Oruka Therapeutics, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ARCA BIOPHARMA, INC. BALANCE SHEETS (Unaudited) March 31, December 31, 2021 2020 (in thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents $ 66,933 $ 49,071 Other current assets 1,797 897 Total current assets 68,730 49,968 Right-of-use asset - operating 414 428 Property and equipment, net 27 21 Other assets 12 12 Total assets $ 69,183 $ 50,429 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,578 $ 1,773 Accrued compensation and employee benefits 255 815 Accrued expenses and other liabilities 1,047 911 Total current liabilities 2,880 3,499 Operating lease liability, net of current portion 394 409 Total liabilities 3,274 3,908 Commitments and contingencies Stockholders’ equity: Common stock, $0.001 par value; 100 million shares authorized at March 31, 2021 and December 31, 2020; 14,410,143 and 9,548,150 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 14 10 Additional paid-in capital 224,149 200,665 Accumulated deficit (158,254 ) (154,154 ) Total stockholders’ equity 65,909 46,521 Total liabilities and stockholders’ equity $ 69,183 $ 50,429 See accompanying Notes to Financial Statements 3 ARCA BIOPHARMA, INC. STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2021 2020 (in thousands, except share and per share amounts) Costs and expenses: Research and development $ 2,876 $ 365 General and administrative 1,226 975 Total costs and expenses 4,102 1,340 Loss from operations (4,102 ) (1,340 ) Interest and other income 2 24 Interest expense — (4 ) Net loss $ (4,100 ) $ (1,320 ) Net loss per share: Basic and diluted $ (0.33 ) $ (0.83 ) Weighted average shares outstanding: Basic and diluted 12,356,928 1,594,070 See accompanying Notes to Financial Statements 4 ARCA BIOPHARMA, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Stockholders’ Equity Additional Common stock Paid-In Accumulated Shares Amount Capital Deficit Total (in thousands, except share amounts) Balance, December 31, 2019 1,594,070 $ 2 $ 152,024 $ (144,416 ) $ 7,610 Share-based compensation — — 16 — 16 Net loss — — — (1,320 ) (1,320 ) Balance, March 31, 2020 1,594,070 2 152,040 (145,736 ) 6,306 Issuance of common stock and exercise of prefunded warrants for cash, net of offering costs 673,500 — 5,297 — 5,297 Share-based compensation — — 4 — 4 Net loss — — — (1,302 ) (1,302 ) Balance, June 30, 2020 2,267,570 2 157,341 (147,038 ) 10,305 Issuance of common stock for cash, net of offering costs 7,018,054 7 42,129 — 42,136 Share-based compensation — — 5 — 5 Net loss — — — (1,991 ) (1,991 ) Balance, September 30, 2020 9,285,624 9 199,475 (149,029 ) 50,455 Issuance of common stock for cash, net of offering costs 262,526 1 1,172 — 1,173 Share-based compensation — — 18 — 18 Net loss — — — (5,125 ) (5,125 ) Balance, December 31, 2020 9,548,150 10 200,665 (154,154 ) 46,521 Issuance of common stock for cash, net of offering costs 4,861,993 4 23,343 — 23,347 Share-based compensation — — 141 — 141 Net loss — — — (4,100 ) (4,100 ) Balance, March 31, 2021 14,410,143 $ 14 $ 224,149 $ (158,254 ) $ 65,909 See accompanying Notes to Financial Statements 5 ARCA BIOPHARMA, INC. STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2021 2020 (in thousands) Cash flows from operating activities: Net loss $ (4,100 ) $ (1,320 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 3 3 Amortization of right-of-use asset - operating 14 22 Share-based compensation 141 16 Change in operating assets and liabilities: Other current assets (840 ) (75 ) Accounts payable 56 (293 ) Accrued compensation and employee benefits (560 ) 60 Accrued expenses and other liabilities 61 (99 ) Net cash used in operating activities (5,225 ) (1,686 ) Cash flows from investing activities: Purchases of property and equipment (6 ) (3 ) Net cash used in investing activities (6 ) (3 ) Cash flows from financing activities: Proceeds from the issuance of common stock 24,070 — Common stock offering costs (977 ) — Net cash provided by financing activities 23,093 — Net increase (decrease) in cash and cash equivalents 17,862 (1,689 ) Cash and cash equivalents, beginning of period 49,071 8,363 Cash and cash equivalents, end of period $ 66,933 $ 6,674 Supplemental cash flow information: Interest paid $ — $ — Income tax refund received $ — $ — Supplemental disclosure of noncash investing and financing transactions: Purchases of property and equipment in accounts payable $ 3 $ — Vendor finance agreement $ — $ 408 Leased assets obtained in exchange for operating lease liabilities $ — $ 49 See accompanying Notes to Financial Statements 6 ARCA BIOPHARMA, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) (1) The Company and Summary of Significant Accounting Policies Description of Business ARCA biopharma, Inc. (the Company or ARCA), a Delaware corporation, is headquartered in Westminster, Colorado. The Company is a clinical-stage biopharmaceutical company applying a precision medicine approach to the development and commercialization of genetically targeted therapies for cardiovascular diseases. The Company’s lead product candidates are rNAPc2 (AB201) as a potential treatment for diseases caused by ribonucleic acid, or RNA, viruses, initially focusing on COVID-19, the disease caused by SARS-CoV-2 virus, and Gencaro™ (bucindolol hydrochloride) for the treatment of atrial fibrillation (AF) in patients with chronic heart failure (HF). rNAPc2 is a protein therapeutic in clinical development as a potential treatment for patients hospitalized with COVID-19. Based on its unique mechanism of action, development history and the clinical evidence from the SARS‑CoV-2 pandemic, the Company believes rNAPc2 has potential to be a beneficial therapy for patients with this serious viral disease. The Company initiated the Phase 2b clinical trial of rNAPc2 as a potential treatment for patients hospitalized with COVID-19 in the fourth quarter of 2020. The Company continues to evaluate the feasibility and potential timing for initiating PRECISION-AF relative to the COVID-19 pandemic and prioritizing the development of rNAPc2. The Company’s other product candidate, AB171, is a thiol-substituted isosorbide mononitrate, which ARCA plans to develop as a genetically-targeted treatment for HF and peripheral arterial disease. In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The Company does not expect a material financial effect as a result of the pandemic. However, if the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. Liquidity and Going Concern The Company devotes substantially all of its efforts towards obtaining regulatory approval and raising capital necessary to fund its operations and it is subject to a number of risks associated with clinical research and development, including dependence on key individuals, the development of and regulatory approval of commercially viable products, the need to raise adequate additional financing necessary to fund the development and commercialization of its products, and competition from larger companies. The Company has not generated revenue to date and has incurred substantial losses and negative cash flows from operations since its inception. The Company has historically funded its operations through issuances of common and preferred stock. The Company believes that its current cash and cash equivalents as of March 31, 2021 will be sufficient to fund its operations through the end of fiscal year 2022. Conducting a Phase 3 rNAPc2 clinical trial or the Phase 3 PRECISION-AF trial would likely require additional financing . However, changing circumstances may cause us to consume capital significantly faster or slower than currently anticipated. The Company has based these estimates on assumptions that may prove to be wrong, and the Company could exhaust its available financial resources sooner than the Company currently anticipates. Therefore, the Company may have to raise additional capital for clinical trials of rNAPc2 and will have to raise additional capital for clinical trials of Gencaro. The Company may not be able to raise sufficient capital on acceptable terms, or at all, to continue development of rNAPc2 or Gencaro or to otherwise continue operations and may not be able to execute any strategic transaction . 7 The Company’s liquidity, and its ability to raise additional capital or complete any strategic transaction, depends on a number of factors, including, but not limited to, the following: ● the costs and timing for the potential additional clinical trials in order to gain possible regulatory approval for rNAPc2, Gencaro or any other product candidate; ● the market price of the Company’s stock and the availability and cost of additional equity capital from existing and potential new investors; ● the Company’s ability to retain the listing of its common stock on the Nasdaq Capital Market; ● general economic and industry conditions affecting the availability and cost of capital, including as a result of the COVID-19 pandemic; ● the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and ● the terms and conditions of the Company’s existing collaborative and licensing agreements. The sale of additional equity or convertible debt securities would likely result in substantial additional dilution to the Company’s stockholders. If the Company raises additional funds through the incurrence of indebtedness, the obligations related to such indebtedness would be senior to rights of holders of the Company’s capital stock and could contain covenants that would restrict the Company’s operations. The Company also cannot predict what consideration might be available, if any, to the Company or its stockholders, in connection with any strategic transaction. Should strategic alternatives or additional capital not be available to the Company, or not be available on acceptable terms, the Company may be unable to realize value from its assets and discharge its liabilities in the normal course of business which may, among other alternatives, cause the Company to further delay, substantially reduce or discontinue operational activities to conserve its cash resources. Basis of Presentation The accompanying unaudited financial statements of the Company were prepared in accordance with generally accepted accounting principles for interim financial information and instructions to Form 10-Q and pursuant to Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim financial statements. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results expected for the full year ending December 31, 2021. The Company has generated no revenue to date and its activities have consisted of seeking regulatory approval, research and development, exploring strategic alternatives for further developing and commercializing rNAPc2 and Gencaro, and raising capital. These unaudited financial statements should be read in conjunction with the audited financial statements and footnotes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Amounts presented are rounded to the nearest thousand, where indicated, except per share data and par values. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company has no off-balance-sheet concentrations of credit risk, such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements. The Company maintains cash and cash equivalent balances in the form of bank demand deposits and money market fund accounts with financial institutions that management believes are creditworthy. Such balances may at times exceed the insured amount. Comprehensive Loss Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources. If the Company had comprehensive gains (losses), they would be reflected in the statement of operations and comprehensive loss and as a separate component in the statement of stockholders’ equity. There were no elements of comprehensive loss during the three months ended March 31, 2021 and 2020. 8 Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (ROU) asset – operating and lease obligations are included in accrued expenses and other liabilities and operating lease liability on the Company’s March 31, 2021 and December 31, 2020 balance sheets. ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Accrued Outsourcing Expenses As part of the process of preparing its financial statements, the Company is required to estimate accrued outsourcing expenses. This process involves identifying services that third parties have performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued outsourcing expenses include contract service fees, such as fees payable to contract manufacturers in connection with the production of materials related to the Company’s drug product, and service fees and pass through costs from clinical research organizations. The Company develops estimates of liabilities using its judgment based upon the facts and circumstances known at the time. Recent Accounting Pronouncements The Company reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the financial statements. (2) Net Loss Per Share The Company calculates basic earnings per share by dividing net loss by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. The Company’s potentially dilutive shares include stock options and warrants for common stock . Because the Company reported a net loss for the three months ended March 31, 2021 and 2020, all potentially dilutive shares of common stock have been excluded from the computation of the dilutive net loss per share for all periods presented. Such potentially dilutive shares of common stock consist of the following: March 31, 2021 2020 Potentially dilutive securities, excluded: Outstanding stock options 596,497 30,890 Warrants to purchase common stock 133,401 133,401 729,898 164,291 9 (3) Fair Value Disclosures There were no marketable securities as of March 31, 2021 or December 31, 2020. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified into the following hierarchy: ● Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of money market investments. The Company does not have any Level 1 liabilities. ● Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability. The Company does not have any Level 2 assets or liabilities. ● Level 3—Unobservable inputs for the asset or liability. The Company does not have any Level 3 assets or liabilities. As of March 31, 2021 and December 31, 2020, the Company had $66.9 million and $49.1 million, respectively, of cash equivalents consisting of money market funds with original maturities of 90 days or less. The Company has the ability to liquidate these investments without restriction. The Company determines fair value for these money market funds with Level 1 inputs through quoted market prices. There were no transfers of assets between fair value hierarchy levels during the three-month period ended March 31, 2021. Fair Value of Other Financial Instruments The carrying amount of other financial instruments, including accounts payable and a vendor finance agreement, which are included in accounts payable and accrued expenses and other liabilities, approximated fair value due to their short maturities. (4) Property and Equipment Property and equipment consist of the following (in thousands): Estimated Life March 31, 2021 December 31, 2020 Computer equipment 3 years $ 37 $ 31 Lab equipment 5 years 146 146 Furniture and fixtures 5 years 38 38 Computer software 3 years 59 56 280 271 Accumulated depreciation and amortization (253 ) (250 ) Property and equipment, net $ 27 $ 21 For the three months ended March 31, 2021 and 2020, depreciation and amortization expense was $3,000 and $3,000, respectively. (5) Related Party Arrangements Transactions with the Company’s President and Chief Executive Officer The Company has entered into unrestricted research grants with its President and Chief Executive Officer’s academic research laboratory at the University of Colorado. Funding of any unrestricted research grants is contingent upon the Company’s financial condition, and can be deferred or terminated at the Company’s discretion. Total expense under these arrangements for the three months ended March 31, 2021 and 2020 was $107,000 and $70,000 respectively. 10 (6) Commitments and Contingencies The Company has or is subject to the following commitments and contingencies. Employment Agreements The Company maintains employment agreements with several key executive employees. The agreements may be terminated at any time by the Company with or without cause upon written notice to the employee, and entitle the employee to wages in lieu of notice for periods not exceeding one calendar year from the date of termination without cause or by the employee for good reason. Certain of these agreements also provide for payments to be made under certain conditions related to a change in control of the Company. Operating Lease On August 1, 2013 the Company entered into a lease agreement for approximately 5,300 square feet of office facilities in Westminster, Colorado which served as the Company’s primary business office from October 1, 2013 until September 30, 2020. On August 29, 2020 the Company entered into a lease agreement for approximately 5,200 square feet of office facilities in Westminster, Colorado which serves as the Company’s primary business office effective October 1, 2020 (October 2020 Lease). The lease term is 42 months beginning October 1, 2020 and includes an option to renew for an additional 36 month term at the then prevailing rental rate. The exercise of the lease renewal option is at the Company’s sole discretion. The amounts recorded assume the Company will exercise its renewal option. The lease includes real estate taxes and insurance, which is not a lease component and is not included in the lease obligation. In addition, common area maintenance charges are based on actual costs incurred and are a non-lease component that is not included in the lease obligation. Future minimum commitments due under the October 2020 Lease agreement as of March 31, 2021 are as follows (in thousands): Remainder of 2021 $ 64 2022 88 2023 90 2024 93 2025 96 Thereafter 125 Total remaining lease payments 556 Less: imputed lease interest (106 ) Less: Current portion (56 ) Operating lease liability, net of current portion $ 394 Rent expense, which is included in general and administrative expense, for the three months ended March 31, 2021 and 2020 was $22,000 and $23,000, respectively. As of March 31, 2021, the lease liability was $450,000, and the current portion is included in accrued expenses and other liabilities and the non-current portion is in operating lease liability, net of current portion in the accompanying balance sheet. Cash paid for amounts included in the measurement of lease liabilities and the operating cash flows from operating leases for the three months ended March 31, 2021 and 2020 were $7,000 and $25,000, respectively. The weighted-average remaining lease term for the operating lease as of March 31, 2021 is 6.0 years. The discount rate for the operating lease is 7%. 11 (7) Equity Financings and Warrants Registered Direct Financing On June 3, 2020, the Company closed a registered direct offering with certain institutional and accredited investors of 348,000 shares of the Company’s common stock, at a purchase price of $9.00 per share, and pre-funded warrants to purchase 325,500 shares of common stock at a purchase price of $8.999 per warrant. All warrants were exercised by the closing date. The net proceeds were approximately $5.3 million, after deducting placement agent fees and other offering expenses. The Company paid JonesTrading a placement agent fee equal to 8.0% of the aggregate gross proceeds and agreed to provide JonesTrading with customary indemnification and contribution rights. At the Market Equity Financing On January 11, 2017, the Company entered into a Capital on Demand TM Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC, as agent (JonesTrading), pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s common stock, par value $0.001 per share (the Common Stock), having an aggregate offering price of up to $7.3 million. On August 21, 2017, January 25, 2019, March 11, 2019, May 9, 2019, May 20, 2019, June 28, 2019, July 2, 2020 and July 14, 2020, the Company amended its Capital on Demand Sales Agreement. The amendments, among other things, increased the maximum aggregate offering value of shares of the Company’s common stock which the Company may issue and sell from time to time under the Sales Agreement from $7.3 million to $32.4 million (the Shares). Under the amended Sales Agreement, JonesTrading may sell the Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market, on any other existing trading market for the Common Stock or to or through a market maker. In addition, under the amended Sales Agreement, JonesTrading may sell the Shares by any other method permitted by law, including in negotiated transactions. The Company may instruct JonesTrading not to sell Shares if the sales cannot be effected at or above the price designated by the Company from time to time. The Company is not obligated to make any sales of the Shares under the amended Sales Agreement. The offering of Shares pursuant to the amended Sales Agreement will terminate upon the earlier of (a) the sale of all of the Shares subject to the amended Sales Agreement or (b) the termination of the amended Sales Agreement by JonesTrading or the Company, as permitted therein. The Company paid JonesTrading a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares and agreed to provide JonesTrading with customary indemnification and contribution rights. The Company will also reimburse JonesTrading for certain specified expenses in connection with entering into and amending the Sales Agreement. Under the amended Sales Agreement, the Company sold an aggregate of 2,214,301 shares of Common Stock, for net proceeds of approximately $14.4 million, during the year ended December 31, 2020, including initial expenses for executing the “at the market offering” and commissions to the placement agent. This sales agreement terminated in July 2020. On July 22, 2020, the Company entered into a new Capital on Demand TM Sales Agreement (the 2020 Sales Agreement) with JonesTrading, pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s Common Stock, having an aggregate offering price of up to $54.0 million. During the three months ended March 31, 2021 and the year ended December 31, 2020, the Company had sold an aggregate of 4,861,993 and 5,066,279 shares of its Common Stock pursuant to the terms of the 2020 Sales Agreement for net proceeds of approximately $23.3 million and $28.9 million, respectively, after deducting expenses for executing the “at the market offering” and commissions paid to the placement agent. In April 2021, the Company amended the 2020 Sales Agreement and has $50.0 million available for the offering under its prospectus to the Company’s registration statement on Form S-3 (No. 333-254585). Warrants Warrants to purchase shares of common stock were previously granted as part of various financing and business agreements. All outstanding warrants were recorded in additional paid-in capital at their estimated fair market value at the date of grant using a Black-Scholes option-pricing model. 12 As of March 31 , 202 1 , these warrants, by year of expiration, are summarized below: Year of Expiration Number of Warrants Weighted Average Exercise Price 2022 133,401 $ 109.80 (8) Share-based Compensation For the three month periods ended March 31, 2021 and 2020, the Company recognized the following non-cash, share-based compensation expense in the statements of operations (in thousands): Three Months Ended March 31, 2021 2020 Research and development $ 36 $ 9 General and administrative 105 7 Total $ 141 $ 16 Stock option transactions for the three month period ended March 31, 2021 under the Company’s stock incentive plans were as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Options outstanding at December 31, 2020 531,238 $ 8.71 9.68 Granted 67,200 4.30 Exercised — — Forfeited and cancelled (1,941 ) 72.33 Options outstanding at March 31, 2021 596,497 $ 8.01 9.51 Options exercisable at March 31, 2021 66,125 $ 38.02 7.68 Options vested and expected to vest 595,774 $ 8.01 9.51 (9) Income Taxes In accordance with GAAP, a valuation allowance should be provided if it is more likely than not that some or all of the Company’s deferred tax assets will not be realized. The Company’s ability to realize the benefit of its deferred tax assets will depend on the generation of future taxable income. Due to the uncertainty of future profitable operations and taxable income, the Company has recorded a full valuation allowance against its net deferred tax assets. The Company believes its tax filing positions and deductions related to tax periods subject to examination will be sustained upon audit and, therefore, has no reserve for uncertain tax positions. 13