Item 2. Management’s Discussion and Analysis
Item 2. 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' condensed 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. All references to “Note,” followed by a number reference from 1 to 14 herein, refer to the applicable corresponding numbered footnotes to these condensed consolidated financial statements.
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Overview
NRx Pharmaceuticals, Inc. (Nasdaq: NRXP) (“ NRX ” or the “ Company ”) is a clinical-stage bio-pharmaceutical company which develops and will 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 post-traumatic stress disorder (“ 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.
During the first quarter of 2024 and in the subsequent period, the Company has achieved the following:
● We executed a non-binding term sheet from an institutional investor for up to $7.5 million in debt capital to replace current toxic debt, clearing the path to a proposed spin-off of HOPE, our wholly-owned subsidiary, to our shareholders, with provision for funding up to an additional $22.5 million to fund pipeline opportunities;
● We recorded positive data from a Phase 2b/3 trial of NRX-101 in Treatment Resistant Bipolar Depression; trial demonstrated depression efficacy comparable to standard of care and significant reduction of akathisia (P=0.025). Akathisia is a potentially lethal side effect of all serotonin-targeted antidepressants and is associated with suicide. Study additionally demonstrated a 30% advantage in sustained remission from suicidality that was not statistically-significant at this sample size;
● The above findings of reduced suicidality mirror the results of the Company’s prior STABIL-B trial in acutely suicidal patients and also mirror the results of an independent published trial;
● The Company plans to file a New Drug Application (“ NDA ”) for Accelerated Approval under Breakthrough and Priority Review of NRX-101 in treatment of bipolar depression in people at risk of akathisia, based on the Phase 2b/3 and STABIL-B data;
● We developed patentable pH neutral formulation for ketamine that will be suitable for both intravenous and subcutaneous administration. Ketamine efficacy data are in hand from 4 clinical trials. Three manufacturing lots are now completed (required for NDA) and Company to initiate NDA by July;
● We have engaged our auditors and are progressing towards completion of the audit for HOPE, which focuses on care delivery (not drug development) and continue to anticipate a separate Nasdaq listing and share dividend to current investors as previously announced. We have partnered with representatives of ketamine clinic operators to construct a care platform that will include ketamine, operational support, and digital therapeutic extensions. In advance of Food and Drug Administration (“ FDA ”) approval, HOPE is supplying ketamine under 503b pharmacy licensure to meet the national ketamine shortage declared by FDA;
● Data expected shortly in 200-person US Department of Defense (“ DOD ”)-funded trial of D-cycloserine (“ DCS ”), the key component of NRX-101, to treat chronic pain, conducted by Northwestern University. As of May 1, 2024 the Statistical analysis plan and data unlock have been approved by Northwestern IRB;
● NRX-101 in the treatment of Complicated Urinary Tract Infection (“ cUTI ”) granted Qualified Infectious Disease Product (“ QIDP ”), Fast Track, and Priority Review designations. Company has now demonstrated that NRX-101 does not damage the microbiome of the gut, in contrast to all other advanced antibiotics and is less likely to cause C. Difficile infection (a potentially lethal side effect of antibiotic treatment). NRx is reviewing partnership options: and
● Executed Memorandum of Understanding with Fondation FundaMental for rights to develop potential disease modifying drug for schizophrenia. If successful, this would represent the first drug to reverse the underlying disease mechanism of schizophrenia, rather than simply treating symptoms.
Development of NRX-101 for Suicidal Treatment-Resistant Suicidal Bipolar Depression
On May 5, 2024, the Company announced final data from the recently completed phase 2b/3 trial of NRX-101 in suicidal bipolar depression, with a significantly improved safety profile as demonstrated by a statistically significant reduction in
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akathisia, an adverse event considered by many experts to be a precursor to suicide. Given the vital need for safer medications in this at-risk population, we plan to submit an NDA to the US FDA for treatment of bipolar depression patients at risk of akathisia, based on these data as well as additional data from our STABIL-B trial. 1
Trial participants had identical mean scores on the BARS at baseline with subsequent decrease in the NRX-101 treated group versus an increase in the lurasidone-treated group, yielding a 76% relative mean difference between the groups. The difference was apparent at the first post-randomization visit and continued throughout the trial. (Fig 1) Over the 42 days of observation, an effect size of .37 was identified with a statistically significant P value of 0.025 on the Mixed Model for Repeated Measures methodology agreed to with FDA in the 2018 Special Protocol Agreement. Akathisia as ascertained by a 1 point increase in the BARS was seen in 11% of participants randomized to lurasidone (comparable to previous reports in the literature) and seen in only 2% of those treated with NRX-101, an akathisia level that was previously reported for the placebo arm of the lurasidone registration trial.
Akathisia was a prespecified key safety endpoint of the Company’s clinical trial. Hence this finding is not a “post-hoc” observation. As previously noted, this clinical trial of 91 participants with suicidal bipolar depression who were not pre-treated with ketamine demonstrated that NRX-101 and lurasidone were comparable in their antidepressant effect. A 33% but statistically non-significant sustained decrease in suicidality was also seen favoring NRX-101. As noted above, improved antidepressant efficacy is not required to seek drug accelerated drug approval based on a statistically-significant safety benefit.
The results released on May 24 are consistent with and amplify the results of the Company’s previously published STABIL-B trial (Fig 2 below). In both trials a meaningful reduction in Akathisia was seen, which was statistically significant in the current trial (P<.025) and near significant (P=0.11) in the STABIL-B with similar effect sizes The STABIL-B additionally demonstrated a statistically-significant reduction in suicidality on the Columbia Suicide Severity Rating Scale (C-SSRS).
1 Nierenberg A, Lavin P, Javitt DC, et. al. NRX-101 vs lurasidone for the maintenance of initial stabilization after ketamine in patients with severe bipolar depression with acute suicidal ideation and behavior; a randomized prospective phase 2 trial. Int J Bipolar Dis 2023;11:28-38, doi.org/10.1186/s40345-023-00308-5.
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Reduced suicidality associated with the administration of D-cycloserine has additionally been demonstrated by Chen and Coworkers.
Figure 2: Results from published STABIL-B Trial
During 2024, the Company began working in unison with Alvogen Pharma US, Inc., Alvogen, Inc. and Lotus Pharmaceutical Co. Ltd. (collectively, “ Alvogen ”) to plan the final development and commercialization of NRX-101. These partners recently advanced $5 million of the first milestone to the Company. Final licensing of the product, expected in Q2 2024 is anticipated to yield a total of $9 million in milestone payments together with assumption of future development costs by our partners. The partnership provides for potential milestone payments of $329 million and a royalty reaching 15% on Net Sales.
NRX-101 for Treatment of Chronic Pain: In 2023, the Company licensed US Patent 8,653,120 for the use of DCS in chronic pain and filed a now-accepted Investigational New Drug application with the FDA to initiate commercial drug development of NRX-101 in chronic pain. Data lock has now been achieved in a 200-person randomized prospective trial funded by the US DOD (NCT 03535688) in which patients with chronic pain were randomly assigned to DCS 400mg/day vs. placebo. Should these results support efficacy of DCS in the treatment of chronic low back pain, they are expected to provide a Breakthrough Therapy path towards treatment of chronic pain with DCS and DCS-containing medicines.
Incorporation of HOPE Therapeutics and progress towards an NDA for HTX-100 (IV ketamine) in the treatment of suicidal depression
In Q1 2024, the Company incorporated HOPE Therapeutics as a wholly-owned subsidiary and has engaged its auditors and are progressing towards the completion of an audit of its financial statements necessary for the intended spin-off of HOPE to the Company’s shareholders. Intravenous ketamine has now become a standard of care for acute treatment of suicidal depression, in the absence of an FDA-labeled product. Intranasal Esketamine is approved by the FDA (SPRAVATO®), but has not demonstrated a benefit on suicidality and is not approved for use in patients with bipolar depression. Attempts to use intranasal racemic ketamine for suicidal depression have failed.
The Company has formed data-sharing partnerships to license clinical trial data from a French Government-funded trial and two National Institute of Health (NIH)-funded trials all of which demonstrate efficacy of racemic Intravenous ketamine against depression and two of which demonstrate statistically significant benefit vs suicidality. The Company’s role is to reformat these data into the required presentation required for review by the FDA.
In contrast to nasal ketamine, Intravenous racemic ketamine demonstrates dramatic and immediate reduction of suicidality in patients with both Major Depressive Disorder and Bipolar Depression. Grunebaum and colleagues demonstrated a rapid and statistically significant reduction in Suicidal Ideation at day 1 (p=0.0003) and in depression (P=0.0234), as measured by the Profile of Mood States among patients randomized to IV Ketamine compared to those randomized to midazolam. This trial was published in the American Journal of Psychiatry . Abbar and colleagues similarly published 84% remission from suicidality on the C-SSRS in patients treated with ketamine, vs. 28% in those treated with placebo (P<.0001). This trial was published in the British Medical Journal. Data are expected to be transmitted to FDA by July 2024.
In November 2023, the Company initiated manufacture of ketamine together with Nephron Pharmaceuticals, Inc. to develop a single patient presentation of ketamine. Nine months of real-time stability is expected in June 2024, the minimum stability time required for a New Drug Application.
A long-term challenge with ketamine is that the current formulation (KETALAR®) is highly acidic. While it is suitable for intravenous use, it cannot be administered subcutaneously. In March 2024 the Company demonstrated the formulation of a pH neutral patentable form of IV ketamine that it anticipates will have widespread applicability both in treatment of depression and chronic pain.
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Treatment of Urinary Tract Infection (“ UTI ”) and Urosepsis:
Although treatment of UTI is quite different from use of NRX-101 to treat Central Nervous System disorders, D-cycloserine was originally developed as an antibiotic because of its role in disrupting the cell wall of certain pathogens. During Q3 2023, NRx tested NRX-101 and its components against resistant pathogens that appear on the Congressionally mandated QIDP list and proved in vitro effectiveness against antibiotic-resistant E. coli, Pseudomonas, and Acinetobacter. Accordingly, NRx was granted QIDP designation, Fast Track Designation, and Priority Review by the US FDA in January 2024.
In recent years, increased antibiotic resistance to common pathogens that cause urinary tract infections and urosepsis (i.e., sepsis originating in the urinary tract) has resulted in a marked increase in cUTI, hospitalization, and death from urosepsis. The US Center for Disease Control and Prevention reports that more than 1.7 million Americans contract sepsis each year, of whom at least 350,000 die during their hospitalization or are discharged to hospice (CDC Sepsis Ref.). There are approximately 3 million patients per year who contract cUTI in the U.S. annually (Lodise, et. al.). Additionally, should NRX-101 succeed in clinical trials, the Company will consider developing a follow-on product that is anticipated to achieve another 20 years of patent exclusivity.
A key challenge in the treatment of cUTI is the tendency of advanced antibiotics to cause C. Difficile infection, which is fatal in 10% of those who contract it over the age of 65 and results in prolonged hospitalization in many more. The Company recently announced data demonstrating that NRX-101 does not compromise the intestinal microbiome, unlike common antibiotics including Clindamycin and Ciprofloxacin. Should these findings be documented in human patients, NRX-101 would represent the only treatment for cUTI that does not cause C. Difficile infection.
Recent Events
Reverse Stock Split
On March 28, 2024, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Second Amended and Restated Certificate of Incorporation (the “ Charter Amendment ”) to effect a 1-for-10 reverse stock split (the “ Reverse Stock Split ”) of the Company’s Common Stock, par value $0.001 per share (the “ Common Stock ”), which Reverse Stock Split was effective April 1, 2024. All references in this Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Reverse Split on a retroactive basis.
April 2024 Offering
On April 18, 2024, we entered into the April Underwriting Agreement with EF Hutton LLC, as the representative of the April Underwriters, relating to the April Offering of 607,000 shares of the Company’s Common Stock. The public offering price for each share of Common Stock was $3.30 and the April Underwriters purchased the shares of Common Stock pursuant to the April Underwriting Agreement at a price for each share of Common Stock of $3.00. Pursuant to the April Underwriting Agreement, the Company also granted the Representative a 45-day option to purchase up to an additional 91,050 shares of Common Stock on the same terms as the Shares sold in the April Offering. On April 19, 2024, the Offering closed.
Aggregate gross proceeds from the April Offering were approximately $2.0 million, before deducting underwriting discounts and commissions and estimated expenses payable by the Company of approximately $0.3 million. The Company intends to use the net proceeds from the April Offering for working capital and general corporate purposes, including its plan to initiate a national treatment protocol and safety database . The Company may also use the proceeds from this offering to repay the Convertible Promissory Note initially issued to Streeterville Capital, LLC in November 2022.
Pursuant to the April Underwriting Agreement, the Company agreed to issue to the Representative in connection with the April Offering, a warrant to purchase up to a number of shares of Common Stock representing 5.0% of the Shares and any April Option Shares sold, at an initial exercise price of $3.63 per share, subject to certain adjustments. On April 19, 2024, the Company issued to the Representative the April Underwriter’s Warrant to purchase up to 30,350 shares of Common Stock. In the event that the April Over-Allotment Option is exercised in full, the Company will issue to the Representative
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an additional April Underwriter’s Warrant to purchase up to 4,553 shares of Common Stock. The April Underwriter’s Warrant is exercisable six months following the date of the April Underwriting Agreement and terminates on the five-year anniversary of the date of the April Underwriting Agreement.
The April Offering was made pursuant to the Company’s registration statement on Form S-3 (File No. 333-265492), as amended, previously filed with the Securities and Exchange Commission (the “ SEC ”) on June 9, 2022, and declared effective on June 21, 2022, a base prospectus dated June 21, 2022, and a prospectus supplement dated April 18, 2024.
Increase in At-The-Market Offering Agreement
On April 15, 2024, the Company increased the maximum aggregate offering amount of the shares of Common Stock issuable under that certain At the Market Offering Agreement, dated August 14, 2023 (the “ Offering Agreement ”), with H.C. Wainwright & Co., and filed a prospectus supplement (the “ Current Prospectus Supplement ”) under the Offering Agreement for an aggregate of $4.9 million. Prior to the date hereof, the Company sold shares of Common Stock having an aggregate sales price of $1.0 million under the Offering Agreement. Subsequent to March 31, 2024, the Company sold additional shares of Common Stock at an aggregate sales price of $1.3 million.
February 2024 Offerings
On February 27, 2024, we entered into the February Underwriting Agreement with the Representative (as defined above), as the representative of the February Underwriters (as defined above), relating to the February 2024 Public Offering (as defined above) of 500,000 shares of the Common Stock. The public offering price for each share of Common Stock was $3.00, and the February Underwriters purchased the shares of Common Stock pursuant to the February Underwriting Agreement at a price for each share of Common Stock of $2.76. On February 28, 2024, the Offering closed. Aggregate gross proceeds from the Febraury 2024 Public Offering were approximately $1.7 million (including Overallotment Exercise proceeds), before deducting underwriting discounts and commissions and estimated expenses payable by the Company.
Pursuant to the February 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 February Option Shares (as defined below) sold, at an initial exercise price of $3.30 per share, subject to certain adjustments (the “ February Underwriter’s Warrant ”). On February 28, 2024, the Company issued to the Representative the February Underwriter’s Warrant to purchase up to 25,000 shares of Common Stock. The February Underwriter’s Warrant is exercisable six months following the date of the February Underwriting Agreement and terminates on the five-year anniversary of the date of the February Underwriting Agreement.
Pursuant to the February Underwriting Agreement, the Company also granted the Representative a 45-day Over-Allotment Option to purchase up to an additional 75,000 February Option Shares. On March 5, 2024, the February Underwriters exercised the February Over-Allotment Option to purchase an additional 75,000 February Option Shares. In connection with the February Overallotment Exercise, we issued an additional February Underwriter’s Warrant to purchase up to 3,750 shares of Common Stock. The February 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 270,000 shares of Common Stock and warrants to purchase up to 270,000 shares of Common Stock at a price of $3.80 per share of Common Stock and accompanying warrant, which represents a 26.7% premium to the offering price in the February 2024 Public Offering. The Common Stock and the February 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 February Warrants will have an exercise price of $3.80 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 (as defined above) were approximately $1.0 million.
The Company announced on February 5, 2024 that the incorporation of HOPE Therapeutics™ (HOPE), a biotechnology company dedicated to bring NRX-100 (IV Ketamine), will be re-designated HTX-100, a potentially lifesaving treatment option for patients with Suicidal Depression. The Company will initially be owned by NRx and its current shareholders, who will receive their shares in the form of a dividend with an accompanying royalty coupon tied to future sales of HTX-100, subject to Board approval. HOPE is dedicated to providing an FDA-approved presentation of IV Ketamine, manufactured to current federal standards, in a diversion- and abuse-deterrent presentation. An NDA is planned for the first
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half of 2024, based on more than 1,000 patients treated in well-controlled trials of ketamine in Suicidal Depression together with HOPE's expertise in sterile products formulation.
Financial Results
Since inception, the Company has incurred significant operating losses. For the three months ended March 31, 2024 and 2023, the Company’s net loss was $6.5 million and $11.0 million, respectively. As of March 31, 2024, the Company had an accumulated deficit of $259.7 million, a stockholders’ deficit of $15.1 million and a working capital deficit of $15.5 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.
Nasdaq Listing Compliance
On October 17, 2023, we received formal notice from the Nasdaq Listing Qualifications Staff (the “ Staff ”) which indicated 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 requested a hearing before the Nasdaq Hearings Panel (the “ Panel ”). 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 received authorization from our stockholders for the Reverse Stock Split, which became effective April 2, 2024. Following the Reverse Stock Split, on April 17, 2024 we received a written notice from Nasdaq informing the Company that it has regained compliance for continued listing on the Nasdaq Capital Market, which non-compliance resulted from our failure to comply with Nasdaq Listing Rule 5810(c)(3)(C).
Components of Results of Operations
Research and development expense
The Company’s research and development expense consists primarily of costs associated with the Company’s 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.
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General and administrative expense
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, 2024 and 2023
The following table sets forth the Company’s selected statements of operations data for the following periods (in thousands):
Three months ended March 31,
Change
2024
2023
Dollars
(Unaudited)
Operating expense:
Research and development
$
1,748
$
3,650
$
(1,902)
General and administrative
4,250
5,785
(1,535)
Total operating expense
5,998
9,435
(3,437)
Loss from operations
$
(5,998)
$
(9,435)
$
3,437
Other (income) expense:
Interest income
$
(27)
$
(156)
$
129
Interest expense
230
—
230
Change in fair value of convertible note payable
318
1,772
(1,454)
Change in fair value of warrant liabilities
9
(12)
21
Total other (income) expense
530
1,604
(1,074)
Loss before tax
(6,528)
(11,039)
4,511
Net loss
$
(6,528)
$
(11,039)
$
4,511
Operating expense
Research and development expense
For the three months ended March 31, 2024, the Company recorded $1.7 million of research and development expenses compared to approximately $3.7 million for the three months ended March 31, 2023. The decrease of $2.0 million is related primarily to a decrease of $1.6 million in clinical trials and development expenses, $0.2 million in other regulatory and process development costs, $0.1 million related to stock-based compensation, and less than $0.1 million related to fees paid to regulatory and process development consultants, less than $0.1 million in shipping, freight, and delivery. The research and development expenses for the three months ended March 31, 2024 and 2023, respectively, include less than $0.1 million and $0.1 million, respectively, of non-cash stock-based compensation.
General and administrative expense
For the three months ended March 31, 2024, the Company recorded $4.3 million of general and administrative expense compared to approximately $5.8 million for the three months ended March 31, 2023. The decrease of $1.5 million is related primarily to a decrease of $1.2 million in insurance expense, $0.4 million in stock-based compensation expense, $0.4 million in employee expense, and less than $0.1 million in patent expense, partially offset by an increase of $0.4 million in consultant fees, $0.2 million in other general and administrative expense, less than $0.1 million in legal expense. The general and administrative expense for the three months ended March 31, 2024 and 2023, respectively, include $0.2 million and $0.6 million, respectively, of non-cash stock-based compensation.
Other (income) expense
Interest income
For the three months ended March 31, 2024, the Company recorded less than $0.1 million of interest income compared to $0.2 million of interest income for the three months ended March 31, 2023. The decrease of $0.2 million is due to interest earned in the Company’s money market account.
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Interest expense
For the three months ended March 31, 2024, the Company recorded $0.2 million of interest expense, compared to no interest expense for the three months ended March 31, 2023. The increase of $0.2 million is due to premiums for cash payments on the convertible note.
Change in fair value of convertible note payable
For three months ended March 31, 2024, the Company recorded a loss of approximately $0.3 million related to the change in fair value of the convertible note payable which is accounted for under the fair value option. For the three months ended March 31, 2023, the Company recorded a loss of approximately $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 three months ended March 31, 2024, the Company recorded a loss of less than $0.1 million related to the change in fair value of the warrant liabilities compared to a gain of less than $0.1 million for the three months ended March 31, 2023. The decrease of less than $0.1 million related to the change in the fair value of certain Substitute Warrants (as defined in Note 9) and the Placement Warrants (as defined in Note 9) assumed pursuant to the Merger Agreement (as defined in Note 1).
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, it is dependent upon obtaining necessary equity and/or debt financing to continue operations. The Company 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 our business and operations and could also lead to the reduction of our operations.
April 2024 Offering
On April 18, 2024, we entered into the April Underwriting Agreement with the Representative, as the representative of the April Underwriters, relating to the April Offering of the Shares, which April Offering closed on the April Closing Date. The public offering price for each share of Common Stock was $3.30 and the April Underwriters purchased the shares of Common Stock pursuant to the April Underwriting Agreement at a price for each share of Common Stock of $3.003. Pursuant to the April Underwriting Agreement, the Company also granted the Representative the April Over-Allotment Option during the April Over-Allotment Period.
Aggregate gross proceeds from the April Offering were approximately $2.0 million, before deducting underwriting discounts and commissions and estimated expenses payable by the Company. The Company intends to use the net proceeds from the April Offering for working capital and general corporate purposes, including its plan to initiate a national treatment protocol and safety database . The Company may also use the proceeds from this offering to repay the Convertible Promissory Note initially issued to Streeterville Capital, LLC in November 2022.
Pursuant to the April Underwriting Agreement, the Company agreed to issue to the Representative the April Underwriter’s Warrant in connection with the April Offering. On the April Closing Date, the Company issued to the Representative the April Underwriter’s Warrant to purchase April Underwriter Warrant Shares. In the event that the April Over-Allotment Option is exercised in full, the Company will issue to the Representative an additional April Underwriter’s Warrant to purchase up to 4,553 shares of Common Stock. The April Underwriter’s Warrant is exercisable six months following the date of the April Underwriting Agreement and terminates on the five-year anniversary of the date of the April Underwriting Agreement.
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February 2024 Offerings
On February 27, 2024, the Company entered into an February Underwriting Agreement (as defined above) with EF Hutton LLC, as the Representative (as defined above) of the February Underwriters (as defined above), relating to the February 2024 Public Offering. The public offering price for each share of Common Stock was $3.00 and the February Underwriters purchased the shares of Common Stock pursuant to the February Underwriting Agreement at a price for each share of Common Stock of $2.76. Pursuant to the February Underwriting Agreement, the Company also granted the Representative the February Over-Allotment Option. Aggregate gross proceeds from the February Underwriting Agreement were approximately $1.7 million (including February Overallotment Exercise proceeds), 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 also used 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 February Over-Allotment Option to purchase an additional 75,000 February Option Shares. In connection with the February Overallotment Exercise, we issued an additional February Underwriter’s Warrant to purchase up to 3,750 shares of Common Stock. The February Overallotment Exercise closed on March 6, 2024.
On February 29, 2024, the Company completed the February 2024 Private Placement. Pursuant to the securities purchase agreement, the Company issued and sold 270,000 shares of Common Stock and warrants to purchase up to 270,000 shares of Common Stock at a price of $3.80 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 under Section 4(a)(2) of the Securities Act. The February Warrants will have an exercise price of $3.80 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.
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. 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.
Since December 31, 2023 and through March 25, 2024, the Company has made aggregate principal, premium and interest payments of $2.9 million to Streeterville, consisting of cash payments of $2.5 million and the issuance of 1,436,472 shares of Common Stock with a value of $0.4 million.
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.
The Company has also learned that Streeterville filed a complaint (the “ Complaint ”) naming the Company as a defendant in the Third Judicial District Court of Salt Lake County, Utah. The Complaint is seeking, among other things: (i) declaratory relief for an order enjoining the Company from undertaking any Fundamental Transaction, including the Spin-Off, or otherwise issuing Common Stock or other equity securities (such as the shares of Hope Therapeutics pursuant to the announced Spin-Off); and (ii) repayment of the Note and other unspecified amounts of damages, costs and fees, but no less than $6.5 million, or the amounts currently outstanding under the Note.
Alvogen License Agreement
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
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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 $9 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
In February, 2024, the License Agreement was amended and we became eligible to receive $5 million as an advance of the First Milestone completion within the License Agreement. As compensation for advancing the milestone, Alvogen and Lotus received warrants to purchase up to 419,598 shares of the Company's Common Stock, at a strike price of $4.00 with a three year term. The second portion of the first milestone will be $4 million and, as before, be triggered by a positive response to the Company's planned end of phase 2 meeting with FDA. A second milestone payment of $5 million (the “ Approval Payment ”) 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. NRx then remains eligible to receive up to $315 million in future development and sales milestones, as well as royalty payments escalating to mid-teen percentages on Net Sales, subject to achievement of certain sales volumes.
Cash Flows
The following table presents selected financial information and statistics for each of the periods shown below:
March 31, 2024
December 31, 2023
Balance Sheet Data:
Cash
$
1,319
$
4,595
Total assets
3,788
7,315
Convertible note payable
6,779
9,161
Total liabilities
18,857
19,048
Total stockholders' deficit
(15,069)
(11,733)
March 31,
2024
2023
(Unaudited)
Statement of Cash Flow Data:
Net cash used in operating activities
(3,671)
(6,089)
Net cash used in investing activities
—
(4)
Net cash provided by financing activities
395
2,545
Net (decrease) increase in cash
$
(3,276)
$
(3,548)
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Operating activities
During the three months ended March 31, 2024, operating activities used approximately $3.7 million of cash, primarily resulting from a net loss of $6.5 million partially offset by net non-cash losses of $0.6 million, including $0.3 million in change in fair value of convertible promissory note, and $0.2 million of stock-based compensation, and changes in operating assets and liabilities of $2.3 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, increased by (a) net non-cash gains of $2.5 million, including $1.8 million for the 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.
Investing activities
During the three months ended March 31, 2024 there was $0 of investing activities. During the three months ended March 31, 2023 investing activities used less than $0.1 million of cash related to the purchase of equipment.
Financing activities
During the three months ended March 31, 2024, financing activities provided $0.4 million of cash resulting from $1.0 million in proceeds from issuance of Common Stock and warrants issued in a private placement, and $1.5 million in proceeds from issuance of Common Stock and warrants offset by $2.2 million in repayments of the convertible note.
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 private placement, net of issuance costs.
Contractual Obligations and Commitments
See Note 7, Debt, and Note 8, Commitments and Contingencies, of the notes to the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2024 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 the Company 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, the Company 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. The Company bases its estimates and assumptions on current facts, historical experiences, and various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and
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liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company 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 the Company applies those principles. While its significant accounting policies are more fully described in Note 3 to its financial statements, the Company 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 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 the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 480, Distinguishing Liabilities from Equity (“ ASC 480 ”) and FASB ASC Topic 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.
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Convertible note payable
As permitted under FASB 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 its 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, the Company estimates its expected future equity and volume volatility based on the historical volatility of both its 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 the Company’s 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 the Company’s uses 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 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.