Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Risk Factors” and in other parts of this Annual Report on Form 10-K.
Company Overview
We are a biopharmaceutical company focused on the development and commercialization of innovative cardiovascular medicines. Our lead product candidate, etripamil, is a novel and potent calcium channel blocker that we designed as a rapid-onset nasal spray to be self-administered by patients. We are developing etripamil for the treatment of specific arrhythmias with a lead indication to treat paroxysmal supraventricular tachycardia, or PSVT, and an indication to treat atrial fibrillation with rapid ventricular rate, or AFib-RVR.
On October 23, 2023, we submitted the New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, seeking approval to sell and market etripamil for the treatment of paroxysmal supraventricular tachycardia, or PSVT. PSVT is a condition characterized by an abnormality in the electrical system of the heart causing patients to have unexpected, often severely symptomatic episodes of rapid heart rate. Patients experiencing episodes of supraventricular tachycardia, or SVT, often experience symptoms including palpitations, sweating, chest pressure or pain, shortness of breath, sudden onset of fatigue, lightheadedness or dizziness, fainting and anxiety. Calcium channel blockers have long been approved for the treatment of PSVT as well as other cardiac conditions. Calcium channel blockers available in oral form are sometimes used prophylactically to attempt to control the frequency and duration of future episodes of SVT. For treatment of episodes of SVT, approved calcium channel blockers are administered intravenously under medical supervision, usually in the emergency department. We believe the combination of convenient nasal-spray delivery and rapid-onset of etripamil has the potential to shift the current treatment paradigm for episodes of SVT away from the burdensome and costly emergency department setting.
We announced that we received a refuse-to-file, or RTF, letter from the FDA on December 26, 2023. Upon preliminary review, the FDA determined that the NDA was not sufficiently complete to permit substantive review. The FDA requested clarification about the data recorded for the time of adverse events in Phase 3 clinical trials; FDA did not express concerns about the nature or severity of adverse events. In February 2024, Milestone held a Type A Meeting with the FDA to determine next steps for the filing for marketing approval. The Agency indicated that the adverse events, or AEs, hourly timing data in question had minimal impact on the overall characterization of the etripamil safety profile. As a result, data sets that capture timing of AEs reported in the Phase 3 pivotal studies will be revised to align with FDA requests and resubmitted. This approach will address the requests from the FDA in their December 2023 RTF letter. The original NDA submission will be reviewed, and no additional clinical efficacy or safety trials have been requested. The Company expects a standard NDA review following the resubmission. The resubmission is planned for the second quarter of 2024. If approved, we believe that etripamil will be the first self-administered therapy for the rapid termination of episodes of SVT wherever and whenever they occur.
On October 17, 2022, we announced positive and statistically significant topline efficacy and safety data from our Phase 3 RAPID clinical trial evaluating etripamil in patients with PSVT. These results from the RAPID trial were presented on November 7, 2022, as a Late-Breaking Clinical Trial at the American Heart Association Scientific Sessions (Chicago, IL). These results were also published in the Lancet on July 8, 2023. RAPID, our multi-center, randomized, double-blind, placebo-controlled, event-driven Phase 3 trial, enrolled 706 patients across clinical sites in North America and Europe. Patients were randomized 1:1 using a self-administered regimen consisting of a first dose of study drug, and a repeat dose 10 minutes later if symptoms persisted. Self-administration was prompted by a patient’s symptoms and performed in the at-home setting without medical supervision. The RAPID trial achieved its primary endpoint with etripamil demonstrating a highly statistically significant and clinically meaningful difference in time to SVT conversion as compared to placebo. A Kaplan Meier analysis demonstrated a significantly greater proportion of patients who took etripamil converted to sinus
97
Table of Contents
rhythm within thirty minutes compared to patients that took placebo (64.3% vs. 31.2%; hazard ratio, or HR, 2.62; 95% CI 1.66, 4.15; p<0.001). By 90 minutes post-study drug administration, 80.6% of patients taking etripamil converted to sinus rhythm compared to 60.7% of patients taking placebo (HR = 1.93; 95% CI 1.349, 2.752; p<0.001). Statistically significant reductions in time to conversion in patients who took etripamil were evident early and persisted throughout the observation window of the trial compared to patients that took placebo. The median time-to-conversion for patients in the RAPID trial who self-administered etripamil was 17.2 minutes compared to 53.3 minutes for patients taking placebo. The safety and tolerability data from the RAPID trial supports the potential self-administration of etripamil, with findings consistent with those observed in prior trials. The most common randomized-treatment emergent adverse events, or RTEAEs, and adverse events, or AEs, occurred within 24 hours of etripamil administration and were related to the nasal local administration site. Overall, the majority of RTEAEs were reported as mild (68%) or moderate (31%). No serious adverse effects related to etripamil were reported.
The use of additional medical interventions and emergency department utilization were key secondary endpoints for both the RAPID and NODE-301 trials. In a pre-planned pooled analysis across both trials, patients who self-administered etripamil sought additional medical interventions 43% less frequently (15% vs. 25%; p=0.013) and had 39% fewer visits to the emergency department (14% vs. 22%; p=0.035) than patients in the placebo arm.
We believe that PSVT is a large and under-recognized market that we estimate affects approximately two million Americans and results in over 150,000 emergency department visits and hospital admissions and up to 80,000 ablations per year. From this diagnosed population, we define the target addressable market for etripamil as 40 to 60% of patients who experience frequent and longer, moderate to severe episodes each year. After being exposed to the data from the RAPID clinical study in market research, Cardiologists reported a willingness to prescribe etripamil to approximately 50% of the patients with PSVT in their care, which suggests 500,000 to 800,000 patients can potentially be treated with etripamil in the peak year. Additionally, we believe that these target patients will use etripamil to treat a median of five episodes per year based on the projected number of longer or more intense episodes (self-reported) experienced by the patient. This implies demand in the US for etripamil of 2.5 million to 4 million episodes treated in the peak year.
AFib RVR Phase 2 Trial
In mid-2023, we held a pre-IND meeting with FDA and received guidance indicating that we could follow a supplemental NDA, or sNDA, regulatory pathway for the marketing approval for etripamil for the indication of AFib-RVR. The sNDA pathway potentially permits a single pivotal efficacy study to be sufficient for filing for marketing approval if etripamil is already approved for PSVT. In the first quarter of 2024, we met with the FDA in a Type A meeting. In this meeting FDA reiterated its prior guidance regarding the availability of an sNDA pathway. FDA further concurred with respect to key study elements including powering, inclusion criteria, patient population, and statistical analyses, and offered clarification with respect to the endpoints to guide the design of the Phase 3 study. We anticipate progressing to an End of Phase 2 meeting in mid-2024 as an important step to finalize the registrational study protocol.
On November 11, 2023, we presented positive Phase 2 data from the ReVeRA study, as a Featured Science Presentation at the American Heart Association Scientific Meetings (Philadelphia, PA) and as simultaneously published in Circulation: Arrhythmia and Electrophysiology. The data reflected that patients with AFib-RVR receiving etripamil nasal spray experienced rapid and statistically superior ventricular rate reduction and improved symptom-relief compared to placebo. In summary, the data demonstrated that etripamil NS was effective in patients with AF-RVR in substantially reducing VR (difference between etripamil vs. placebo in maximum reduction from baseline: -29.91 bpm; p < 0.0001). The median time to maximum reduction in VR was 13 min, and the duration of effect (reduction in VR from baseline) was at least 150 min. The median duration of maintaining a VR <100 bpm was 45.5 min in the first 60 min following drug in the etripamil arm. Etripamil treatment was associated with significant improvement in symptom relief and in treatment satisfaction as measured by the TSQM-9 patient-reported outcome instrument. Safety and tolerability reported in the 56-patient safety population who received etripamil was generally consistent with that observed in our PSVT program. The majority of common AEs were localized to the drug-administration site, and there was a low incidence of serious adverse events.
The randomized, placebo controlled Phase 2 ReVeRA trial enrolled 87 patients and dosed 56 patients aged 18 years and older with AFib who experienced a ventricular rate of 110 or more beats per minute (bpm) prior to receiving etripamil
98
Table of Contents
nasal spray. The trial was designed to assess the reduction in ventricular rate (primary endpoint), the time to achieve maximum reduction in ventricular rate, duration of effect, and patient satisfaction with treatment using the Treatment Satisfaction Questionnaire 9 (TSQM-9) patient reported outcome (PRO) tool (key secondary endpoints).
Data from ReVeRA trial showed that delivery of etripamil nasal spray significantly and rapidly reduced ventricular rate, consistent with the drug’s pharmacologic profile. Etripamil achieved the primary endpoint with high statistical significance with patients experiencing a ventricular rate reduction of 29.91 bpm (95% confidence interval: -40.31, -19.52; p<0.0001) in the etripamil arm compared to placebo. The maximum reduction in rate reported by a patient taking etripamil was 34.97 bpm. The median time to maximum reduction in ventricular rate was 13 minutes in patients taking etripamil.
A greater number of patients taking etripamil achieved a ventricular rate of less than 100 bpm (58.3%) than those taking placebo (4%). Furthermore, 67% of patients taking etripamil achieved ventricular rate reductions of more than 20% and 96% of patients receiving etripamil achieved more than 10% in ventricular rate reductions in the first 60 minutes compared to 0% and 20% in patients taking placebo, respectively. Using the TSQM-9, compared to placebo, patients treated with etripamil demonstrated significant improvements in two satisfaction ratings: effectiveness (p<0.0001) and relief of symptoms (p=0.0002).
Treatment-emergent serious adverse events, or TESAEs, were rare, with two occurring in one patient in the etripamil arm (3.7%) and four occurring in two patients in the placebo arm (6.9%). The TESAEs in the etripamil arm (transient severe bradycardia and syncope, assessed as due to hyper-vagotonia occurred in a patient with a history of vagal events, and fully resolved by placing the patient supine and was without sequelae. The most common (≥ 5%) adverse events were mild or moderate in intensity and included nasal discomfort, rhinorrhea, increased lacrimation, throat irritation and dizziness.
An estimated five million Americans suffer from AFib. The Centers for Disease Control projects the prevalence of AFib will grow to an estimated 10 million patients by 2030. A subset of AFib patients experience episodes of abnormally high heart rate most often accompanied by palpitations, shortness of breath, dizziness, and weakness. While these episodes, known as AFib-RVR, may be treated by oral calcium channel blockers and/or beta blockers, patients frequently seek acute care in the emergency department to resolve symptoms. In 2016, nearly 800,000 patients were admitted to the emergency department due to AFib symptoms. Treatment for such symptoms typically includes medically supervised intravenous administration of calcium channel blockers or beta blockers, or electrical cardioversion.
Planned Clinical Development for AFib-RVR
In mid-2023, we met with the FDA for a pre-IND meeting. In this meeting, we received guidance from the FDA on a potential development path for etripamil in AFib-RVR. The FDA agreed that to gain a labelled indication via supplemental NDA, or sNDA, a Phase 3, randomized, placebo controlled, double blind clinical trial using a dosing regimen with self-administration of etripamil in an at-home setting could be acceptable with the support of the already existing safety database from our PSVT trials. The primary endpoint can be the reduction of ventricular rate, and the primary analysis would be on the intent to treat, or ITT, population. In addition, the study would have to show statistical significance (p<0.05) on the key secondary endpoint of symptom relief as a patient benefit, also in the ITT population. The secondary endpoint could use a patient-reported outcomes measure, or PRO, and the application of a seven-point anchored scale was discussed with the FDA. In the first quarter of 2024, we met with the FDA in a Type A meeting. In this meeting we confirmed prior FDA guidance on a single-study supplemental New Drug Application (sNDA) pathway. We further confirmed key study elements including powering, inclusion criteria, patient population, and statistical analyses, and we clarified the endpoints which will guide the design of the Phase 3 study. We anticipate progressing to an End of Phase 2 meeting in mid-2024, an important step to finalize the registrational study protocol.
99
Table of Contents
We plan to propose to the FDA a Phase 3 clinical study for AFib-RVR conducted in the at-home setting consisting of patients with a history of symptomatic episodes and using a repeat-dose regimen of 70mg per dose similar to what was studied in the RAPID trial in patients with PSVT. Our target population would be patients with verified AFib-RVR, and the ITT population would be all patients self-administering the study drug for perceived AFib-RVR. The primary endpoint being considered is the mean change from baseline ventricular rate to nadir ventricular rate for patients treated with etripamil vs placebo, as was studied in the ReVeRA trial. Our key secondary endpoint would be based on a PRO acceptable to the FDA and the same or similar to ones we have used in our PSVT and AFib-RVR programs. We estimate that the study size would be approximately 150 to 200 unique patients treating an episode. This study may begin in 2024 and have an approximate two-year duration to report top-line data.
Operations Overview
Since the commencement of our operations in 2003, we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities, providing general and administrative support for these operations and, more recently preparing for commercialization. We operate our business using a significant outsourcing model. As such, our team is composed of a relatively smaller core of employees who direct a significantly larger number of team members who are outsourced in the forms of vendors and consultants to enable execution of our operational plans. We do not currently have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations.
Since inception, we have incurred significant operating losses. For the years ended December 31, 2023 and 2022, we recorded net losses of $59.7 million and $58.4 million, respectively. As of December 31, 2023, we had an accumulated deficit of $326.0 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development activities required for obtaining regulatory approval and preparing for potential commercialization of our product candidates. We had $13.8 million of cash and cash equivalents and $52.2 million of short-term investments at December 31, 2023.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase over time as we:
● continue our ongoing and planned development of etripamil, including and potentially future Phase 4 clinical trials for the treatment of PSVT and future Phase 3 clinical trials for the treatment of AFib-RVR;
● seek marketing approvals for etripamil for the treatment of PSVT, AFib-RVR and other cardiovascular indications;
● establish a sales, marketing, manufacturing and distribution capability, either directly or indirectly through third parties, to commercialize etripamil or any future product candidate for which we may obtain marketing approval;
● build a portfolio of product candidates through development, or the acquisition or in-license of drugs, product candidates or technologies;
● initiate preclinical studies and clinical trials for etripamil for any additional indications we may pursue, including the clinical trials for the treatment of atrial fibrillation and rapid ventricular rate as well as other areas of unmet medical need, and for any additional product candidates that we may pursue in the future;
● maintain, protect and expand our intellectual property portfolio;
100
Table of Contents
● hire additional clinical, regulatory and scientific personnel;
● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
● incur additional legal, accounting, insurance and other expenses associated with operating as a public company.
Recent Developments
New Drug Application Status
In October 2023 we submitted a New Drug Application, or NDA, for marketing approval in the United States for etripamil for the treatment of PSVT. On December 26, 2023, we announced that we received an RTF letter from the FDA. Upon preliminary review, the FDA determined that the NDA was not sufficiently complete to permit substantive review. The FDA requested clarification about the time of data recorded for adverse events in our Phase 3 clinical trials; FDA did not express concerns about the nature or severity of AEs.
In February 2024, we held a Type A Meeting with the FDA to determine next steps for the filing for marketing approval. The FDA indicated that the timing of AEs in question had minimal impact on the overall characterization of the etripamil safety profile, based on the FDA’s review of the affected data which was mainly related to AEs associated with local drug administration site tolerability and, importantly, did not appear to affect the assessment of serious adverse events and/or AEs of special interest for a calcium channel blocker. To align with the FDA’s guidance in preliminary response to our questions presented to the FDA in our Type A Meeting request, we plan to restructure the data sets that capture timing of reported AEs, reformat certain data files to facilitate FDA’s analyses, and resubmit the NDA. Based on the guidance received during the Type A Meeting, we expect that this approach will address the RTF from the FDA. The FDA has not requested that we complete additional clinical efficacy or safety trials prior to resubmitting the NDA. We expect a standard NDA review period following resubmission of the NDA for etripamil for PSVT. The resubmission is planned for the second quarter of 2024.
In connection with the revised timeline for NDA submission, we have undertaken certain cash conservation measures to reduce spend through program deferrals and team restructuring and expect that our existing cash resources will fund operations into 2026, including through the expected Prescription Drug User Fee Act date for the NDA resubmission. We expect the implementation of these cash conservation measures to be substantially completed in the first quarter of 2024. If FDA approval is granted, we expect to receive a $75 million payment under an existing royalty agreement, which is intended to fund the potential commercial launch of etripamil for PSVT.
Strategic Financing Transaction
On February 28, 2024, we entered into an underwriting agreement, or the Underwriting Agreement, related to an underwritten public offering, or the Offering, of 16,666,667 of our common shares, without par value, at a public offering price of $1.50 per share and, in lieu of common shares to certain investors, pre-funded warrants to purchase 3,333,333 Shares at a public offering price of $1.499 per pre-funded warrant. Under the terms of the Underwriting Agreement, we granted the Underwriters an option to purchase up to an additional 3,000,000 common shares at the same price per share as the other common shares sold in the Offering, which was exercised by the Underwriters in full on February 29, 2024.
Each pre-funded warrant has an exercise price of $0.001 per share. The pre-funded warrants were exercisable immediately upon issuance, subject to certain beneficial ownership limitations.
The net proceeds to the Company from the Offering, including the proceeds from the exercise by the Underwriters of their option to purchase the additional 3,000,000 common shares in full, was approximately $32.4 million after deducting underwriting commissions and offering expenses payable by the Company.
The Offering closed on March 4, 2024.
101
Table of Contents
The Macroeconomic Climate
The recent trends towards rising inflation may also materially adversely affect our business and corresponding financial position and cash flows. Inflationary factors, interest rates and overhead costs may adversely affect our operating results. Rising interest and inflation rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future, the Russia-Ukraine war, unrest and/or further escalation in Israel and Gaza, recent banking instabilities and other U.S. geopolitical issues affecting other territories and employee availability and wage increases, and economic markets all of which may result in additional stress on our working capital resources.
Components of Results of Operations
Revenues
We have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales in the near future. Our revenues of $1.0 million for the year ended December 31, 2023 compared to $5.0 million for the year ended December 31, 2022 are from the license agreement with Ji Xing and are comprised of upfront and milestone payments. For additional information about our Revenue, see “Note 2 Summary of Significant Accounting Policies, and Note 3 Revenue.”
Research and Development Expenses
Research and development expenses consist primarily of salaries and fees paid to external service providers and also include personnel costs, including share-based compensation expense and other related compensation expenses. We expense research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers.
To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, we expect our research and development costs to increase for the development of etripamil in atrial fibrillation with rapid ventricular rate, and we expect our research and development expenses related to the development of etripamil for PSVT decrease as a percentage of our total research and development expenses.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming and is subject to uncertainties and delays. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all.
We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits. General and administrative expenses include personnel and related compensation costs, expenses for outside professional services, lease expense, insurance expense and other general administrative expenses. Personnel costs consist of salaries, bonuses, benefits, related payroll taxes and share-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees.
We expect to continue to incur expenses as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administrative and professional services.
102
Table of Contents
Commercial Expenses
Commercial expenses consist primarily of personnel and related compensation costs, market and health economic research, and market development activities for PSVT and, to a lesser extent, AFib-RVR. The focus of these expenses is three-fold: first, we want to leverage rigorous primary and secondary research to fully understand our target disease states from the perspective of the patient, healthcare provider, and payer; second, we want to understand and document the burden of disease posed by PSVT and AFib-RVR from an epidemiology, healthcare resource use, and cost perspective; and third, we want to engage our target patient, physician, and payer stakeholders with evidence-based and compliant educational materials that serve to increase the awareness and understanding of the impact of PSVT and AFib-RVR on patients and the overall healthcare system.
If the FDA approves the NDA, we anticipate our commercial expenses will increase as we invest in the infrastructure, personnel, and operational expenses required to launch our first product in the United States.
Interest Income
Interest income primarily consists of interest income from our cash equivalents and short-term investments.
Interest Expense
Interest expense primarily consists of contractual debt interest expense and the amortization of debt costs.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
Year ended December 31,
(in thousands)
2023
2022
$ Change
% Change
Revenue
$
1,000
$
5,000
$
(4,000)
100.0%
Operating expenses
Research and development, net of tax credits
31,052
39,829
(8,777)
(22.0)%
General and administrative
15,932
15,718
214
1.4%
Commercial
15,114
9,095
6,019
66.2%
Total operating expenses
62,098
64,642
(2,544)
(3.9)%
Loss from operations
(61,098)
(59,642)
(1,456)
2.4%
Interest income
3,967
1,254
2,713
216.4%
Interest expense
(2,554)
—
(2,554)
100.0%
Net loss
(59,685)
(58,388)
(1,297)
2.2%
Revenue
We recorded revenue of $1.0 million for the year ended December 31, 2023. This revenue was the result of having reached a milestone pursuant to our License and Collaboration Agreement, dated May 15, 2021, with Ji Xing Pharmaceuticals Limited, such party being referred to as Ji Xing and such agreement as the Ji Xing License Agreement, due upon the successful initiation of a Phase 1 Clinical Trial of a pharmaceutical product that uses a device to deliver etripamil by nasal spray by or on behalf of Ji Xing for the treatment of PSVT in the People’s Republic of China, or the Territory, including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan.
We recorded revenue of $5.0 million for the year ended December 31, 2022. This revenue was related to two milestones reached as a result of the first patient dosed in a Phase 3 Clinical Trial for the treatment of PSVT in the Territory pursuant
103
Table of Contents
to the Ji Xing License Agreement and the successful completion of a Phase 3 clinical trial for the treatment of PSVT in the United States.
Research and Development Expenses
The following table shows our research and development expenses by type of activity for the periods indicated.
Year ended December 31,
(in thousands)
2023
2022
$ Change
% Change
Clinical
$
19,611
$
35,264
$
(15,653)
(44.4)%
Drug manufacturing and formulation
6,741
3,607
3,134
86.9%
Regulatory and other costs
5,012
1,414
3,598
254.5%
Less: R&D tax credits
(312)
(456)
144
(31.6)%
Total R&D expenses
$
31,052
$
39,829
$
(8,777)
(22.0)%
Research and development expenses decreased by $8.8 million, or 22.0% for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to lower clinical expenses. This decrease in clinical expenses was driven by lower clinical development costs and clinical personnel-related costs as a result of the completion of phase 3 studies. The decrease in clinical costs was partially offset by an increase in drug manufacturing consulting costs, drug manufacturing personnel costs and regulatory consulting costs.
General and Administrative
General and administrative expenses remained consistent for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Commercial
Commercial expenses increased by $6.0 million, or 66.2%, for the year ended December 31, 2023, compared to the same period in 2022. This increase is a result of additional personnel and professional costs required to expand capabilities and operations in anticipation of potential commercialization.
Interest Income
Interest income was $4.0 million and $1.3 million for the year ended December 31, 2023 and 2022, respectively. The increase in interest income was due to higher interest rates earned on investments in 2023 when compared to 2022.
Interest Expense
Interest expense was $2.6 million for the year ended December 31, 2023 compared to no interest expense for the year ended December 31, 2022. The increase in interest expense was due to the issuance of the 2029 Convertible Notes in the first quarter of 2023.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred operating losses and experienced negative operating cash flows since our inception, and we anticipate continuing to incur losses for at least the next several years. As of December 31, 2023, we had cash, cash equivalents and short-term investments of $66.0 million and an accumulated deficit of $326.0 million.
On February 28, 2024, we entered into an underwriting agreement, or the Underwriting Agreement, related to an underwritten public offering, or the Offering, of 16,666,667 of our common shares, without par value, at a public offering
104
Table of Contents
price of $1.50 per share and, in lieu of common shares to certain investors, pre-funded warrants to purchase 3,333,333 Shares at a public offering price of $1.499 per pre-funded warrant. Under the terms of the Underwriting Agreement, we granted the Underwriters an option to purchase up to an additional 3,000,000 common shares at the same price per share as the other common shares sold in the Offering, which was exercised by the Underwriters in full on February 29, 2024.
Each pre-funded warrant has an exercise price of $0.001 per share. The pre-funded warrants were exercisable immediately upon issuance, subject to certain beneficial ownership limitations.
The net proceeds to the Company from the Offering, including the proceeds from the exercise by the Underwriters of their option to purchase the additional 3,000,000 common shares in full, was approximately $32.4 million after deducting underwriting commissions and offering expenses payable by the Company.
On March 27, 2023, we entered into a purchase and sale agreement, or the Royalty Purchase Agreement, and a note purchase agreement, or the Note Purchase Agreement, with RTW Investments, LP and certain of its affiliates, or collectively, RTW.
On March 29, 2023, the Company closed the transaction contemplated by the Note Purchase Agreement and issued and sold the $50 million principal amount of 6.0% Convertible Senior Notes due 2029, or the 2029 Convertible Notes, to the holders in a private placement transaction.
The 2029 Convertible Notes are senior secured obligations and are guaranteed on a senior secured basis by our wholly owned subsidiary, Milestone Pharmaceuticals USA, Inc. Interest, at the annual rate of 6.0%, is payable quarterly in cash or, at our option, payable in kind for the first three years. The maturity date for the 2029 Convertible Notes will be March 31, 2029. The obligations under the 2029 Convertible Notes are secured by substantially all of our and our subsidiary guarantor’s assets.
Each $1,000 of principal of the 2029 Convertible Notes (including any interest added thereto as payment in kind) is convertible into 191.0548 shares of our common shares, equivalent to an initial conversion price of approximately $5.23 per share, subject to customary anti-dilution and other adjustments. Subject to specified conditions, on or after March 27, 2027, the 2029 Convertible Notes are redeemable by us subject to certain conditions, at a redemption price equal to 100% of the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
On July 29, 2020, we entered into an Open Market Sale Agreement SM , or the Sales Agreement, with respect to an at-the-market offering program, or the ATM Program, under which the Company may issue and sell its common shares having an aggregate offering price of up to $50 million through Jefferies as its sales agent or principal. The common shares to be sold under the Sales Agreement, are offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-239318), which was declared effective by the SEC on July 6, 2020. During the year ended December 31, 2022, we issued 361,236 shares under the Sales Agreement, resulting in net proceeds of $2.6 million (net of issuance costs of $0.1 million).
We expect that our operating plan, existing cash and cash equivalents and short-term investments to be sufficient to fund our operations for at least the next 12 months from the date of issuance of this Annual Report on Form 10-K for the year ending December 31, 2023 and that there are no events or conditions that may cast substantial doubt on our ability to continue as a going concern for at least the next 12 months from the date of this filing.
Contingent future source of funding
Pursuant to the Royalty Purchase Agreement, RTW agreed to purchase, following U.S. Food and Drug Administration (FDA) approval of etripamil (subject to certain conditions), in exchange for a purchase price of $75.0 million, the right to receive a tiered quarterly royalty payments, or “royalty interest”, on the annual net product sales of etripamil in the United States. This represents a contingent future source of funding, in order for the Company to receive the $75 million, the closing conditions specified in the Royalty Purchase Agreement, which includes the Company receiving marketing approval from the FDA on or prior to September 30, 2025, must be met.
105
Table of Contents
Funding Requirements
We use our cash primarily to fund research and development expenditures. We expect our research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. We expect to incur increasing operating losses for the foreseeable future as we continue the clinical development of our product candidate. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize etripamil or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations.
In addition, we have exclusive development and commercialization rights for etripamil for all indications that we may pursue and as such have the potential to license development and or commercialization rights for etripamil to a potential partner in regions outside of Greater China. We plan to establish commercialization and marketing capabilities using a direct sales force to commercialize etripamil in the United States. Outside of the United States, we are considering commercialization strategies that may include collaborations with other companies.
For other new product candidates, our efforts are focused on licensing development and/or commercialization rights from potential partners. In the case of either in-licensing or out-licensing, we cannot forecast when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements.
The timing and amount of our operating expenditures will depend largely on:
● the timing, progress and results of our ongoing and planned clinical trials and other development activities of etripamil in PSVT, AFib-RVR and in other cardiovascular indications;
● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of etripamil for additional indications or any future product candidates that we may pursue;
● our ability to establish additional collaborations on favorable terms, if at all;
● the ability of vendors and third-party service providers to accurately forecast expenses and deliver on expectations;
● the costs, timing and outcome of regulatory review of etripamil and any future product candidates;
● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for etripamil and any future product candidates for which we receive marketing approval;
● the revenue, if any, received from commercial sales of etripamil and any future product candidates for which we receive marketing approval;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and
● the extent to which we acquire or in-license other product candidates and technologies.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity would result in
106
Table of Contents
additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition and results of operations.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year ended December 31,
(in thousands)
2023
2022
$ Change
% Change
Net cash (used in) provided by:
Operating activities
$
(46,424)
$
(52,469)
6,045
(11.5)%
Investing activities
4,756
(57,124)
61,880
(108.3)%
Financing activities
47,792
3,088
44,704
1447.7%
Net increase (decrease) in cash and cash equivalents during the period
$
6,124
$
(106,505)
112,629
Operating Activities
Net cash used in operating activities during the year ended December 31, 2023 was $46.4 million, which consisted primarily of a net loss of $59.7 million. The net loss was partially offset by a net cash increase of $1.2 million related to the change in assets and liabilities, non-cash charges of $9.5 million related to share based compensation and non-cash interest charges of $2.3 million related to the convertible note.
Net cash used in operating activities during the year ended December 31, 2022 was $52.5 million, which consisted of a net loss of $58.4 million and a net cash decrease of $3.3 million in our operating assets and liabilities, in addition to non-cash charges of $9.2 million primarily related to share-based compensation.
Investing Activities
During the year ended December 31, 2023, we redeemed $142.0 million of short-term investments and we acquired $137.1 million of short-term investments, in addition we acquired $0.1 million in property and equipment. These short-term investment acquisitions resulted in a growth of $4.8 million in short term investments for the year ended December 31, 2023. In the year ended December 31, 2022, we redeemed $29.0 million of short-term investments and we acquired $85.9 million of short-term investments, in addition we acquired $0.3 million in property and equipment. These short-term investment acquisitions resulted in a growth of $56.9 million in short term investments for the year ended December 31, 2022.
Financing Activities
In the year ended December 31, 2023, our financing activities provided cash proceeds of $47.8 million. These proceeds were primarily a result of the $50 million received from the issuance of convertible notes under the Note Purchase Agreement, which was partially offset by $2.8 million in debt costs, and $0.6 million in cash proceeds from the exercise of share options and issuance of common shares under the employee stock purchase plan. In the year ended December 31, 2022, our financing activities provided cash of $3.1 million from the issuance of common shares under the Sales Agreement for proceeds of $2.6 million (net of issuance costs of $0.1 million) and a de minimis amount of proceeds from the exercise of share options and warrants.
Contractual Obligations
We enter into contracts in the normal course of business with clinical research organizations, or CROs, contract manufacturing organizations, or CMOs, and other third parties for clinical trials, preclinical research studies and testing
107
Table of Contents
and manufacturing services. These contracts are generally cancelable at our option with various notice requirements as defined in the contract. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to and through the date of cancellation. These payments are not included as the amount and timing of these payments are not known.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements as at December 31, 2023, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP and on a basis consistent with those accounting principles followed by us. The preparation of these consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to:
● Estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs, CMOs and clinical trial sites which in turn impact the research & development expenses.
● Estimate of the grant date fair value share options granted to employees, consultants and direct, and the resulting share-based compensation expense, using the Black Scholes option pricing model.
Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
a) Research & Development Expenses — Accruals
Research and development costs are charged against income in the period of expenditure. Our research and development costs consist primarily of salaries and fees paid to CROs and to CMO.
Clinical trial expenses include direct costs associated with CROs, direct CMO costs for the formulation and packaging of clinical trial material, as well as investigator and patient-related costs at sites at which our trials are being conducted. Direct costs associated with our CROs and CMOs are generally payable on a time-and-materials basis, or when milestones are achieved. The invoicing from clinical trial sites can lag several months. We record expenses for our clinical trial activities performed by third parties based upon estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. We determine the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services based on facts and circumstances known to us as of each consolidated balance sheet date. The actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. If the actual timing of the performance of services of the level of effort varies from the estimate, we will adjust the accrual accordingly. Adjustments to prior period estimates have not been material. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.
108
Table of Contents
b) Share-Based Compensation
We recognize compensation costs related to share options granted to employees, consultants and directors based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, using the Black Scholes option pricing model. This Black Scholes option pricing model uses various inputs to measure fair value, including estimated fair value of our underlying common shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of our common shares. The estimated volatility creates a critical estimate because we have not been a public company long enough to demonstrate our own historical volatility. The grant date fair value of the share-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur.
The following table summarizes, by grant date, the number of underlying common shares and the associated per-share exercise price, which was the fair value per share as determined by our board of directors on the applicable grant date, for share options granted during the years ended December 31, 2023 and 2022:
Estimated
Number of
Fair Value
Estimated
Common Shares
Exercise
per Common
Per-Share
Subject to
Price Per
Share at
Fair Value
Options Granted
Common Share
Grant Date
of Options
March 21, 2022
1,388,400
$
5.46
$
5.46
$
4.12
April 1, 2022
65,000
$
6.85
$
6.85
$
5.17
April 11, 2022
36,000
$
6.93
$
6.93
$
5.25
May 16, 2022
92,000
$
5.48
$
5.48
$
4.18
July 5, 2022
150,000
$
6.07
$
6.07
$
4.49
July 18, 2022
17,000
$
6.45
$
6.45
$
4.98
August 1, 2022
2,000
$
7.30
$
7.30
$
5.61
August 8, 2022
2,000
$
6.76
$
6.76
$
5.20
August 15, 2022
100,000
$
7.10
$
7.10
$
5.49
August 29, 2022
70,000
$
8.20
$
8.20
$
6.35
September 8, 2022
22,000
$
8.53
$
8.53
$
6.61
November 2, 2022
20,000
$
5.03
$
5.03
$
4.69
November 8, 2022
12,000
$
4.22
$
4.22
$
3.94
January 16, 2023
82,000
$
3.93
$
3.93
$
3.10
February 16, 2023
1,323,900
$
3.59
$
3.59
$
2.87
February 27, 2023
36,000
$
3.19
$
3.19
$
2.54
March 14, 2023
3,500
$
3.51
$
3.51
$
2.79
March 21, 2023
42,000
$
3.45
$
3.45
$
2.75
May 1, 2023
125,000
$
3.62
$
3.62
$
2.88
May 22, 2023
20,000
$
4.10
$
4.10
$
3.27
June 7, 2023
180,000
$
3.86
$
3.86
$
3.01
June 19, 2023
15,000
$
3.50
$
3.50
$
2.80
July 24, 2023
15,000
$
3.10
$
3.10
$
2.48
July 25, 2023
4,000
$
3.11
$
3.11
$
2.49
August 1, 2023
21,000
$
3.17
$
3.17
$
2.54
October 2, 2023
122,000
$
2.98
$
2.98
$
2.30
October 16, 2023
8,000
$
2.99
$
2.99
$
2.31
109
Table of Contents
Recent Accounting Pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to our consolidated financial statements for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.