Item 7. Management’s Discussion and Analysis
Item 7 –
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
We are a biopharmaceutical company focused on
advancing innovative immune-oncology technologies addressing difficult to treat cancers. Our Deoxyribonuclease (“DNase”) technology
is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps (“NETs”),
which are involved in cancer progression. We are currently focused on advancing our systemic DNase program into the clinic as an adjunctive
therapy for pancreatic carcinoma and locally advanced or metastatic solid tumors.
We incorporate our patented and proprietary technologies
into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to create what we believe
will be the next-generation biologic drugs with improved pharmacological properties over existing therapeutics. Our drug candidates have
resulted from our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit
a significant amount of our resources to our research and development activities and anticipate continuing to do so for the near future.
To date, none of our drug candidates have received regulatory marketing authorization or approval in the United States (“U.S.”)
by the Food and Drug Administration (“FDA”) nor in any other countries or territories by any applicable agencies. We are receiving
ongoing royalties pursuant to a license of our legacy PolyXen technology to an industry partner. Although we hold a broad patent portfolio,
the focus of our internal efforts during the year ended December 31, 2024, was on the advancement of our DNase technology.
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Critical Accounting Estimates
The preparation of our financial statements in
conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue,
costs and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. The result of these evaluations forms the basis
for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent
from other sources. Because future events and their effects cannot be determined with certainty, actual results and outcomes may differ
materially from our estimates, judgments and assumptions.
Management believes that the following accounting
estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s
most difficult subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently
uncertain. The following narrative describes these critical accounting estimates, judgments and assumptions and the effect if actual results
differ from these assumptions.
Research and Development Expenses
Research and development expenses consist of expenses
incurred in performing research and development activities, including compensation and benefits, facilities expenses, overhead expenses,
pre-clinical development, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations (“CROs”)
and contract manufacturing organizations (“CMOs”) and other outside expenses. We expense research and development costs as
incurred. We expense upfront, non-refundable payments made for research and development services as obligations are incurred, except when
deposits are made for specifically identified services. The value ascribed to intangible assets acquired but which have not met capitalization
criteria is expensed as research and development at the time of acquisition. Upfront payments under license agreements are expensed upon
receipt of the license. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the
period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
We are required to estimate accrued research and
development expenses at each reporting period. This process involves reviewing open contracts and purchase orders, communicating with
our personnel and consultants to identify services that have been performed on our behalf and estimating the level of service performed
and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority
of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are
met. However, some require advanced payments. We make estimates of accrued expenses as of each balance sheet date in the financial statements
based on facts and circumstances known at that time. We periodically confirm the accuracy of the estimates with the service providers
and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
·
Collaborative partners performing research and development and pre-clinical activities;
·
Program managers in connection with overall program management of clinical trials;
·
CMOs in connection with cGMP manufacturing;
·
CROs in connection with clinical trials; and
·
Investigative sites in connection with clinical trials.
We base our expenses related to research and development,
pre-clinical activities, manufacturing and clinical trials on our estimates of the services received and efforts expended pursuant to
quotes and contracts with multiple research institutions, CMOs and CROs that conduct and manage clinical trials on our behalf. The financial
terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may
be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment of the expense. In
accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each
period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or
prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding
of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result
in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our
prior estimates of accrued research and development expenses.
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Warrants
In connection with certain financing, consulting
and collaboration arrangements, we issued warrants to purchase shares of our common stock. The outstanding warrants are standalone instruments
that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. We measure the fair value of the awards
using the Black-Scholes option pricing model as of the measurement date. Warrants issued to collaboration partners in conjunction with
the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued.
All other warrants are recorded at fair value
as expense on a straight-line basis over the requisite service period or at the date of issuance if there is not a service period or if
service has already been rendered. For warrants that contain vesting triggers based on the achievement of certain objectives, we apply
judgment to estimate the probability and timing of the achievement of those objectives. These estimates involve inherent uncertainties,
and as a result, if the probability or timing of the achievement of those objectives change, expense related warrants could be materially
different in the future. For warrants issued in connection with financing arrangements we allocate the proceeds based on the relative
fair value of the award and other instrument(s).
Impact of Global Conflicts on Operations
The short and long-term implications of Russia’s
invasion of Ukraine and conflict in the Middle East are difficult to predict at this time. The imposition of current and future sanctions
and counter sanctions may have an adverse effect on the economic markets generally and could impact our business, financial condition,
and results of operations.
Results of Operations
The table below sets forth the comparison of our
historical results of operations for the year ended December 31, 2024 to the year ended December 31, 2023.
Description
2024
2023
Increase
(Decrease)
Percentage
Change
Revenue:
Royalty revenue
$ 2,500,284
$ 2,539,986
$ (39,702 )
(1.6 )%
Operating costs and expenses:
Research and development
(3,288,332 )
(3,494,765 )
(206,433 )
(5.9 )%
General and administrative
(3,416,380 )
(3,560,936 )
(144,556 )
(4.1 )%
Total operating costs and expenses
(6,704,712 )
(7,055,701 )
(350,989 )
(5.0 )%
Loss from operations
(4,204,428 )
(4,515,715 )
(311,287 )
(6.9 )%
Other income (expense):
Other (expense) income
(5,708 )
25,380
(31,088 )
(122.5 )%
Interest income, net
249,861
355,757
(105,896 )
(29.8 )%
Net loss
$ (3,960,275 )
$ (4,134,578 )
$ (174,303 )
(4.2 )%
Revenue
Revenue for the year ended December 31, 2024 was
relatively flat with that of the year ended December 31, 2023.
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Research and Development Expense
Overall, R&D expenses for the year ended December
31, 2024 decreased by approximately $0.2 million, or 5.9%, to $3.3 million from $3.5 million in the comparable period in 2023 primarily
due to decreased spending in connection with our DNase process development efforts. During the year ended December 31, 2024, the Company
expensed approximately $0.7 million related to the impairment of long-lived assets associated with our legacy PSA technology. There was
no similar expense in 2023. Excluding the $0.7 million impairment charge from total R&D expense of $3.3 million for the year ended
December 31, 2024, adjusted R&D expenses for the year ended December 31, 2024 decreased approximately $0.9 million, or 26.1%, to $2.6
million, from $3.5 million for the year ended December 31, 2023. The table below sets forth the R&D costs incurred by us, by category
of expense, for the years ended December 31, 2024 and 2023:
Year ended December 31,
Category of Expense
2024
2023
Impairment of long-lived assets
$ 704,431
$ –
Outside services and contract research organizations
1,898,121
2,886,985
Salaries and wages
562,571
417,952
Share-based expense
11,434
56,112
Other
111,775
133,716
Total research and development expense
$ 3,288,332
$ 3,494,765
The decrease in outside
services and contract research organizations expense was primarily due to the aforementioned decreased spending in connection with our
process development efforts, partially offset by increased third-party pre-clinical development efforts related to our DNase technology.
The increase in personnel costs is due to certain severance and benefits expensed in connection with a separation agreement entered into
during the second quarter of 2024 with our former Chief Scientific Officer.
General and Administrative Expense
General and administrative expenses for the year
ended December 31, 2024 was $3.4 million, decreasing by approximately $0.1 million, or 4.1%, compared to the same period in the prior
year. The decrease was primarily due to a reduction in legal and accounting costs during the year ended December 31, 2024 compared to
the prior year. These decreases were substantially offset by certain severance and benefits expensed in connection with a separation agreement
entered into during the second quarter of 2024 with our former Chief Executive Officer.
Other (Expense) Income
Other expense was approximately $6,000 for the
year ended December 31, 2024 compared to other income of approximately $25,400 for the same period in 2023. This decrease in other income
was primarily related to fees associated with the Pharmsynthez Loan recognized during the year ended December 31, 2023 for which there
were no similar fees received in the same period in 2024.
Interest Income, net
Interest income, net decreased to approximately
$250,000 during the year ended December 31, 2024 as compared to approximately $356,000 in the prior year. This decrease is primarily due
to lower average invested funds during the year ended December 31, 2024 compared to the prior year, as well as a decrease in interest
income received on the Pharmsynthez Loan.
Non-GAAP Measures
In our narrative discussion of operations above,
we exclude the impact of certain non-cash expenses from R&D expenses, which narrative discussion includes reconciliation of such adjusted
financial measures to the directly comparable GAAP financial measure. We believe these adjusted operating measures may provide investors
with useful information regarding our underlying performance from period to period and allow investors to better understand our results
of operations. Management uses these adjusted measures when assessing the performance of the business.
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Liquidity and Capital Resources
We incurred a net loss
of approximately $4.0 million for the year ended December 31, 2024. We had an accumulated deficit of approximately $197.2 million at December
31, 2024, as compared to an accumulated deficit of approximately $193.2 million at December 31, 2023. Working capital was approximately
$5.7 million at December 31, 2024, and approximately $8.8 million at December 31, 2023, respectively. During the year ended December 31,
2024, our working capital decreased by approximately $3.1 million primarily due to our net loss for the year ended December 31, 2024.
Our principal source
of liquidity consists of cash. At December 31, 2024, we had approximately $6.2 million in cash and approximately $0.9 million in current
liabilities. At December 31, 2023, we had approximately $9.0 million in cash and approximately $0.8 million in current liabilities. We
have historically relied upon sales of our equity securities to fund our operations.
We evaluate whether there
are conditions or events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern within
one year after the date that the financial statements are issued. We have incurred substantial losses since our inception, and we expect
to continue to incur operating losses in the near-term. We believe that our existing resources will be adequate to fund our operations
for a period of at least twelve months from the date of the issuance of these financial statements. However, we anticipate we will need
additional capital in the long-term to pursue our business initiatives. While we believe that we have access to capital resources through
possible public or private equity offerings, debt financings, corporate collaborations, related party funding, or other means to continue
as a going concern, the terms, timing and extent of any future financing will depend upon several factors, including the achievement of
progress in our clinical development programs, our ability to identify and enter into licensing or other strategic arrangements, our continued
listing on the Nasdaq Stock Market (“Nasdaq”), and factors related to financial, economic, geo-political, industry and market
conditions, many of which are beyond our control. The capital markets for the biotech industry can be highly volatile, which make the
terms, timing and extent of any future financing uncertain.
Cash Flows from Operating Activities
Cash flows used in operating activities for the
year ended December 31, 2024 totaled approximately $2.8 million, which was primarily due to our net loss for the period, partially offset
by non-cash charges associated with share-based expense. In addition, prepaid expenses and other decreased approximately $0.2 million,
other assets decreased by approximately $0.7 million due to the impairment of long-lived assets and accounts payable, accrued expenses
and other current liabilities increased approximately $0.1 million during the year ended December 31, 2024 compared to the prior year.
Cash flows used in operating activities for the year ended December 31, 2023 totaled approximately $4.1 million, which was primarily due
to our net loss for the period, partially offset by non-cash charges associated with share-based expense and, to a lesser extent, a decrease
in accounts payable, accrued expenses and other current liabilities.
Cash Flows from Investing Activities
There were no cash flows from investing activities
for each of the years ended December 31, 2024 and 2023.
Cash Flows from Financing Activities
There were no cash flows from financing activities
for each of the years ended December 31, 2024 and 2023.
Contractual Obligations
Contractual obligations represent future cash
commitments and liabilities under agreements with third-parties and exclude contingent liabilities for which we cannot reasonably predict
future payment. Our contractual obligations result from a property lease for office space. Although we do have obligations for CMO and
CRO services, the table below excludes potential payments we may be required to make under our agreements with CMOs and CROs because timing
of payments and actual amounts paid under those agreements may be different depending on the timing of receipt of goods or services or
changes to agreed-upon terms or amounts for some obligations, and those agreements are cancelable upon written notice by the Company and
therefore, not long-term liabilities. The contracts may also contain variable costs that are hard to predict as they are based on such
things as patients enrolled and clinical trial sites, which can vary and, therefore, are also not included in the table below. Additionally,
the expected timing of payment of the obligations presented below is estimated based on current information.
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The following tables represent our contractual
obligations as of December 31, 2024, aggregated by type:
Payments Due by Period
As of December 31, 2024
Total
Less
than
1 year
1-3
years
3-5
years
More
than
5 years
Lease obligations
$ 3,036
$ 3,036
$ –
$ –
$ –
Total
$ 3,036
$ 3,036
$ –
$ –
$ –
Recent Accounting Standards
Refer to Note 3, Summary of Significant Accounting Policies ,
of the accompanying financial statements set forth in Item 8.
ITEM 7A – QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item
because we are a “smaller reporting company” (as
defined in Rule 12b-2 of the Exchange Act).
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