Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes to those statements included in this Annual Report. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), reflect the operations of Quoin Pharmaceuticals Inc. (“Quoin Inc.”) since inception and include the accounts of Quoin Ltd. since the closing of the Merger (as defined below). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Part I, Item 1A. “Risk Factors” and the section entitled “Cautionary Note Regarding Forward-Looking Statements and Summary of Risk Factors.”
Overview
We are a late-stage clinical specialty pharmaceutical company focused on the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. Our initial focus is on the development of products, using our proprietary owned and in-licensed drug delivery technologies, that could help address rare genetic diseases. Our lead product, QRX003, is under clinical development as a potential treatment for Netherton Syndrome, a rare hereditary genetic disease. QRX003 is currently being tested in three regulatory clinical studies under an open IND application with the FDA. We have opened five clinical sites in the US and intend to open a sixth clinical site at Northwestern University. We are expanding our trials internationally into the Middle East, the United Kingdom and additional countries in Western and Eastern Europe. QRX003 is currently being tested in a pediatric NS patient at the Children’s Hospital in Dublin, Ireland and we intend to expand this study to include additional children with NS in Spain, the United Kingdom and potentially other countries. QRX003 is also being developed as a potential treatment for Peeling Skin Syndrome with the first subject being treated in New Zealand. In addition, we entered into two separate Research Agreements with the Queensland University of Technology, under which we have obtained an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma, as well as a Research Agreement with the University College Cork for the development of novel topical formulations of Rapamycin (sirolimus) as potential treatments for a number of rare and orphan diseases for which there are currently no approved therapies or cures. Other development products in our pipeline include QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa.
Our mission is to develop and commercialize proprietary therapeutic drug products that treat rare and orphan diseases, particularly those where none currently exists. To achieve this, we plan to:
● complete the late-stage clinical testing of QRX003 in NS and, if successful, file for marketing approval in the United States and other territories;
● prepare to commercialize QRX003 by establishing our own sales infrastructure in the U.S. and Europe and entering into distribution partnerships in other territories such as those currently established for Canada, Australia/New Zealand, the Middle East, China, Hong Kong, Taiwan, Latin America, Central and Eastern Europe, Turkey and Singapore; and
● pursue business development activities by seeking partnering, licensing, merger and acquisition opportunities or other transactions to further expand our pipeline and drug-development capabilities.
To date, no products have been commercialized and no revenue has been generated. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue our operations. See “Liquidity and Capital Resources”.
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Key Events
Public Offerings
On February 24, 2023 (the “2023 Closing Date”), we completed an offering (the “2023 Offering”) of 412,500 ordinary shares represented by 412,500 ADSs at a purchase price of $12.00 per ADS and a pre-funded warrant (the “2023 Pre-Funded Warrant”) to purchase 170,833 ordinary shares represented by 170,833 ADSs at a per pre-funded warrant price of $11.9988, with each ADS and 2023 Pre-Funded Warrant accompanied by an ordinary warrant (the “2023 Ordinary Warrant”) for aggregate gross proceeds of $7.0 million, resulting in net proceeds of approximately $5.8 million, after deducting the placement agent’s fees and offering expenses paid by us, and excluding the proceeds, if any, from the subsequent exercise of the 2023 Ordinary Warrants. Each 2023 Ordinary Warrant has an exercise price of $12.00 per ADS and expires on the fifth anniversary of the 2023 Closing Date. On the 2023 Closing Date, the holder of the 2023 Pre-Funded Warrant exercised its Pre-Funded Warrant in full.
In connection with the 2023 Offering, we entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “2023 Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both our August 2022 public offering (the “2022 Offering”) and the 2023 Offering. The 2023 Warrant Amendments amended certain terms of the ordinary warrants issued to such 2022 Purchasers in the 2022 Offering. Specifically, the 2023 Warrant Amendments reduced the exercise price of such warrants to $13.20 and extended the term during which those warrants could remain exercisable until February 24, 2028.
On March 7, 2024, we completed an offering (the “March 2024 Offering”) of the following securities (i) 811,250 ordinary shares represented by ADSs, (ii) 4,062,500 Series D warrants (the “Series D Warrants”) to purchase 4,062,500 ordinary shares represented by ADSs, (iii) 4,062,500 Series E warrants (the “Series E Warrants”) to purchase 4,062,500 ordinary shares represented by ADSs, and (iv) 3,251,250 pre-funded warrants (the “March 2024 Pre-Funded Warrants”) to purchase 3,251,250 ordinary shares represented by ADSs for aggregate gross proceeds of approximately $6.5 million, resulting in net proceeds of approximately $5.5 million, after deducting the placement agent’s fees and offering expenses paid by us. Each ADS (or March 2024 Pre-Funded Warrant to purchase one ADS in lieu thereof) was sold together with a Series D Warrant to purchase one ADS and a Series E Warrant to purchase one ADS. The ADSs and accompanying Series D Warrants and the Series E Warrants were sold at a combined public offering price of $1.60 and the March 2024 Pre-Funded Warrants and accompanying Series D Warrants and the Series E Warrants were sold at a combined public offering price of $1.5999, which is equal to the combined purchase price per ADS and accompanying Series D Warrants and the Series E Warrants, minus the exercise price of each March 2024 Pre-Funded Warrant of $0.0001. As of December 31, 2024 all March 2024 Pre-Funded Warrants have been exercised and are included in issued and outstanding ADSs. The Series D Warrants and the Series E Warrants have an exercise price of $1.60 per share, were exercisable immediately following the closing of the March 2024 Offering and expire in two years and five years, respectively, from the closing of the March 2024 Offering.
On March 7, 2024, we also entered into privately negotiated agreements with the holders of certain existing outstanding warrants to purchase up to 638,834 ADSs to, among other things, reduce the exercise price of such warrants to $1.60 and to extend the expiration date of such warrants until March 7, 2029. The incremental fair value of the modified warrants was approximately $209,000, which was accounted for as an offering expense in connection with the March 2024 Offering.
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On December 23, 2024, we completed an offering (the “December 2024 Offering” and, together with the March 2024 Offering, the “2024 Offerings”) of the following securities (i) 3,137,778 ordinary shares represented by ADSs, (ii) 15,111,110 Series F warrants (the “Series F Warrants”) to purchase 15,111,110 ordinary shares represented by ADSs, (iii) 15,111,110 Series G warrants (the “Series G Warrants” and together with the Series F Warrants, the “December 2024 Warrants”) to purchase 15,111,110 ordinary shares represented by ADSs, and (iv) 11,973,332 pre-funded warrants (the “December 2024 Pre-Funded Warrants”) to purchase 11,973,332 ordinary shares represented by ADSs for aggregate gross proceeds of approximately $6.8 million, resulting in net proceeds of approximately $5.8 million, after deducting the placement agent’s fees and offering expenses paid by us. Each ADS (or December 2024 Pre-Funded Warrant to purchase one ADS in lieu thereof) was sold together with a Series F Warrant to purchase one ADS and a Series G Warrant to purchase one ADS. The ADSs and accompanying Series F Warrants and Series G Warrants were sold at a combined public offering price of $0.45 and the December 2024 Pre-Funded Warrants and accompanying Series F Warrants and Series G Warrants were sold at a combined public offering price of $0.4499, which is equal to the combined purchase price per ADS and accompanying Series F Warrants and Series G Warrants, minus the exercise price of each December 2024 Pre-Funded Warrant of $0.0001. As of December 31, 2024, 760,666 December 2024 Pre-Funded Warrants, have been exercised and are included in issued and outstanding ADSs. The December 2024 Pre-Funded Warrants were immediately exercisable upon issuance and may be exercised at any time until exercised in full. The Series F Warrants and the Series G Warrants have an exercise price of $0.45 per share, were exercisable immediately upon issuance and expire in two years and five years, respectively, from the closing of the December 2024 Offering. In January and February 2025, certain investors in the December 2024 Offering exercised (i) the remaining outstanding 11,212,666 December 2024 Pre-Funded Warrants, (ii) 320,000 Series F Warrants, and (iii) 105,000 Series G Warrants.
In connection with the 2024 Offerings, we entered into Securities Purchase Agreements (the “2024 Purchase Agreements”) dated March 7, 2024 and December 23, 2024, respectively, with certain institutional investors signatory thereto, pursuant to which we agreed to issue and sell to such investors, certain of the ADSs, pre-funded warrants and ordinary warrants sold in the 2024 Offerings. Pursuant to the terms of each of the 2024 Purchase Agreements, we agreed, subject to certain exceptions, (i) to not enter into variable rate financings for a period of 180 days following the closing of such 2024 Offering, and (ii) to not enter into any equity financings for 90 days from closing of such 2024 Offering.
Certain of our officers and directors purchased an aggregate of 1,333,333 of our ADSs and accompanying December 2024 Warrants to purchase 2,666,666 of our ADSs, for a total purchase price of approximately $600,000, at the public offering price and on the same terms as the other purchasers in the December 2024 Offering.
On December 20, 2024, we also entered into privately negotiated agreements with the holders of certain existing outstanding warrants to purchase up to 7,002,500 ADSs to, among other things, reduce the exercise price of such warrants to $0.45 and to extend the expiration date of such warrants until December 23, 2029. The incremental fair value of the modified warrants was approximately $1.5 million, which was accounted for as an offering expense in connection with the December 2024 Offering.
Alumni Equity Line and Purchase Agreement
On January 25, 2024, we entered into a Purchase Agreement (the “Alumni Purchase Agreement”) with Alumni Capital LP (“Alumni”). Pursuant to the Alumni Purchase Agreement, we have the right to sell to Alumni up to $8,000,000 (the “Commitment Amount”) of newly issued ordinary shares that are represented by ADS (the “Purchase Notice Securities”), subject to certain conditions and limitations, from time to time during the term of the Alumni Purchase Agreement.
We do not have the right to commence any sales of ordinary shares represented by ADSs to Alumni under the Alumni Purchase Agreement until the date, which we refer to as the Commencement Date, that all of the conditions set forth in the Alumni Purchase Agreement have been satisfied, including that the registration statement we agreed to file with the SEC pursuant to the Alumni Purchase Agreement is declared effective by the SEC, and our shareholders have approved of the issuance of ADSs under the Alumni Purchase Agreement, which approval was obtained on April 5, 2024.
From and after the Commencement Date, we may, from time to time and at our sole discretion for a period of three months, which we at our sole discretion may increase by an additional three months (such period, including any extension, the “Commitment Period”), on any business day that we select, direct Alumni to purchase ordinary shares represented by ADSs. The purchase price for the ordinary shares represented by ADSs we may sell to Alumni will be based upon formulas set forth in the Alumni Purchase Agreement based on the then current market price of the ADSs as computed under the Alumni Purchase Agreement and will depend on the type of purchase notice we submit to Alumni from time to time. There is no upper limit on the price per share that Alumni could be obligated to pay for the ADSs under the Alumni Purchase Agreement; provided, however at no time can the purchase price be below a floor price of $1.00
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per share (subject to adjustment). We agreed to issue purchase notices for an aggregate of at least $4,000,000 of the Commitment Amount prior to the end of the Commitment Period.
As consideration for Alumni’s irrevocable commitment to purchase ADSs under the Alumni Purchase Agreement, we agreed to issue to Alumni, at the times set forth in the Alumni Purchase Agreement beginning with the trading day after the Commencement Date, a number of ADSs with a value at the time of issuance not to exceed $240,000 in the aggregate (the “Commitment Securities”). The ADSs to be issued will be valued at the average of the closing prices of the ADSs on Nasdaq for the five trading days immediately prior to the date such ADSs are issued. We may pay cash in lieu of issuing all or any portion of the Commitment Securities.
Per mutual agreement between the parties, we have not filed the required registration statement or sold any ADSs to Alumni under the Alumni Purchase Agreement. The Company is restricted from selling ADSs under the Alumni Purchase Agreement for 180 days from the closing of the December 2024 Offering, see above.
Nasdaq Listing
On April 29, 2024, we received a letter from the Listing Qualifications Department of Nasdaq (notifying us that the closing bid price per ADS of the Company was below the required minimum of $1.00 for a period of 31 consecutive business days and that we did not meet the minimum bid price requirements set forth in Nasdaq Rule 5550(a)(2).
Pursuant to Nasdaq Rule 5810(c)(3)(A), we had a period of one hundred eighty (180) calendar days, or until October 28, 2024, to regain compliance with Nasdaq’s minimum bid price requirement. On October 16, 2024, the Company submitted a letter to Nasdaq requesting an additional 180-day grace period to regain compliance with the minimum bid price requirement. On October 29, 2024, the Company received a letter from the Listing Qualifications Department of Nasdaq granting the Company an additional 180 calendar day grace period, or until April 28, 2025, to regain compliance. The Staff’s determination in granting the Company the extension was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market with the exception of the minimum bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse split, if necessary. Accordingly, there is no immediate effect on the listing or trading of the Company’s ADSs on the Nasdaq Capital Market under the symbol “QNRX.”
Compliance may be achieved without further action if the closing bid price of the Company’s ADS is at or above $1.00 for a minimum of ten consecutive business days at any time during the second compliance period, in which case Nasdaq will notify the Company if it determines the Company is in compliance and the matter will be closed; however Nasdaq could require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that the Company complies. If compliance cannot be demonstrated by April 28, 2025, the Staff will provide written notification that the Company’s securities will be delisted. At that time, the Company may appeal the Staff’s determination to a Hearings Panel. If the Company appeals it will be asked to provide a plan to regain compliance to the Panel. Historically, Panels have generally viewed a near-term reverse split as the only definitive plan acceptable to resolve a minimum bid price deficiency.
The Company intends to actively monitor the bid price of its ADSs and will consider available options to regain compliance with Nasdaq’s listing requirements.
Components of Our Results of Operations
Operating Expenses
Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture
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drug supplies and materials. We utilize outside consultants and third parties to conduct the majority of our research and development, under the supervision of our management team.
Future research and development expenses may include:
● employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses, share-based compensation, overhead related expenses and travel related expenses for our research and development personnel;
● expenses incurred under agreements with CROs, as well as consultants that support the implementation of the clinical studies described above;
● manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch;
● formulation, research and development expenses related to QRX003; and other product candidates we may choose to develop; and
● costs for sponsored research.
Research and development activities will continue to be central to our business plan. 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 our research and development expenses to be significant over the next several years as personnel and compensation costs increase and we conduct late-stage clinical studies and prepare to seek regulatory approval for QRX003 and any other future product candidate.
The duration, costs and timing of clinical trials of QRX003 and any other future product candidate will depend on a variety of factors that include, but are not limited to:
● the number of trials required for approval;
● the per patient trial costs;
● the number of patients that participate in the trials;
● the number of sites included in the trials;
● the countries in which the trial is conducted;
● the length of time required to enroll eligible patients;
● the number of doses that patients receive;
● the drop-out or discontinuation rates of patients;
● the potential additional safety monitoring or other studies requested by regulatory agencies;
● the duration of patient follow-up;
● the timing and receipt of regulatory approvals; and
● the efficacy and safety profile of our product candidates.
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General and Administrative Expenses
General and administrative expenses consist primarily of compensation and employee related expenses including non-cash stock-based compensation, professional fees and other corporate expenses. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities. These increases will likely include compensation and employee-related expenses including stock-based compensation, increased costs related to the potential hiring of personnel, travel costs and fees to outside consultants, lawyers and accountants.
Other Expenses (income)
Other expenses (income) consist primarily of interest income and unrealized loss (gain) on investments.
Results of Operations - Year ended December 31, 2024 compared to Year ended December 31, 2023
The following table sets forth our results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023:
Year ended December 31,
2024
2023
Change
Operating Expenses
General and administrative
$
5,925,833
$
6,070,517
$
(144,684)
Research and development
3,602,632
3,307,987
294,645
Total operating expenses
9,528,465
9,378,504
149,961
Other (income) and expenses
Unrealized gain (loss)
(7,502)
2,683
(10,185)
Realized and accrued interest income
(558,491)
(694,614)
136,123
Total other income
(565,993)
(691,931)
125,938
Net loss
$
(8,962,472)
$
(8,686,573)
$
(275,899)
General and Administrative Expenses
General and administrative expenses were approximately $5,926,000 and $6,071,000, in the year ended December 31, 2024 and 2023, respectively, representing a decrease of $145,000, or 2.4%. The decrease was primarily due to a decrease in travel allocated to general and administrative expenses of $168,000, a decrease in insurance of $124,000, offset with an increase in payroll and benefits of $105,000, an increase in legal fees and other public company expenses of $49,000, and an increase in non-cash stock-based compensation expense of $24,000.
Research and Development Expenses
Our research and development expenses during the year ended December 31, 2024 and 2023 were approximately $3,603,000 and $3,308,000, respectively, representing an increase of $295,000, or approximately 8.9%. The increase was primarily due to an increase of $176,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003, manufacturing costs for material used in our clinical studies an increased allocation of internal compensation and travel costs to our research and development programs. The increase also included approximately $140,000 in non-cash stock-based compensation expense. We expect to continue our research and development efforts by conducting the remaining studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above.
We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set out above. The license from Skinvisible was obtained in October 2019, see “Research and Development, Patents and Licenses.” Amortization of intangible assets was approximately $100,000 and $104,000 in each of the years ended December 31, 2024 and 2023. As of December 31, 2023 we determined that the Polytherapeutics asset was no longer of use and reduced the carrying value to zero, incurring an impairment charge of approximately $18,000.
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Other Expenses:
Interest and financing expense
We earned approximately $558,000 in interest income and approximately $7,500 in unrealized gain, and earned approximately $695,000 in interest income and incurred approximately $3,000 in unrealized loss, in the year ended December 31, 2024 and December 31 2023, respectively, from our cash and cash equivalents and investments in marketable debt securities. The decrease in interest income in the year ending December 31, 2024 is the result of lower average aggregate cash and investment balances and a decrease in interest rates.
Liquidity and Capital Resources
We have incurred net losses every year since inception. We believe that we have sufficient resources to effect our business plan for at least one year from the issuance of the consolidated financial statements included in this report; however, the Company is subject to risks common to development stage biopharmaceutical companies including, but not limited to, unanticipated clinical trial costs and the ability to estimate such occurrences, if any, on the Company’s cash, liquidity, additional financing requirements, and availability. Accordingly, we may need to raise additional funds sooner than planned. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Additional financing will be required to complete the research and development of our therapeutic targets and our other operating requirements, which may not be available at acceptable terms, if at all. If we are unable to obtain additional funding when it becomes necessary, the development of our product candidates will be impacted and we would likely be forced to delay, reduce, or terminate some or all of our development programs, all of which could have a material adverse effect on our business, results of operations and financial condition.
Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities.
Future Funding Requirements
We will need to obtain further funding through public or private offerings of our capital stock, debt financing, collaboration and licensing arrangements or other sources, the requirements for which will depend on many factors, including:
● the scope, timing, rate of progress and costs of our drug development efforts, preclinical development activities, the timing of laboratory testing and clinical trials for our product candidates;
● the number and scope of clinical programs we decide to pursue;
● the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;
● the scope and costs of development and commercial manufacturing activities;
● the cost and timing associated with commercializing our product candidates, if they receive marketing approval;
● the extent to which we acquire or in-license other product candidates and technologies;
● the costs of preparing, filing and prosecuting patent applications, maintaining 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;
● our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval;
● our implementation of operational, financial and management systems; and
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● the costs associated with being a public company.
Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of QRX003, any future product candidate, or potentially discontinue operations.
To the extent that we raise additional capital through the sale of our equity or convertible debt securities, and pursuant to the exercise of the warrants issued to our investors in the 2022 Offering, the 2023 Offering and the 2024 Offerings, the ownership interest of our equity holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or proposed products, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market any future product that we would otherwise prefer to develop and market ourselves.
Summary Statement of Cash Flows – Year ended December 31, 2024 compared to Year ended December 31, 2023
As of December 31, 2024, we had approximately $14,057,000 in cash and investments in marketable securities. The table below presents our cash flows for the year ended December 31, 2024 and 2023:
Year ended December 31,
2024
2023
Net cash used in operating activities
$
(7,857,309)
$
(7,864,429)
Net cash provided (used) in investing activities
(1,888,282)
2,188,316
Net cash provided by financing activities
10,967,736
5,216,683
Net change in cash and cash equivalents
$
1,222,145
$
(459,430)
Operating Activities
Net cash used in operating activities was approximately $7,857,000 and $7,864,000 for the year ended December 31, 2024 and 2023, respectively. The decrease for the year ended December 31, 2024 was primarily due to an increase in non-cash based stock compensation and an increase in accounts payable and accrued expenses, offset by an increase in operating expense and an increase in prepaid expenses and other assets.
Investing Activities
Net cash used in investing activities in the year ended December 31, 2024 was approximately $1,888,000 and net cash provided by investing activities in the year ended December 31, 2023 was approximately $2,188,000 in each period consisting of net proceeds from maturity and purchases of short maturity US Treasury Bills and Notes.
Financing Activities
Net cash provided by financing activities was approximately $10,968,000 for the year ended December 31, 2024, consisting of approximately $11,568,000 in net proceeds from the March 2024 and December 2024 Offerings, partially offset by repayments of amounts due to officers of $600,000. Net cash provided by financing activities was approximately $5,217,000 for the year ended December 31, 2023, consisting of approximately $5,849,000 in net proceeds from the 2023 Offering partially offset by repayments of amounts due to officers of $600,000, and $33,000 in deferred financing costs.
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Research and Development Commitments
In October 2019, Quoin Inc. entered into the Exclusive Licensing Agreement (as amended from time to time, the “License Agreement”) with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted us an exclusive royalty-bearing license relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including those related to QRX003 and QRX004. We made Skinvisible a one-time non-refundable, non-creditable license fee of $1 million (the “License Fee”). In addition, we agreed to pay Skinvisible a single digit royalty percentage of our net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. We also agreed to pay Skinvisible 25% of any revenues we receive as royalties in the event that we sublicense any licensed products to a third party. The License Agreement also requires that we make a $5 million payment to Skinvisible upon receiving approval in the U.S. or European Union, whichever occurs first, for the first drug product developed using intellectual property licensed thereunder.
In November 2020, Quoin Inc. entered into a Master Service Agreement with Therapeutics Inc. for the management of the preclinical and clinical development of QRX003 for Netherton Syndrome. The initial term of the agreement was three years with automatic one year extensions, and the agreement required the execution of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. A work order was entered into in June 2022 for the first QRX003 clinical study at an expected estimated cost of approximately $4.4 million through 2024. An additional change order was entered into in December 2022 for a second QRX003 clinical study at an expected estimated cost of approximately $830,000. An amended and restated change order for the two studies was entered into in December 2024 at an estimated total remaining cost from August 2024 of approximately $3.6 million for the two studies combined. In the years ended December 31, 2024 and 2023, we incurred research and development costs under these agreements of approximately $1.1 million and $1.5 million, respectively. During the year ended December 31, 2024, the Company received a credit of approximately $83,000 applied to prior expenses incurred during the period of January 2024 to March 2024. During the year ended December 31, 2023, the Company received a credit of approximately $278,000 applied to prior expenses incurred during the period of March 2023 to July 2023.
In November 2021, we entered into a research agreement with Queensland University of Technology (QUT) for a pre-clinical research program for the development of a product to treat Netherton Syndrome of approximately $250,000. In May 2022, we entered into a second research agreement with QUT for the development of a product to treat Scleroderma of approximately $610,000. Each agreement remains in place until the completion of the research program, which in each case was initially anticipated to be 18 months from execution. For the years December 31, 2024 and 2023, we incurred research and development costs related to these agreements of approximately $0 and $361,000 respectively. Quoin is planning to schedule a meeting with QUT to discuss the future direction of both research programs.
On June 10, 2024, we entered into a research agreement with The School of Pharmacy at UCC. The scope of the agreement encompasses the development of novel topical formulations of Rapamycin (sirolimus) as potential treatments for a number of rare and orphan diseases for which there are currently no approved therapies or cures. Under the terms of the agreement, based on the achievement of certain milestones, we will fund up to approximately €567,000 ($608,000) plus VAT over an anticipated 2-1/2 year period to support the UCC research program to investigate the development of a number of topical rapamycin formulations for future development as potential treatments for several rare and orphan diseases. Following completion of the research program, we will have the option to advance the clinical development of rapamycin formulations developed by UCC. Work on this research project commenced in December 2024 and we accrued $10,000 in research and development costs for the year ended December 31, 2024.
Critical Accounting Estimates
Critical accounting estimates are those that, in management’s view, are most important to the portrayal of a company’s financial condition and results of operations and most demanding on their calls on judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We believe our most critical accounting estimates relate to:
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Research and Development
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials when applicable, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.
Stock based compensation:
We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
Since we have a limited history of trading as a public company, our expected stock volatility is based on a weighting of its historical volatility along with a group of a publicly traded set of peer companies. We utilize the simplified method to estimate the expected term. The risk-free interest rate was 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. The expected dividend yield was assumed to be zero as we have not paid dividends since our inception and we do not anticipate paying dividends in the foreseeable future.
Long-lived assets
Long-lived assets are comprised of acquired technology and licensed rights to use technology, which are considered platform technology with alternative future uses beyond the current products in development. Such intangible assets are being amortized on a straight-line basis over their expected useful life of 10 years.
We assess the impairment for long-lived assets whenever events or circumstances indicate the carrying value may not be recoverable. Factors we consider that could trigger an impairment review include the following:
● Significant changes in the manner of our use of the acquired assets or the strategy for our overall business,
● Significant underperformance relative to expected historical or projected development milestones,
● Significant negative regulatory or economic trends, and
● Significant technological changes which could render the platform technology obsolete.
We recognize impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the year ended December 31, 2024 there was no impairment indicator which required an impairment loss measurement. During the year ended December 31, 2023, there was one impairment indicator which required an impairment loss measurement (see Note 10 to the Consolidated Financial Statements included in this Annual Report).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 7A.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth in the consolidated financial statements and notes thereto in Item 15 of Part IV of this Annual Report.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.