| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information
included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on June 30, 2022 (the “10-K/A”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the
“Original 10-K”), filed with the SEC on April 15, 2022, to the extent the information contained in the Original 10-K was not superseded by the information contained in the 10-K/A. The following discussion contains or is based on assumptions,
estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the 10-K/A and as described from time to time in our other filings with the
SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a biopharmaceutical company using our mRNA technology platform, including mRNA-based cell reprogramming and gene editing
technologies, to create next generation mRNA, gene-editing and cell therapies, including iPSC therapies for multiple therapeutic indications. We plan to develop and advance a pipeline of therapeutic products both internally and through strategic
partnerships. Our mRNA technology platform, which includes novel lipid nanoparticles (“LNPs”) for mRNA delivery and targeted transgene insertion, was acquired through a license with Factor Bioscience Limited (“Factor Limited”) and through our
acquisition of Novellus, Inc. and Novellus, Ltd. in July 2021, which we refer to as the Novellus Acquisition.
Name Change and Ticker Symbol Change
Effective October 17, 2022, we changed our name from Brooklyn ImmunoTherapeutics, Inc. to Eterna Therapeutics Inc. pursuant to an amendment to our Certificate of Incorporation, as
amended (the “Name Change”). The Name Change did not require approval of our stockholders and did not affect the rights of our security holders. In connection with the Name Change, the trading symbol of our common stock on The Nasdaq Global
Market changed from “BTX” to “ERNA.”
Merger with NTN Buzztime, Inc.
On March 25, 2021, we completed the Merger with NTN Buzztime, Inc., changed our name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” and consummated a one-for-two reverse split
of our common stock.
On March 26, 2021, we sold the rights, title and interest in and to the assets relating to the business operated under the name “NTN Buzztime, Inc.” prior to the Merger to eGames.com Holdings
LLC, or eGames.com, in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business. This transaction, which we refer to as the Disposition, was completed in
accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between us and eGames.com.
The Merger has been accounted for as a reverse acquisition in accordance with U.S. generally accepted accounting principles, or GAAP. Under this method of accounting, Brooklyn LLC was deemed the
“acquiring” company and Eterna (then known as NTN Buzztime, Inc.) was treated as the “acquired” company for financial reporting purposes. Operations prior to the Merger are those of Brooklyn ImmunoTherapeutics, LLC (“Brooklyn LLC”), and the
historical financial statements of Brooklyn LLC became the historical financial statements of Eterna with respect to periods prior to the completion of the Merger.
Acquisition of Novellus
On July 16, 2021, we acquired Novellus, Inc. and Novellus, Inc.’s wholly owned subsidiary, Novellus, Ltd. Eterna also acquired 25.0% of the total outstanding equity interests of NoveCite, Inc.
As consideration for the Novellus Acquisition, we paid $22.9 million in cash and delivered 351,000 shares of common stock, which under the terms of the Novellus Acquisition Agreement, were valued at a total of $102.0 million based on an agreed
upon price of $290.5060 per share. At the date of issuance, the fair value of the shares was approximately $58.7 million.
mRNA, Gene-Editing, and Cellular Medicines
We are advancing the technology that we obtained through a license with Factor Limited and through the Novellus Acquisition in
July 2021 to evaluate and develop mRNA, gene-editing, and cellular medicines, with an initial focus on hematologic and solid tumors. We expect that the first-generation product candidates will include gene-editing mRNA for in vivo cell
engineering and induced pluripotent stem cell (“iPSC”)-derived cytotoxic lymphocytes (“iCLs”) and immune-modulating cells (“iIMCs”). We expect to begin preclinical development, including manufacturing process development, of iCLs and iIMCs for
clinical indications including hematologic and solid tumors, as well as other indications that require overcoming molecular cues of the tissue microenvironment. The prior work of Novellus, Inc. and NoveCite shows evidence for preclinical
efficacy of iPSC-derived cells in inflammatory conditions (for example, acute respiratory distress syndrome, or ARDS). Interactions with the FDA provided guidance on Chemistry, Manufacturing and Controls (“CMC”), and manufacturing plans, which
will be undertaken in a similar manner for additional applications. We expect that second generation products will involve more complex gene editing, for which we anticipate using the stepwise addition of genes provided by the in-licensed
Factor Limited gene editing machinery, NoveSlice, to efficiently place genes and regulatory sequences into safe harbor locations. Development of processes to advance CMC and manufacturing will follow the experience from first generation
products. We are also exploring opportunities to advance in vivo mRNA cell engineering therapies for hematologic and solid tumors by combining the NoveSlice gene editing technology with ToRNAdoTM, the in-licensed LNP technology.
In conjunction with our internal efforts, we are actively seeking strategic partners to license and advance our technology.
IRX-2
IRX-2 is a mixed, human-derived cytokine product with multiple active constituents including Interleukin-2, or IL2, and other key cytokines. Together, these cytokines are believed to signal,
enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike many existing cancer therapies, which rely on targeting the cancer directly. IRX-2 is prepared from the supernatant of
pooled allogeneic peripheral blood mononuclear cells, known as PBMCs, that have been stimulated using a proprietary process employing a specific population of cells and a specific mitogen.
Unlike existing recombinant IL2 therapies, IRX-2 is derived from human blood cells. We believe this may promote better tolerance, broader targeting and a natural molecular conformation leading to
greater activity, and may permit low physiologic dosing, rather than the high doses needed in other existing IL2 therapies.
Results of the Phase 2b INSPIRE trial, or the INSPIRE trial, released in June 2022, showed outcomes favored IRX-2 in certain predefined subgroups but the INSPIRE trial did not meet the primary
endpoint of Event-Free Survival (“EFS”) at two years of follow up. One hundred and fifty patients were enrolled in the study. At two years of follow-up in the intention-to-treat (ITT, n=105) population the median EFS was 48.3 months and was not
reached in the control arm (Hazard Ratio 1.10 (95% Confidence Interval, 0.6-2.1; p value=0.62)). Subgroups favoring the IRX-2 arm included patients with later stage (III and IV) disease and those that did not receive chemotherapy. Trends in EFS
rates as defined by the Kaplan-Meier estimate at two years of follow-up in patients with later stage (III and IV) disease were 57.2 (40.3, 70.9) vs 49.4 (28.3, 67.4) in favor of IRX-2. In patients that did not receive chemotherapy (radiation
only) as part of adjuvant treatment, the EFS Kaplan-Meier estimate at two years of follow-up was 76.4 (52.2, 89.4) vs 60.6 (29.4, 81.4) in favor of IRX-2. There were no new safety signals observed with IRX-2. We currently do not have plans to
further develop the IRX-2 product candidate.
The INSPIRE trial was the only Company-sponsored study of IRX-2. IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of investigator
sponsored trials, which have either ended or are not currently active. Based on the totality of available information, the Company currently does not have plans to further develop the IRX-2 product candidate. As such, the Company determined that
the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million on the condensed consolidated statement of operations during the second quarter of 2022, which reduced the value of
the asset to zero.
Impact of COVID-19 Pandemic
The development of our product candidates has been, and could continue to be, disrupted and materially adversely affected by past and continuing impacts of the COVID-19 pandemic. This is largely
a result of measures imposed by the governments and hospitals in affected regions, businesses and schools were suspended due to quarantines intended to contain this outbreak. The spread of COVID-19 from China to other countries resulted in the
Director General of the World Health Organization declaring COVID-19 a pandemic in March 2020. Despite progress in vaccination efforts, the longer-term impact of the COVID-19 pandemic on our development plans and on the ability to conduct our
clinical trials remains uncertain and cannot be predicted with confidence. COVID-19 could continue to disrupt production and cause delays in the supply and delivery of products used in our operations, may affect our operations, including the
conduct of clinical studies, or the ability of regulatory bodies to grant approvals or supervise our candidates and products, may further divert the attention and efforts of the medical community to coping with the COVID-19 and disrupt the
marketplace in which we operate and may have a material adverse effects on our operations. COVID-19 may also affect our employees and employees and operations at suppliers that may result in delays or disruptions in supply. In addition, a
recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. Additionally, if the COVID-19 pandemic has a significant impact on our business and financial results for
an extended period of time, our liquidity and cash resources could be negatively impacted. The extent to which the COVID-19 pandemic and ongoing global efforts to contain its spread will impact our operations will depend on future developments,
which are highly uncertain, and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID-19 pandemic. Further, the specific clinical outcomes, or future pandemic related impacts of emerging
COVID-19 variants cannot be reliably predicted.
Recent Developments
Reverse Stock Split
Effective at 11:59 p.m. Eastern time on October 16, 2022, we effected a reverse stock split at a ratio of 1-for-20 (the “Reverse Stock Split”). Upon the effectiveness of the
Reverse Stock Split, every twenty shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The Reverse Stock Split did not affect any stockholder’s
ownership percentage of the common stock, alter the par value of the common stock or modify any voting rights or other terms of the common stock. The number of authorized shares of common stock under our Charter remains unchanged. No fractional
shares were issued in connection with the Reverse Stock Split. In lieu of any fractional shares to which a stockholder would otherwise be entitled, we paid an amount of cash equal to the product of (i) the fractional share to which the holder
would otherwise be entitled and (ii) the then fair value of a share as determined in good faith by the Board. We paid an aggregate of $719 for a total of 175 fractional shares.
All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.
Facility Sublease
On October 18, 2022, we entered into a sublease agreement (the “Sublease”) with E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and subsidiary of
Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consists of approximately 45,500 square feet on the ninth floor of the building currently under construction
located at 250 Water Street, Somerville, Massachusetts 02141.
The Sublease rent commences on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the date that is the
one-year anniversary of the later to occur of (A) October 18, 2022 and (B) the date that Sublessor obtains the primary landlord’s consent for the Sublease (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years
from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease.
Pursuant to the Sublease, we were required to deliver to the Sublessor a security deposit in the form of a letter of credit in
the amount of $4.1 million. Provided there are no events of default by us under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. The letter of credit was issued by our commercial bank, which
required that we cash collateralize the letter of credit by depositing $4.1 million of restricted cash in a separate account maintained by such bank. The amount of restricted cash that we are required to maintain in such account will decline
during the Term in parallel with the reduction of the amount of the letter of credit. This restricted cash requirement reduced the amount of working capital we have to fund our operations.
Pursuant to the Sublease, we have agreed to pay base rent of $0.4 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of
the Term, as well as traditional lease expenses including, certain taxes, operating expenses and utilities.
Certain Related Party Transactions
On September 9, 2022, we entered into a Master Services Agreement (the “MSA”) with Factor Bioscience Inc. (“Factor”), pursuant to which Factor has agreed to provide services to
us as agreed between us and Factor and set forth in one or more work orders under the MSA, including the first work order included in the MSA. Factor has agreed to provide us with mRNA cell engineering research support services, including
access to certain facilities, equipment, materials and training, and we have agreed to pay Factor an initial fee of $5.0 million, payable in twelve equal monthly installments of approximately $0.4 million. Following the initial 12-month period,
we have agreed to pay Factor a monthly fee of $0.4 million until such time as the first work order under the MSA is terminated.
We may terminate the first work under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor with 120 days’ prior notice. Factor may
terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing us with 120 days’ prior notice. In connection with entering into the MSA, on September 9, 2022, Factor’s subsidiary, Factor
Limited, entered into a waiver agreement with Brooklyn LLC, pursuant to which Factor Limited agreed to waive payment of $3.5 million otherwise payable to it in October 2022 by Brooklyn LLC under its license agreement with Factor Limited.
As a result of entering into the Waiver Agreement and the MSA during third quarter of 2022, we recognized $3.5 million in
research and development expense and a corresponding liability for the committed obligation in the License Agreement that is being paid through the MSA.
On September 6, 2022, we entered into an assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor, pursuant to which we assumed
certain contracts with third parties that Factor had previously entered into in anticipation of entering into a sublease for premises in Somerville, Massachusetts. In October 2022, we entered into the sublease for the premises. See Note 15 to
our unaudited interim financial statements included in this Quarterly Report on Form 10-Q for more information on this subsequent event. Under the Assignment and Assumption Agreement, we agreed to reimburse Factor for costs already incurred and
paid by Factor under the assumed contracts in the amount of approximately $0.1 million, and we assumed the future obligations under these contracts, which relate to the design and build-out of the subleased space.
The foregoing have been deemed related party transactions, as our Interim Chief Executive Officer, Dr. Matthew Angel, is also the Chairman and Chief Executive Officer of Factor
and the Director of Factor Limited. For more information please see Note 8 and Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.
Exacis Option Agreement
On October 8, 2022, we entered into an option agreement (the “Option Agreement”) with Exacis Biotherapeutics, Inc., a Delaware corporation (“Exacis”), pursuant to which Exacis
granted us the option to negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans (the “Option”). The Option Agreement provides that we will pay Exacis a fee
of $0.3 million for the Option, which would be creditable against the fees or purchase price payable under any such license if entered into by us in accordance with Option Agreement. The Option Agreement provides for certain payments upon the
execution of a definitive license agreement, which would become payable only upon execution, and in accordance with the terms, of the applicable license agreement, if any.
The Option Agreement has been deemed a related party transaction, as one of our Board members, Dr. Gregory Fiore, is the Chief Executive Officer of Exacis. Additionally, our
Interim Chief Executive Office, Dr. Matthew Angel, is Chairman of Exacis’ scientific advisory board. Dr. Angel is also the Chairman and Chief Executive Officer of Factor, which is the majority shareholder of Exacis. For more information please
see Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.
PIPE Transaction
On March 6, 2022, we entered into a Securities Purchase Agreement with an investor (the “PIPE Investor”) providing for the private placement (the “PIPE Transaction”) to the PIPE Investor of
approximately 343,000 units (the “Units”), each of which consisted of (i) one share of our common stock (or, in lieu thereof, one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common stock) and (ii) one warrant (the
“Common Warrants”) to purchase one share of common stock, for an aggregate purchase price of approximately $12.0 million (the “Subscription Amount”). The PIPE Transaction closed on March 9, 2022. We incurred fees of $1.0 million through September
30, 2022 related to the PIPE Transaction.
Each Pre-Funded Warrant has an exercise price of $0.10 per share of common stock, was immediately exercisable and may be exercised at any time and has no expiration date and is subject to
customary adjustments. The Pre-Funded Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99% immediately after exercise thereof.
On July 12, 2022, the PIPE Investor exercised its 68,000 Pre-Funded Warrants at an exercise price of $0.10 per share for an aggregate exercise price of $6,786, in cash. We issued 68,000 shares
of common stock to the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds. Following the exercise, no Pre-Funded Warrants remained outstanding.
Each Common Warrant has an exercise price of $38.20 per share, becomes exercisable six months following the closing of the PIPE Transaction, expires five-and-one-half years from the date of
issuance, and is subject to customary adjustments. The Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99% immediately after exercise thereof,
subject to increase to 9.99% at the option of the holder.
The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity,
as these warrants provide for a cashless settlement provision that fails the requirement of the indexation guidance under ASC 815-40. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair
value presented within the statement of operations. Upon exercise of the Common Warrants and Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to equity.
The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $12.6 million in the aggregate, which was $0.6 million more than the Subscription Amount. The
excess $0.6 million represents an inducement to the PIPE Investor to enter into the PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.
In connection with the PIPE Transaction, we and the PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which we agreed to prepare and file a
registration statement with the SEC to register the resale of the shares of common stock included in the Units and the shares of common stock issuable upon exercise of the Pre-Funded Warrants and the Common Warrants. We agreed to use our best
efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness is not achieved. We filed such registration statement on April 29,
2022, which became effective on May 11, 2022.
Pursuant to the registration rights agreement, we are obligated to pay the PIPE Investor liquidated damages equal to 2% of the Subscription Amount per month, with a maximum
aggregate payment of 12% of the Subscription Amount, in the event the PIPE Investor is not permitted to use the registration statement to resell the related securities for more than 10 consecutive calendar days or more than an aggregate of
fifteen calendar days (which need not be consecutive calendar days) during any 12-month period.
On May 24, 2022, we provided the PIPE Investor with notice that it was not able to resell the securities under the registration agreement because we did not timely file our
Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the PIPE Investor could not use the registration statement to resell the related securities until we filed the Q1 2022 10-Q. Because the PIPE Investor was unable to use
the resale registration statement for at least 10 consecutive calendar days, we accrued $0.2 million during the first quarter of 2022 for the estimated contingent loss we expect to incur as a result of the late Q1 2022 10Q filing, which is
recorded in other expense, net for the nine months ended September 30, 2022 in the accompanying condensed consolidated statements of operations. We paid the $0.2 million liquidated damages payment in June 2022.
On June 30, 2022, we filed the Q1 2022 10-Q along with the 10-K/A, and on July 1, 2022, we provided notice to the PIPE Investor that it may resume use of the resale
registration statement.
Basis of Presentation
Reverse Stock Split
All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to
reflect the Reverse Stock Split.
Revenues
We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive regulatory approval of our
product candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.
Research and Development Expenses
We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as
support for selected investigator-sponsored research. Upfront payments and milestone payments for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to
have any alternative future uses other than the specific research and development project for which it was intended. In-Process Research and Development (“IPR&D”) that is acquired through an asset acquisition and has no alternative future
uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.
The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials,
expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product
development efforts. We also have a Master Services Agreement with Factor under which Factor provides us with mRNA cell engineering research support services, including access to certain facilities, equipment,
materials and training.
In the normal course of our business, we contract with third parties to perform various clinical study and trial activities in the on-going development and testing of potential products. The
financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the
successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial associated
activities such as production and testing of clinical material require significant up-front expenditures. We anticipate paying significant portions of a study’s or trial’s cost before such begins and incurring additional expenditures as the study
or trial progresses and reaches certain milestones.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and
other professional fees, travel, insurance, other costs of being a publicly traded company and other corporate costs.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2022 and 2021
|
|
Three months ended September 30,
|
|
|
|
|
| |
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
4,963
|
|
|
$
|
1,491
|
|
|
$
|
3,472
|
|
|
In-process research and development
|
|
|
-
|
|
|
|
80,538
|
|
|
|
(80,538
|
)
|
|
General and administrative
|
|
|
3,341
|
|
|
|
4,247
|
|
|
|
(906
|
)
|
|
Total operating expenses
|
|
|
8,304
|
|
|
|
86,276
|
|
|
|
(77,972
|
)
|
|
Loss from operations
|
|
|
(8,304
|
)
|
|
|
(86,276
|
)
|
|
|
77,972
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
1,024
|
|
|
|
-
|
|
|
|
1,024
|
|
|
Loss on non-controlling investment
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
(21
|
)
|
|
Other (expense) income, net
|
|
|
(10
|
)
|
|
|
290
|
|
|
|
(300
|
)
|
|
Total income, net
|
|
|
993
|
|
|
|
290
|
|
|
|
703
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(7,311
|
)
|
|
|
(85,986
|
)
|
|
|
78,675
|
|
|
Provision for income taxes
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,316
|
)
|
|
$
|
(85,986
|
)
|
|
$
|
78,670
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
| |
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,430
|
|
|
$
|
8,456
|
|
|
$
|
(26
|
)
|
|
In-process research and development
|
|
|
5,990
|
|
|
|
80,538
|
|
|
|
(74,548
|
)
|
|
General and administrative
|
|
|
14,060
|
|
|
|
10,451
|
|
|
|
3,609
|
|
|
Transaction costs
|
|
|
-
|
|
|
|
5,765
|
|
|
|
(5,765
|
)
|
|
Total operating expenses
|
|
|
28,480
|
|
|
|
105,210
|
|
|
|
(76,730
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(28,480
|
)
|
|
|
(105,210
|
)
|
|
|
76,730
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of NTN assets
|
|
|
-
|
|
|
|
(9,648
|
)
|
|
|
9,648
|
|
|
Change in fair value of warrant liabilities
|
|
|
10,493
|
|
|
|
-
|
|
|
|
10,493
|
|
|
Loss on non-controlling investment
|
|
|
(932
|
)
|
|
|
-
|
|
|
|
(932
|
)
|
|
Other (expense) income, net
|
|
|
(1,166
|
)
|
|
|
265
|
|
|
|
(1,431
|
)
|
|
Total other income (expense), net
|
|
|
8,395
|
|
|
|
(9,383
|
)
|
|
|
17,778
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,085
|
)
|
|
|
(114,593
|
)
|
|
|
94,508
|
|
|
Provision for income taxes
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,090
|
)
|
|
$
|
(114,593
|
)
|
|
$
|
94,503
|
|
Research and Development Expenses
| |
|
Three months ended September 30,
|
|
| |
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
MSA expense
|
|
$
|
3,699
|
|
|
$
|
-
|
|
|
$
|
3,699
|
|
|
Stock-based compensation
|
|
|
183
|
|
|
|
448
|
|
|
|
(265
|
)
|
|
Payroll-related
|
|
|
736
|
|
|
|
744
|
|
|
|
(8
|
)
|
|
Other expenses, net
|
|
|
345
|
|
|
|
299
|
|
|
|
46
|
|
|
Total research and development expenses
|
|
$
|
4,963
|
|
|
$
|
1,491
|
|
|
$
|
3,472
|
|
| |
|
Nine months ended September 30,
|
|
| |
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
MSA expense
|
|
$
|
3,699
|
|
|
$
|
--
|
|
|
$
|
3,699
|
|
|
License fees
|
|
|
-
|
|
|
|
4,000
|
|
|
$
|
(4,000
|
)
|
|
Clinical trials
|
|
|
812
|
|
|
|
1,076
|
|
|
|
(264
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll-related
|
|
|
2,337
|
|
|
|
1,797
|
|
|
|
540
|
|
|
Stock-based compensation
|
|
|
1,075
|
|
|
|
1,018
|
|
|
|
57
|
|
|
Other expenses, net
|
|
|
507
|
|
|
|
565
|
|
|
|
(58
|
)
|
|
Total research and development expenses
|
|
$
|
8,430
|
|
|
$
|
8,456
|
|
|
$
|
(26
|
)
|
For the three months ended September 30, 2022, our total research and development expenses increased compared to the prior year
period, which was primarily the result MSA expenses recognized during the three months ended September 30, 2022. There were no comparable MSA expense in the prior year period. This increase in expense was offset by a decrease in stock-based
compensation expense for the three months ended September 30, 2022, resulting from stock option and restricted stock unit forfeitures.
For the nine months ended September 30, 2022, our research and development expenses decreased primarily due to a $4.0 million
license fee paid in 2021 to Factor Limited and Novellus, Ltd. (the “Licensors”) under the License Agreement with the Licensors, as well as due to a decrease in clinical trial and other miscellaneous expense, offset by increased expenses related
to the MSA, increased payroll due to severance expense and stock compensation expense related to an increase in equity awards granted during 2022 when compared to the same period in 2021.
In January 2022, we completed a reduction in our workforce involving eight research and development employees. As a result, we incurred approximately $0.5 million for severance and
termination-related costs, which we recorded during the first quarter of 2022. In June 2022, we made the decision to consolidate our research and development in Cambridge, Massachusetts, and as a result, we accrued approximately $0.1 million for
severance and termination-related costs for certain employees in the San Diego, California location. In August 2022, we recognized approximately $0.3 million in severance expense related to the resignation of a San Diego executive.
Impairment of In-Process Research and Development
|
|
|
Three months ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Impairment of in-process research and development
|
|
$
|
-
|
|
|
$
|
80,538
|
|
|
$
|
(80,538
|
)
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
2022
|
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of in-process research and development
|
|
$
|
5,990
|
|
|
$
|
80,538
|
|
|
$
|
(74,548
|
)
|
As discussed above, in June 2022, we received the results from the INSPIRE phase 2 trial of IRX-2. The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value
assigned to the technologies of IRX that we acquired in 2018. Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of Event-Free Survival (EFS) at two years of follow up.
Significant additional clinical development work will be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor
therapies. The INSPIRE trial is the only company sponsored study of IRX-2. IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of investigator sponsored trials, which have either ended or are
not currently active. Based on the totality of available information, we currently do not have plans to further develop the IRX-2 product candidate. As such, we determined that the carrying value of the IPR&D asset was impaired and recognized
a non-cash impairment charge of approximately $6.0 million for the nine months ended September 30, 2022.
During the three and nine months ended September 30, 2021, we expensed the $80.5 million fair value of IPR&D acquired in the Novellus Acquisition because there was no future alternative use
for the IPR&D other than for its intended purpose.
General and Administrative Expenses
|
|
|
Three months ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
1,353
|
|
|
$
|
1,708
|
|
|
$
|
(355
|
)
|
|
Stock-based compensation
|
|
|
293
|
|
|
|
1,280
|
|
|
|
(988
|
)
|
|
Payroll-related
|
|
|
424
|
|
|
|
546
|
|
|
|
(121
|
)
|
|
Insurance
|
|
|
528
|
|
|
|
367
|
|
|
|
161
|
|
|
Occupancy expense
|
|
|
189
|
|
|
|
177
|
|
|
|
12
|
|
|
Loss on disposal of assets
|
|
|
156
|
|
|
|
13
|
|
|
|
143
|
|
|
Other expenses, net
|
|
|
398
|
|
|
|
156
|
|
|
|
242
|
|
|
Total general and administrative expenses
|
|
$
|
3,341
|
|
|
$
|
4,247
|
|
|
$
|
(906
|
)
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Payroll-related
|
|
$
|
2,706
|
|
|
$
|
720
|
|
|
$
|
1,986
|
|
|
Impairment of ROU asset
|
|
|
772
|
|
|
|
-
|
|
|
|
772
|
|
|
Insurance
|
|
|
1,421
|
|
|
|
767
|
|
|
|
654
|
|
|
Loss on disposal of fixed assets
|
|
|
431
|
|
|
|
13
|
|
|
|
418
|
|
|
Occupancy expense
|
|
|
541
|
|
|
|
478
|
|
|
|
63
|
|
|
Professional fees
|
|
|
4,776
|
|
|
|
5,748
|
|
|
|
(972
|
)
|
|
Stock-based compensation
|
|
|
1,465
|
|
|
|
2,284
|
|
|
|
(821
|
)
|
|
Other expenses, net
|
|
|
1,950
|
|
|
|
441
|
|
|
|
1,509
|
|
|
Total general and administrative expenses
|
|
$
|
14,060
|
|
|
$
|
10,451
|
|
|
$
|
3,609
|
|
Our general and administrative expenses decreased for the three months ended September 30, 2022, as compared to the same period in 2021, primarily due to a decrease in professional fees for
accounting services, decreased stock-based compensation expense from the forfeitures of stock-options and restricted stock units, and decreased payroll-related expense due to a decrease in headcount, which was offset by an increase in severance
expense when compared to the same period in 2021. These decreases were further offset by increases for the three months ended September 30, 2022 in insurance premiums, the disposal of certain assets related to consolidating our research and
development activities in Cambridge, Massachusetts, and other expenses due to legal-related matters, as compared to the same period in 2021.
The increase in general and administrative expense for the nine months ended September 30, 2022 was primarily related to increased headcount as well as severance expense for certain employees,
including our former Chief Executive Officer, who resigned effective May 26, 2022. We also recognized a non-cash impairment charge on our San Diego, California right-of-use (“ROU”) operating lease asset due to consolidating our research and
development activities in Cambridge, Massachusetts and our intention to sublease the San Diego, California facility. Other increases included premiums for public company insurance policies, losses on the disposal of fixed assets and other fees
primarily due to legal-related matters, as compared to the same period in 2021. These increases were offset by decreased professional fees for accounting and legal services and decreased stock-based compensation expense due to primarily to
forfeitures of stock options and restricted stock units when compared to the same periods in 2021.
Transaction Costs
The $5.8 million in transaction costs incurred for the nine months ended September 30, 2021 related to the issuance of common stock to Brooklyn LLC’s financial advisor upon consummation of the
Merger, and there were no comparable transaction costs for same period in 2022.
Loss on Sales of NTN Assets
We incurred a $9.6 million loss on the sale of NTN assets for the nine months ended September 30, 2021 in connection with the Disposition, and there were no comparable transaction costs for
either the three or nine-month periods ended September 30, 2022.
Warrant Liabilities Expense
For the three months ended September 30, 2022, we recognized a credit of $1.0 million for the change in the fair value of warrant liabilities due to a decrease in the market price of our common
stock during the quarter. For the nine months ended September 30, 2022, we recognized a credit of $11.1 million for the change in the fair value of warrant liabilities, which was offset by $0.6 million in expense related to the excess fair
value of the Common Warrants and Pre-Funded Warrant issued in connection with the PIPE Transaction over the $12.0 million gross proceeds received. There were no comparable expenses for same periods in 2021.
Loss on Non-Controlling Investment
We account for our investment in NoveCite under the equity method. During the three and nine months ended September 30, 2022,
we recognized approximately $21,000 and $0.9 million of loss, respectively, on our 25% non-controlling investment in NoveCite, respectively. Of the $0.9 million loss for the nine months ended September 30, 2022, $0.5 million relates to the
prior year. We do not have guaranteed obligation of NoveCite nor are we otherwise committed to providing further financial support for NoveCite. Therefore, we will record losses only up to our investment carrying amount. There were no
comparable expenses for same periods in 2021.
Other Expense, Net
|
|
|
Three months ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(10
|
)
|
|
$
|
(20
|
)
|
|
$
|
10
|
|
|
Income from PPP loan forgiveness
|
|
|
-
|
|
|
|
310
|
|
|
|
(310
|
)
|
|
Total other (expense), income net
|
|
$
|
(10
|
)
|
|
$
|
290
|
|
|
$
|
(300
|
)
|
|
|
|
Six months ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
PIPE transaction fees
|
|
$
|
(1,007
|
)
|
|
$
|
-
|
|
|
$
|
(1,007
|
)
|
|
Liquidated damages
|
|
|
(240
|
)
|
|
|
-
|
|
|
|
(240
|
)
|
|
Interest expense, net
|
|
|
(24
|
)
|
|
|
(56
|
)
|
|
|
32
|
|
|
Income from PPP loan forgiveness
|
|
|
-
|
|
|
|
310
|
|
|
|
(310
|
)
|
|
Other income, net
|
|
|
105
|
|
|
|
11
|
|
|
|
94
|
|
|
Total other (expense), income net
|
|
$
|
(1,166
|
)
|
|
$
|
265
|
|
|
$
|
(1,431
|
)
|
We recognized a change from other income, net of $0.3 million for the three months ended September 30, 2021 to other expense, net of $10,000 for the three months ended September 30, 2022. This
change was primarily related to income we recognized in 2021 for the forgiveness of Brooklyn LLC’s loan under the Payment Protection Program (“PPP”). We did not have such income for the same period in 2022.
We recognized a change from other income, net of $0.3 million for the nine months ended September 30, 2021 to other expense, net of approximately $1.2 million for the nine months ended September
30, 2022. During the nine months ended September 30, 2022, our increase in other expense, net was primarily due to fees related to the PIPE Transaction, which was allocated to the warrants issued in connection with the transaction. Additionally,
we recorded a loss related to the liquidated damages we incurred under our registration rights agreement with the PIPE Investor as a result of not timely filing with the SEC our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
During the nine months ended September 30, 2021, we recognized income from the forgiveness of our PPP loan. We did not have such income for the same period in 2022. These increases in expense were offset by income from the sale of certain fixed
assets and a decrease in interest expense when compared to the same period in 2021.
Provision for Income Taxes
During 2022, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our
net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full
valuation allowance.
Liquidity and Capital Resources
At September 30, 2022, we had cash and cash equivalents of approximately $13.3 million.
On March 9, 2022, we issued 275,000 shares of common stock and Pre-Funded Warrants representing approximately 68,000 shares of common stock for net proceeds of approximately $11.0 million in
connection with the PIPE Transaction. The 68,000 shares Pre-Funded Warrants were exercised on July 12, 2022 at an exercise price of $0.10 per share for total proceeds of approximately $7,000. Pursuant to the purchase agreement entered into in
respect of the PIPE Transaction, we are prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the PIPE Transaction, including issuing equity under the Second Purchase Agreement.
On October 18, 2022, we entered into the Sublease for approximately 45,500 square feet of office and laboratory space in
Somerville, Massachusetts. As part of the Sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the lease. The letter of
credit was issued by our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank. The amount of required restricted cash collateral will
decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease. The required restricted cash reduced the amount of working capital we have to fund our operations.
We have to date incurred operating losses, and we expect these losses to continue in the future as we further develop our product development programs and operate as a publicly traded company.
Developing product candidates, conducting clinical trials and commercializing products are expensive, and we will need to raise substantial additional funds to achieve our strategic objectives. It will likely be some years before we obtain the
necessary regulatory approvals to commercialize one or more of our product candidates. Based on our current financial condition and forecasts of available cash, including as mentioned above, we believe we do not have sufficient funds to fund our
operations for the next twelve months from the filing of the financial statements contained in this Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Q3 2022 10-Q”). There can be no assurance that we will ever be in a
position to commercialize IRX-2 or any other product candidate we may acquire, or that we will obtain any additional financing that we require in the future or, even if such financing is available, that it will be obtainable on terms acceptable
to us.
In that regard, our future funding requirements will depend on many factors, including:
|
• |
the terms and timing of any collaborative, licensing and other agreements that we may establish;
|
|
• |
the cost and timing of regulatory approvals;
|
|
• |
the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;
|
|
• |
the cost and timing of establishing sales, marketing and distribution capabilities;
|
|
• |
the effect of competition and market developments;
|
|
• |
the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;
|
|
• |
the scope, rate of progress and cost of our clinical trials and other product development activities; and
|
|
• |
future clinical trial results.
|
We plan to raise additional funds to support our product development activities and working capital requirements through the remaining availability under the Second Purchase Agreement (to the
extent we are permitted to use such agreement), public or private equity offerings, debt financings, strategic partnerships, out-license collaborations or other means. We may also seek governmental grants to support our clinical trials and
preclinical trials. Further, we may seek to raise capital to fund additional product development efforts even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result
in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us.
Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are
not favorable to us. If we are not able to secure additional funding when needed, we may have to delay the commercialize of our products, reduce the scope of or eliminate one or more research and development programs, which could have an adverse
effect on our business.
Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:
|
|
|
For the nine months ended
September 30,
|
|
|
Change
|
|
|
(in thousands)
|
|
2022
|
|
|
2021
|
|
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(15,541
|
)
|
|
$
|
(16,656
|
)
|
|
$
|
1,115
|
|
|
Investing activities
|
|
|
(176
|
)
|
|
|
(22,595
|
)
|
|
|
22,419
|
|
|
Financing activities
|
|
|
11,986
|
|
|
|
62,004
|
|
|
|
(50,018
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(3,731
|
)
|
|
$
|
22,753
|
|
|
$
|
(26,484
|
)
|
Net Cash Used in Operating Activities
The decrease in cash used in operating activities was due to a decrease in net loss of $4.3 million, after giving effect to
adjustments made for non-cash transactions, offset by an increase in cash provided by operating assets and liabilities of $5.4 million during the nine months ended September 30, 2022 compared to the same period in 2021. The increase in cash
provided by operating assets and liabilities was primarily driven by increased accrued compensation due to higher headcount and severance, accrued costs for litigation matters, increased liabilities related to the MSA and increased insurance
liabilities.
Net Cash Used in Investing Activities
The decrease in net cash used in investing activities was primarily due to cash used to purchase Novellus of $22.9 million during the nine months ended September 30, 2022 compared to the same
period in 2021, which was offset by proceeds of approximately $0.3 million from the Merger and the Disposition transactions. There were no similar transactions during the nine months ended September 30, 2022.
Net Cash Provided by Financing Activities
The decrease in net cash provided by financing activities was primarily the result of a decrease in net proceeds from capital raises of approximately $51 million, net, offset by a
decrease in principal payments made for long-term debt arrangements of $0.5 million during the nine months ended September 30, 2022 compared to the same period in 2021.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2022 from those described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section of the 10-K/A.
Recent Accounting Pronouncements
In September 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2022-04, Liabilities—Supplier
Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 requires a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the
balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated roll-forward information. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We do not expect a material impact on our financial statements as a result
of adopting this amendment.
In June 2022, FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value
of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to
contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity
security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. We are evaluating when
to adopt the amendments in ASU 2022-02. We do not expect a material impact on our financial statements as a result of adopting this amendment.