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.” All dollars amounts stated in the tabular and paragraph formats 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 LNC Platform and expanding the utilization of this promising technology into areas of innovative medicine beyond small molecules, including nucleic acids (e.g., mRNA, DNA, ASOs) and proteins. ● Positioning MAT2203 for an NDA filing for various indications for the treatment of serious IFIs, including cryptococcal meningitis. We are seeking non-dilutive funds from prospective third-party pharmaceutical partners and various governmental sources of capital, such as the Biomedical Advanced Research and Development Authority (BARDA) and the NIH in order to continue the development of MAT2203 into Phase 3. We are also seeking the input and guidance of the FDA for an additional Phase 3 study of various IFIs. ● Building an external pipeline of collaborations focused on our LNC Platform with leading pharmaceutical companies like BioNTech, Genentech and National Resilience to provide delivery solutions for their complex nucleic acid drug products. We have incurred losses for each period from inception. Our net loss was $20,997 and $23,283 for the fiscal years ended December 31, 2022 and 2021, 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 ability to continue as a going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Financial Operations Overview Revenue During the year ended December 31, 2022, we generated $3,188 in contract research revenue resulting from the research collaboration with BioNTech SE. During the year ended December 31, 2021, we generated $33 in contract revenue from the feasibility study agreement with Genentech Inc. 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. 65 Research and Development Expenses Research and development expenses consist of costs incurred for the development of product candidates MAT2203 and MAT2501, and advancement of our LNC Platform, 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, 2022 and 2021. 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, 2022 2021 Direct research and development expenses: Manufacturing process development $ 2,523 $ 2,724 Preclinical trials 720 401 Clinical development 2,175 2,261 Regulatory 737 339 Internal staffing, overhead and other 10,523 8,858 Total research & development $ 16,678 $ 14,583 Research and development activities are central to our business model. We expect our research and development expenses to increase over time 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. However, we anticipate that our research and development expenses during 2023 will be relatively consistent with expenses incurred in 2022 as we pause the development of MAT2501 to focus our existing resources on MAT2203 and advancement of our LNC platform delivery technology into the field of nucleic acids. 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 2023 will remain relatively consistent with expenses incurred during 2022. 66 Sale of Net Operating Losses (NOLs) & Tax Credits Income obtained from selling unused net operating losses (NOLs) and research and development tax credits under the New Jersey Technology Business Tax Certificate Program was $3,491 and $1,328 for the years ended December 31, 2022 and 2021, respectively. The 2022 NOL sales included tax years 2021 and 2020, and the 2021 NOL sale included tax year 2019. Other Income, net Other income, net is largely comprised of interest income (expense) and dividends. 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, and (iv) Goodwill and other intangible assets. Current Operating Trends Our current R&D efforts are focused on advancing our lead LNC product candidate, MAT2203, through clinical development toward an initial indication for the treatment of CM and expanding application of our LNC Platform 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 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. 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 to focus our resources on more promising products. Completion of clinical trials may take several years, and the length of time 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. 67 Results of Operations Years Ended December 31, 2022 and 2021 The following table summarizes our operating expenses for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 Revenues $ 3,188 $ 33 Expenses: Research and development $ 16,678 $ 14,583 General and administrative 11,100 10,185 Operating Expenses $ 27,778 $ 24,768 Sale of net operating losses (NOLs) $ 3,491 $ 1,328 Revenues. We generated $3,188 and $33 for the years ended December 31, 2022 and 2021, respectively. The amount earned during 2022 consists of contract research revenue resulting from the research collaboration with BioNTech SE while the amount earned during 2021 resulted from the feasibility study agreement with Genentech Inc. Research and Development expenses. R&D expense for the years ended December 31, 2022 and 2021 was $16,678 and $14,583, respectively. The increase of $2,095 was due to an increase of $2,327 of compensation expense, primarily related to headcount increases, $1,441 increase in clinical trials expenses due to the continued advancement of MAT2203, partially offset by an increase in the reimbursement of certain MAT2501 program expenses of $811 and a decrease of $916 primarily related to the Aquarius Merger Agreement in 2021 in connection with the LNC Platform. General and Administrative expenses. G&A expense for the years ended December 31, 2022 and 2021 was $11,100 and $10,185, respectively. The increase of $915 over prior year was primarily due to higher compensation expense related to stock-based compensation of $506 and increased headcount. Sale of net operating losses (NOLs) & tax credits. The Company recognized $3,491 and $1,328 for the years ended December 31, 2022 and 2021, 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. The 2022 NOL sales included tax years 2021 and 2020, and the 2021 NOL sale included tax year 2019. 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, 2022, we have raised a total of $156,651 in gross proceeds and $143,941, net, from sales of our equity securities since inception in 2013. As of December 31, 2022, we had cash, cash equivalents and marketable debt securities, excluding restricted cash, totaling $28,763. 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 million, 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. During 2022, we did not sell any shares of our common stock under the ATM Sales Agreement. During 2021, BTIG sold 3,023,147 shares of the Company’s common stock generating gross proceeds of $5,753 and net proceeds of $5,580, after deducting BTIG’s commission on gross proceeds. At December 31, 2022, the ATM’s available capacity was $44,247. 68 Cash Flows The following table sets forth the primary sources and uses of cash for each of the period set forth below: Years Ended December 31 2022 2021 Cash used in operating activities $ (19,156 ) $ (15,223 ) Cash provided by investing activities 4,877 16,770 Cash provided by financing activities 79 6,965 Net (decrease)/increase in cash and cash equivalents and restricted cash $ (14,200 ) $ 8,512 Operating Activities Net cash used in operating activities for the year ended December 31, 2022 was $19,156, compared to $15,223 in the prior year. The increase of $3,933 for the period was primarily due to an increase of $6,324 of working capital adjustments due to the timing of receipts and payments in the ordinary course of business and the $1,200 Aquarius agreement charge in 2021 offset by $2,286 of a decrease in net loss in the current period, the $936 increase in stock based compensation expense, including other non-cash expenses, and the license agreement charge of $291 in 2022. We expect that there will be a similar amount of cash used in operations during 2023 as we continue to move our product candidates and LNC Platform forward in their development cycles. Investing Activities Net cash of $4,877 was provided by investing activities for the year ended December 31, 2022, while $16,770 of net cash was provided by investing activities for the year ended December 31, 2021. The decrease of cash provided by investing activities of $11,893 was primarily due to the $24,975 decrease in proceeds received from maturities of our marketable debt securities and the increase of $632 in purchases of equipment and leasehold improvements, partially offset by the decrease of $13,714 in purchases of marketable debt securities as compared to the prior year. Financing Activities Net cash provided by financing activities was $79 and $6,965 for the years ended December 31, 2022 and 2021, respectively. The decrease of $6,886 in cash provided by financing activities is primarily due to the Company raising $5,580 of net proceeds from the 2021 ATM sales of our common stock for which the Company did not have similar equity raises during year ended December 31, 2022, and a decrease in the receipt of proceeds of $1,316 from the exercise of stock options. 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; ● seek to discover and develop additional product candidates; ● seek regulatory approvals for any product candidates that successfully complete clinical trials; 69 ● 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 debt securities will be sufficient to fund our operating expenses and capital expenditures requirements into the second quarter of 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. 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. Our financial condition and results of operations may also be impacted by other factors we may not be able to control, such as global supply chain disruptions, global trade disputes and/or political instability. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. Additionally, rising inflation rates may affect us by increasing operating expenses, such as employee-related costs and clinical trial expenses, negatively impacting our results of operations. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. We have deposit accounts at SVB. The standard deposit insurance amount is up to $250 thousand per depositor, per insured bank, for each account ownership category. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors will have access to all of their money starting March 13, 2023. The Company does not expect to be negatively impacted by these events. 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. 70 RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 3 - “ Summary of 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.