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 redefining the intracellular delivery of nucleic acids and small molecules through our 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. 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 beyond small molecules, including nucleic acids (e.g. mRNA, DNA, antisense oligonucleotides (ASOs)) and proteins, both internally and through additional external collaborations and partnerships. ● Advancing MAT2203 toward NDA filing through the ongoing EnACT study for the treatment of cryptococcal meningitis, which highlights the safety and efficacy of this promising drug candidate, while also demonstrating the ability of our LNC platform technology to deliver potent medicines across the blood-brain barrier with oral administration. ● Progressing the development of MAT2501 through extensive preclinical toxicology and efficacy studies in NTM infections and completing a single ascending dose (SAD) pharmacokinetic study in healthy volunteers later in 2022, all with the financial support of the CFF. We have incurred losses for each period from inception. Our net loss was approximately $23.3 million and $22.4 million for the fiscal years ended December 31, 2021 and 2020, 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, 2021 and 2020, we generated approximately $33 thousand and $158 thousand, respectively, in contract research revenues, resulting from a grant with the CFF 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. 63 Research and Development Expenses Research and development expenses consist of costs incurred for the development of product candidates MAT2203, and MAT2501and 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; ● employee-related expenses, including salaries and stock-based compensation expense for those employees involved in the research and development process; and ● the reimbursement of certain expenses related to the CFF award agreement. The table below summarizes our direct research and development expenses for our product candidates and development platform for the years ended December 31, 2021 and 2020. 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) 2021 2020 Direct research and development expenses: Manufacturing process development $ 2,724 $ 1,421 Preclinical trials 401 744 Clinical development 2,261 5,149 Regulatory 339 95 Internal staffing, overhead and other 8,858 6,950 Total research & development $ 14,583 $ 14,359 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. Our research and development expenses reflect the reimbursement of certain MAT2501 program expenses related to the CFF award agreement. In addition, we will look to strategically expand the use of our drug platform technology through additional development work. During 2022, we will be focused on advancing our lead product candidate, MAT2203, to efficacy data in the treatment of CM, accelerating the development of MAT2501 and also expanding application of our LNC platform delivery technology through both internal efforts and collaborations with third parties. We have also initiated a global process to identify a suitable partner to continue the development of LYPDISO. 64 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 during 2022 will remain relatively consistent with expenses incurred during 2021. 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 $1.3 million and $1.1 million for the years ended December 31, 2021 and 2020, respectively. Other Income, net Other income, net is largely comprised of interest income (expense) and franchise taxes. 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 development of MAT2501 with the assistance of the CFF, and expanding application of our LNC platform delivery technology through both internal efforts and 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. 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. 65 Results of Operations Years Ended December 31, 2021 and 2020 The following table summarizes our operating expenses for the years ended December 31, 2021 and 2020 (in thousands): Years Ended December 31, 2021 2020 Revenues $ 33 $ 158 Expenses: Research and development $ 14,583 $ 14,359 General and administrative 10,185 10,006 Operating Expenses $ 24,768 $ 24,365 Sale of net operating losses (NOLs) $ 1,328 $ 1,073 Revenues. We generated approximately $33 thousand and approximately $158 thousand for the years ended December 31, 2021 and 2020, respectively. The amount earned in 2021 consists of contract research revenue resulting from the feasibility study agreement with Genentech, Inc. Amounts earned in 2020 consists of contract research revenue resulting from a grant with the CFF and the feasibility study agreement with Genentech Inc. Research and Development expenses. R&D expense for the years ended December 31, 2021 and 2020 was approximately $14.6 million and $14.4 million, respectively. The increase of approximately $0.2 was due to a $1.2 million expense related to the Aquarius Merger Agreement, an increase of $1.1 million in product development expenses, and an increase of approximately $0.9 million of compensation expense, primarily related to headcount increases and the exercise of stock options, offset by a $3.0 million decrease in clinical trial expenses, primarily related to the reimbursement of certain MAT2501 program expenses of approximately $2.2 million and approximately $0.8 million decrease in other clinical trials expenses due to the completion of the MAT9001 clinical trials in 2020. General and Administrative expenses. General and administrative expense for the year ended December 31, 2021 was approximately $10.2 million, an increase of approximately $0.2 million over prior year. The increase in general and administrative expense was primarily due to higher compensation expense related to the exercise of stock options and increased insurance expense offset by lower professional fees & consulting expense. Sale of net operating losses (NOLs). The Company recognized approximately $1.3 million and $1.1 million for the years ended December 31, 2021 and 2020, 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, 2021, we have raised a total of approximately $156.7 million in gross proceeds and $144.0 million, net, from sales of our equity securities. As of December 31, 2021, we had cash, cash equivalents and marketable securities, excluding restricted cash, totaling $49.6 million. 66 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. 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. 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 2021 2020 Cash used in operating activities $ (15,223 ) $ (17,368 ) Cash used in investing activities 16,770 (40,667 ) Cash provided by financing activities 6,964 48,047 Net (decrease)/increase in cash and cash equivalents and restricted cash $ 8,511 $ (9,988 ) Operating Activities Net cash used in operating activities for the year ended December 31, 2021 was approximately $15.2 million, compared to approximately $17.4 million in the prior year. The decrease of approximately $2.2 million for the period was primarily due to a decrease of approximately $2.0 million of working capital adjustments due to the timing of receipts and payments in the ordinary course of business and approximately $0.9 million of net non-cash items offset by approximately $0.8 million of an increase in net loss in the current period. We expect that there will be an increase in cash used in operations during 2022 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 $16.8 million of cash was provided by and approximately $40.7 million of cash was used in investing activities for the years ended December 31, 2021 and 2020, respectively. The increase of $57.5 million was primarily due to the approximately $8.8 million increase in proceeds received from maturities of our marketable securities and the decrease of approximately $48.9 million in purchases of marketable securities as compared to the prior year partially offset by $0.2 million in purchases of equipment and leasehold improvements for the year ended December 31, 2021. Financing Activities Net cash provided by financing activities was approximately $7.0 million and approximately $48.0 million for the years ended December 31, 2021 and 2020, respectively. The decrease of $41.0 million in cash provided by financing activities is primarily due to the Company raising approximately $5.6 million of net proceeds from the January 2021 ATM sales of our common stock compared to the approximately $46.7 million of net proceeds that was raised from the January 2020 public offering of common stock. Other financing activities included a decrease of approximately $0.8 million from the exercising of warrants offset by an increase of approximately $0.8 million from the exercising of stock options. 67 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 and clinical 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 will be sufficient to fund our operating expenses and capital expenditures requirements through 2023. 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. 68 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. Item 7A. Quantitative And Qualitative Disclosures About Market Risk Not applicable.