Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of NRx Pharmaceuticals’ financial condition and plan of operations together with NRx Pharmaceuticals' consolidated financial statements and the related notes appearing elsewhere herein. In addition to historical information, this discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. NRx Pharmaceuticals’ actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section entitled “Risk Factors” included elsewhere herein.
Overview
NRx is a clinical-stage bio-pharmaceutical company which develops and plans to distribute, through its wholly-owned operating subsidiaries, NeuroRx, Inc., (“NeuroRx”) and HOPE Therapeutics, Inc. (“HOPE”), novel therapeutics for the treatment of central nervous system disorders including suicidal depression, chronic pain, and PTSD. NeuroRx is organized as a traditional Research and Development (“R&D”) company, whereas HOPE is organized as a Specialty Pharmaceutical (SpecPharma) company intended to distribute ketamine and other therapeutic options to clinics that serve patients with suicidal depression and PTSD.
The 2023 fiscal year was one of extraordinary growth and transition for NRx. During the year the Company restructured its management to overcome challenges in capital formation, clinical trial enrollment, and corporate growth, in a manner that resulted in demonstrable milestones for 2023 and a company that we believe to be poised for growth in 2024. Those milestones achieved in 2023 and through the date of this filing include:
1. Recruitment of a new management team under the leadership of Jonathan Javitt, MD, MPH (the Company’s Founder and Chairman) and Stephen Willard, JD, (CEO and Director), comprised of individuals with demonstrated success in the design, recruitment, and analysis of clinical-stage drug development, together with demonstrated commercial success in the marketing and sales of commercial stage pharmaceuticals. This management team includes a new Chief Financial Officer, Chief Business Officer, Director of Clinical Research, Head of Regulatory Affairs, Head of Scientific Affairs, and a new Chief Medical Lead for urology.
2. Establishment of a drug development partnership with Alvogen, Inc., a $4 billion US-based pharmaceutical company and Lotus Pharmaceutical Company, LTD (1975.TW), an Asia Pacific-based pharmaceutical company to jointly develop NRX-101 for the treatment of suicidal bipolar depression, while leaving NRx in a position to continue innovative drug development of its pharmaceutical assets for other indications. The partnership provides for up to an aggregate of $330 million in commercial stage milestone payments together with a double-digit royalty on net sales worldwide.
3. Publication of the world’s first clinical trial (the STABIL-B trial) to demonstrate sustained remission from acute suicidality and depression in patients with Bipolar Disorder, using NRX-100 (ketamine) for induction of remission and NRX-101 (D-cycloserine/lurasidone) for maintenance of that remission. Results of this trial were the basis for FDA’s award of Breakthrough Therapy Designation.
4. Completion of patient data collection and data lock in the first clinical trial to study patients with suicidal bipolar depression treated in the outpatient setting under the leadership of Prof. Andrew Nierenberg of Harvard/Mass General Hospital with no unexpected Serious Adverse Events. The category of suicidal patients recruited in this trial have previously been excluded from the clinical trials of all known oral antidepressants. Top line data are expected in April 2024.
5. Replacement of the Company’s traditional study site-based approaches to clinical trial recruitment with an internet/AI-based nationally-focused clinical trial recruitment strategy, in partnership with 1-N-Nealth, Inc., a digital marketing organization. This approach resulted in a 300% increase in successful clinical trial enrollment in 2023 compared to 2022.
6. Achievement of >94% rater concordance through conclusion of the trial, a measure that substantially exceeds current industry standards.
7. Removal of the Company’s solid dose (for oral medications) manufacturing platform from Shanghai with re-establishment of solid dose manufacturing in partnership with Alcami, Inc. (North Carolina, USA). Submission
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and successful review of the NRX-101 FDA manufacturing file (i.e. “Module 3” of a New Drug Application) and completion of a Type C Chemical Manufacturing Controls (“CMC”) meeting with FDA for NRX-101. The Company now has more than 1 million oral doses manufactured to commercial standards in its warehouse and is expecting five years of room temperature shelf stability.
8. Establishment of a sterile products drug development and manufacturing partnership with Nephron Pharmaceuticals, Inc. (West Columbia, SC), an FDA-inspected facility. Under this partnership NRx is both manufacturing ketamine in a novel abuse- and diversion-resistant presentation and developing new forms of ketamine designed for improved tolerability and clinical effectiveness based on prior inventions patented by the Company’s founder (US 5494901). The Company has now manufactured its first commercial batch of ketamine in a novel diversion-resistant packaging presentation and is expecting at least two years of room temperature shelf stability.
9. Completion (through March 2024) capital formation initiatives that achieved greater than 50% reduction in the corporate indebtedness and raised $9.2 million in new capital during FY 2023 with $7.8 million of additions to working capital during Q1 2024 to support the Company’s drug development initiatives, while rotating the shareholder base away from technically-oriented hedge funds and towards growth-oriented investors and corporate partners.
10. Improvement in negative Earnings per Share to ($0.40) in FY 2023 vs ($0.60) in prior 12 month period. Management projects positive cash flow by year-end 2024 via partnerships and HOPE Therapeutics activities.
11. Implementation of a clinical trial quality control system for psychiatry trials designed to identify data quality problems and noncompliant (and potentially fraudulent) study patients at clinical trial sites. Demonstration of 94% concordance between clinical trial endpoints as measured at study sites compared to measurement of those same endpoints by the Company’s central rating team under the leadership of veteran psychologist/psychometricians from the University of Pennsylvania.
12. Expansion of the Company’s patent portfolio and regulatory licenses to include the use of NRX-101 to treat Chronic Pain, approval of an Investigational New Drug application (“Study May Proceed”) from the US Food and Drug Administration (“FDA”), and licensure of US Patent 8,653,120 for use of D-Cycloserine to treat Chronic Pain together with the recruitment of its inventor, Prof. Vania Apkarian of Northwestern University as a consultant to the Company.
13. Activation of the Company’s previously-dormant drug development activities related to ketamine (NRX-100), based on FDA feedback. Establishment of data-sharing partnerships with a French government hospital consortium and with Columbia University (New York, NY) to license patient-level data from two clinical trials demonstrating safety and efficacy of ketamine for treating acute suicidal depression in support of a New Drug Application to the FDA.
14. Formation of HOPE Therapeutics, a Specialty Pharmaceutical company that aims to develop and market both ketamine and related digital therapeutics to extend and augment the effect of ketamine in treating suicidal depression, a condition for which the only currently approved therapy is hospitalizations and electroshock therapy.
15. Identification of NRX-101, the company’s lead drug for CNS disorders as a potent antibiotic for treatment of Complicated UTI and Pyelonephritis, with demonstration of in-vitro (i.e. laboratory effectiveness) against antibiotic-resistant urinary tract pathogens resulting in FDA award of Qualified Infectious Disease Product and Fast Track designations by the FDA together with Priority Review status for this indication.
16. Partnership with the Foundation FondaMental (Paris, FR) and its Founder/CEO, Prof. Marion Leboyer to develop the first disease-modifying drug to treat schizophrenia and autism.
17. Six scientific publications: two papers documenting the preclinical safety of NRX-101, namely that NRX-101 does not cause neurotoxicity 1 nor does it lead to self-administration 2 , NRX-101 shows antimicrobial activity against uropathogens that cause complicated urinary tract infection (cUTI) 3 , a position paper on NRX-101 in the treatment of chronic pain 4 , the development and testing of a psychometric assessment monitoring system to improve concordance in psychiatric clinical trials 5 , and the Phase 2 STABIL-B clinical trial results. 6
18. Continued prosecution of 16 filed patent applications and 48 issued patents around the world providing broad disclosure of the synergistic combination of NMDA and 5-HT 2A antagonist drugs in the treatment of mental health
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disorders and chronic pain. NRX-101 is covered by four families of U.S. and foreign patents, including a composition of matter patent (U.S. Patent No. 10,583,138 and foreign counterparts). NRx has licensed U.S. Patent 8,653,120 for use of D-Cycloserine to treat Chronic Pain as an expansion of that portfolio .
19. HOPE has received term sheets for more than $60 million in funding from new investors upon public listing and is expected to be spun out as a separate company to be owned by NRx, current NRx shareholders, and new investors upon completion of final audit and financial statements.
20. IND for NRX-101 in the treatment of Complicated Urinary Tract Infection (cUTI) is based on in vitro data just accepted for peer-reviewed publication in Antibiotics, an MDPI journal. On the basis of these findings, FDA granted Qualified Infectious Disease Product (QIDP), Fast Track and Priority Review designations NRx is seeking a clinical phase partner for this multi-hundred million dollar indication.
21. Elected nationally recognized attorney in highly regulated industries, and healthcare specialist, Janet Rehnquist, Esq., to the Company’s Board of Directors.
22. Management has taken action to restore Nasdaq listing compliance and seeking to combat illegal naked shorting of NRx securities.
The Company has two lead compounds today, NRX-100, a proprietary presentation of ketamine and NRX-101, a patented fixed-dose combination of D-cycloserine and lurasidone. Both products have Fast Track designation from the US FDA for the treatment of suicidal bipolar depression. NRX-101 additionally has Breakthrough Therapy Designation and a Biomarker Letter of Support from the FDA for this purpose. To the Company’s knowledge, NRX-101 is the only oral antidepressant demonstrated to reduce suicidal ideation in a phase 2 trial.
For mechanistic reasons unrelated to its CNS NMDA-antagonist properties, NRX-101 interferes with cell wall formation in certain bacteria, rendering it a potent antibiotic and is demonstrated to kill certain treatment-resistant urinary tract bacteria. Accordingly, NRX-101 has been awarded Qualified Infectious Disease Product Designation and Fast Track Designation by the FDA to treat Complicated Urinary Tract Infection and Pyelonephritis. Our strategy is to apply innovative science to known molecules in the pursuit of therapies for high unmet needs, including lethal conditions (NeuroRx) and to distribute ketamine and ancillary therapies to qualified clinics and practitioners who treat patients with suicidal depression (HOPE). The Company has announced plans to spin off HOPE to a freestanding company, half of which will be owned by NRx and half by individual shareholders.
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 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 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 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.
Recent Events
February 2024 Offerings
On February 27, 2024, we entered into the Underwriting Agreement with EF Hutton LLC, as the Representative of the Underwriters, relating to the February 2024 Public Offering of 5,000,000 shares of the Common Stock. The public offering price for each share of Common Stock was $0.30, and the Underwriters purchased the shares of Common Stock pursuant to the Underwriting Agreement at a price for each share of Common Stock of $0.276. On February 28, 2024, the February 2024 Public Offering closed (the “Closing Date”). Aggregate gross proceeds from the February 2024 Public Offering were approximately $1.5 million, before deducting underwriting discounts and commissions and estimated expenses payable by the Company.
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Pursuant to the Underwriting Agreement and the engagement letter, dated as of February 22, 2024, by and between the Company and the Representative, the Company agreed to issue to the Representative in connection with the February 2024 Public Offering, a warrant to purchase up to a number of shares of Common Stock representing 5.0% of the shares of Common Stock and any Option Shares (as defined below) sold, at an initial exercise price of $0.33 per share, subject to certain adjustments (the “Underwriter’s Warrant”). On February 28, 2024, the Company issued to the Representative the Underwriter’s Warrant to purchase up to 250,000 shares of Common Stock (the “Underwriter Warrant Shares”). The Underwriter’s Warrant is exercisable six months following the date of the Underwriting Agreement and terminates on the five-year anniversary of the date of the Underwriting Agreement.
Pursuant to the Underwriting Agreement, the Company also granted the Representative a 45-day Over-Allotment Option to purchase up to an additional 750,000 Option Shares. On March 5, 2024, the Underwriters exercised the Over-Allotment Option to purchase an additional 750,000 Option Shares. In connection with the Overallotment Exercise, we issued an additional Underwriter’s Warrant to purchase up to 37,500 shares of Common Stock. The Overallotment Exercise closed on March 6, 2024.
On February 29, 2024, we entered into a securities purchase agreement with an investor providing for the issuance and sale of 2,700,000 shares of Common Stock and warrants to purchase up to 2,700,000 shares of Common Stock (the “February Warrants”) at a price of $0.38 per share of Common Stock and accompanying warrant, which represents a 26.7% premium to the offering price in February 2024 Public Offering. The Common Stock and the February Warrants were offered pursuant to a private placement (the “February 2024 Private Placement”) under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The February Warrants will have an exercise price of $0.38 per share, are initially exercisable beginning six months following the date of issuance, and will expire 5 years from the date of issuance. The aggregate net cash proceeds to the Company from the February 2024 Private Placement were approximately $1.0 million.
Financial Results
Since inception, NRx Pharmaceuticals has incurred significant operating losses. For the years ended December 31, 2023 and 2022, NRx Pharmaceuticals’ net loss was $30.2 million and $39.8 million, respectively. As of December 31, 2023, NRx Pharmaceuticals had an accumulated deficit of $253.1 million, a stockholders’ deficit of $11.7 million and a working capital deficit of $12.2 million.
Going Concern
The Company’s ongoing clinical activities continue to generate losses and net cash outflows from operations. The Company plans to pursue additional equity or debt financing or refinancing opportunities in 2024 to fund ongoing clinical activities, to meet obligations under its current debt arrangements and for the general corporate purposes of the Company. Such arrangements may take the form of loans, equity offerings, strategic agreements, licensing agreements, joint ventures or other agreements. The sale of equity could result in additional dilution to the Company’s existing shareholders. The Company cannot make any assurances that additional financing will be available to it and, if available, on acceptable terms, or that it will be able to refinance its existing debt obligations which could negatively impact the Company’s business and operations and could also lead to a reduction in the Company’s operations. We will continue to carefully monitor the impact of our continuing operations on our working capital needs and debt repayment obligations. As such, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these consolidated financial statements. The Company may raise substantial additional funds, and if it does so, it may do so through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one of the Company’s product candidates.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.
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Nasdaq Listing Requirements
On July 20, 2023, we received a written notification (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that NRx Pharmaceuticals is not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) – Market Value of Listed Securities (“MVLS”) because the Company had not maintained a minimum MVLS of $50,000,000 for the last thirty-three (33) consecutive business days. Pursuant to Nasdaq Listing Rule 5810(c)(3)(C), we have been provided an initial compliance period of 180 calendar days, or until January 22, 2024, to regain compliance with the MVLS requirement. To regain compliance, our MVLS must meet or exceed $50,000,000 for a minimum period of ten consecutive business days prior to January 22, 2024. If we do not regain compliance within the allotted compliance period Nasdaq will provide notice that our shares of common stock will be subject to delisting and may potentially be traded on the Over-the-Counter market thereafter.
On October 17, 2023, we received formal notice from the Nasdaq Listing Qualifications Staff (the “Staff”) indicating that, based upon our non-compliance with the minimum bid price requirement for continued listing on The Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”), our securities were subject to delisting unless we timely request a hearing before the Nasdaq Hearings Panel (the “Panel”), which such hearing was timely requested and subsequently held on January 4, 2024. On January 16, 2024, the Panel granted our request for an exception to the Nasdaq Listing Rules until April 16, 2024, to demonstrate compliance with the Minimum Bid Price Requirement, subject to our filing all necessary documentation required to transfer our listing from the Nasdaq Global Market to the Nasdaq Capital Market on or before January 19, 2024, and our demonstrating compliance with the Minimum Bid Price Requirement on or before April 16, 2024. On February 1, 2024, the Nasdaq Stock Market informed us that it had approved our application to transfer our listing to the Nasdaq Capital Market. Our securities were transferred from the Nasdaq Global Market to the Nasdaq Capital Market at the opening of business on January 19, 2024. We have received authorization from our stockholders for a reverse stock split which is anticipated to occur prior to the April 16th deadline if necessary.
The Company has been granted an exception by the Nasdaq Hearing Panel to meet compliance requirements by April 16, 2024. This is conditional upon the Company completing a transfer of its listing from The Nasdaq Global Market to the Nasdaq Capital Market, which was approved and took effect at the opening of business on January 19, 2024. The Company subsequently established compliance with the Nasdaq Market Value of Listed Securities requirement and was notified of this by the Nasdaq.
Components of Results of Operations
Operating expenses
Research and development expenses
NRx Pharmaceuticals’ research and development expenses consist primarily of costs associated with NRx Pharmaceuticals’ clinical trials, salaries, payroll taxes, employee benefits, and equity-based compensation charges for those individuals involved in ongoing research and development efforts. Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received.
General and administrative expenses
General and administrative expenses consist primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services.
Settlement expenses
Settlement expense consists of settlement expenses related to the NeuroRx and GEM settlement and release agreement (the “Settlement Agreement”). See Note 8 “Commitment and Contingencies” of the notes to the Company’s consolidated financial statements included elsewhere in this report for further information.
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Results of operations for the years ended December 31, 2023 and 2022
The following table sets forth NRx Pharmaceuticals’ selected statements of operations data for the following periods (in thousands):
Year Ended December 31,
Change
2023
2022
Dollars
Operating expenses:
Research and development
$
13,371
$
17,027
$
(3,656)
General and administrative
14,216
27,308
(13,092)
Settlement expense
250
—
250
Total operating expenses
27,837
44,335
(16,498)
Loss from operations
$
(27,837)
$
(44,335)
$
16,498
Other (income) expenses:
Interest income
$
(494)
$
(249)
$
(245)
Interest expense
120
—
120
Change in fair value of convertible note payable
2,707
505
2,202
Change in fair value of warrant liabilities
(20)
(255)
235
Change in fair value of Earnout Cash liability
—
(4,582)
4,582
Total other (income) expenses
2,313
(4,581)
6,894
Net loss
$
(30,150)
$
(39,754)
$
9,604
Operating expenses
Research and development expenses
For the year ended December 31, 2023, NRx Pharmaceuticals recorded $13.4 million of research and development expenses compared to approximately $17.0 million for the year ended December 31, 2022. The decrease of $3.6 million is related primarily to a decrease of $2.1 million in clinical trials and development expenses related to ZYESAMI, $1.0 million related to fees paid to regulatory and process development consultants, $0.8 million related to stock-based compensation, $0.1 million in other regulatory and process development costs, partially offset by an increase of $0.2 related to licensure of a US Patent with Apkarian Technologies, and less than $0.1 million in shipping, freight, and delivery costs. The research and development expenses for the years ended December 31, 2023 and 2022, respectively, include ($0.2) million and $0.6 million, respectively, of non-cash stock-based compensation.
General and administrative expenses
For the year ended December 31, 2023, NRx Pharmaceuticals recorded $14.2 million of general and administrative expenses compared to approximately $27.3 million for the year ended December 31, 2022. The decrease of $13.1 million is related primarily to a decrease of $5.0 million in legal, professional and accounting fees, $4.1 million in insurance expenses, $2.4 million in stock-based compensation expenses, $1.0 million in employee expenses, and $0.5 million in consultant fees. The general and administrative expenses for the years ended December 31, 2023 and 2022, respectively, include $0.6 million and $3.0 million, respectively, of non-cash stock-based compensation.
Other (income) expenses
Interest income
For the year ended December 31, 2023, NRx Pharmaceuticals recorded $0.5 million of interest income compared $0.2 of interest income for the year ended December 31, 2022. The increase of $0.3 million is due to interest earned in the Company’s money market account.
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Interest expense
For the year ended December 31, 2023, NRx Pharmaceuticals recorded $0.1 million of interest expense, compared to no interest expense for the year ended December 31, 2022. The increase of $0.1 million is due to premiums for cash payments on the convertible note.
Change in fair value of convertible note payable
For the year ended December 31, 2023, NRx Pharmaceuticals recorded a loss of approximately $2.7 million related to the change in fair value of the convertible note payable which is accounted for under the fair value option. For the year ended December 31, 2022, NRx Pharmaceuticals recorded $0.5 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 year ended December 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 $0.3 million for the year ended December 31, 2022. The decrease of $0.2 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 year ended December 31, 2023, NRx Pharmaceuticals recorded no change in fair value of the earnout cash liability compared to a gain of $4.6 million for the year ended December 31, 2022. The earnout cash milestones were not achieved by December 31, 2022 and therefore the earnout cash liability expired. The gain for the year ended December 31, 2022 related to the expiration of the Company’s obligation.
Liquidity and Capital Resources
The Company has generated no revenues, has incurred operating losses since inception, 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 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.
February 2024 Offerings
On February 27, 2024, the Company entered into an Underwriting Agreement with EF Hutton LLC, as the Representative of the Underwriters, relating to the February 2024 Public Offering. The public offering price for each share of Common Stock was $0.30 and the Underwriters purchased the shares of Common Stock pursuant to the Underwriting Agreement at a price for each share of Common Stock of $0.276. Pursuant to the Underwriting Agreement, the Company also granted the Representative the Over-Allotment Option. Aggregate gross proceeds from the Offering were approximately $1.5 million, before deducting underwriting discounts and commissions and estimated expenses payable by the Company. The Company intends to use the net proceeds from the February 2024 Public Offering for working capital and general corporate purposes. The Company may also use the proceeds from February 2024 Public Offering to repay the Convertible Promissory Note initially issued to Streeterville Capital, LLC in November 2022.
On March 5, 2024, the Underwriters in the February 2024 Public Offering exercised their Over-Allotment Option to
purchase an additional 750,000 Option Shares. In connection with the Overallotment Exercise, we issued an additional
Underwriter’s Warrant to purchase up to 37,500 shares of Common Stock. The Overallotment Exercise closed on March
6, 2024.
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On February 29, 2024, we entered into a securities purchase agreement with an investor providing for the issuance and sale of 2,700,000 shares of Common Stock and warrants to purchase up to 2,700,000 shares of Common Stock (the “February Warrants”) at a price of $0.38 per share of Common Stock and accompanying warrant, which represents a 26.7% premium to the offering price in February 2024 Public Offering. The Common Stock and the February Warrants were offered pursuant to a private placement (the “February 2024 Private Placement”) under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The February Warrants will have an exercise price of $0.38 per share, are initially exercisable beginning six months following the date of issuance, and will expire 5 years from the date of issuance. The aggregate net cash proceeds to the Company from the February 2024 Private Placement were approximately $1.0 million.
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 December 31, 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%).
Streeterville Note
On November 4, 2022, we issued an 9% redeemable promissory note (as amended, the “Note”) to Streeterville Capital, LLC, a Utah limited liability company (“Streeterville”), for an aggregate principal amount of $11.0 million. The Note matures 18 months from the date of issuance subject to certain acceleration provisions. The Note carries an original issue discount of $1.0 million which was deducted from the principal balance of the Note. The net proceeds from the issuance of the Note was $10.0 million 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 $1.0 million of the outstanding balance of the Note per month starting six months after the issuance date. Payments may be made by the Company at their option in: (i) in cash with a 10% premium for the amount redeemed, (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 the 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 the monthly redemption amount of $1.0 million solely by payment by stock, if permitted under the agreement, subject to the Maximum Percentage (as defined in the Note) and other ownership limitations. On March 30, 2023, the Company entered into an Amendment to the Note (the “First Amendment”), pursuant to which the Maximum Percentage was set at 9.99% of the number of shares of Common Stock outstanding on a given date.
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On July 7, 2023, the Company entered into Amendment #2 to the Note with Streeterville (the “Second Amendment”). Pursuant to the Second Amendment, the Company agreed to amend the redemption provisions of the Note to provide that the Company would pay to Streeterville an amount in cash equal to $1,800,000 on or before July 10, 2023, which amount was paid on July 10, 2023. In addition, the Company agreed that, beginning on or before July 31, 2023, and on or before the last day of each month until December 31, 2023 (the “Minimum Payment Period”), we would pay Streeterville an amount equal to $400,000 in cash (a “Minimum Payment”), less any amount satisfied by the delivery of Redemption Conversion Shares (as defined below). Notwithstanding the foregoing, Streeterville may also submit a request for redemption of up to an aggregate of $1,000,000 per month (the “Maximum Monthly Redemption Amount” and, together with the Minimum Payment Amount, the “Redemption Amounts”) in accordance with the terms of the Note. However, the portion of each Minimum Payment that is not satisfied by the delivery of Redemption Conversion Shares is the maximum amount of cash we will be required to pay in accordance with the Second Amendment during the Minimum Payment Period. The redemption of the Maximum Monthly Redemption Amount in excess of the Minimum Amount may be satisfied by the delivery of additional Redemption Conversion Shares.
On February 9, 2024, the Company entered into Amendment #3 to Convertible Promissory Note (the “Third Amendment”), with Streeterville Capital, LLC (“Streeterville”). Pursuant to the Third Amendment, the Company and Streeterville agreed to further amend the terms of that certain Convertible Promissory Note dated November 4, 2022, in the original principal amount of $11,020,000, as amended by the amendments to the Convertible Promissory Note dated March 30, 2023 and July 7, 2023 (as amended, the “Note”). In accordance with the Third Amendment, the Company and Streeterville agreed to amend the redemption provisions of the Note. In particular, the Company agreed to pay Streeterville an amount in cash equal to $1,100,000 on February 12, 2024. In addition, beginning on or before February 29, 2024, on or before the last day of each month until July 31, 2024 (the “Minimum Payment Period”), the Company shall pay Streeterville an amount equal to $400,000 in cash (a “Minimum Payment”), less any amount satisfied by the delivery of Redemption Conversion Shares (as defined in the Note).
Notwithstanding the foregoing, after April 30, 2024, and for the remainder of the Minimum Payment Period, Streeterville may redeem any Redemption Amount (as defined in the Note), including an amount in excess of the Minimum Payment, subject to the Maximum Monthly Redemption Amount (as defined in the Note). During the Minimum Payment Period, the Company is permitted to pay the Redemption Amounts in the form of shares of common stock of the Company (the “Redemption Conversion Shares”) calculated on the basis of the Redemption Conversion Price (as defined in the Note) without regard to the existence of any Equity Conditions Failure to the extent Streeterville submits redemption notices during such month pursuant to the terms of the Note, and only for the Redemption Amounts covered by such notices. Moreover, the Redemption Premium (as defined in the Note) will continue to apply to the Redemption Amounts. To the extent there is an outstanding balance under the Note after the expiration of the Minimum Payment Period, the Company will be required to pay such outstanding balance in full in cash by August 31, 2024.
During the Minimum Payment Period, the Company is permitted to pay the Redemption Amounts in the form of shares of common stock of the Company (the “Redemption Conversion Shares”) calculated on the basis of the Redemption Conversion Price (as defined in the Note) without regard to the existence of an Equity Conditions Failure. Moreover, the Redemption Premium (as defined in the Note) will continue to apply to the Redemption Amounts.
March Offering
On March 8, 2023, NRx Pharmaceuticals entered into a securities purchase agreement with certain accredited investors (the “March 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 “March Investor Warrants”) in a registered direct offering priced at-the-market under Nasdaq rules for a purchase price of $0.75 per share (the “March Offering”). The March Investors agreed not to transfer the Common Stock for six months following the date of issuance. The March Investor Warrants have an exercise price of $0.75 per share, were initially exercisable beginning six months following the date of issuance (the “March Initial Exercise Date”) and will expire 5 years from the March Initial Exercise Date. The aggregate net proceeds to the Company from the March Offering were approximately $2.5 million. The closing of the sale of these securities occurred on March 9, 2023.
Alvogen License Agreement
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On June 2, 2023, the Company entered into a License Agreement (the “License Agreement”) with Alvogen Pharma US, Inc., Alvogen, Inc. and Lotus Pharmaceutical Co. Ltd. (collectively, “Alvogen”). Under the License Agreement, NRx granted Alvogen an exclusive, worldwide, transferable and sublicensable license under certain intellectual property (including patents, know-how and trademarks) owned or controlled by NRx to develop (with certain limitations), manufacture, and commercialize NRX-101, for the treatment of bipolar depression with suicidality. The term of the license is, on a country-by-country basis, 20 years from the first commercial sale of NRX-101 in such country, extendable by Alvogen for a two-year period upon its request made prior to the expiration of such 20-year period. During the term of the License Agreement, the parties have agreed (on behalf of themselves and their affiliates) not to research, develop, seek or obtain any regulatory approval for the manufacturing, marketing, sale, or other commercialization of any product containing a fixed dose combination of D-cycloserine and lurasidone in the treatment of bipolar depression with suicidality, nor to authorize or assist (including by investing in or otherwise providing funding to) any third party to do so.
During the term of the License Agreement, NRx is permitted to develop additional products containing D-cycloserine in combination with one or more other active antidepressant or antipsychotic ingredients for use outside of the field of treatment of bipolar depression with suicidality, such as in post-traumatic stress disorder (PTSD) or chronic pain in depression, in which case, if NRx wishes to license rights to develop or commercialize such additional products or indications, Alvogen has a right of first negotiation to obtain such a license.
Under the terms of the License Agreement, we have the right to an aggregate of up to $330 million in cash milestone payments, including an initial $10 million First Milestone Payment, upon the achievement of certain milestones. A second milestone payment of $5 million is due upon Alvogen’s receipt of a copy of the FDA’s notice of NDA Approval for Product with the label indication for the treatment of bipolar depression with sub-acute or acute suicidality. Additional cash milestone payments will become payable to us upon the achievement of net sales targets measured over the trailing four quarters. Alvogen has also agreed to pay the Company royalties based on the net sales of NRX-101.
Alvogen advance of milestone
As of February 7, 2024, the Alvogen agreement was amended and the company became eligible to receive $5 million as an advance of the first Milestone completion within the Alvogen Agreement.
June Offering
On June 6, 2023, the Company entered into a securities purchase agreement with institutional investors (the “June Investors”), providing for the issuance and sale of 9,670,002 shares of the Company’s Common Stock and warrants to purchase up to 9,670,002 shares of Common Stock (the “June Investor Warrants”). The Common Stock was issued in a registered direct offering for a purchase price of $0.65 per share (the “June Offering”) and the June Investor Warrants were offered pursuant to a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The June Investor Warrants have an exercise price of $0.6525 per share, are initially exercisable beginning six months following the date of issuance (the “June Initial Exercise Date”) and will expire five and one half years from the date of issuance. The aggregate net cash proceeds to the Company from the June Offering were approximately $5.6 million.
At The Market Offering
On August 14, 2023, we entered into an At The Market Offering Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent, pursuant to which we may offer and sell, from time to time through Wainwright, shares of Common Stock having an aggregate offering price of up to $2,000,000 (the “ATM Shares”). Upon delivery of an issuance notice and subject to the terms and conditions of the Sales Agreement, Wainwright may sell the ATM Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act. We are not obligated to make any sales of the ATM Shares under the Sales Agreement. The offering pursuant to the Sales Agreement will terminate upon the earlier of (i) the issuance and sale of all the sale of the ATM Shares reaching an aggregate offering amount equal to $2,000,000, or (ii) the termination of the Sales Agreement as permitted therein. The Company will pay Wainwright a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of ATM Shares and has agreed to provide Wainwright with customary indemnification and contribution rights. The Company will
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also reimburse Wainwright for certain specified expenses in connection with entering into the Sales Agreement. For the year ended December 31, 2023, we did not sell any shares of Common Stock pursuant to the Sales Agreement.
August Offering
On August 28, 2023, the Company entered into a securities purchase agreement (the “Preferred Stock Securities Purchase Agreement”) with certain purchasers (the “August Investors”), pursuant to which the Company issued 3,000,000 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), and one (1) investor warrant (each an “August Investor Warrant”) for every share of Series A Preferred Stock issued. The shares of Series A Preferred Stock and the August Investor Warrants were offered pursuant to a private placement under Section 4(a)(2) of the Securities Act. Each August Investor Warrant entitles the holder to purchase one (1) share of Common Stock at a purchase price of $0.40 per share. The aggregate purchase price for each share of Series A Preferred Stock and associated August Investor Warrant was $0.40. The August Investor Warrants are exercisable starting on the six month anniversary of the date of issuance and will have a term of five years from the date of issuance. The August Investor Warrants may also be exercised during the initial six-month period after issuance, at the option of the August Investors, if the closing share price of the Common Stock equals or exceeds $1.20 per share on any trading day. The aggregate gross proceeds to the Company from the private placement was approximately $1.0 million before expenses.
Cash Flows
The following table presents selected financial information and statistics for each of the periods shown below:
December 31,
2023
2022
Balance Sheet Data:
Cash
$
4,595
$
20,054
Total assets
7,315
25,816
Convertible note payable
9,161
10,525
Total liabilities
19,048
18,407
Total stockholders' (deficit) equity
(11,733)
7,409
Statement of Cash Flow Data:
Net cash used in operating activities
(21,657)
(39,755)
Net cash used in investing activities
(3)
(10)
Net cash provided by financing activities
6,201
32,214
Net (decrease) increase in cash
$
(15,459)
$
(7,551)
Operating activities
During the year ended December 31, 2023, operating activities used approximately $21.7 million of cash, primarily resulting from a net loss of $30.2 million, reduced by (a) net non-cash losses of $3.3 million, including $2.7 million in change in fair value of convertible promissory note, $0.4 million of stock-based compensation, and $0.3 million of non-cash settlement expenses, and (b) changes in operating assets and liabilities of $5.2 million.
During the year ended December 31, 2022, operating activities used $39.8 million of cash, primarily resulting from a net loss of $39.8 million, increased by (a) net non-cash gains of $0.7 million, including $4.6 million for the change in fair value of earnout cash liability, (ii) $0.3 million for the change in fair value of warrant liabilities, partially offset by (i) $3.6 million of stock-based compensation expense, (ii) $0.5 million for the change in fair value of convertible promissory note, and (b) changes in operating assets and liabilities of $0.7 million.
Investing activities
During the years ended December 31, 2023 and 2022 investing activities used less than $0.1 million, in each period, of cash related to the purchase of equipment.
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Financing activities
During the year ended December 31, 2023, financing activities provided $6.2 million of cash resulting from $8.1 million in proceeds from issuance of common stock and warrants issued in a private placement, $1.2 million in proceeds from issuance of Series A preferred stock and warrants, partially offset by $3.1 million of repayments of convertible notes.
During the year ended December 31, 2022, financing activities provided $32.2 million of cash resulting from $22.7 million in proceeds from issuance of common stock and warrants issued in private placement, net of issuance costs, $10.0 million in proceeds from convertible notes payable, net of discount and issuance costs, partially offset by $0.5 million of repayment of Relief Therapeutics loan notes payable.
Contractual Obligations and Commitments
See Note 7, Debt, and Note 8, Commitments and Contingencies, of the notes to the Company’s consolidated financial statements as of and for the year ended December 31, 2023 included elsewhere in this report for further discussion of the Company’s commitments and contingencies.
Milestone Payments
Pursuant to the legal settlement with Sarah Herzog Memorial Hospital Ezrat Nashim (“SHMH”) in September 2018, which included the license of intellectual property rights from SHMH, an ongoing royalty of 1% to 2.5% of NRX-101 gross sales is due to SHMH, together with milestone payments of $0.3 million, upon completion of phase 3 trials and commercial sale of NRX-101. The milestone payments for developmental and commercial milestones range from $0.1 million to $0.8 million. Annual maintenance fees are up to $0.2 million.
Off-Balance Sheet Arrangements
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
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 generally accepted accounting principles in the United States of America (“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. In accordance with GAAP, NRx Pharmaceuticals evaluates its estimates and judgments on an ongoing basis. The most significant estimates relate to the earnout cash liability, stock-based compensation, and the valuation of warrants. NRx Pharmaceuticals bases its estimates and assumptions on current facts, historical experiences, and various other factors that NRx Pharmaceuticals believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
NRx Pharmaceuticals defines its critical accounting policies as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which NRx Pharmaceuticals applies those principles. 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.
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
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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. 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. We estimate the expected term of our options using the "simplified" method for awards that qualify as "plain-vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends on common stock and do not expect to pay any cash dividends in the foreseeable future.
The assumptions used in determining the fair value of stock-based awards 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, our stock-based compensation expense could be materially different in the future.
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”). 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.
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, or date of modification, 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 Private 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(i.e. expected termination date) 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 equity and volume volatility based on the historical volatility of both 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
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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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.