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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 92 added, 87 removed, 126 unchanged (59% of the section changed)

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NRX-101 has been awarded Fast Track designation, Breakthrough Therapy designation, a Biomarker Letter of Support, and a Special Protocol Agreement by the FDA.

Peer-reviewed and published results from Phase II clinical studies demonstrate a significant decline and stabilization in symptoms of depression and suicidality following administration of DCS.

Peer-reviewed and published results from Phase II clinical studies demonstrate a significant decline and stabilization in symptoms of depression and suicidality following administration of DCS in combination with antidepressants.

Findings from one of these studies found that bipolar patients who were already receiving a 5-HT2a antagonist demonstrated more than a 50% reduction in symptoms of depression and a 75% reduction in suicidal ideation when ketamine and DCS were added to their treatment regimen.

Side effects for patients in a P2a combination study of DCS and 5HT2a included mild sedation, headaches and hypomania.

Side effects for patients in a Phase 2a combination study of DCS and 5HT2a included mild sedation, headaches and hypomania.

Breakthrough Therapy designation was awarded based on data from the STABIL-B study (NCT02974010) that demonstrated a statistically significant advantage of NRX-101 vs.

lurasidone (the current standard of care) in maintaining remission from depression and suicidality following a single stabilizing dose of ketamine.

NRx Pharmaceuticals initiated a Phase II SSIB clinical study in the second quarter of 2022 for which enrollment has begun.

The Company plans to initiate a Phase III registrational ASIB study in the second half of 2022.

In March 2020, NRx Pharmaceuticals initiated development of RLF-100 (aviptadil acetate) (now reformulated as ZYESAMI by NRx Pharmaceuticals) in partnership with Relief Therapeutics Holding AG (“Relief Therapeutics”).

ZYESAMI is based on 50 years of research, pioneered by Professor Sami Said, on the role of Vasoactive Intestinal Peptide/Aviptadil in preventing and treating acute lung injury by protecting the Type II cell in the lung.

The rights to Professor Said’s scientific work are licensed by the Company from the Research Foundation for the State University of New York.

NRx Pharmaceuticals and Relief Therapeutics entered into a collaboration agreement on September 18, 2020 (the “Collaboration Agreement”) for the clinical development and, if approved, the sale of Aviptadil.

The Collaboration Agreement provided for funding by Relief Therapeutics of certain clinical trials, formulation and manufacturing of Aviptadil, as well as established sales territories for each party and share of the profits in those territories for “Product” as

defined in the Collaboration Agreement.

Relief Therapeutics has reimbursed the Company approximately $10.9 million but has subsequently declined to reimburse the Company for additional costs.

On October 6, 2021, Relief Therapeutics filed a complaint in New York State Court, claiming that the Company failed to honor its obligations under the Collaboration Agreement.

Relief Therapeutics’ complaint seeks several remedies, including damages for alleged breaches of the terms of the Collaboration Agreement.

The Company believes that the claims are baseless and without merit.

On January 10, 2022, the Company filed a complaint in New York State Court, claiming Relief Therapeutics breached and repudiated the Collaboration Agreement.

The Company’s complaint seeks damages of at least $185.0 million.

The parties to the lawsuits agreed to engage in mediation in an effort to amicably resolve the litigation.

If the mediation does not resolve the dispute, the Company intends to defend itself vigorously and to prosecute its claims against Relief Therapeutics.

In an open-label, single center trial at Houston Methodist Hospital, ZYESAMI demonstrated a statistically significant 9-fold advantage in probability of survival and recovery from respiratory failure compared to the standard of care among patients with COVID-19 respiratory failure.

On March 29, 2021, NRx Pharmaceuticals reported top-line Phase IIb/III study results of ZYESAMI in patients with respiratory failure due to Critical COVID-19.

Though it did not meet statistical significance for the pre-specified primary endpoint of “alive and free of respiratory failure” (P=.08), the study identified a two-fold statistically significant odds of survival at day 60 (P=.03), and significant advantages on secondary endpoints, for those treated with ZYESAMI compared to those treated with placebo.

On the basis of these results, the National Institute for Allergy and Infectious Diseases selected NRx Pharmaceuticals as an industry partner for participation in the ACTIV3b/TESICO trial (NCT 04843761) in which patients with Critical COVID-19 are randomized to aviptadil, remdesivir, and placebo.

NRx Pharmaceuticals provides doses of aviptadil as the industry partner and the U.S.

Government funds all other costs of research.

As of March 2022, approximately 465 patients with Critical COVID-19 were enrolled and treated with either aviptadil or placebo.

The endpoint of the trial is superiority on an ordinal scale that includes survival and recovery from respiratory failure at 90 days.

As of the February 25, 2022 the Data Safety and Monitoring Board (“DSMB”) meeting, no unexpected adverse events were identified in association with ZYESAMI and the trial was cleared to continue enrolling.

To date, the DSMB has not declared futility of the aviptadil arm of the ACTIV-3b trial, although futility has been declared for all other investigational products selected in the ACTIV-3b trial studying Critical COVID-19 patients.

The DSMB is scheduled to review the data again on May 25, 2022.

A previously targeted DSMB meeting for end of April was moved to this new date to allow for the vast majority of enrolled patients to have reached 90 days.

NRx Pharmaceuticals applied for FDA Emergency Use Authorization (“EUA”) on May 31, 2021.

In November 2021, the FDA notified us that it was unable to issue the EUA at that time due to insufficient data regarding the known and potential benefits of ZYESAMI and the known and potential risks of ZYESAMI in patients suffering from critical COVID-19 with respiratory failure.

In November 2021, the FDA also declined a request for Breakthrough Therapy designation, mentioning in its reply that the request did not adequately compare the safety and efficacy of aviptadil to existing therapies in Critical COVID-19 patients, such as remdesivir.

In response, in February 2022, the Company filed a new request for EUA in patients with COVID-19 respiratory failure who are at immediate risk of death despite treatment with remdesivir and other approved therapies.

This new request is based on a post-hoc analysis of the approximately 70% of patients in the randomized study that were also treated with remdesivir and included safety data on approximately 750 patients treated with ZYESAMI in our clinical trials, our Expanded Access Programs, our Right To Try Program and the ACTIV-3b trial.

On April 20, 2022, the Company submitted a new Breakthrough Therapy designation request focused on this narrower population of patients that are at immediate risk of death despite treatment with remdesivir.

As of the date hereof, these requests are still pending.

Should an EUA be granted, this would provide NRx Pharmaceuticals with a one-year period during which ZYESAMI could be marketed for the treatment of COVID-19 in the United States in advance of the filing a new drug application (“NDA”) with the FDA for formal approval of ZYESAMI for the treatment of COVID-19.

If authorized for use, we believe ZYESAMI would fill a high unmet need for COVID-19 patients who are critically ill with respiratory failure, as current options have only limited applicability in this patient segment.

Manufacturing and scalability of ZYESAMI are a major focus of the Company.

Working with its manufacturing partners, the Company has the capability to produce batch sizes of 1.5kg and potentially larger of the active pharmaceutical ingredient (API) of ZYESAMI.

In addition to producing ZYESAMI API at a scale suitable for commercial quantities, the Company has gained insights into how to address the chemical basis for the instability of the formulated drug product ZYESAMI in solution.

The Company has now demonstrated a formulation of ZYESAMI with refrigerated stability of up to 8 months and expected multi-year frozen stability (-20°C).

In January 2022, the Company filed a Composition of Matter patent application that describes this extended stability form of aviptadil.

In the process, the Company has identified specific aspects of the manufacturing process that it believes are key to preserving the stability of aviptadil for stockpiling and commercial supply chain purposes.

On October 8, 2021, the Company submitted an updated manufacturing module to its FDA Investigational New Drug file documenting this change in manufacture and stability.

On November 8, 2021, the FDA communicated with the Company that the manufacturing update had been reviewed and that no “clinical hold” items had been identified (this is the regulatory language that allows an investigational product to be given to patients).

The Company initiated a parallel manufacturing process to conform to EU and UK standards.

In October 2021, the Company announced that a European Qualified Person audit was conducted, and no major deficiencies were identified, thus clearing ZYESAMI’s use in EU investigational programs.

lurasidone (the active ingredient used in the market leading branded bipolar depression agent) in maintaining remission from depression and suicidality following a single stabilizing dose of ketamine.

NRx Pharmaceuticals initiated a Phase II clinical study of Bipolar Depression with Subacute Suicidal Ideation and Behavior (SSIB) in the second quarter of 2022 for which enrollment has begun.

The Company plans to initiate a registrational study for Bipolar Depression in patients with ASIB in the latter part of 2022.

In March 2020, NRx Pharmaceuticals initiated development of RLF-100 (aviptadil acetate) (now reformulated as ZYESAMI by NRx Pharmaceuticals) in partnership with Relief Therapeutics Holding AG.

ZYESAMI is based on 50 years of research, pioneered by Professor Sami Said, on the role of Vasoactive Intestinal Peptide/Aviptadil in preventing and treating acute lung injury.

Development work on ZYESAMI has been suspended following a decision by the National Institute of Health (NIH) in May 2022 to stop its ACTIV-3b Critical Care Study evaluating ZYESAMI due to futility.

The Company is re-evaluating its respiratory franchise but has no plans to invest further resources in ZYESAMI.

Since inception, NRx Pharmaceuticals has incurred significant operating losses.

For the three months ended March 31, 2022 and 2021, NRx Pharmaceuticals’ net loss was $13.4 million and $25.5 million, respectively.

As of March 31, 2022, NRx Pharmaceuticals had an accumulated deficit of $196.7 million.

For the three months ended June 30, 2022 and 2021, NRx Pharmaceuticals’ net loss was $7.0 million and $0.1 million, respectively.

For the six months ended June

30, 2022 and 2021, NRx Pharmaceuticals’ net loss was $20.4 million and $25.6 million, respectively.

As of June 30, 2022, NRx Pharmaceuticals had an accumulated deficit of $203.7 million.

Components of Results of Operations

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Reimbursement of expenses from Relief Therapeutics

Reimbursement of expenses from Relief Therapeutics consists of reimbursable expenses as part of the Collaboration Agreement.

Reimbursement of expenses from Relief Therapeutics consisted of reimbursable expenses as part of the Collaboration Agreement.

See Note 8 “Commitments and Contingencies – Relief Therapeutics Collaboration Agreement” of the notes to the Company’s unaudited condensed consolidated financial statements included elsewhere in this report for further information.

Results of operations for the three months ended March 31, 2022 and 2021

Results of operations for the three months ended June 30, 2022 and 2021

The following table sets forth NRx Pharmaceuticals’ selected statements of operations data for the following periods (in thousands):

Three months ended March 31,

Three months ended June 30,

Operating expenses:

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General and administrative

Total operating expenses

Loss from operations

Other (income) expenses:

Interest income

Interest expense

Change in fair value of warrant liabilities

Change in fair value of Earnout Cash liability

Total other (income) expenses

Operating expenses

Research and development expenses

For the three months ended June 30, 2022, NRx Pharmaceuticals recorded $3.0 million of research and development expenses compared to $4.7 million for the three months ended June 30, 2021.

The decrease of $1.7 million related primarily to a decrease of $2.1 million in clinical trials and development expenses related to ZYESAMI, partially offset by an increase of less than $0.4 million in other regulatory and process development expenses related principally to ZYESAMI.

The $3.0 million and $4.7 million of research and development expenses for the three months ended June 30, 2022 and 2021, respectively, include $0.2 million and less than $0.2 million, respectively, of non-cash stock-based compensation.

General and administrative expenses

For the three months ended June 30, 2022, NRx Pharmaceuticals recorded $6.6 million of general and administrative expenses compared to $12.5 million for the three months ended June 30, 2021.

The decrease of $5.8 million was primarily, related to a decrease of $3.3 million in stock-based compensation expense and a decrease of $4.4 million of consultant fees, partially offset by an increase of $1.4 million in insurance expense and $0.2 million in other general and administrative expense.

The $6.6 million and $12.5 million of general and administrative expenses for the three months ended June 30, 2022 and 2021, respectively, include $1.7 million and $4.1 million, respectively, of non-cash stock-based compensation.

Other (income) expenses

Interest income

For the three months ended June 30, 2022, NRx Pharmaceuticals recorded less than $0.1 million of interest income.

The increase of less than $0.1 million related primarily to the earned interest income on the money market account.

Change in fair value of warrant liabilities

For the three months ended June 30, 2022, NRx Pharmaceuticals recorded a gain of $0.1 million related to the change in fair value of the warrant liabilities compared to a gain of $17.4 million for the three months ended June 30, 2021.

The decrease of $17.3 million related to the decrease in the fair value of certain Substitute Warrants and the Placement Warrants assumed pursuant to the Merger Agreement.

Change in fair value of Earnout Cash liability

For the three months ended June 30, 2022, NRx Pharmaceuticals recorded a gain of $2.5 million related to the change in fair value of the Earnout Cash liability compared to a loss of $0.4 million for the three months ended June 30, 2021.

The decrease of $2.8 million is related to the decrease in the fair value of the Earnout Cash liability pursuant to the Merger Agreement.

Results of operations for the six months ended June 30, 2022 and 2021

The following table sets forth NRx Pharmaceuticals’ selected statements of operations data for the following periods (in thousands):

Six months ended June 30,

Operating expenses:

Research and development

General and administrative

Settlement expense

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Gain on extinguishment of debt

Interest income

Interest expense

Change in fair value of warrant liability

Change in fair value of warrant liabilities

Change in fair value of Earnout Cash liability

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Research and development expenses

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded $5.5 million of research and development expenses compared to $2.9 million for the three months ended March 31, 2021.

The increase of $2.6 million related primarily to an increase of $2.1 million in clinical trials and development expenses related to ZYESAMI, an increase of $0.2 million in stock-based compensation expense, and an increase of $0.3 million in other regulatory and process development expenses.

The $5.5 million and $2.9 million of research and development expenses for the three months ended March 31, 2022 and 2021, respectively, include $0.2 million and less than $0.1 million, respectively, of non-cash stock-based compensation.

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded $8.4 million of research and development expenses compared to $7.6 million for the six months ended June 30, 2021.

The increase of $0.9 million related primarily to an increase of $0.7 million in other regulatory and process development expenses, and an increase of $0.2 million in stock-based compensation expense, and an increase of less than $0.1 million in clinical trials and development expenses related to ZYESAMI.

The $8.4 million and $7.6 million of research and development expenses for the six months ended June 30, 2022 and 2021, respectively, include $0.4 million and $0.2 million, respectively, of non-cash stock-based compensation.

General and administrative expenses

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded $10.2 million of general and administrative expenses compared to $2.1 million for the three months ended March 31, 2021.

The increase of $8.1 million was primarily, related to an increase of $4.4 million in legal, professional and accounting fees, an increase of $2.2 million in insurance expense, an increase of $0.8 million in stock-based compensation expense, and an increase of $0.7 million in other general and administrative expense.

The $10.2 million and $2.1 million of general and administrative expenses for the three months ended March 31, 2022 and 2021, respectively, include $1.1 million and $0.3 million, respectively, of non-cash stock-based compensation.

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded $16.9 million of general and administrative expenses compared to $14.6 million for the six months ended June 30, 2021.

The increase of $2.3 million was primarily, related to an increase of $4.1 million in legal, professional and accounting fees, an increase of $3.7 million in insurance expense, an increase in $0.7 million in other general and administrative expenses, an increase of $0.3 million for employee expenses, partially offset by a decrease of $3.9 million of consultant fees and a decrease of $2.6 million in stock-based compensation expense.

The $16.9 million and $14.6 million of general and administrative expenses for the six months ended June 30, 2022 and 2021, respectively, include $1.9 million and $4.4 million, respectively, of non-cash stock-based compensation.

Settlement expense

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded no settlement expense compared to $21.4 million of settlement expense for the six months ended June 30, 2021 related to the GEM Warrant reflecting the incremental value through the date of issuance.

Reimbursement of expenses from Relief Therapeutics

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded no reimbursement of expenses from Relief Therapeutics compared to $0.8 million of reimbursement of expenses from Relief Therapeutics for the three months ended March 31, 2021.

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded no reimbursement of expenses from Relief Therapeutics compared to $0.8 million of reimbursement of expenses from Relief Therapeutics for the six months ended June 30, 2021.

Other (income) expenses

Gain on extinguishment of debt

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded no gain on extinguishment of debt compared to $0.1 million for the three months ended March 31, 2021.

The decrease of $0.1 million related to the forgiveness of the PPP Loan which resulted in a gain on extinguishment for the outstanding principal and accrued and unpaid interest for the three months ended March 31, 2021.

Change in fair value of warrant liability

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded a gain of $0.2 million related to the change in fair value of the warrant liability.

The gain of $0.2 million related to the decrease in the fair value of the Placement Warrants assumed pursuant to the Merger Agreement.

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded no gain on extinguishment of debt compared to $0.1 million for the six months ended June 30, 2021.

Interest income

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded less than $0.1 million of interest income.

The increase of less than $0.1 million related primarily to the earned interest income on the money market account.

Change in fair value of warrant liabilities

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded a gain of $0.3 million related to the change in fair value of the warrant liabilities compared to a gain of $17.4 million for the six months ended June 30, 2021.

The decrease of $17.1 million related to the decrease in the fair value of certain Substitute Warrants and the Placement Warrants assumed pursuant to the Merger Agreement.

Change in fair value of Earnout Cash liability

For the three months ended March 31, 2022, NRx Pharmaceuticals recorded a gain of $2.1 million related to the change in fair value of the Earnout Cash liability.

The gain related to the decrease in the fair value of the Earnout Cash liability pursuant to the Merger Agreement.

For the six months ended June 30, 2022, NRx Pharmaceuticals recorded a gain of $4.6 million related to the change in fair value of the Earnout Cash liability compared to a loss of $0.4 million for the six months ended June 30, 2021.

The decrease of $4.6 million is related to the decrease in the fair value of the Earnout Cash liability pursuant to the Merger Agreement.

Liquidity and Capital Resources

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Until such time as NRx Pharmaceuticals is able to establish a revenue stream from the sale of its therapeutic products, NRx Pharmaceuticals is dependent upon obtaining necessary equity and/or debt financing to continue operations.

NRx Pharmaceuticals cannot make any assurances that sales of ZYESAMI will commence in the near term or that additional financings will be available to it and, if available, on acceptable terms or at all.

NRx Pharmaceuticals cannot make any assurances that sales of NRX-101 will commence in the near term or that additional financings will be available to it and, if available, on acceptable terms or at all.

This could negatively impact NRx Pharmaceuticals' business and operations and could also lead to the reduction of NRx Pharmaceuticals' operations.

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Private Placement

On February 2, 2022, the Company sold 7,824,727 shares of common stock and preferred investment options to purchase up to an aggregate of 7,824,727 shares of common stock, and received net proceeds of $23.0 million.

On February 2, 2022, the Company completed a private placement and issued 7,824,727 shares of common stock and Preferred Investment Options to purchase up to an aggregate of 7,824,727 shares of common stock.

The Preferred Investment Options have an exercise price of $3.07 per share and may be exercised any time on or after August 2, 2022.

The form of the Preferred Investment Option is a warrant.

The measurement of fair value was determined utilizing a Black-Scholes model considering all relevant assumptions current at February 2, 2022, the date of issuance (i.e., share price of $2.94, exercise price of $3.07, term of five years beginning August 2, 2022, volatility of 82.8%, risk-free rate of 1.60%, and expected dividend rate of 0%).

The grant date fair value of these Preferred Investment Options was estimated to be $15.5 million on February 2, 2022 and is reflected within additional paid-in capital as of June 30, 2022.

In addition, on February 2, 2022, the Company issued fully vested Preferred Investment Options to the placement agent with an exercise price of $3.99.

As these Preferred Investment Options were issued for services provided in facilitating the private placement, the Company recorded the fair value of such Preferred Investment Options as a cost of capital on the issuance date.

The measurement of fair value was determined utilizing a Black-Scholes model considering all relevant assumptions current at February 2, 2022, the date of issuance (i.e., share price of $2.94, exercise price of $3.99, term of five years beginning August 2, 2022, volatility of 82.8%, risk-free rate of 1.60%, and expected dividend rate of 0%).

Reverse Recapitalization Merger and Subsequent Equity Issuances

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If the Earnout Cash Milestone is achieved, the Merger Agreement does not require the Earnout Cash to be delivered to NeuroRx securityholders within any specified period of time, and the board of directors of NRx Pharmaceuticals will use its good faith judgment to determine the date to pay the Earnout Cash.

At March 31, 2022, the fair value of the Earnout Cash liability has been

estimated to be $2.5 million.

At June 30, 2022, the fair value of the Earnout Cash liability has been estimated to be $0 million.

Upon closing of the Merger, the estimated fair value of the Earnout Shares was $255.8 million with such amount recognized as a deemed dividend.

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The following table presents selected financial information and statistics for each of the periods shown below:

March 31, 2022

June 30, 2022

December 31, 2021

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Net cash provided by financing activities

Net increase in cash

Net (decrease) increase in cash

Operating activities

During the three months ended March 31, 2022, operating activities used $10.4 million of cash, primarily resulting from a net loss of $13.4 million, increased by net non-cash gains of $1.0 million, including $2.1 million of gain from the change in fair value of earn out liability and $0.2 million of gain from the changes in fair value of warrant liability, partially offset by $1.3 million of stock-based compensation expense, and an increase in net operating assets of $4.0 million.

During the three months ended March 31, 2021, operating activities used $3.0 million of cash, primarily resulting from a net loss of $25.5 million, reduced by non-cash charges of $21.6 million, including $21.4 million of non-cash settlement expense related to the GEM Warrant, $0.4 million of stock-based compensation expense, partially offset by a gain on extinguishment of debt of $0.1 million;

and an increase in net operating assets of $0.9 million.

During the six months ended June 30, 2022, operating activities used $25.2 million of cash, primarily resulting from a net loss of $20.4 million, increased by net non-cash gains of $2.5 million, including $4.6 million of gain from the change in fair value of earn out liability and $0.3 million of gain from the change in fair value of warrant liabilities, partially offset by $2.3 million of stock-based compensation expense, and an increase in net operating assets of $2.2 million.

During the six months ended June 30, 2021, operating activities used $14.4 million of cash, primarily resulting from a net loss of $25.6 million, reduced by non-cash charges of $13.8 million, including $21.4 million of non-cash settlement expense related to the GEM Warrant, $4.7 million of stock-based compensation expense, $0.4 million of change in fair value of earnout cash liability, partially offset by a gain on extinguishment of debt of $0.1 million and $17.4 million in gain from the change in fair value of warrant liability and an increase in net operating assets of $2.6 million.

Financing activities

During the three months ended March 31, 2022, financing activities provided $23.0 million of cash resulting from the net proceeds received by the Company from the issuance of common stock and preferred investment options in a private placement.

During the three months ended March 31, 2021, financing activities provided $14.4 million of cash, primarily resulting from $6.9 million of proceeds from the issuance of shares of NeuroRx common stock and $7.5 million of the issuance of NeuroRx common stock for the exercise of the GEM Warrants.

During the six months ended June 30, 2022, financing activities provided $22.1 million of cash resulting from $22.6 million in net proceeds received by the Company from the issuance of common stock and preferred investment options in a private placement partially offset by $0.5 million of repayment of Relief Therapeutics loan.

During the six months ended June 30, 2021, financing activities provided $25.9 million of cash, primarily resulting from $11.1 million for the effect of the merger, net of transaction costs, $8.5 million of proceeds from the issuance of shares of NeuroRx common stock and $7.5 million of proceeds from the issuance of NeuroRx common stock for the exercise of the GEM Warrants.

Contractual Obligations and Commitments

See Note 8, Commitments and Contingencies, of the notes to NRx Pharmaceuticals’ unaudited condensed consolidated financial statements as of and for the three months ended months ended March 31, 2022 included elsewhere in this report for further discussion of NRx Pharmaceuticals' commitments and contingencies.

See Note 8, Commitments and Contingencies, of the notes to NRx Pharmaceuticals’ unaudited condensed consolidated financial statements as of and for the three months ended months ended and six months ended June 30, 2022 included elsewhere in this report for further discussion of NRx Pharmaceuticals' commitments and contingencies.

Milestone Payments

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The DCFs incorporate Level 3 inputs including estimated discount rates that we believe market participants would consider relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed in consideration of the uncertainties associated with the obligations.

(i) ZYESAMI NIH Phase III trial was stopped due to futility, and (ii) NRX-101 Phase III trial has not yet started, management estimated the probability as of June 30, 2022 of achieving the required milestones for payment of the Earnout Cash to be de minimis and therefore, the June 30, 2022 Earnout Cash liability was reduced to zero.

Changes in the estimated fair value of the Earnout Cash Liability are recognized as a gain or loss in the statements of operations.

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We account for forfeitures as they occur.

We estimate the fair value of each stock option award using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock-based awards, the risk-free interest rate for a period that approximates the expected term of our stock-based

awards, and our expected dividend yield.

Therefore, we estimate our expected volatility based on the implied volatility of publicly traded warrants on our common stock and historical volatility of a set of our publicly traded peer companies.

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As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different in the future.

Warrant liability

Warrant liabilities

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

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For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The fair value of the Placement Warrants was estimated using a Black Scholes valuation approach.

The fair value of the Placement Warrants was estimated using a Black Scholes valuation approach and the fair value of the Substitute Warrants was estimated using a modified Black Scholes valuation approach which applies a probability factor based on the Earnout Cash Milestone and Earnout Shares Milestone probabilities of achievement at each reporting period.

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis