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 the Middle East, 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 Phase 3 clinical stage pharmaceutical company with a portfolio of technologies 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, our drugs have completed, are currently in, or have been permitted to proceed in, fourteen clinical trials. Annamycin is our lead molecule and we have recently concluded one Phase 1B/2 clinical trial for treating Acute Myeloid Leukemia (AML) and are embarking on a Phase 3 clinical trial for the treatment of AML, which we believe will be pivotal. Annamycin is also in two Phase 1B/2 clinical trials 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, mainly due to its lack of cardiotoxicity (which is found in currently prescribed anthracyclines) and its ability to avoid multidrug resistance mechanisms. 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. 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, with intensive cardiac monitoring, has shown no cardiotoxicity in subjects treated in our four Annamycin clinical trials to date. Furthermore, we have demonstrated safe dosing significantly 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. 13 Table of Contents 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 include left ventricular ejection fraction (LVEF) as determined by echocardiograms, and ECHO strain imaging, as well as serum 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. Annamycin has composition of matter patent protection through 2040. 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 Phase 3 MIRACLE Trial We are in the process of evaluating and visiting potential sites for our Phase 3 pivotal trial for the treatment of AML patients who are refractory to or relapsed after induction therapy (R/R AML) with 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”). 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. We plan to focus on sites in the North America, Europe, Eastern Europe, Western Asia, and MENA (Middle East and Africa) for the initial Part A of MIRACLE. Our initial target will be approximate ly 45 sit es. We expect that this will enable the enrollment of approximately 45 subjects by the third quarter of 2025 and approximately 90 subjects by the second half of 2026. The data may also be unblinded after the initial 45 subjects and, as currently planned, the data will be unblinded after approximately 90 subjects complete their efficacy analyses. We believe that we will have the data for approximately the first 90 subjects by the second half of 2026. The trial is designed to enable the review of interim analyses for safety and efficacy upon reaching these enrollment milestones. 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 our 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 (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 will be a global study, including sites in the US and 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 the control arm. 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 focus on AnnAraC as a 2 nd line treatment for R/R AML subjects, with a subsequent trial to be focused on AnnAraC as a 3 rd line treatment for 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, their foreign equivalents and/or institutional review boards (IRBs), is expected to initially utilize an adaptive design whereby the first 90 subjects will be randomized to receive HiDAC combined with either placebo, 190 mg/m 2 of Annamycin, or 230 mg/m 2 of Annamycin with such doses recommended by the FDA based on their review of our safety and efficacy data. At that point, the trial data will be unblinded to select the optimum dose for Annamycin. For the second half of the trial, approximately 240 subjects will be randomized to receive either HiDAC plus placebo or HiDAC plus the optimum dose of Annamycin. The selection of the optimum dose by the independent Data Monitoring Committee will be based on the overall balance of efficacy, safety, and pharmacokinetics, 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 and interim data (n=~45) ● 2H 2026 – Interim efficacy and safety data (n=~90) unblinded and Optimum Dose set for MIRACLE trial ● 2027 – Begin enrollment of 3 rd line subjects in MIRACLE2 ● 2027 – Enrollment ends in 2 nd line subjects ● 2028 – Primary endpoint efficacy 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 5 1 4 4 BMT To Date 4 1 2 3 See Note 1 below Note 1 for Table 1: Data from MB-106 is for Intent To Treat (ITT) subjects; is as of October 24, 2024; and, is preliminary and subject to change. Median Durability of all CRc's is ~8 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 8 months and developing. 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. Annamycin as Monotherapy for the Treatment of Soft Tissue Sarcoma Lung Metastases Additionally, we expect to release in the near future the topline data from the MB-107 trial with Annamycin for the monotherapy treatment of soft tissue sarcoma lung metastases. This Phase 1B/2 clinical trial in the US is for subjects with STS lung metastases after first-line therapy for their disease. The trial began in the first half of 2021. The Phase 1B was concluded in July 2022. On September 21, 2023, we announced the completion of enrollment in the Phase 2 portion of our U.S. Phase 1B/2 clinical trial evaluating Annamycin as monotherapy for the treatment of soft tissue sarcoma lung metastases. Subjects who had stable disease at the time of study discontinuation will continue to be followed for progression free response and overall survival. The study database is locked and the clinical study report is being written and should be completed in early 2025 and will be released in detail at that time. The total number of intent to treat subjects in the trial is 36. 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, as issued, provides 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. Presentation at the International Association for the Study of Lung Cancer 2024 World Conference on Lung Cancer On September 23, 2024, we announced positive in vivo efficacy data of Annamycin in orthotopic and experimental lung metastatic models of sarcoma at the International Association for the Study of Lung Cancer (IASLC) 2024 World Conference on Lung Cancer. Treatment with Annamycin resulted in statistically significant inhibition of tumor growth and extension of survival in orthotopic lung cancer models and continues to be 100% non-cardiotoxic. The poster titled “ Annamycin: Opening New Doors for Organotropic Targeting of Primary and Metastatic Lung Cancer , ” authored by Waldemar Priebe, PhD (Founder, Founding Scientist, and Chair of Scientific Advisory Board for Moleculin) and coworkers was presented at the IASLC 2024 World Conference on Lung Cancer. The presented poster outlined results from the efficacy assessment studies of Annamycin, Moleculin’s next-generation anthracycline in orthotopic models of lung cancer and sarcoma lung metastasis models in comparison with doxorubicin (a commonly prescribed anthracycline. Key Highlights of the Data Presented: • Annamycin demonstrated high uptake and retention in lung parenchyma of mice and rats. • The therapeutic effects of doxorubicin (DOX) are diminished due to low lung DOX uptake as demonstrated in the tested in vivo models. In contrast, Annamycin exhibits consistent efficacy in vivo in orthotopic and experimental lung metastatic models of sarcoma, breast, and colon cancer. This correlated with high Annamycin concentration in lungs, which exceeded DOX levels by 10- to 30-fold. • Preclinical tests clearly demonstrate a better cardiac safety profile of Annamycin when compared to DOX and no cardiotoxicity of Annamycin in the in vivo models. No cardiotoxicity of Annamycin has been noted in ongoing clinical studies. • The observed organotropic properties of Annamycin, its efficacy in vivo , and its promising safety profile warrant further translational studies to evaluate Annamycin in patients with primary or metastatic lung cancers, as a single agent and in combination with currently used therapeutics. 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 announced on September 9, 2024, the beginning of enrollment and treatment of patients in an investigator-initiated Phase 2 study evaluating WP1066 in combination with radiation therapy for the treatment of adults with glioblastoma (NU 21C06). The study is being conducted under Northwestern University’s investigative New Drug application (IND) which cross references our own IND, which received clearance from the U.S. Food and Drug Administration (FDA) in April 2022. This trial is funded by the National Institutes of Health (NIH) and BrainUp®, a non-profit organization dedicated to bringing awareness to brain cancer. The NU 21C06 trial is a Phase 2, open-label, multi-arm trial of radiation therapy in combination with WP1066 in newly diagnosed IDH (isocitrate dehydrogenase) wild-type, MGMT-unmethylated glioblastoma patients. The primary outcome measure for the study is progression-free survival and secondary outcome measures include tumor microenvironment analysis. Four subjects have been treated as of November 1, 2024. Regarding an intravenous formula for WP1066, we are pursuing a new patent that is co-owned by us and MD Anderson. We are in discussions regarding licensing or an option to license the MD Anderson rights to the new formulation. 16 Table of Contents 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. General Business Science Advisory Board Appointment We announced on November 4, 2024, the appointment of Daniel D. Von Hoff, M.D., F.A.C.P., FASCO, FAACR to our Annamycin Scientific Advisory Board. Dr. Von Hoff currently serves as the Distinguished Professor at the Translational Genomics Research Institute (TGen) in Phoenix, Arizona and City of Hope. August Issuance of Equity On August 19, 2024, we announced the closing of our previously announced public offering of 283,000 shares of common stock and 2,183,368 pre-funded warrants to purchase shares of common stock, Series A warrants to purchase up to 2,466,368 shares of common stock and Series B warrants to purchase up to 2,466,368 shares of common stock, at a combined public offering price of $2.23 per share (or per common stock equivalent in lieu thereof) and accompanying warrants. The Series A warrants have an exercise price of $2.23, are exercisable immediately upon shareholder approval (which was received in October 2024) and will expire upon the earlier of (i) the 2 year anniversary of the date of stockholder approval or (ii) the 60 th day following the date we release interim data for the first subject group from the MIRACLE trial whereby the complete remission rate for either doses of the Company’s study drug is greater than placebo. The Series B warrants have an exercise price of $2.23, are exercisable immediately upon shareholder approval (which was received in October 2024) and will expire upon the earlier of (i) the 5 year anniversary of the date of stockholder approval or (ii) the 6 month anniversary following the date we release final topline data from the MIRACLE trial and documented a statistically significant improvement in the primary efficacy endpoint. Pursuant to Nasdaq Listing Rule 5635(d), the exercise of the Series A warrants and Series B warrants were subject to shareholder approval, which was received. The gross proceeds from the offering, before deducting the placement agent’s fees and other offering expenses payable by us, were approximately $5.5 million and we would receive up to an additional approximately $11.0 million in gross proceeds if the warrants are fully exercised for cash. We are using the net proceeds from this offering to advance Annamycin and our other two drug portfolios through clinical development, advance the remainder of our existing portfolio through preclinical studies and into INDs or their equivalent, sponsor research at MD Anderson and HPI, and for working capital. 17 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues $ — $ — $ — $ — Operating expenses: Research and development 4,932 3,280 13,274 12,855 General and administrative 2,172 2,635 6,629 7,765 Depreciation and amortization 31 32 95 92 Total operating expenses 7,135 5,947 19,998 20,712 Loss from operations (7,135 ) (5,947 ) (19,998 ) (20,712 ) Other income (loss): (Loss) gain from change in fair value of warrant liability (1,728 ) 1 1,423 76 Transaction costs allocated to warrant liabilities (993 ) — (993 ) — Loss on issuance of warrant liabilities (847 ) — (847 ) — Other income, net 9 13 31 30 Interest income, net 102 324 503 1,106 Net loss $ (10,592 ) $ (5,609 ) $ (19,881 ) $ (19,500 ) Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Research and Development Expense. Research and development (R&D) expense was $4.9 million and $3.3 million for the three months ended September 30, 2024 and 2023 , respectively. The increase of $1.6 million is mainly related t o costs incurred for clinical trials (clinical research organization and drug production) and sponsored research costs. General and Administrative Expense. General and administrative e xpense was $2.2 million and $2.6 million for the three months ended September 30, 2024 and 2023 , respectively. The decrease of $0.4 million is mainly related to a decrease in regulatory and legal fees. (Loss) Gain from Change in Fair Value of Warrant Liability. We recorded a net loss of $1.7 million in the third quarter of 2024 as compared to a net gain of $0.001 million in the third 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. Transaction costs allocated to warrant liabilities and Loss on issuance of warrant liabilities. Proceeds of offerings are allocated between common shares and warrants first by allocating to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which would include pre-funded warrants. As the fair value of the liability classified warrants in the August 2024 offering exceeded the total proceeds, no consideration was allocated to the Common Shares or Pre-Funded Warrants. The full proceeds of the August 2024 offering were recorded to warrant liabilities, with an initial liability of $6.1 million, and a loss on initial recognition of $0.8 million. The loss on modification of certain warrants of $0.4 million was also recorded as a loss on issuance of warrant liabilities in the three months ended September 30, 2024. Transaction costs related to the offering were correspondingly fully allocated to warrant liabilities, and $1.0 million in related transaction costs were expensed during the three and nine months ended September 30, 2024. 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 and decreasing interest rates during the past year. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Research and Development Expense. Research and development (R&D) expense was $13.3 million and $12.9 million for the nine months ended September 30, 2024 and 2023 , respectively. The increase of $0.4 million is mainly related to costs incurred for clinical trials (clinical research organization and drug production) and sponsored research costs. These increases were offset by a $1.5 million decrease mainly related 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. General and Administrative Expense. General and administrative e xpense was $6.6 million and $7.8 million for the nine months ended September 30, 2024 and 2023 , respectively. The decrease of $1.2 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 $1.4 million in the nine months ended 2024 as compared to a net gain of $0.1 million in the nine 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. 18 Table of Contents Transaction costs allocated to warrant liabilities and Loss on issuance of warrant liabilities. Proceeds of offerings are allocated between common shares and warrants first by allocating to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which would include pre-funded warrants. As the fair value of the liability classified warrants in the August 2024 offering exceeded the total proceeds, no consideration was allocated to the Common Shares or Pre-Funded Warrants. The full proceeds of the August 2024 offering were recorded to warrant liabilities, with an initial liability of $6.1 million, and a loss on initial recognition of $0.8 million. The loss on modification of certain warrants of $0.4 million was also recorded as a loss on issuance of warrant liabilities in the nine months ended September 30, 2024. Transaction costs related to the offering were correspondingly fully allocated to warrant liabilities, and $1.0 million in related transaction costs were expensed during the three and nine months ended September 30, 2024. Interest income, net. Interest income, ne t decreased by approximately $0.6 million f or the comparable quarterly periods due to a decreasing cash balance and decreasing interest rates during the past year. Liquidity and Capital Resources The following table sets forth our primary sources and uses of cash for the period indicated (table in thousands): Nine Months Ended September 30, 2024 2023 Net cash used in operating activities $ (18,779 ) $ (18,694 ) Net cash used in investing activities (13 ) (43 ) Net cash provided by financing activities 4,634 186 Effect of exchange rate changes on cash and cash equivalents 13 (15 ) Net decrease in cash and cash equivalents $ (14,145 ) $ (18,566 ) As of September 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 $18.8 million for the nine months ended September 30, 2024 . This $0.1 million increase over the prior year period of $18.7 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 On August 19, 2024, we announced the closing of our previously announced public offering of 283,000 shares of common stock and 2,183,368 pre-funded warrants to purchase shares of common stock, Series A warrants to purchase up to 2,466,368 shares of common stock and Series B warrants to purchase up to 2,466,368 shares of common stock, at a combined public offering price of $2.23 per share (or per pre-funded warrant in lieu thereof) and accompanying warrants. We received gross proceeds of $5.5 million, before deducting the placement agent's fees and other offering expenses. We believe that our cash on hand and cash equivalents as of September 30, 2024, is sufficient to fund our planned operations into the first quarter of 2025. 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 must seek additional funding of approximately $15 million to support MIRACLE and our operations into the third quarter of 2025 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 to continue our operations in the near term. We cannot provide assurance that such events or a combination thereof can be achieved. 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 September 30, 2024 and 2023 , respectively, and approximate ly $0.2 million and $1.4 million for the nine months ended September 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. 19 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable as we are a smaller reporting company.