What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 71 added, 135 removed, 126 unchanged (62% of the section changed)

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The previously undiscovered synergy between these two drug classes in the treatment of CNS disorders, combined with the efficacy of D-cycloserine in the treatment of depression and PTSD, is the subject of 47 issued patents and more than 43 pending patents owned by or licensed to NRx Pharmaceuticals.

NRX-101 Lead Indication – Severe Bipolar Depression in Patients with Acute Suicidal Ideation and Behavior (ASIB) After Initial Stabilization with ketamine

NRX-101 in Severe Bipolar Depression in Patients with Acute Suicidal Ideation and Behavior (ASIB) After Initial Stabilization with ketamine

● In 2017, NRX-101 received an investigational new drug (IND) clearance by the U.S.

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The Breakthrough Therapy Designation allows for an expedited rolling submission of a new drug application (“NDA”) for investigational drugs that have demonstrated substantial improvement over existing approved therapies, and the SPA allows for a single registrational trial of NRX-101 in severe bipolar depression in patients with ASIB after stabilization with ketamine, using a protocol similar to the STABIL-B trial with a patient population of less than 100.

● NRx Pharmaceuticals plans to initiate the registrational Phase 3 portion of the Phase 2b/3 clinical trial of bipolar depression in patients with ASIB in 4Q 2022.

The trial is designed as a double-blind, adaptive trial with a 2:1 randomization of NRX-101 vs.

lurasidone alone in 72 patients.

The study is expected to find that following initial stabilization with a single infusion of ketamine (NRX-100), treatment with NRX-101 is superior to lurasidone alone in maintaining remission from symptoms of depression and suicidality as measured by the MADRS-10 depression scale and the CGI suicidality scale.

● NRx Pharmaceuticals announced that it has transferred Phase 3 commercial drug manufacturing processes to the U.S.

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This investigational drug manufactured according to these new processes will be used in the upcoming Phase 3 trial.

● A data readout from the registrational Phase 3 clinical trial is expected in 3Q 2023.

Assuming that efficacy endpoints and safety are met, NRx Pharmaceuticals plans to initiate submission of a NDA to the FDA by year-end 2023, as allowed under Breakthrough Therapy Designation.

● Company has received numerous partnering inquiries for NRX-101

● We were initiating a new registrational study of NRX-101 for the treatment of severe bipolar depression with ASIB, a potentially lethal condition that currently takes the lives of thousands of Americans each year, after initial stabilization with NRX-100 (described below).

We intend to use newly manufactured material that was manufactured using the expected commercial process.

On January 3, 2023, the Company announced that its first clinical trial sites had been contracted for this study, but patient recruiting has not begun.

● On February 14, 2023, the Company announced its receipt of the written minutes of a Type B meeting held with the FDA on January 11, 2023, to outline the clinical & preclinical requirements for registration of NRX-101.

Overall, the FDA suggested expanding the safety data base of NRX-101 to allow for chronic/intermittent use of NRX-101, as well as a broadening of the addressable population of the indication (under the SPA or otherwise) to patients with severe bipolar depression and recent acute suicidality regardless of how the initial stabilization was accomplished could represent a more straightforward development program.

This broader indication would enable the Company to potentially demonstrate the use of NRX-101 to maintain stabilization from suicidality in patients stabilized either with ketamine (NRX-100) or with other standard of care therapeutic approaches.

FDA encouraged the Company to request a Breakthrough Therapy Planning Meeting for NRX-101, which we intent to do in the next few months.

NRX-101 Indication – Bipolar Depression in Patients with Sub-acute Suicidal Ideation and Behavior (SSIB)

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all patients are being treated in an outpatient setting.

● Insights from this study will guide NRx Pharmaceuticals in the potential expansion of the indication for NRX-101 to bipolar depression with SSIB, which represents a significantly 2-3x larger patient population than those with bipolar depression and ASIB.

A data readout of this study is expected by 1H 2023.

Consolidated NRX-101 Program in Suicidal Treatment-Resistant Bipolar Depression

Based on the comments and guidance from the FDA in its recent Type B meeting regarding the registrational Acute Suicidality trial and a potentially broader indication, as well as the guidance it received from the DSMB regarding the ongoing Phase IIb/3 clinical study of NRX-101 for the treatment of severe bipolar depression in patients with SSIB, the Company is evaluating changes to its registrational program for NRX-101 and will seek to consolidate patients originally expected to enroll in the ASIB study into the currently enrolling Phase IIb/3 trial.

This would potentially allow registration of NRX-101 for Suicidal Treatment-Resistant Bipolar Depression, regardless of the mechanism of stabilization.

With the FDA’s guidance to enroll patients for the acute (SPA) study in the outpatient setting only after stabilization, the design of this trial has effectively converged with the currently enrolling phase IIb/3 trial;

patients within both groups are deemed to have treatment resistant bipolar depression with suicidality.

This broader indication may also offer significant advantages in commercialization, while negating the need for a separate NDA for ketamine in Suicidal stabilization.

● The US population of patients with Suicidal Treatment Resistant Bipolar Depression is estimated to be between 700,000 and 1,000,000 people.

● We expect top-line data from this trial in the fourth quarter of 2023.

NRX-101 Indication – Post Traumatic Stress Disorder

● In September 2022, NRx announced plans to investigate PTSD as an additional indication.

The Company expects to commence Phase 2 clinical trial planning of NRX-101 in PTSD in 4Q 2022.

● NRx plans to commence a Phase 2 clinical trial of NRX-101 in PTSD in the second half of 2023.

● Depression in PTSD may be driven by pathways that are similar to those that drive depression in other conditions (NMDA and 5-HT2A).

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Since inception, NRx Pharmaceuticals has incurred significant operating losses.

For the three months ended September 30, 2022 and 2021, NRx Pharmaceuticals’ net loss was $9.1 million and $37.0 million, respectively.

For the nine months ended September 30, 2022 and 2021, NRx Pharmaceuticals’ net loss was $29.5 million and $62.7 million, respectively.

As of September 30, 2022, NRx Pharmaceuticals had an accumulated deficit of $212.8 million.

For the three months ended March 31, 2023 and 2022, NRx Pharmaceuticals’ net loss was $11.0 million and $13.4 million, respectively.

As of March 31, 2023, NRx Pharmaceuticals had an accumulated deficit of $234.0 million.

Components of Results of Operations

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General and administrative expenses

General and administrative expense consists primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services.

Settlement Expense

Settlement expense consists primarily of settlement expenses related to the GEM Warrant.

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

Reimbursement of expenses from Relief Therapeutics

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 September 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 September 30,

Operating expenses:

Research and development

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 September 30, 2022, NRx Pharmaceuticals recorded $4.1 million of research and development expenses compared to $6.3 million for the three months ended September 30, 2021.

The decrease of $2.1 million related primarily to a decrease of $1.5 million in clinical trials and development expenses related to ZYESAMI, a decrease of $0.6 million related to fees paid to regulatory and process development consultants, a decrease of $0.2 million in stock-based compensation, partially offset by an increase of $0.2 million in other regulatory and process development expenses.

The $4.1 million and $6.3 million of research and development expenses for the three months ended September 30, 2022 and 2021, respectively, include less than $0.1 million and $0.2 million, respectively, of non-cash stock-based compensation.

General and administrative expenses

For the three months ended September 30, 2022, NRx Pharmaceuticals recorded $5.0 million of general and administrative expenses compared to $13.8 million for the three months ended September 30, 2021.

The decrease of $8.8 million was primarily, related to a decrease of $8.3 million of consultant fees, a decrease of $0.8 million in stock-based compensation expense, a decrease of $0.3 million in other general and administrative expenses, a decrease of less than $0.1 million in legal and professional fees, partially offset by an increase of $0.6 million in payroll and salary expenses.

The $5.0 million and $13.8 million of general and administrative expenses for the three months ended September 30, 2022 and 2021, respectively, include $0.5 million and $1.3 million, respectively, of non-cash stock-based compensation.

Other (income) expenses

Interest income

For the three months ended September 30, 2022, NRx Pharmaceuticals recorded approximately $0.1 million of interest income.

The increase is primarily related to the earned interest income on the money market account.

Change in fair value of warrant liabilities

For the three months ended September 30, 2022, NRx Pharmaceuticals recorded a loss of less than $0.1 million related to the change in fair value of the warrant liabilities compared to a loss of $16.5 million for the three months ended September 30, 2021.

The decrease of $16.5 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 September 30, 2022, NRx Pharmaceuticals recorded a gain of $0.4 million for the three months ended September 30, 2021.

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

Results of operations for the nine months ended September 30, 2022 and 2021

General and administrative expenses consist primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services.

Results of operations for the three months ended March 31, 2023 and 2022

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

Nine months ended September 30,

Three Months Ended March 31,

Operating expenses:

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General and administrative

Settlement expense

Reimbursement of expenses from Relief Therapeutics

Total operating expenses

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Other (income) expenses:

Gain on extinguishment of debt

Interest income

Interest expense

Change in fair value of convertible note payable

Change in fair value of warrant liabilities

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Research and development expenses

For the nine months ended September 30, 2022, NRx Pharmaceuticals recorded $12.6 million of research and development expenses compared to $13.8 million for the nine months ended September 30, 2021.

The decrease of $1.3 million is related to a decrease of $1.5 million in clinical trials and development expenses related to ZYESAMI, a decrease of $0.5 million in fees paid to regulatory and process development consultants, partially offset by an increase of $0.7 million in other regulatory and process development costs.

The $12.6 million and $13.8 million of research and development expenses for the nine months ended September 30, 2022 and 2021, respectively, include $0.5 million and $0.4 million, respectively, of non-cash stock-based compensation.

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded $3.7 million of research and development expenses compared to $5.5 million for the year ended March 31, 2022.

The decrease of $1.8 million is related primarily to a decrease of $1.8 million in clinical trials and development expenses related to ZYESAMI.

The $3.7 million and $5.5 million of research and development expenses for the three months ended March 31, 2023 and 2022, respectively, include $0.1 million and $0.2 million, respectively, of non-cash stock-based compensation.

General and administrative expenses

For the nine months ended September 30, 2022, NRx Pharmaceuticals recorded $21.9 million of general and administrative expenses compared to $28.4 million for the nine months ended September 30, 2021.

The decrease of $6.5 million was primarily, related to a decrease of $12.3 million in consultant fees, a decrease of $3.4 million in stock-based compensation expense, partially offset by an increase of $4.1 million in legal, professional and accounting fees, an increase of $3.7 million in insurance expense, an increase of $0.9 million in payroll and salary expenses, and an increase of $0.5 million in other general and administrative expenses.

The $21.9 million and $28.4 million of general and administrative expenses for the nine months ended September 30, 2022 and 2021, respectively, include $2.4 million and $5.8 million, respectively, of non-cash stock-based compensation.

Settlement expense

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

Reimbursement of expenses from Relief Therapeutics

For the nine months ended September 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 nine months ended September 30, 2021.

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded $5.8 million of general and administrative expenses compared to $10.2 million for the three months ended March 31, 2022.

The decrease of $4.4 million was primarily, related to a decrease of $3.9 million in legal, professional and accounting fees, $0.6 million in insurance expenses, $0.5 million in stock-based compensation expense, partially offset by $0.3 million in employee expenses and $0.3 million in consultant fees.

The $5.8 million and $10.2 million of general and administrative expenses for the three months ended March 31, 2023 and 2022, respectively, include $0.6 million and $1.1 million, respectively, of non-cash stock-based compensation.

Other (income) expenses

Gain on extinguishment of debt

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

Interest income

For the nine months ended September 30, 2022, NRx Pharmaceuticals recorded $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.

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded $0.2 million of interest income earned on the Company’s money market account.

Change in fair value of convertible note payable

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded $1.8 million related to the change in fair value of the convertible note payable which is accounted for under the fair value option.

Change in fair value of warrant liabilities

For the nine months ended September 30, 2022, NRx Pharmaceuticals recorded a gain of $0.2 million related to the change in fair value of the warrant liabilities compared to a gain of $0.8 million for the nine months ended September 30, 2021.

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded a gain of less than $0.1 million related to the change in fair value of the warrant liabilities compared to a gain of $0.2 million for the three months ended March 31, 2022.

The decrease of $0.1 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 nine months ended September 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 $0.8 million for the nine months ended September 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.

For the three months ended March 31, 2023, NRx Pharmaceuticals recorded no change in fair value of the Earnout Cash liability compared to a gain of $2.1 million for the three months ended March 31, 2022.

The Earnout Cash milestones were not achieved by December 31, 2022 and therefore the Earnout Cash liability expired.

The gain for the three months ended March 31, 2022 related to the decrease in fair value of the Earnout Cash liability.

Liquidity and Capital Resources

NRx Pharmaceuticals has generated no revenues, has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.

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.

The Company has generated no revenues, has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.

Until such time as the Company 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 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.

NRx Pharmaceuticals believes that it currently has sufficient funds and, if necessary, the ability to reduce expenditures, to support operations through at least the next twelve months from the date hereof.

On March 8, 2023, NRx Pharmaceuticals entered into a securities purchase agreement (the “Securities Purchase Agreement”) with accredited investors (the “Investors”), providing for the issuance and sale of 3,866,666 shares of the Company’s common stock (“Common Stock”) and warrants to purchase up to 3,866,666 shares of Common Stock (the “Investor Warrants”) in a registered direct offering priced at-the-market under Nasdaq rules for a purchase price of $0.75 per share (the “Offering”).

The Investors have agreed not to transfer the Common Stock for six months following the date hereof.

The Investor Warrants will have an exercise price of $0.75 per share, will be initially exercisable beginning six months following the date of issuance (the “Initial Exercise Date”) and will expire 5 years from the Initial Exercise Date.

The aggregate gross proceeds to the Company from the Offering are expected to be approximately $2.9 million.

The Company intends to use the net proceeds from such offering for working capital and general corporate purposes.

The closing of the sale of these securities occurred on March 9, 2023.

NRx Pharmaceuticals believes that it does not currently have sufficient funds and, if necessary, the ability to reduce expenditures, to support operations through at least the next twelve months from the date hereof.

NRx Pharmaceuticals is dependent upon obtaining necessary equity and/or debt financing to continue operating.

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This could negatively affect the Company’s business and operations and could also lead to the reduction of the Company's operations.

On November 4, 2022, the Company issued an 9% redeemable promissory note (the “Note”) to Streeterville Capital, LLC, a Utah limited liability company, for an aggregate principal amount of $11,020,000.

The Company intends to use the proceeds from such issuance for general corporate purposes.

The Note matures 18 months from the date of issuance subject

to certain acceleration provisions.

The Note carries an original issue discount of $1,000,000 which was deducted from the principal balance of the Note.

The net proceeds from the issuance of the Note was $10,000,000 after transaction costs including the original issue discount, legal and other fees are included.

The Company has the option to prepay the Note during the term by paying an amount equal to 110% of the principal, interest, and fees owed as of the prepayment date.

The noteholder has the right to redeem up to $1,000,000 of the outstanding balance of the Note per month starting six months after the issuance date.

Payments may be made by the Company at its option in:

(i) in cash, (ii) by paying the redemption amount in the form of shares of Common Stock with the number of redemption shares being equal to the portion of the applicable redemption amount divided by the Redemption Conversion Price (as defined below), or (iii) a combination of cash and shares of common stock.

The “Redemption Conversion Price” on any given redemption date equals 85% multiplied by the average of the two lowest daily volume weighted average prices per share of the common stock during the ten trading days immediately preceding the date that the noteholder delivers notice electing to redeem a portion of the Note.

Beginning May 1, 2023, in the event (a) the daily dollar trading volume of the common stock of the Company on any given trading day is at least fifty percent (50%) greater than the lower of (i) the median daily dollar trading volume over the previous ten (10) trading days or (ii) the daily dollar trading volume on the trading day immediately preceding the date of measurement or (b) if the closing trade price on any given trading day is at least thirty percent (30%) greater than the Nasdaq Minimum Price, then lender will be entitled to redeem over the following ten (10) trading days an amount of indebtedness then outstanding under the Note equal to twice (2x) the monthly redemption amount of $1,000,000 solely by payment by stock, if permitted under the agreement, subject to maximum percentage and other ownership limitations.

Private Placement

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 September 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

Pursuant to the terms of the Merger Agreement, NeuroRx’s securityholders (including option holders and warrant holders) who own NeuroRx securities immediately prior to the Effective Time will have the contingent right to receive their pro rata portion of (i) an aggregate of 25,000,000 shares of Common Stock (“Earnout Shares”) if, prior to December 31, 2022, the NeuroRx COVID-19 Drug (i.e., ZYESAMI) receives emergency use authorization by the Food and Drug Administration (“FDA”) and NeuroRx submits and the FDA files for review a new drug application for the NeuroRx COVID-19 Drug (i.e., ZYESAMI) (the occurrence of the foregoing, the “Earnout Shares Milestone”), and (ii) an aggregate of $100.0 million in cash (“Earnout Cash”) upon the earlier to occur of (x) FDA approval of the NeuroRx COVID-19 Drug (i.e., ZYESAMI) and the listing of the NeuroRx COVID-19 Drug in the FDA’s “Orange Book” and (y) FDA approval of the NeuroRx Antidepressant Drug Regimen (i.e., NRX-100/101) and the listing of the NeuroRx Antidepressant Drug Regimen (i.e., NRX-100/101) in the FDA’s “Orange Book,” in each case prior to December 31, 2022 (the occurrence of either of clauses (x) or (y), the “Earnout Cash Milestone”).

If the Earnout Shares Milestone is achieved, the Earnout Shares will be issued within five (5) Business Days after the occurrence of the Earnout Shares Milestone.

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 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.

As the Company is in an accumulated deficit position as of the measurement date, the resulting deemed dividend is recorded as a reduction of additional paid-in capital with a corresponding offset recorded to additional paid-in capital (i.e., net impact to additional paid-in capital of $0).

The benefit of the contingent right to receive Earnout Cash for option and warrant holders occurs through the Option Exchange Ratio and therefore the amount of Earnout Cash for common stockholders is approximately $0 million.

In connection with the Merger, a number of subscribers (each, a “Subscriber”) purchased from the Company an aggregate of 1,000,000 shares of Common Stock (the “PIPE”), for a purchase price of $10.00 per share and an aggregate purchase price of $10.0 million (the “PIPE Shares”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into prior to the Closing Date.

The Company received $8.1 million in net proceeds after transaction costs from the sale of PIPE Shares.

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

September 30, 2022

March 31, 2023

December 31, 2022

Balance Sheet Data:

Earnout cash liability

Convertible note payable

Total liabilities

Total stockholders' equity (deficit)

September 30,

Total stockholders' (deficit) equity

Statement of Cash Flow Data:

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Operating activities

During the nine months ended September 30, 2022, operating activities used $31.4 million of cash, primarily resulting from a net loss of $29.5 million, increased by net non-cash gains of $2.0 million, including $4.6 million of gain from the change in fair value of earn out liability and $0.2 million of gain from the change in fair value of warrant liabilities, partially offset by $2.9 million of stock-based compensation expense, and an increase in net operating assets of less than $0.1 million.

During the nine months ended September 30, 2021, operating activities used $26.4 million of cash, primarily resulting from a net loss of $62.7 million, reduced by non-cash charges of $40.2 million, including $21.4 million of non-cash settlement expense related to the GEM Warrant, $12.8 million in consulting expense, $6.2 million of stock-based compensation expense, $0.8 million of change in fair value of earnout cash liability, partially offset by a gain from the change in fair value of warrant liability of $0.8 million, a gain on extinguishment of debt of $0.1 million, and an increase in net operating assets of $4.0 million.

During the three months ended March 31, 2023, operating activities used $6.1 million of cash, primarily resulting from a net loss of $11.0 million, reduced by (a) net non-cash losses of $2.5 million, including $1.8 million in change in fair value of convertible promissory note and $0.7 million of stock-based compensation, and (b) changes in operating assets and liabilities of $2.5 million.

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.

Financing activities

During the nine months ended September 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 nine months ended September 30, 2021, financing activities provided $63.5 million of cash, primarily resulting from $27.4 million in repayment of notes payable assumed in Merger, $16.7 million in proceeds from issuance of common stock for exercise of warrant, $11.1 million for the effect of the merger, net of transaction costs, $9.6 million in proceeds from issuance of common stock and exercise of stock options, partially offset by $1.1 million in repayment of notes payable assumed in Merger and $0.2 million in repayment of notes payable – related party.

During the three months ended March 31, 2023, financing activities provided $2.5 million of cash resulting from $2.5 million in proceeds from issuance of common stock and warrants issued in a private placement, net of issuance costs.

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.

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 and nine months ended September 30, 2022 included elsewhere in this report for further discussion of NRx Pharmaceuticals' commitments and contingencies.

See Note 6, Debt, and Note 7, Commitments and Contingencies, of the notes to the Company’s unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2023 included elsewhere in this report for further discussion of the Company’s commitments and contingencies.

Milestone Payments

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Off-Balance Sheet Arrangements

NRx Pharmaceuticals is not party to any off-balance sheet transactions.

NRx Pharmaceuticals has no guarantees or obligations other than those which arise out of normal business operations.

The Company is not party to any off-balance sheet transactions.

The Company has no guarantees or obligations other than those which arise out of normal business operations.

Critical Accounting Policies and Significant Judgments and Estimates

NRx Pharmaceuticals' management’s discussion and analysis of its financial condition and results of operations is based on its financial statements, which have been prepared in accordance with GAAP.

The Company's management’s discussion and analysis of its financial condition and results of operations is based on its financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires NRx Pharmaceuticals to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during the reporting period.

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While its significant accounting policies are more fully described in Note 3 to its financial statements, NRx Pharmaceuticals believes the following are the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments.

Earnout Cash Liability

The fair value of the Earnout Cash liability has been estimated using probability-weighted discounted cash flow models (DCFs) with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820.

The most significant inputs include whether (a) the FDA approves the Company’s NDAs for ZYESAMI and/or NRX-101, (b) if such approval is granted, whether such approval will be received on or before December 31, 2022, and (c) if such approval is granted, whether ZYESAMI and/or NRX-101 will be listed in the FDA’s Orange Book on or before December 31, 2022.

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.

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 September 30, 2022 of achieving the required milestones for payment of the Earnout Cash to be de minimis and therefore, the September 30, 2022 Earnout Cash liability is zero.

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

Fair value of common and preferred stock

Prior to the Merger, in order to determine the fair value of shares of its common stock, the Company's board of directors considered, among other things, contemporaneous valuations of its common stock and preferred stock based on arms-length transactions with third party investors.

Subsequent to the Merger, the Board determines the fair value of the Common Stock based on the closing market price on the date of grant.

Stock-based compensation

We measure stock option awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.

For restricted stock awards, the grant date fair value is the fair market value per share as of the grant date based on the closing trading price for the Company’s stock.

The straight-line method of expense recognition is applied to awards with service-only conditions.

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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”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether

the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

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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.

Convertible note payable

As permitted under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments (“ASC 825”), the Company elects to account for its convertible promissory note, which meets the required criteria, at fair value at inception and at each subsequent reporting date.

Subsequent changes in fair value are recorded as a component of non-operating loss in the consolidated statements of operations.

As a result of electing the fair value option, direct costs and fees related to the convertible promissory notes are expensed as incurred.

The Company estimates the fair value of the convertible note payable using a Monte Carlo simulation model, which uses as inputs the fair value of our common stock and estimates for the equity volatility and volume volatility of our common stock, the time to expiration of the convertible note, the risk-free interest rate for a period that approximates the time to expiration, and probability of default.

Therefore, we estimate our expected future volatility based on the actual volatility of our common stock and historical volatility of our common stock utilizing a lookback period consistent with the time to expiration.

The time to expiration is based on the contractual maturity date, giving consideration to the mandatory and potential accelerated redemptions beginning six months from the issuance date.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration.

Probability of default is estimated using Bloomberg's Default Risk function which uses our financial information to calculate a default risk specific to the Company.

The assumptions used in determining the fair value of the convertible note payable represent reasonable estimates, but the estimates involve inherent uncertainties and the application of our judgment.

As a result, if factors change and we use significantly different assumptions or estimates, the change in fair value of the convertible note payable recorded to other (income) expense could be materially different in the future.

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