Matinas BioPharma Holdings, Inc. 10-K

Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing needs, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated. Overview We are focused on creating value through improving the intracellular delivery of critical therapeutics through our paradigm-changing lipid nanocrystal (LNC) drug delivery platform and its application to overcome current challenges in safely and effectively delivering small molecules, nucleic acids, gene therapies, proteins/peptides, and vaccines. We are also focused on creating value through finding a partner to continue the development of LYPDISO, our proprietary, next-generation prescription omega-3 drug, which we believe is differentiated from all other prescription omega-3 products and positioned to potentially demonstrate superior cardioprotective effects. Key elements of our strategy include: ● Advancing our clinical stage assets based on our LNC platform delivery technology and continuing to expand utilization of this promising technology into areas of innovative medicine. . 74 ● Delivering efficacy data for MAT2203 in the EnACT study for the treatment of cryptococcal meningitis, which would highlight the safety and efficacy of this promising drug, while highlighting the ability of our LNC platform technology to deliver potent medicines across the blood-brain barrier following oral administration. ● Progressing the development of MAT2501 through extensive preclinical toxicology and efficacy studies in NTM infections and completing a single ascending dose pharmacokinetic study in healthy volunteers later in 2021, all with the financial support of the Cystic Fibrosis Foundation. ● Expanding the application of our LNC platform delivery technology through collaborations with sophisticated and well-resourced biotech and pharmaceutical companies in areas of innovative medicine. We have incurred losses for each period from inception. Our net loss was approximately $22.4 million and $17.4 million for the fiscal years ended December 31, 2020 and 2019, respectively. We expect to incur significant expenses and operating losses over the next several years. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern. We will need to generate significant revenues to achieve profitability, and we may never do so. Financial Operations Overview Revenue During the years ended December 31, 2020 and 2019, we generated approximately$0.2 million and $0.1 million, respectively, in contract research revenues, resulting from a grant with the Cystic Fibrosis Foundation in 2020 and a feasibility study agreement entered into with Genentech in 2019. Our ability to generate product revenue, which we do not expect to occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our early-stage product candidates. Research and Development Expenses Research and development expenses consist of costs incurred for the development of product candidates LYPDISO, MAT2203, MAT2501 and advancement of our LNC platform delivery technology, which include: ● the cost of conducting pre-clinical work; ● the cost of acquiring, developing and manufacturing pre-clinical and human clinical trial materials; ● costs for consultants and contractors associated with Chemistry and Manufacturing Controls (CMC), pre-clinical and clinical activities and regulatory operations; ● expenses incurred under agreements with contract research organizations, or CROs, including the NIH, that conduct our pre-clinical or clinical trials; and ● employee-related expenses, including salaries and stock-based compensation expense for those employees involved in the research and development process. 75 The table below summarizes our direct research and development expenses for our product candidates and development platform for the years ended December 31, 2020 and 2019. Our direct research and development expenses consist principally of external costs, such as fees paid to contractors, consultants, analytical laboratories and CROs and/or the NIH, in connection with our development work. We typically use our employee and infrastructure resources for manufacturing clinical trial materials, conducting product analysis, study protocol development and overseeing outside vendors. Included in “Internal Staffing, Overhead and Other” below is the cost of laboratory space, supplies, research and development (R&D) employee costs (including stock option expenses), travel and medical education. Years Ended December 31, (in thousands) 2020 2019 Direct research and development expenses: Manufacturing process development $ 1,421 $ 1,081 Preclinical trials 744 1,538 Clinical development 5,149 2,565 Regulatory 95 190 Internal staffing, overhead and other 6,950 5,861 Total research & development $ 14,359 $ 11,235 Research and development activities are central to our business model. We expect our research and development expenses to increase because product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage human trials. In addition, we will look to strategically expand the use of our drug platform technology through additional development work. During 2021, we will be focused on advancing our lead product candidates, MAT2203, to efficacy data in the treatment of CM, accelerating the preclinical development of MAT2501 and also expanding application of our LNC platform delivery technology through collaborations with third parties. We have also initiated a process to identify a suitable partner to continue the development of LYPDISO following the announcement of topline date from the ENHANCE-IT study in February 2021. General and Administrative Expenses General and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions. Other general and administrative expenses include facility costs, insurance, investor relations expenses, professional fees for legal, patent review, consulting and accounting/audit services. We anticipate that our general and administrative expenses will increase during 2021 due to the increased expenses related to employee compensation and insurance costs. Sale of Net Operating Losses (NOLs) Income obtained from selling unused net operating losses (NOLs) and unused research tax credits under the New Jersey Technology Business Tax Certificate Program was approximately $1.1 million and $1.0 million for the years ended December 31, 2020 and 2019, respectively. Other Income, net Other income, net is largely comprised of interest income (expense) and franchise taxes. 76 Application of Critical Accounting Policies and Accounting Estimates A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our significant accounting policies, refer to “Note 3 – Summary of Significant Accounting Policies .” Of these policies, the following are considered critical to an understanding of our Consolidated Financial Statements as they require the application of the most difficult, subjective and complex judgments; (i) Stock-based compensation, (ii) Fair value measurements, (iii) Research and development costs, (iv) Goodwill and other intangible assets, and (v) Basic and diluted net loss per common share. Current Operating Trends Our current R&D efforts are focused on advancing our lead LNC product candidates, MAT2203, through clinical development toward an initial indication for the treatment of CM, accelerating preclinical development of MAT2501 with the assistance of the CFF, and expanding application of our LNC platform delivery technology through collaborations with third parties. Our R&D expenses consist of manufacturing work and the cost of active pharmaceutical ingredients and excipients used in such work, fees paid to consultants for work related to clinical trial design and regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies, and for other medical research addressing the potential efficacy and safety of our drugs. We believe that significant investment in product development is a competitive necessity, and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies. We expect that most of our R&D expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants, contracts or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products. Completion of clinical trials may take several years, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate. The commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy during clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays. In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur. Results of Operations Years Ended December 31, 2020 and 2019 The following table summarizes our operating expenses for the years ended December 31, 2020 and 2019 (in thousands): Years Ended December 31, 2020 2019 Revenues $ 158 $ 90 Expenses: Research and development $ 14,359 $ 11,235 General and administrative 10,006 7,776 Operating Expenses $ 24,365 $ 19,011 Sale of net operating losses (NOLs) $ 1,073 $ 1,007 77 Revenues. We generated approximately $158.3 thousand and approximately $89.8 thousand for the years ended December 31, 2020 and 2019, respectively. Amounts earned in 2020 consists of contract research revenue resulting from a grant with the Cystic Fibrosis Foundation and the feasibility study agreement with Genentech Inc. The amount earned in 2019 consists of contract research revenue resulting from a grant with the Cystic Fibrosis Foundation. Research and Development expenses. R&D expense for the year ended December 31, 2020 was approximately $14.4 million, an increase of approximately $3.2 million over the prior year. R&D expenses increased mainly due to higher preclinical and clinical development expenses of approximately $1.8 million, employee compensation of approximately $1.3 million and manufacturing development and other expenses of approximately $0.1 million. We expect R&D expenses to increase during 2021 as we move our clinical development programs forward and continue to invest in our LNC platform delivery technology and our laboratory & manufacturing facility. General and Administrative expenses. General and administrative expense for the year ended December 31, 2020 was approximately $10.0 million, an increase of approximately $2.2 million over prior year. The increase in general and administrative expense was primarily due to an increase in employee related expenses of approximately $1.7 million and professional fees of approximately $0.4 million. Sale of net operating losses (NOLs). The Company recognized approximately $1.1 million and $1.0 million for the years ended December 31, 2020 and 2019, respectively, in connection with the sale of state net operating losses and state research and development credits to a third party under the New Jersey Technology Business Tax Certificate Program. Liquidity and capital resources Sources of Liquidity We have funded our operations since inception primarily through private placements of our preferred stock and our common stock and common stock warrants. As of December 31, 2020, we have raised a total of approximately $150.9 million in gross proceeds and $138.4 million, net, from sales of our equity securities. As of December 31, 2020, we had cash, cash equivalents and marketable securities, excluding restricted cash, totaling $58.7 million. 2020 At-The-Market Sales Agreement On July 2, 2020, we entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”), pursuant to which we may offer and sell, from time to time, through BTIG, as sales agent and/or principal, shares of our common stock having an aggregate offering price of up to $50,000,000, subject to certain limitations on the amount of common stock that may be offered and sold by us set forth in the Sales Agreement. BTIG will be paid a 3% commission on the gross proceeds from each sale. We may terminate the Sales Agreement at any time; BTIG may terminate the Sales Agreement in certain limited circumstances. As of December 31, 2020, we did not sell any shares of our common stock under the ATM Sales Agreement. During January 2021, BTIG sold 3,023,147 shares of the Company’s common stock generating gross proceeds of approximately $5.8 million and net proceeds of approximately $5.6 million, after deducting BTIG’s commission on gross proceeds. 78 2020 Common Stock Offering On January 14, 2020, the Company closed an underwritten public offering of its common stock. The offering resulted in the sale of approximately 32.3 million shares to the public at a price of $1.55 per share. The Company generated net proceeds of approximately $46.7 million. The Company granted the underwriters a 30-day option (the “option”) to purchase up to approximately 4.8 million additional shares of common stock subject to the same terms and conditions. No additional shares of the Company’s common stock were sold pursuant to this option. 2019 Common Stock Offering On March 19, 2019, the Company closed an underwritten public offering of its common stock. The offering resulted in the sale of approximately 27.3 million shares to the public at a price of $1.10 per share. The Company generated net proceeds of approximately $27.8 million. The Company granted the underwriters a 30-day option (the “option”) to purchase up to approximately 4.1 million additional shares of common stock subject to the same terms and conditions. If the underwriters exercise the option in full, additional net proceeds of approximately $4.2 million will be generated. On March 28, 2019, approximately 2.2 million additional shares were sold pursuant to the option at a price of $1.10 per share, resulting in net proceeds to the Company of approximately $2.3 million. 2018 Series B Preferred Stock Offering On June 19, 2018, the Company entered into a placement agency agreement with ThinkEquity, a Division of Fordham Financial Management, Inc., as placement agent , relating to the offering, issuance and sale of up to 8,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share with a stated value of $1,000 per share which are convertible into an aggregate of up to 16,000,000 shares of the Company’s common stock, par value $0.0001 per share at an initial conversion price of $0.50 per share of Common Stock and an additional up to 7,200,000 shares of Common Stock issuable upon payment of dividends under the Series B Preferred Stock . The offering closed on June 21, 2018 raising a gross amount of $8 million with a net raise of $7.1 million after deducting issuance costs. Cash Flows The following table sets forth the primary sources and uses of cash for each of the period set forth below (in thousands): Years Ended December 31 2020 2019 Cash used in operating activities $ (17,368 ) $ (14,092 ) Cash used in investing activities (40,667 ) (6,011 ) Cash provided by financing activities 48,047 29,852 Net (decrease)/increase in cash and cash equivalents and restricted cash $ (9,988 ) $ 9,749 Operating Activities Net cash used in operating activities for the year ended December 31, 2020 was approximately $17.4 million, compared to approximately $14.1 million in the prior year. The increase of approximately $3.3 million for the period was primarily due to an increase in net loss, approximately $5.1 million, offset by the increase in non-cash stock-based compensation expense of approximately $1.6 million. We expect that there will be an increase in cash used in operations during 2021 due to higher research and development expenses as we continue to move our product candidates and LNC platform delivery technology forward in their development cycles. Investing Activities Approximately $40.7 million and approximately $6.0 million of cash was used in investing activities for the years ended December 31, 2020 and 2019, respectively. The increase of $34.7 million was primarily due to the net increase in purchases and maturities of our marketable securities of approximately $40.7 million during 2020 compared to the purchase of our marketable securities of approximately $5.6 million in December 2019 and the decrease of approximately $0.4 million in purchases of leasehold improvements and equipment. 79 Financing Activities Net cash provided by financing activities was approximately $48.0 million and approximately $29.9 million for the years ended December 31, 2020 and 2019, respectively. The increase of $18.1 million in cash provided by financing activities is primarily due to the approximately $46.7 million of net proceeds from the January 2020 public offering of common stock compared to the approximately $30.1 million of net proceeds from the March 2019 public offering of common stock, as well as an increase of approximately $0.8 million from the exercising of certain warrants and approximately $0.6 million from the exercising of stock options during 2020. Funding Requirements and Other Liquidity Matters We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we: ● conduct further preclinical and clinical studies of MAT2203, our lead product candidate, even is such studies are primarily financed with non-dilutive funding from NIH; ● support the conduct of further preclinical studies of MAT2501, even if such studies are primarily financed with non-dilutive funding from the CFF; ● seek to discover and develop additional product candidates; ● seek regulatory approvals for any product candidates that successfully complete clinical trials; ● require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization; ● maintain, expand and protect our intellectual property portfolio; ● hire additional clinical, quality control and scientific personnel; and ● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts and personnel and infrastructure necessary to help us comply with our obligations as a public company. We expect that our existing cash, cash equivalents and marketable securities, coupled with the approximately $5.6 million of net proceeds generated from the recently completed sales of common stock, will be sufficient to fund our operating expenses and capital expenditures requirements into 2024. Until such time, if ever, that we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. We do not have any committed external source of funds other than limited grant funding from the CFF and NIH. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates. If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. 80 Contractual Obligations and Commitments Refer to Note 10 – “Commitments” in the accompanying notes to the consolidated financial statements for a discussion of the Company’s contractual obligations and commitments. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 3 - “ Significant Accounting Policies ,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.