Nuvectis Pharma, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of the Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this report. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” “may,” “plan,” “seek” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof and we assume no obligation to update any such forward-looking statements. For such forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2021. As used below, the words “we,” “us” and “our” may refer to Nuvectis Pharma, Inc. Overview We are a biopharmaceutical company focused on the development of novel targeted small molecule therapeutics for the treatment of cancer in genetically defined patient populations. Our precision medicine approach translates key scientific insights relating to the oncogenic drivers and pathway addiction of cancer into potent and highly selective anticancer drugs. In addition, we will investigate the relevance of specific mutations and other DNA alterations as a potential patient selection marker and to identify synthetic lethality targets. This work could support our use of a tumor agnostic development strategy wherein we enroll patients based on the cancer’s genetic and molecular features without regard to the type or location of the cancer. NXP800 (HSF1-Pathway Inhibitor)  We have licensed exclusive world-wide commercial rights to NXP800, a novel Heat Shock Factor 1 (“HSF1”) pathway inhibitor, which was developed at the Institute for Cancer Research (“ICR”) in London, England. Cancer cells actively exploit HSF1 to overcome diverse stresses and promote biological activities crucial for their survival, progression, immune evasion, and metastasis. In preclinical studies, treatment with NXP800 inhibited tumor growth in xenografts models of human ovarian cancer. In addition, a genetic mutation in the AT-rich interactive domain-containing protein 1A (“ARID1a”) gene has been identified as a potential biomarker for treatment sensitivity and patient selection. Based on this work, we plan to clinically investigate NXP800 in Ovarian Clear Cell Carcinoma (“OCCC”) and endometrioid ovarian carcinoma, and to investigate the utility of ARID1a deficiency as a patient selection marker. The genetic screening for the ARID1a mutation is a standard part of the commercially available screening panels being utilized in the clinic for cancer patients. The Phase 1 study is comprised of two parts: dose-escalation Phase 1a, initiated in December 2021, to be followed by an expansion Phase 1b. In the Phase 1a, the safety and tolerability of NXP800 will be evaluated in patients with advanced solid tumors to identify a dose and dosing schedule for the Phase 1b. In the Phase 1b, the safety and preliminary anti-tumor activity of NXP800 will be evaluated, initially in patients with OCCC and endometrioid carcinoma and possibly in patients with other types of solid tumors. Additional preclinical studies will be conducted to identify development opportunities for NXP800 in additional solid tumor types. NXP900 NXP900 is a preclinical-stage drug candidate designed to preferentially inhibit the Proto-oncogene c-Src (“SRC”) and YES1 kinases. NXP900 was discovered at the University of Edinburgh. SRC is aberrantly activated in many cancer types, including solid tumors such as breast, colon, prostate, pancreatic and ovarian, while remaining predominantly inactive in non-cancerous cells. Increased SRC activity is generally associated with late-stage cancers, metastatic potential and resistance to therapy, and correlates with poor clinical prognosis. YES1 gene amplification has been reported to be implicated in several tumors including lung, head and neck, bladder and esophageal cancers. Furthermore, it has been found that YES1 gene amplification is a key mechanism of resistance to Epidermal Growth Factor Receptor (“EGFR”) or (Human Epidermal Growth Factor Receptor 2 (“HER2”) inhibitors. A recent, peer reviewed study published in Nature Communication which was not sponsored by the Company, has shown positive affects of using NXP900 in combination with the leading EFGR inhibitorl, Tagrisso, to overcome Tagrisso’s resistance in Tagrisso-resistant cell lines.   14 Table of Contents Preclinically, NXP900 has been shown to inhibit SRC and YES1 kinases and substantially inhibit growth of primary tumors and bone metastases in several triple negative breast cancer (“TNBC”) animal models. We plan to initially develop NXP900 in solid tumors where SRC and/or YES1 are implicated. We anticipate submitting an IND or an equivalent submission with a foreign agency in early 2023. Since our inception in 2020, we have devoted all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, acquiring, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product. We have not yet successfully completed any pivotal clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities. Results of Operations The following table summarizes our results of operations expenses for the three months ended March 31, 2022: (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31 ​ ​ Increase/ ​ 2022 2021 ​ (Decrease) OPERATING EXPENSES: ​ ​ ​ RESEARCH AND DEVELOPMENT $ 1,805 $ — $ 1,805 GENERAL AND ADMINISTRATIVE ​ 1,140 ​ 23 ​ 1,117 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING LOSS ​ (2,945) ​ (23) ​ 2,822 FINANCE INCOME ​ 2 ​ — ​ 2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET LOSS $ (2,943) $ (23) $ 2,820 ​ From our inception on July 27, 2020, through March 31, 2022, we did not generate any revenue. Our main activities through March 31, 2022 have been organizational and capital raising activities and the completion of the in-license agreements for our two drug candidates, NXP800 and NXP900, our Clinical Trial Application by the Medicines and Healthcare Regulatory Agency, and preparation for the Phase 1a clinical trial for NXP800, which commenced in December 2021, and beginning our IND-enabling studies for NXP900, which commenced in late 2021. Additionally, we completed our initial public offering in February 2022. Research and Development Expenses Research and development expenses include costs directly attributable to the conduct of research and development programs, including licensing fees, cost of salaries, share-based compensation expenses, payroll taxes, and other employee benefits, subcontractors, and materials used for research and development activities, including clinical trials, manufacturing costs, and professional services. All costs associated with research and development are expensed as incurred. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our ongoing and planned preclinical and clinical development activities in the near term and in the future. The successful development of our product candidates is highly uncertain. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates and we may never succeed in obtaining regulatory approval for any of our product candidates. 15 Table of Contents The following table summarizes our research and development expenses for the three months ended March 31, 2022: (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31 ​ Increase/ ​ 2022 2021 ​ (Decrease) Employee Compensation and Benefits ​ $ 467 $ — ​ $ 467 Clinical Expense ​ ​ 444 ​ — ​ ​ 444 License Fee ​ ​ 400 ​ — ​ ​ 400 Manufacturing ​ ​ 304 ​ — ​ ​ 304 Professional services and other ​ ​ 190 ​ — ​ ​ 190 Total research and development expenses ​ $ 1,805 $ — ​ $ 1,805 ​ For the three months ended March 31, 2022, we incurred research and development expenses of $1.8 million, primarily related to $0.5 million in employee expenses, including $0.1 million in non-cash equity expenses, clinical expenses totaling $0.4 million paid out in connection with our product candidates, NXP800 and NXP900, $0.4 million in licensing fee payments associated with our IPO and the UoE license agreement and $0.3 million of manufacturing expenses mainly associated with NXP800. During the three months ended March 31, 2021, we did not incur any material research and development expenses. General and Administrative Expenses General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, finance and accounting, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development activities. The following table summarizes our general and administrative expenses for the three months ended March 31, 2022: (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31 ​ Increase/ ​ 2022 ​ 2021 ​ (Decrease) Professional and consulting services $ 683 $ 23 ​ $ 660 Employee Compensation and Benefits ​ 179 ​ — ​ ​ 179 Insurance and Other ​ 278 ​ — ​ ​ 277 Total general and administrative expenses $ 1,140 $ 23 ​ $ 1,117 ​ For the three months ended March 31, 2022, our general and administrative expenses were $1.1 million, primarily attributable to $0.7 million of expenses to certain third party service providers, $0.2 million paid to employees during the period, and $0.2 million mainly due to insurance associated with the IPO. During the three months ended March 31, 2021, we did not incur any material general and administrative expenses. As a result of the foregoing, our loss from operations for the three months ended March 31, 2022, was $2.9 million, compared to a loss from operations of $23,000 for the three months ended March 31, 2021. We expect our research and development and general and administrative expenses to increase substantially in the future as we begin the execution of our business plan for our two pipeline product candidates, NXP800 and NXP900, and continue to build-out our infrastructure to support such research and development activities. Liquidity and Capital Resources As of March 31, 2022, we had $16.7 million of cash and cash equivalents. For the three months ended March 31, 2022, and 2021, we had net losses of $2.9 million and $23,000, respectively. As of March 31, 2022, we had an accumulated deficit of $15.8 million. 16 Table of Contents On February 4, 2022, we entered into an underwriting agreement with H.C. Wainwright & Co. (the “Underwriter”), as sole book-running manager, in connection with our initial public offering of common stock (the “IPO”). On February 4, 2022, we announced the pricing of our IPO of 3,200,000 shares of common stock for a price of $5.00 per share, less certain underwriting discounts and commissions. As part of the UoE license agreement, the Company owes UoE $0.4 million associated with this fundraising. We will pay UoE 2.5% of the gross amount of each of the Company’s future fund raisings up to a cumulative total of $3.0 million, including this $0.4 million. The IPO closed on February 8, 2022, with gross proceeds of $16.0 million, before deducting underwriting discounts and expenses (for net proceeds of $12.6 million). We believe that the proceeds from our IPO will enable us to fund our operating expenses and capital expenditures through at least the next 12 months from the issuance of our financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our future viability in the long term is dependent on our ability to raise additional capital to finance our operations. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our current or future product candidates, including payments of milestones and sponsored research commitments associated with our license agreements for NXP800 and NXP900. In addition, now that we have closed our IPO, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures will depend largely on our ability to: ➢ advance development of our clinical and preclinical programs; ➢ acquire additional product candidates; ➢ manufacture, or procure the manufacturing of, our preclinical and clinical drug material and develop processes for late stage and commercial manufacturing; ➢ seek regulatory approvals for any current or future product candidates that successfully complete clinical trials; ➢ achieve milestones in accordance with our license agreements; ➢ establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any current or future product candidates for which we may obtain marketing approval; ➢ hire additional clinical, quality control and scientific personnel; ➢ expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company; and ➢ obtain, maintain, expand and protect our intellectual property portfolio. We anticipate that we will require additional capital as we seek regulatory approval of our product candidates and if we choose to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for our other future product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including: ➢ the scope, progress, results and costs of researching and developing our current or future product candidates, and conducting preclinical and clinical trials; 17 Table of Contents ➢ the costs, timing and outcome of regulatory review of our current or future product candidates; ➢ the costs, timing and ability to manufacture our current or future product candidates to supply our clinical and preclinical development efforts and our clinical trials; ➢ the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our current or future product candidates for which we receive marketing approval; ➢ the costs of manufacturing commercial-grade products and necessary inventory to support commercial launch; ➢ the ability to receive additional non-dilutive funding, including grants from organizations and foundations; ➢ the revenue, if any, received from commercial sale of our products, should any of our current or future product candidates receive marketing approval; ➢ the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims; ➢ our ability to establish and maintain collaborations on favorable terms, if at all; and ➢ the extent to which we acquire or in-license other product candidates and technologies. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations. If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Cash Flows The following table provides information regarding our cash flows for the periods presented: (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31 ​ 2022 2021 Net cash used in operating activities $ (3,076) $ — Net cash used in investing activities ​ — ​ — Net cash provided by financing activities ​ 14,027 ​ — ​ Operating Activities During the three months ended March 31, 2022, $3.0 million of cash was used in operating activities. This was primarily attributable to our net loss of $2.9 million, partially offset by non-cash charges of $0.2 million. The change in our operating assets and liabilities was primarily due to an increase of $0.8 million in prepaid and other assets, which was primarily due to $1.1 million payment for our director 18 Table of Contents and officer insurance, partially offset by $0.5 million increase in accounts payable and accrued expense, due to growth in our business, the advancement of our research programs, and the timing of vendor invoicing and payments. Financing activities During the three months ended March 31, 2022, net cash provided by financing activities was $14.0 million, consisting primarily of proceeds from the sale of our common stock, offset by $2.0 million of commission and deferred offering costs paid. Contractual Obligations and Other Commitments We enter into contracts in the normal course of business with clinical research organizations, contract manufacturing organizations, and other third parties for clinical trials, preclinical research studies, and testing and manufacturing services. These contracts are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. The amount and timing of such payments are not known. We have also entered into license and collaboration agreements with third parties, which are in the normal course of business. We have not included future payments under these agreements since obligations under these agreements are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales. Pursuant to the NXP800 License Agreement, we are required to make payments to the ICR for certain development and regulatory milestones. As of March 31, 2022, we were obligated to pay up to $23.0 million in milestone payments to the ICR related to pre-approval milestones, up to $178 million (in addition to the $23.0 million) in regulatory and commercial sales milestones, and mid-single digit to 10% royalties on a tiered basis on net sales. Additionally, the Company originally agreed to provide the ICR with up to an additional $0.5 million in research and development. On March 31, 2022, the Company and ICR agreed to research and development support of an additional $0.4 million ($9.0 million total). Pursuant to the NXP900 License Agreement, we are required to make payments to the UoE for certain development and regulatory milestones. As of March 31, 2022, we were obligated to make up to $46.0 million in milestone payments to the UoE related to pre-approval milestones, including $0.5 million on the first anniversary of the agreement, up to $279.5 million in regulatory and commercial sales milestones, mid-single digit to 8% royalties on a tiered basis on net sales and 2.5% of the gross amount of each of the Company’s future fund raising up to a cumulative total of $3.0 million. Additionally, the Company will provide UoE with up to an additional $754,000 in research and development support. We do not currently have any long-term leases. We rent our office space in Fort Lee, New Jersey, based on a one-year agreement signed on May 1, 2022. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission. 19 Table of Contents Critical Accounting Policies and Significant Judgments and Estimates Our condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of condensed financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. There have been no significant changes to our critical accounting policies and estimates as compared to those described in “Note 2 – Summary of Significant Accounting Policies ” to our audited financial statements set forth in our Annual Report on Form 10-K filed with the SEC on March 23, 2022. Recently Issued Accounting Pronouncements See Note 2 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements. Emerging Growth Company and Smaller Reporting Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of our initial public offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We will continue to be a smaller reporting company for as long as either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Item 3. Quantitative and Qualitative Disclosures About Market Risks Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this report.