The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND
DESCRIPTION OF BUSINESS
INmune Bio, Inc. (the “Company” or
“INmune Bio”) was organized in the State of Nevada on September 25, 2015, and is a clinical stage biotechnology pharmaceutical
company focused on developing and commercializing its product candidates to treat diseases where the innate immune system is not functioning
normally and contributing to the patient’s disease. INmune Bio has two product platforms. The DN-TNF product platform utilizes
dominant-negative technology to selectively neutralize soluble TNF, a key driver of innate immune dysfunction and mechanistic target of
many diseases. DN-TNF is currently being developed for Alzheimer’s and treatment resistant depression (XPro595) and cancer (INB03).
The Natural Killer Cell Priming Platform includes INKmune aimed at priming the patient’s NK cells to eliminate minimal residual
disease in patients with cancer. INmune Bio’s product platforms utilize a precision medicine approach for the treatment of a wide
variety of hematologic malignancies, solid tumors and chronic inflammation.
NOTE 2 – LIQUIDITY
As of September 30, 2021, the Company had an accumulated
deficit of approximately $54.0 million and experienced losses since its inception. Losses have principally occurred as a result of non-cash
stock-based compensation expense and the substantial resources required for research and development of the Company’s products,
which included the general and administrative expenses associated with its organization and product development as well as the lack of
sources of revenues until such time as the Company’s products are commercialized.
To meet its current and future obligations the
Company has taken the following steps to capitalize the business and achieve its business plan:
|
●
|
During July 2021, the Company completed a registered direct public offering in which it sold 1,818,182 shares of common stock to investors for estimated net proceeds of $36.9 million.
|
|
|
|
|
●
|
During June 2021, the Company entered into a loan and security agreement and drew down a $15.0 million term loan.
|
|
|
|
|
●
|
During March 2021, the Company entered into a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market (“ATM”) offering program of up to $45 million of common stock (the “2021 ATM”), subject to certain limitations on the amount of common stock that may be offered and sold by the Company set forth in the sales agreement. The Company is required to pay BTIG a commission of 3% of the gross proceeds from the sale of shares. The Company has sold 713,192 shares of its common stock at an average price of $21.73 through the 2021 ATM for net proceeds of $14.9 million.
|
|
●
|
During April 2020, the Company entered into a sales agreement with BTIG, as sales agent, to establish an ATM offering program to sell up to $10.0 million of the Company’s common stock (the “2020 ATM”). In August 2020, the sales agreement was amended whereby the aggregate offering was increased from $10.0 million to $30.0 million. From April 2020 through December 2020, the Company sold 178,600 shares of common stock at an average price of $5.45 per share for net proceeds of approximately $0.8 million. During the nine months ended September 30, 2021, the Company sold in aggregate 1,439,480 shares on common stock at an average price of $20.17 per share for net proceeds of $28.4 million. As of September 30, 2021, sales of our common stock pursuant to the 2020 ATM have been completed.
|
Although it is difficult to predict the Company’s
liquidity requirements, as of September 30, 2021, and based upon the Company’s current operating plan, the Company believes that
it will have sufficient cash to meet its projected operating requirements for at least the next 12 months following the filing date of
this Quarterly Report on Form 10-Q based on the balance of cash available as of September 30, 2021. The Company anticipates that it will
continue to incur net losses for the foreseeable future as it continues the development of its clinical drug candidates and preclinical
programs and incurs additional costs associated with being a public company.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The accompanying financial statements are presented
in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
The consolidated financial statements include the accounts of INmune Bio, Inc. and its subsidiaries. Intercompany transactions and balances
have been eliminated.
In the opinion
of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results
for the interim periods. These unaudited consolidated interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2020, filed with the SEC on March 4, 2021.
Risks and Uncertainties
The Company is subject to risks and uncertainties
as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain
and difficult to predict. Also, economies worldwide have also been negatively impacted by the COVID-19 pandemic, however policymakers
around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and
overall effectiveness of these actions remain uncertain.
In addition, the Company’s clinical trials
have been affected by and may continue to be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment have and
may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients have not and others
may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly,
the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened
exposure to COVID-19, may adversely impact the Company’s clinical trial operations.
The severity of the impact of the COVID-19 pandemic
on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic
and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations (“CROs”)
and the Company’s clinical trials, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s
financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity
or results of operations is uncertain.
Use of Estimates
Preparing financial statements in conformity with
US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.
The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, and the net realizable
value of research and development tax credit receivables. Actual results and outcomes may differ from management’s estimates and
assumptions.
Cash and Cash Equivalents
The Company
considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash
equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation
limits. The Company maintains its cash deposits with major financial institutions.
Research
and Development Tax Incentive Receivable
The Company, through its wholly-owned subsidiary
in Australia (“AUS”), participates in the Australian research and development tax incentive program, such that a percentage
of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives are reflected
as a reduction of research and development expense. The Australian research and development tax incentive is recognized when there is
reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration
can be reliably measured. At each period end, management estimates the reimbursement available to the Company based on available information
at the time.
The Company, through its wholly-owned subsidiary
in the United Kingdom (“UK”), participates in the research and development program provided by the United Kingdom tax relief
program, such that a percentage of our qualifying research and development expenditures are reimbursed by the United Kingdom government,
and such incentives are reflected as a reduction of research and development expense. The United Kingdom research and development tax
incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred
and the amount of the consideration can be reliably measured. At each period end, management estimates the reimbursement available to
the Company based on available information at the time.
Intangible Assets
The Company capitalizes costs incurred in connection
with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under
applicable license agreements; patent applications (principally legal fees), patent purchases, and trademarks related to its cell line
as intangible assets. Acquired in-process research and development costs that do not have alternative uses are expensed as incurred. Amortization
is initiated for acquired in-process research and development intangible assets when their useful lives have been determined. These acquired
in-process research and development intangible assets are tested at least annually or when a triggering event occurs that could indicate
a potential impairment.
Basic and Diluted Loss per Share
Basic loss per share is computed by dividing net
loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential
common shares if their effect is anti-dilutive. For all periods presented, there is no difference in the number of shares used to calculate
basic and diluted shares outstanding due to the Company’s net loss position.
At September 30, 2021 and 2020, the Company had
potentially issuable shares as follows:
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
4,082,000
|
|
|
|
3,457,000
|
|
Warrants
|
|
|
93,866
|
|
|
|
1,955,922
|
|
Total
|
|
|
4,175,866
|
|
|
|
5,412,922
|
|
Revenue Recognition
The Company recognizes revenue when the customer
obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange
for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC Topic 606: (1) identify
contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to the performance obligations in the contract; and (5) recognize revenues when (or as) the Company satisfies the
performance obligations. The Company records the expenses related to revenue in research and development expense, in the periods such
expenses were incurred.
The Company records deferred revenues when cash
payments are received or due in advance of performance, including amounts which are refundable.
Stock-Based Compensation
The Company
utilizes the Black-Scholes option pricing model to estimate the fair value of stock option awards at the date of grant, which requires
the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can
materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally
require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined
from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate
weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. The Company accounts for
forfeitures of stock options as they occur.
Research and Development
Research and development (“R&D”)
costs are expensed as incurred. Research and development credits are recorded by the Company as a reduction of research and development
costs. Major components of research and development costs include cash compensation, stock-based compensation, costs of preclinical studies,
clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead
costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development
activities on the Company’s behalf.
The Company
recognizes grants as contra research and development expense in the consolidated statement of operations on a systematic basis over the
periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.
Income Taxes
The Company follows the liability method of accounting
for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable
to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect
on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Foreign Currency Translation
The Company’s financial statements are presented
in the U.S. dollar (“$”), which is the Company’s reporting currency, while its functional currencies are the U.S. Dollar
for its U.S. based operations, British Pound (“GBP”) for its United Kingdom-based operations and Australian Dollars (“AUD”)
for its Australian-based operations. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’
equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations
of foreign currency transactions and balances are reflected in the statement of operations and comprehensive income (loss).
Recently Adopted Accounting Pronouncements
There were
various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on the Company´s
consolidated financial position, operations or cash flows.
Subsequent Events
The Company
evaluates events that have occurred after the balance sheet date of September 30, 2021, through the date which the financial statements
are issued.
NOTE 4 – RESEARCH AND DEVELOPMENT
ACTIVITY
According to UK tax law, the Company is allowed
an R&D tax credit that reduces a company’s tax bill in the UK for expenses incurred in R&D subject to certain requirements.
The Company’s UK subsidiary submits R&D tax credit requests annually for research and development expenses incurred. At September
30, 2021 and December 31, 2020, the Company recorded a research and development tax credit receivable in the amount of $2,942,000 and
$833,000, respectively. During the nine months ended September 30, 2021 and 2020, the Company received $0 of R&D tax credit reimbursements
from the UK. The UK subsidiary expects to receive R&D tax credit reimbursements during the fourth quarter of 2021.
According to AUS tax law, the Company is allowed
an R&D tax credit that reduces a company’s tax bill in AUS for expenses incurred in R&D subject to certain requirements.
The Company’s Australian subsidiary submits R&D tax credit requests annually for research and development expenses incurred.
At September 30, 2021 and December 31, 2020, the Company recorded a research and development tax credit receivable of $2,016,000 and $853,000,
respectively, for R&D expenses incurred in Australia. During the nine months ended September 30, 2021 and 2020, the Company received
$0 and $0.2 million, respectively, of R&D tax credit reimbursements from Australia. The Australian subsidiary received an R&D
tax reimbursement of approximately $1.3 million during October 2021.
Xencor, Inc. License Agreement
On October 3, 2017, the Company entered into a
license agreement (“Xencor License Agreement”) with Xencor, Inc. (“Xencor”), which has discovered and developed
a proprietary biological molecule that inhibits soluble tumor necrosis factor. During June 2021, the Company entered into the First Amendment
to License Agreement. Pursuant to the license agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in
licensed patent rights, licensed know-how and licensed materials (as defined in the license agreement) to make, develop, use, sell and
import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPro1595”
that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically
bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation (“Licensed
Products”). The Company believes the protein has numerous medical applications. Such additional alternative applications of the
technology are available under the Xencor License Agreement. In connection with the Xencor License Agreement, the Company paid Xencor
a one-time non-creditable and non-refundable fee of $100,000 and issued Xencor 1,585,000 shares of the Company’s common stock with
a fair value of $12,221,000. In addition, the Company issued Xencor fully vested warrants with a fair value of $4,193,000 to purchase
an additional number of shares of common stock equal to 10% of the fully diluted company shares immediately following such purchase. The
aggregate purchase price for the full exercise of the option was $10,000,000.
The Company recorded $16,514,000 for the acquisition
of intangible assets for the in-process research and development as the fair value of the cash, stock and warrants on the date of the
License Agreement acquisition in accordance with Accounting Standards Codification 730 – Research and Development. The Company
has the license rights to pursue alternative applications of the technology as part of its future development plans.
The Company also agreed to pay Xencor a royalty
on Net Sales of all Licensed Products in a given calendar year, which are payable on a country-by- country and licensed product by licensed
product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering such Licensed Product
in such country or (b) ten years following the first sale to a third party of the licensed product in such country.
Under the Xencor License Agreement, the Company
also agreed to pay Xencor a percentage of any sublicensing revenue that it receives.
On June 10, 2021, the Company and Xencor entered
into an Option Cancellation Agreement whereby Xencor terminated its warrant to purchase 10% of the fully diluted shares of the Company
in exchange for a cash payment of $15,000,000 and 192,533 shares of the Company’s common stock with a fair value of $3,300,000 based
on the market price of the common stock as of June 10, 2021, which the Company issued in June 2021. The Company filed a registration statement
covering the resale of these shares during September 2021 and agreed to keep the registration statement continuously effective until all
such shares cease to be outstanding or otherwise cease to be registrable securities as defined in the Option Cancellation Agreement. The
Company charged the cash consideration paid to Xencor to enter into the Option Cancellation Agreement to equity as the fair value of the
warrant immediately prior to the Option Cancellation Agreement was greater than the consideration paid to Xencor.
INKmune License Agreement
On October 29, 2015, the Company entered into
an exclusive license agreement (the “INKmune License Agreement”) with Immune Ventures, LLC (“Immune Ventures”).
Pursuant to the INKmune License Agreement, the Company was granted exclusive worldwide rights to the patents, including rights to incorporate
any improvements or additions to the patents that may be developed in the future. In consideration for the patent rights, the Company
agreed to the following milestone payments:
(in thousands)
Each Phase I initiation
|
|
$
|
25
|
|
Each Phase II initiation
|
|
$
|
250
|
|
Each Phase III initiation
|
|
$
|
350
|
|
Each NDA/EMA filing
|
|
$
|
1,000
|
|
Each NDA/EMA awarded
|
|
$
|
9,000
|
|
During July 2021, the Company initiated a Phase
I clinical trial using INKmune and the Company paid Immune Ventures a $25,000 milestone payment.
In addition, the Company agreed to pay Immune
Ventures a royalty of 1% of net sales during the life of each patent granted to the Company. RJ Tesi, the Company’s President and
a member of our Board of Directors, David Moss, its Chief Financial Officer and Treasurer and Mark Lowdell, its Chief Scientific Officer,
are the owners of Immune Ventures. As of September 30, 2021, no sales had occurred under this license.
The term of the agreement began on October 29,
2015 and, if not terminated sooner pursuant to the agreement, ends on a country-by-country basis on the date of the expiration of the
last to expire patent rights where patent rights exists. Upon the termination of the agreement, we shall have a fully paid up, perpetual,
royalty-free license without further obligation to Immune Ventures. The agreement can be terminated by Immune Ventures if, after 60 days
from the Company’s receipt of notice that the Company has not made a payment under the agreement, and the Company still does not
make this payment. On July 20, 2018, the parties amended the agreement under which the Company was required achieve milestones pursuant
to the agreement. On October 30, 2020, the parties executed an additional amendment to the agreement under which the Company is required
to achieve the following milestones:
Initiation of Phase II clinical trials or equivalent
by October 29, 2023
Initiation of Phase III clinical trials or equivalent
by October 29, 2025
Filing of NDA or equivalent by October 29, 2026
or equivalent
If the Company doesn’t achieve the above
milestones, it is required to negotiate in good faith with Immune Ventures to determine how it can either remedy the failure or achieve
an alternate development. If the Company fails to make any required efforts, or if the efforts do not remedy the situation within 60 days
of written notice by Immune Ventures, then Immune Ventures may provide notice to terminate the license or convert it to a non-exclusive
license.
University of Pittsburg License Agreement
On October 3, 2017, the Company entered into an
Assignment and Assumption Agreement with Immune Ventures related to intellectual property licensed from the University of Pittsburgh.
Pursuant to the Assignment and Assumption Agreement (“Assignment Agreement”), Immune Ventures assigned all of its rights,
obligations and liabilities under an Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System
of Higher Education (“Licensor”) and Immune Ventures to INmune Bio (“Licensee”), (the “PITT Agreement”).
Consideration under the PITT Agreement includes:
(i) annual maintenance fees, (ii) royalty payments based on the sale of products making use of the licensed technology, and (iii) milestone
payments.
Annual maintenance fees under the PITT Agreement
include the following:
(in thousands)
June 26 of each year 2021-2022
|
|
$
|
5
|
|
June 26 of each year 2023-2024
|
|
$
|
10
|
|
June 26 of each year 2025 until first commercial sale
|
|
$
|
25
|
|
Upon first commercial sale of a product making
use of the licensed technology under the PITT Agreement, the Licensee is required to pay royalties equal to 2.5% of Net Sales each calendar
quarter.
Moreover, under the PITT Agreement the Licensee
is required to make milestone payments as follows:
(in thousands)
Each Phase I initiation
|
|
$
|
50
|
|
Each Phase III initiation
|
|
$
|
500
|
|
First commercial sale of product making use of licensed technology
|
|
$
|
1,250
|
|
The Company had no amounts owed pursuant to the
PITT Agreement as of September 30, 2021.
The PITT Agreement expires upon the earlier of:
(i) expiration of the last claim of the Patent Rights (as defined in the PITT Agreement) forming the subject matter of the PITT Agreement;
or (ii) the date that is 20 years from the effective date of the agreement (June 26, 2037).
The Licensee may terminate the PITT Agreement
upon 3 months prior written notice provided all payments under the license are current. The Licensor may terminate the PITT Agreement
upon written notice if: (i) Licensee defaults as to performance of material obligations which have not been cured within 60 days after
receiving written notice; or (ii) Licensee ceases to carry out its business, becomes bankrupt or insolvent, applies for or consents to
the appointment of a trustee, receiver or liquidator of its assets or seeks relief under any law for the aid of debtors.
University College London License Agreement
– MSC
On July 19, 2019, the Company entered into license
agreement with UCL Business PLC (“UCLB”) with a ten (10) year term. Pursuant to the license agreement, the Company acquired
an exclusive license (and a right to sub-license) to the technology and know-how relating to an isolation and commercial scale expansion
methodology of GMP grade human umbilical cord mesenchymal stem/stromal cells (“MSC”). During July 2021, the Company terminated
its license agreement with UCLB.
NOTE 5 – LEASE
In May 2019, the Company signed a sublease agreement
with a related party for office space in La Jolla, California. The lease has a 61-month term, which corresponds to the lease term of the
lessor. The lessor is CTI Clinical Trial & Consulting Services (“CTI”). CTI is majority-owned by a member of the Company’s
Board of Directors. The lessor may extend its lease for an additional 5 years, and, if it does, the Company may also extend its sublease
for 5 years. The Company did not include the option to extend in the calculation of the lease liabilities as such extension is not reasonably
certain to occur. Variable lease costs for the Company’s lease consists of operating expenses for the spaces.
In September 2021, the Company signed a lease
for office space in Boca Raton, Florida. See Note 10.
Below is a summary of the Company’s right-of-use
assets and liabilities as of September 30, 2021:
(in thousands, except years and rate)
Right-of-use asset – related party
|
|
$
|
128
|
|
|
|
|
|
|
Operating lease, current liability – related party
|
|
$
|
38
|
|
Long-term operating lease liability – related party
|
|
|
95
|
|
Total lease liability
|
|
$
|
133
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
2.8 years
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
10.00
|
%
|
NOTE 6 – RELATED PARTY TRANSACTIONS
UCL
At September 30, 2021 and December 31, 2020, the
Company owed UCL Consultants Limited (“UCL”) $10,000 and $34,000, respectively, in connection with medical research performed
on behalf of the Company. At September 30, 2021 and December 31, 2020, the Company recorded prepaid expenses of $14,000 and $0, respectively,
for medical research to be performed on behalf of the Company by UCL. During the nine months ended September 30, 2021 and 2020, the Company
paid UCL $176,000 and $335,000, respectively, for medical research performed on behalf of the Company. UCL is a wholly owned subsidiary
of the University of London. The Company’s Chief Scientific and Manufacturing Officer is a professor at the University of London.
CTI
During the nine months ended September 30, 2021
and 2020, the Company paid CTI $0 and $127,000, respectively, for medical research performed on behalf of the Company. During the nine
months ended September 30, 2020, the Company recorded a capital contribution of $216,000 for the forgiveness of certain accounts payable
due to CTI. The Company had no amounts payable to CTI as of September 30, 2021 and December 31, 2020.
NOTE 7 – DEBT
On June 10, 2021, the Company entered into a Loan
and Security Agreement (the “Term Loan”) with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., together (the
“Lenders”). The Term Loan provides for a $15.0 million term loan, of which the Company borrowed the entire amount
on June 10, 2021, and is secured by the Company’s assets. The Term Loan also provides for the Company to request an additional
$5.0 million term loan from the Lenders, which may be granted or denied at the sole discretion of the Lenders.
The Company paid the Lenders $47,000 to access
the term loan, which has been included as a component of the debt discount and is amortized to interest expense over the term of the loan.
The term loan and debt discount are as follows as of September 30, 2021:
(in thousands)
Term Loan
|
|
$
|
15,000
|
|
Less: debt discount and financing costs, net
|
|
|
(599
|
)
|
Less: current portion
|
|
|
-
|
|
Long-term debt
|
|
$
|
14,401
|
|
For the
three and nine months ended September 30, 2021 the Company recognized interest expense of $0.4 million and $0.5 million, respectively,
related to the Term Loan.
The term loan repayment schedule provided for
interest only payments beginning on July 1, 2021, and continuing for 12 months, followed by monthly principal and interest payments,
starting on July 1, 2022 and continuing through the maturity date of January 1, 2025. During August, the Lenders extended the interest-only
period for one year due to the Company achieving an equity milestone as fully defined in the Term Loan. As a result of achieving
the equity milestone, monthly principal and interest payments begin on July 1, 2023. All outstanding principal and accrued and unpaid
interest will be due and payable on the maturity date. The Term Loan provides for an annual interest rate equal to the greater of
(i) the prime rate then in effect as reported in The Wall Street Journal plus 4.50% and (ii) 7.75%. At September 30, 2021, the
interest rate was 7.75%.
The Term Loan includes a final payment fee equal
to 6.5% of the original principal amount borrowed payable on the earlier of the repayment of the loan in full and the maturity date.
The Company has the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3%
of the original principal amount borrowed for any prepayment on or prior to the first anniversary of the loan, (ii) 2% of the original
principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of the loan or (iii) 1%
of the original principal amount borrowed for any prepayment after the second anniversary of the loan but before the maturity date.
The expected
repayment of the $15.0 million Term loan principal is as follows as of September 30, 2021:
(in thousands, except years)
2021
|
|
$
|
-
|
|
2022
|
|
|
-
|
|
2023
|
|
|
5,833
|
|
2024
|
|
|
9,167
|
|
Total debt
|
|
$
|
15,000
|
|
Upon the occurrence of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Term
Loan, the breach of certain of its other covenants under the Term Loan, or the occurrence of a material adverse change, the Lenders will
have the right, among other remedies, to declare all principal and interest immediately due and payable, and will have the right to receive
the final payment fee and, if the payment of principal and interest is due prior to maturity, the applicable prepayment fee.
NOTE 8 – STOCKHOLDERS’ EQUITY
Lincoln Park
On May 15, 2019, the Company entered into both
a securities purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Under
the terms and subject to the conditions of the securities purchase agreement, the Company had the right to sell to Lincoln Park, and Lincoln
Park was obligated to purchase, up to $20.0 million in shares of the Company’s common stock, subject to certain limitations, over
the 24-month period that commenced on May 15, 2019. During the nine months ended September 30, 2020, the Company issued 196,000 shares
of its common stock to Lincoln Park for approximately $1.0 million of cash.
During April 2021, the Company terminated the
securities purchase agreement with Lincoln Park.
Purchase and retirement of common stock
During January 2020, the Company purchased and
cancelled 220,000 shares of its common stock from a shareholder in exchange for approximately $1.0 million of cash.
Underwritten Stock Offering
During July 2020, the Company completed an underwritten
public offering in which it sold 2,500,000 shares of common stock at a public offering price of $10.00 per share. The 2,500,000 shares
sold included the full exercise of the underwriters’ option to purchase 326,086 shares at a price of $10.00 per share. Aggregate
net proceeds from the underwritten public offering were $23.1 million, net of $1.9 million in underwriting discounts and commissions and
offering expenses.
Common Stock – At the Market Offering
During the nine months ended September 30, 2020,
we issued and sold 178,600 shares of common stock at an average price of $5.45 per share under the 2020 ATM program. The aggregate net
proceeds were approximately $0.8 million after BTIG’s commission and other offering expenses.
During the nine months ended September 30, 2021,
the Company sold 1,439,480 shares of its common stock at an average price of $20.17 per share under the 2020 ATM program. The aggregate
net proceeds were approximately $28.4 million after BTIG’s commission and other offering expenses.
During the nine months ended September 30, 2021,
the Company sold 713,192 shares of its common stock at an average price of $21.73 per share under the 2021 ATM program. The aggregate
net proceeds were approximately $14.9 million after BTIG’s commission and other offering expenses.
Registered Direct Offering
During July 2021, the Company completed a registered
direct offering whereby the Company sold 1,818,182 shares of its common stock to investors for net proceeds of $36.9 million.
Common Stock Issued for Services
During July 2020, the Company granted a consultant
50,000 fully vested warrants with a 5-year term, of which 25,000 warrants had an exercise price of $5.50 per share and 25,000 warrants
had an exercise price of $10.00 per share. The fair value of these warrants was $356,874 based on the Black-Scholes Option Pricing Model
and was recorded within general and administrative expense. The assumptions used for these warrants consist of the exercise prices, expected
dividends of 0%, expected volatility of 111.67% based on the trading history of similar companies, risk-free rate of 0.30% based on the
applicable US Treasury bill rate and an expected life of 5.0 years. During July 2020, the Company issued the consultant 20,000 shares
of common stock and cancelled the 50,000 warrants. The 20,000 shares were issued from the Company’s 2019 Incentive Stock Plan and
had a fair value of approximately $230,000 based on the market value of the Company’s common stock on the grant date. The Company
accounted for the exchange of the warrants for shares of common stock as a modification and recorded no additional expense in connection
with the exchange as the fair value of warrants exceeded the fair value of the shares issued.
Issuance of shares to Xencor
On June 10, 2021, the Company and Xencor entered
into an Option Cancellation Agreement whereby the Company issued 192,533 shares of its common stock to Xencor (See Note 4).
Stock options
During January 2021, the Company granted certain
employees and directors options to purchase 198,549 shares of its common stock pursuant to the 2017 and 2019 Incentive Stock Plans. The
stock options have a fair value of approximately $4.2 million that was calculated using the Black-Scholes option-pricing model. Variables
used in the Black-Scholes option-pricing model include: (1) discount rate of 0.78% based on the applicable US Treasury bill rate (2) expected
life of 6.0 - 6.25 years, (3) expected volatility of approximately 113% - 114% based on the trading history of similar companies, and
(4) zero expected dividends.
During June 2021, the Company granted certain
employees and directors options to purchase 236,451 shares of its common stock pursuant to the 2021 Incentive Stock Plan. The stock options
have a fair value of approximately $3.3 million that was calculated using the Black-Scholes option-pricing model. Variables used in the
Black-Scholes option-pricing model include: (1) discount rate of 1.23% based on the applicable US Treasury bill rate (2) expected life
of 6.0 - 6.25 years, (3) expected volatility of approximately 107% - 108% based on the trading history of similar companies, and (4) zero
expected dividends.
During July, August and September 2021,
the Company granted certain employees and consultants options to purchase in aggregate 373,000 shares of its common stock pursuant to
the 2021 Incentive Stock Plan. The stock options have a fair value of approximately $6.3 million that was calculated using the Black-Scholes
option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 0.96% - 1.31% based on the
applicable US Treasury bill rate (2) expected life of 6.0 – 10.0 years, (3) expected volatility of approximately 105% - 109% based
on the trading history of similar companies, and (4) zero expected dividends.
The following
table summarizes stock option activity during the nine months ended September 30, 2021:
(in thousands, except share and per share amounts)
|
|
Number
of
Shares
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2021
|
|
|
3,457,000
|
|
|
$
|
5.82
|
|
|
|
8.05
|
|
|
$
|
39,405
|
|
Options granted
|
|
|
808,000
|
|
|
$
|
20.73
|
|
|
|
10.00
|
|
|
|
-
|
|
Options exercised
|
|
|
(183,000
|
)
|
|
$
|
6.21
|
|
|
|
-
|
|
|
|
-
|
|
Options cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2021
|
|
|
4,082,000
|
|
|
$
|
8.65
|
|
|
|
7.44
|
|
|
$
|
45,171
|
|
Exercisable at September 30, 2021
|
|
|
2,578,000
|
|
|
$
|
6.49
|
|
|
|
7.09
|
|
|
$
|
33,395
|
|
During the nine months ended September 30, 2021
and 2020, the Company recognized stock-based compensation expense of approximately $3.3 million and $2.1 million, respectively, related
to the vesting of stock options. As of September 30, 2021, there was approximately $14.6 million of total unrecognized compensation cost
related to non-vested stock options which is expected to be recognized over a weighted-average period of 2.73 years.
Warrants
The Company issued 45,386 warrants
to the Company’s lenders upon obtaining its loan in June 2021. The warrants have a 10-year term and an exercise price of $14.05.
The warrants have a fair value of approximately $0.6 million that was calculated using the Black-Scholes option-pricing model. Variables
used in the Black-Scholes option-pricing model include: (1) discount rate of 1.45% based on the applicable US Treasury bill rate (2)
expected life of 10.0 years, (3) expected volatility of approximately 103% based on the trading history of similar companies, and (4)
zero expected dividends. At September 30, 2021, the intrinsic value of these warrants is $244,000.
In connection with the Company’s initial
public offering in February 2019, the Company issued warrants to the placement agents to purchase the Company’s common stock at
an exercise price of $9.60 per common share, which warrants are exercisable until December 19, 2023. During the nine months ended September
30, 2021, 6,147 of these warrants were exercised on a cashless basis in exchange for 3,758 shares of common stock. At September 30, 2021,
28,688 of these warrants are outstanding and the intrinsic value is $282,000.
On June 30, 2017, the Company issued fully vested
warrants to purchase 31,667 shares of the Company’s common stock to a third party in conjunction with the common stock sold for
cash. The warrants have a $1.50 exercise price and expire on June 30, 2022. During the nine months ended September 30, 2021, 11,875 of
these warrants were exercised for cash proceeds of $18,000. At September 30, 2021, 19,792 of these warrants are outstanding, with an intrinsic
value of $355,000.
Stock-based Compensation by Class of Expense
The following summarizes the components of stock-based
compensation expense in the consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020
respectively:
(in thousands)
|
|
Three Months
Ended
September 30,
2021
|
|
|
Three Months
Ended
September 30,
2020
|
|
|
Nine Months
Ended
September 30,
2021
|
|
|
Nine Months
Ended
September 30,
2020
|
|
Research and development
|
|
$
|
705
|
|
|
$
|
146
|
|
|
$
|
1,090
|
|
|
$
|
423
|
|
General and administrative
|
|
|
901
|
|
|
|
900
|
|
|
|
2,184
|
|
|
|
1,986
|
|
Total
|
|
$
|
1,606
|
|
|
$
|
1,046
|
|
|
$
|
3,274
|
|
|
$
|
2,409
|
|
Shareholder Rights Agreement
On December 30, 2020, the Board of Directors (the
“Board”) of the Company approved and adopted a Rights Agreement, dated as of December 30, 2020, by and between the Company
and VStock Transfer, LLC, as rights agent, pursuant to which the Board declared a dividend of one preferred share purchase right (each,
a “Right”) for each outstanding share of the Company’s common stock held by stockholders as of the close of business
on January 11, 2021. When exercisable, each right initially would represent the right to purchase from the Company one one-thousandth
of a share of a newly designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.001 per share,
of the Company, at an exercise price of $300.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to
adjustment. Subject to various exceptions, the Rights become exercisable in the event any person (excluding certain exempted or grandfathered
persons) becomes the beneficial owner of twenty percent or more of the Company’s common stock without the approval of the Board.
The Rights are scheduled to expire on December 30, 2021.
NOTE 9 – COLLABORATIVE AGREEMENTS
During 2020, the Company was awarded a $0.5 million
grant from the Amyotrophic Lateral Sclerosis (“ALS”) Association to fund a study of the efficacy of XPro1595 to reverse ALS
in vitro and to fund a study of the efficacy of XPro1595 to protect against ALS model phenotypes in vivo. During the nine months ended
September 30, 2021 and 2020, the Company received $0.1 million and $0.3 million, respectively, of cash proceeds pursuant to this grant
which the Company recorded as deferred liabilities. The Company offsets costs incurred related to this research against the grants. As
of September 30, 2021 and December 31, 2020, the Company recorded approximately $0.2 million and $0.1 million, respectively, as deferred
liabilities in the consolidated balance sheet related to the ALS grant.
During September 2020, the Company was awarded
a grant of up to $2.9 million from the National Institutes of Health (“NIH”). The grant will support a Phase 2 study of XPro1595
in patients with treatment resistant depression. As of September 30, 2021, the Company has not received any proceeds pursuant to this
grant.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Lease
In May 2019, the Company
signed a sublease agreement with a related party for office space in La Jolla, California. The lease has a 61-month term, which corresponds
to the lease term of the lessor. The lessor is CTI.
During September 2021,
the Company signed a lease agreement with a third party for office space in Boca Raton, Florida. The lease agreement has a 64-month term
and will commence during the fourth quarter of 2021.
Future minimum payments pursuant
to the leases are as follows:
(in thousands, except years)
2021
|
|
$
|
23
|
|
2022
|
|
|
157
|
|
2023
|
|
|
237
|
|
2024
|
|
|
220
|
|
2025
|
|
|
193
|
|
Thereafter
|
|
|
216
|
|
Total
|
|
$
|
1,046
|
|
During the three and nine months ended September
30, 2021, the Company recognized $19,000 and $45,000, respectively, in operating lease expense, which is included in general and administrative
expenses in the Company’s consolidated statement of operations.
Litigation
The Company is subject to claims and suits that
arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against the
Company, individually or in aggregate, will not have a material adverse impact in the Company’s consolidated financial statements,
these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.