Item 2. Management’s Discussion and Analysis
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, 2023. 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 innovative precision medicines for the treatment of serious conditions of unmet medical need in oncology.
NXP800 (Integrated Stress Response Activator)
We have licensed exclusive world-wide development and commercial rights to NXP800, a novel Integrated Stress Response (“ISR”) pathway activator, which was discovered at the Institute of Cancer Research (“ICR”) in London, England.
NXP800 is an oral, small molecule discovered in a phenotypic screen for inhibitors of the heat shock factor 1 stress response. In a panel of human carcinoma cell lines NXP800 induced the expression of genes associated with activation of the general control non-derepressible 2 ("GCN2”) kinase, including activating transcription factor 4 (“ATF4”), ChaC glutathione specific gamma-glutamylcyclotransferase 1 (“CHAC1”) and C/EBP homologous protein (“CHOP”) both in human ovarian cells in vitro and corresponding tumor xenograft models in vivo.
In preclinical studies, treatment with NXP800 inhibited tumor growth in xenografts models of human ovarian, endometrial and gastric cancers, in which, a genetic mutation in the AT-rich interactive domain-containing protein 1A (“ARID1a”) gene was present, potentially rendering ARID1a as a biomarker for treatment sensitivity, thereby offering a potential strategy for patient enrichment. Based on this work, we have begun to clinically investigate NXP800 in platinum-resistant ARID1a-mutated ovarian carcinoma, a type of cancer which is primarily comprised of two histologies, ovarian clear cell carcinoma (“OCCC”) and ovarian endometrioid carcinoma (“OEC”), and to investigate the utility of ARID1a deficiency as a patient selection marker in additional tumor types. The genetic screening for the ARID1a mutation is performed using a commercially available next generation sequencing-based in vitro diagnostic test, which is routinely utilized in t he clinic for cancer patients.
In December 2021, the Phase 1 study was initiated in the United Kingdom and is comprised of two parts: dose-escalation (Phase 1a), followed by an expansion phase (Phase 1b). In the Phase 1a, the safety, tolerability and pharmacokinetic properties of NXP800 were evaluated in patients with advanced solid tumors to identify a dose and dosing schedule for Phase 1b. The Phase 1b portion of the study, which was initiated in the second quarter of 2023, is evaluating the safety and preliminary anti-tumor activity of NXP800 in patients with platinum-resistant, ARID1a-mutated ovarian carcinoma. Additional studies to evaluate the safety and preliminary anti-tumor activity of NXP800 in additional tumor types are planned.
In June 2022, the Investigational New Drug (“IND”) application for NXP800 was cleared by the U.S. Food and Drug Administration (“FDA”), including the Phase 1 clinical trial protocol. In December 2022, we announced that the FDA granted Fast Track Designation status to the development program of NXP800 for the treatment of platinum-resistant, ARID1a-mutated ovarian carcinoma.
In August 2023, we announced that the FDA granted Orphan Drug Designation to NXP800 for the treatment of patients with cholangiocarcinoma. In December 2023, we announced a collaboration with Mayo Clinic to conduct an investigator-sponsored clinical trial in patients with cholangiocarcinoma.
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NXP900 (SRC/YES1 Kinase Inhibitor)
NXP900 is a SRC Family Kinase (“SFK”) inhibitor that potently inhibits the proto-oncogenes c-Src (“SRC”) and YES1 kinases. NXP900 was discovered at the University of Edinburgh, Scotland. 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. In addition, YES1 directly phosphorylates and activates the Yes-associated protein (“YAP1”), the main effector of the Hippo pathway, which has been identified as a promoter of drug resistance, cancer progression, and metastasis in several cancer types, including squamous cell, mesothelioma and papillary kidney cancers.
In vivo, treatment with NXP900 inhibited primary and metastatic tumor growth in xenograft models of breast, cervical, esophageal, head and neck and medulloblastoma cancers, and demonstrated on-target pharmacodynamic effects. Furthermore, it has been found that YES1 gene amplification is a key mechanism of resistance to Epidermal Growth Factor Receptor (“EGFR”), Human Epidermal Growth Factor Receptor 2 (“HER2”) and Anaplastic Lymphoma Kinase (“ALK”). A peer reviewed study published in Nature Communication (not sponsored by the Company) published in April 2022 demonstrated that NXP900 was able to re-sensitize resistant non-small cell lung cancer (“NSCLC”) cells to osimertinib (active ingredient in Tagrisso®), the leading EFGR inhibitor used for the treatment of EGFR mutation-positive NSCLC, when used in combination with osimertinib. These findings were reproduced and expanded by us in cell line models, demonstrating statistically significant synergies in combination with osimertinib and the ALK inhibitor alectinib, (active ingredient in Alecensa®).
In May 2023, the FDA cleared the Company's IND for NXP900, which includes the Phase 1 clinical trial protocol.
The Phase 1 study was initiated in September 2023 and is comprised of two parts: dose-escalation (Phase 1a), to be followed by an expansion phase (Phase 1b). In the ongoing Phase 1a, the safety, tolerability and pharmacokinetic properties of NXP900 in patients with advanced solid tumors will be assessed in order to identify a dose and dosing schedule for Phase 1b.
Results of Operations
From our inception on July 27, 2020, through March 31, 2024, we did not generate any revenue. Our main activities through March 31, 2024, have been organizational and capital raising activities, 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, preparation for the Phase 1a and Phase 1b clinical trials for NXP800, which commenced in December 2021 and April 2023, respectively, and beginning our IND-enabling studies, which commenced in late 2021, along with preparation for the Phase 1a clinical trial for NXP900. In May 2023, NXP900 received FDA clearance, and the Phase 1a study was initiated in September 2023. Additionally, we completed our initial public offering in February 2022, a private placement offering in July 2022 and a shelf registration in March 2023.
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 and service 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.
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
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legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; investor relations activities; 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 results of operations expenses for the three months ended March 31, 2024 and 2023:
(in thousands)
Three Months Ended March 31
2024
2023
Change
OPERATING EXPENSES:
Research and development
$
2,660
$
2,367
$
293
General and administrative
1,736
1,734
2
OPERATING LOSS
(4,396)
(4,101)
(295)
Finance income
225
52
173
NET LOSS
$
(4,171)
$
(4,049)
$
(122)
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023:
(in thousands)
For the three months ended March 31
Increase/
2024
2023
(Decrease)
Employee compensation and benefits
$
1,527
$
1,343
184
Clinical expenses
702
627
75
Manufacturing
414
354
60
Professional services and other
17
43
(26)
Total research and development expenses
$
2,660
$
2,367
$
293
Research and development expenses increased by $0.3 million during the three months ended March 31, 2024 compared to the same period in 2023. The increase in research and development expenses during the three months ended March 31, 2024 was primarily driven by a $0.2 million increase in employee compensation in the form of share based compensation and benefits.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023: (in thousands)
For the three months ended March 31
Increase/
2024
2023
(Decrease)
Professional and consulting services
$
885
$
850
$
35
Employee compensation and benefits
496
508
(12)
Insurance and other
355
376
(21)
Total general and administrative expenses
$
1,736
$
1,734
$
2
General and administrative expenses remained consistent at $1.7 million, during the three months ended March 31, 2024 compared to the same period in 2023.
As a result of the foregoing, our loss from operations for the three months ended March 31, 2024, increased $0.1 million, compared to the same period in 2023, which was primarily driven by employee compensation and benefits, clinical trial expenses, and manufacturing expenses, partially offset by finance income of $0.2 million.
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Liquidity and Capital Resources
As of March 31, 2024, we had $19.5 million of cash and cash equivalents. For the three months ended March 31, 2024 and 2023, we had net losses of $4.2 million and $4.0 million, respectively.
On February 4, 2022, we announced the pricing of our initial public offering of common stock (the “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, we are required to pay UoE 2.5% of the gross amount of each of our future fund raisings up to a cumulative total of $3.0 million. Pursuant to the IPO, we paid UoE $0.4 million associated with this fundraising.
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).
In addition, on July 29, 2022, we completed the July 2022 Private Placement in which we received gross proceeds of $15.9 million before deducting fees and expenses (for net proceeds of $14.2 million) excluding payments required by our license agreements. As part of this transaction, we issued Preferred Investment Options which became exercisable on January 23, 2023, and are exercisable through January 29, 2026, at an exercise price of $9.65 per share, subject to certain adjustments as defined in the securities purchase agreement. For the three months ended March 31, 2024, zero Preferred Investment Options were exercised, and $0.0 million, net of fees, was received as of March 31, 2024. In addition, as part of the July 2022 Private Placement, we issued warrants to the placement agent to purchase up to 115,481 shares of common stock. The placement agent warrants are in substantially the same form as the Preferred Investment Options, except that the exercise price is $10.31. As of March 31, 2024, 79,104 placement agent warrants were exercised, and $0.8 million, net of fees, was received.
On March 17, 2023, we filed a shelf registration statement on Form S-3 (the “Registration Statement”). Pursuant to the Registration Statement, we may offer and sell securities having an aggregate public offering price of up to $150.0 million. In connection with the filing of the Registration Statement, we also entered into a sales agreement with H. C. Wainwright & Co. (the “Sales Agent”), pursuant to which we may issue and sell shares of our common stock for an aggregate offering price of up to $40.0 million under an at-the-market offering program (the “ATM”), which is included in the $150.0 million of securities that may be offered pursuant to the Registration Statement. Pursuant to the ATM, we will pay the Sales Agent a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of our common stock. We are not obligated to make any sales of shares of our common stock under the ATM. As of March 31, 2024, we have sold 874,390 shares of our common stock and received $9.8 million in net proceeds under the ATM.
We believe that the proceeds from our IPO, private placement and ATM 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, we expect to incur increasing costs associated with operating as a public company as we continue to grow, including increased legal, accounting, investor relations, and other expenses. The timing and amount of our operating expenditures will depend largely on our ability to:
● advance development of our clinical and preclinical programs;
● 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;
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● 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;
● obtain, maintain, expand and protect our intellectual property portfolio; and
● acquire additional product candidates.
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 current or 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 and costs of researching and developing our current or future product candidates, including the timing and safety, tolerability and efficacy results from our preclinical and clinical trials;
● 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 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
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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
2024
2023
Net cash used in operating activities
$
(4,358)
$
(4,777)
Net cash used in investing activities
—
—
Net cash provided by financing activities
4,696
252
Operating Activities
During the three months ended March 31, 2024, $4.4 million of cash was used in operating activities. This was primarily attributable to our net loss of $4.2 million, partially offset by non-cash charges of $1.3 million. The change in our operating assets and liabilities was primarily due to $0.3 million payment of employee compensation and benefits, $0.3 million payment for our director and officer insurance, and $0.5 million payments related to public company operations.
During the three months ended March 31, 2023, $4.8 million of cash was used in operating activities. This was primarily attributable to our net loss of $4.0 million, partially offset by non-cash charges of $1.4 million. The change in our operating assets and liabilities was primarily due to $0.7 million payment of employee compensation and benefits, $0.5 million payment for our director and officer insurance, and $0.5 million payments related to public company operations.
Financing activities
During the three months ended March 31, 2024, net cash provided by financing activities was $4.7 million, consisting primarily of $4.7 million net proceeds from the sale of common stock through the ATM.
During the three months ended March 31, 2023, net cash provided by financing activities was $0.3 million, consisting primarily of $0.7 million proceeds from the exercise of warrants associated with our IPO and private placement, offset by $0.4 million of 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, 2024, we were obligated to pay up to $22.0 million in milestone payments to the ICR related to pre-approval milestones, up to $178 million (in addition to the $22.0 million) in regulatory and commercial sales milestones, and mid-single digit to 10% royalties on a tiered basis on net sales, unless development ceases. Additionally, we originally agreed to provide the ICR with up to an additional $0.5 million in research and development. On March 31, 2022, we agreed to provide the ICR with $0.4 million of additional research and development support ($0.9 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, 2024, we were obligated to make up to $45.0 million in milestone payments to the UoE related to pre-approval milestones, including $0.5 million on the first anniversary of the agreement which we paid as of September 30, 2023, up to
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$279.6 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 our future fund raising up to a cumulative total of $3.0 million, unless development ceases. Additionally, we 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, 2024.
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 SEC.
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. 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 5, 2024.
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.
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