $9.6 million for the six months ended June 30, 2024 and 2023 , respectively. The decrease of $1.3 million is mainly rela ted to the WPD sublicense termination in 2023, which enabled the reacquisition of our intellectual property rights in certain territories including parts of the European Union. The decrease was slightly offset by increased sponsored research costs in 2024 . General and Administrative Expense. General and administrative e xpense was $4.5 million and $5.1 million for the six months ended June 30, 2024 and 2023 , respectively. The decrease of $0.6 million is mainly related to a decrease in regulatory and legal fees. Gain from Change in Fair Value of Warrant Liability. We recorded a net gain of $3.2 million in the six months ended 2024 as compared to a net gain of $0.1 million in the six months ended 2023, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with certain of our previous stock offerings. We are required to revalue our liability-classified warrants at the time of each warrant exercise, if applicable, and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We calculated the fair value of the warrants outstanding using the Black-Scholes model. A gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price. Interest income, net. Interest income, ne t decreased by approximately $0.4 million f or the comparable quarterly periods due to a decreasing cash balance during the past year. 17 Table of Contents Liquidity and Capital Resources The following table sets forth our primary sources and uses of cash for the period indicated (table in thousands): Six Months Ended June 30, 2024 2023 Net cash used in operating activities $ (12,666 ) $ (11,143 ) Net cash used in investing activities (13 ) (15 ) Net cash (used in) provided by financing activities (25 ) 190 Effect of exchange rate changes on cash and cash equivalents (1 ) (5 ) Net decrease in cash and cash equivalents $ (12,705 ) $ (10,973 ) As of June 30, 2024, there w as $0.4 million of cash on hand in a bank account in Australia and we know of no related limitations impacting our liquidity in Australia. Cash used in operating activities Cash used in operations was $12.7 million for the six months ended June 30, 2024 . This $1.6 million increase over the prior year period of $11.1 million was primarily due to the timing of costs incurred and associated payments for drug production and clinical trial expenses. Cash provided by fin ancing activities We did not sell any stock during the six months ended June 30, 2024 . We believe that our cash on hand and cash equivalents as of June 30, 2024, is sufficient to fund our planned operations into the fourth quarter of this year. This takes into account cash outlays for preparations for clinical trials beyond the current active trials. The continuation of our Company as a going concern is dependent upon our ability to obtain necessary financing to continue operations and the attainment of profitable operations. We may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. We cannot provide assurance that such events or a combination thereof can be achieved. An S-1 was recently filed with the SEC indicating our intentions to raise additional cash via the issuance of equity in the amount of $12 million. We believe that our existing cash and cash equivalents as of June 30, 2024, along with the cash expected from this raise will be sufficient to fund our planned operations into the second quarter of 2025. The amount of this raise may increase or decrease. Additionally, there is no guarantee that the Company will be successful in this raise. In March 2022, we received a subpoena from the SEC requesting information and documents, including materials related to certain individuals (none of which are our officers or directors) and entities, and materials related to the development of and statements regarding our drug candidate for the treatment of COVID-19. We have received, and expect to continue to receive, periodic further requests from the SEC staff with respect to this matter. We are not aware of the specific nature of the underlying investigation by the SEC, and to the extent that this investigation relates to prior public disclosures that we have made, we believe in the accuracy and adequacy of such prior disclosures. The correspondence from the SEC transmitting the subpoena to us states that the SEC is trying to determine whether there have been any violations of federal securities laws, but that its investigation does not mean that the SEC has concluded that anyone has violated the law or that the SEC has a negative opinion of any person, entity, or security. We cannot predict when this matter will be resolved or what, if any, action the SEC may take following the conclusion of the investigation. We expensed approximate ly $0.1 million and $0.4 million in related general and administrative fees and expenses for the three months ended June 30, 2024 and 2023 , respectively, and approximate ly $0.1 million and $0.9 million for the six months ended June 30, 2024 and 2023 , respectively . Critical Accounting Policies and Significant Judgments and Estimates There have been no material changes to our critical accounting policies and use of estimates from those disclosed in our Form 10-K for the year ended December 31, 2023. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. 18 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable as we are a smaller reporting company.