NOTES TO FINANCIAL
STATEMENTS
Note 1. Organization,
Principal Activities, and Basis of Presentation
Lantern
Pharma Inc., and Subsidiaries (the “Company”) is a clinical stage biopharmaceutical company, focused on leveraging artificial
intelligence (“A.I.”), machine learning and genomic data to streamline the drug development process and to identify the patients
that will benefit from its targeted oncology therapies. The Company’s portfolio of therapies consists of small molecule drug candidates
that others have tried, but failed, to develop into an approved commercialized drug, as well as new compounds that it is developing with
the assistance of its A.I. platform and its biomarker driven approach. The Company’s A.I. platform, known as RADR®,
uses big data analytics (combining molecular data, drug efficacy data, data from historical studies, data from scientific literature,
phenotypic data from trials and publications, and mechanistic pathway data) and machine learning. The Company’s data-driven, genomically-targeted and
biomarker-driven approach allows it to pursue a transformational drug development strategy that identifies, rescues or develops,
and advances potential small molecule drug candidates.
Lantern
Pharma Inc. was incorporated under the laws of the state of Texas on November 7, 2013, and thereafter reincorporated in the state of Delaware
on January 15, 2020. The Company’s principal operations are located in Texas. The Company formed a wholly owned subsidiary, Lantern
Pharma Limited, in the United Kingdom in July 2017 and a wholly owned subsidiary, Lantern Pharma Australia Pty Ltd, in Australia in September
2021.
Since
inception, the Company has devoted substantially all its activity to advancing research and development, including efforts in connection
with preclinical studies, clinical trials and development of its RADR platform. This now includes four drug candidates and an Antibody
Drug Conjugate (ADC) program directed towards eight disclosed therapeutic targets:
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LP-100 (irofulven),
in a phase II trial for the treatment of prostate cancer;
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LP-300 (Tavocept) in preparation to launch a phase II trial for the treatment of non-small cell lung cancer;
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●
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LP-184 in preclinical studies for treatment of solid tumors including
pancreatic, prostate, and bladder cancers and glioblastoma;
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●
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LP-284, the stereoisomer (enantiomer) of LP-184, that has shown promising in-vitro anticancer activity in a range of indications that are distinct from LP-184; and
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An ADC program that was initiated in early 2021.
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The
Company’s fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial statements
are unaudited and have been prepared on substantially the same basis as the Company’s annual consolidated financial statements for
the fiscal year ended December 31, 2020. In the opinion of the Company’s management, these interim condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the
Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Actual
results could differ from these estimates.
The
December 31, 2020 year-end condensed consolidated balance sheet data in the accompanying interim condensed consolidated financial statements
was derived from audited consolidated financial statements. These condensed consolidated financial statements and notes do not include
all disclosures required by U.S. generally accepted accounting principles and should be read in conjunction with the Company’s audited
consolidated financial statements as of and for the year ended December 31, 2020 and the notes thereto included in the Company’s
Annual Report on Form 10-K, dated March 10, 2021, on file with the Securities and Exchange Commission.
The
results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily
indicative of the results to be expected for any future period or the entire fiscal year.
Any
reference in these notes to applicable guidance refers to Accounting Standards Codification (“ASC”) and Accounting Standards
Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). To date, the Company has operated its business
as one segment. The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, Lantern Pharma Limited and Lantern Pharma Australia Pty Ltd. All intercompany balances and transactions have been eliminated
in consolidation.
Note 2. Liquidity
The
Company incurred a net loss of approximately $8,823,000 and $3,012,000 during the nine months ended September 30, 2021 and 2020, respectively.
As of September 30, 2021, the Company had working capital of approximately $74,551,000. The Company has received funding in the form of
periodic capital raises and also plans to apply for grant funding in the future to assist in supporting its capital needs. We may also
explore the possibility of entering into commercial credit facilities as an additional source of liquidity. We believe that our existing
cash as of September 30, 2021, and our anticipated expenditures and capital commitments, will enable us to fund our operating expenses
and capital expenditure requirements for at least 12 months from the date of this quarterly report.
Note 3. Summary of
Significant Accounting Policies
Use of Estimates and
Assumptions
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The significant areas of estimation include determining research
and development accruals and the inputs in determining the fair value of equity-based awards and warrants issued. Actual results could
differ from those estimates.
Risks and Uncertainties
The
Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. Operations
are subject to significant risk and uncertainties including financial, operational, technological, regulatory, and other risks, including
the potential risk of business failure.
The
extent of the impact and effects of the coronavirus (COVID-19) on the operation and financial performance of the Company’s business
will depend on future developments, including the duration and spread of the outbreak and varying virus mutations, related travel advisories
and restrictions, the recovery time of disrupted research services, the consequential staff shortages, and research and development delays,
or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of which are highly uncertain and
cannot be predicted. If the Company’s operations are impacted by the outbreak for an extended period, the Company’s results
of operations or liquidity may be materially adversely affected.
Deferred Offering
Costs
In
conjunction with the Company’s public offerings, costs incurred related to the public offerings were capitalized as deferred equity
issuance costs in other non-current assets until the time of completion of the public offerings. Upon completion of the public offerings,
these costs have been offset against proceeds received. Offering costs include direct and incremental costs related to the offering such
as legal fees and related costs associated with the public offerings.
As
of December 31, 2020, the Company recorded deferred offering costs of approximately $101,000 and as of September 30, 2021, there were
no deferred offering costs recorded on the Company’s condensed consolidated balance sheets (see Note 6).
Research and Development
Research
and development costs are expensed as incurred. These expenses primarily consist of payroll, contractor expenses, research study expenses,
costs for manufacturing and supplies, and technical infrastructure on the cloud for the purposes of developing the Company’s RADR
platform and identifying, developing, and testing drug candidates. Development costs incurred by third parties are expensed as the work
is performed. Costs to acquire technologies, including licenses, that are utilized in research and development and that have no alternative
future use are expensed when incurred.
Cash and Cash Equivalents
The
Company considers money market funds with a short-term maturity of less than one year to be cash equivalents. Cash equivalents at September
30, 2021 and December 31, 2020 were approximately $768,000 and zero, respectively, and are included along with cash under the caption
cash and cash equivalents on the Company’s condensed consolidated balance sheets.
Restricted Cash
The
Company considers cash held in escrow for the purposes of contractual contingencies to be restricted cash. Restricted cash at September
30, 2021 and December 31, 2020 was approximately $1,000,000 and zero, respectively, and is included under the caption restricted cash
on the Company’s condensed consolidated balance sheets. All of the restricted cash at September 30, 2021 relates to escrow amounts
paid in connection with the Asset Purchase Agreement entered into by the Company and Allarity Therapeutics in July 2021 (See Note 4) and
is considered a non-current asset until the contingent events related to the amount held in escrow are considered probable to occur.
Prepaid Expenses and
Other Current Assets
Prepaid
expenses and other current assets as of September 30, 2021 totaled approximately $2,504,000 and included approximately $974,000 of upfront
payments for contractor fees, academic research studies and services, and subscriptions, approximately $438,000 of intellectual property
related licensing and other fees, approximately $1,021,000 of prepaid annual insurance fees, and approximately $71,000 of interest receivable.
Leases
The Company determines whether
an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets,
current portion of operating lease liabilities, and net of current portion of operating lease liabilities on our consolidated balance
sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an
obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value
of the future minimum lease payments over the lease term at the commencement date. As the Company’s leases do not provide an implicit
rate, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value
of lease payments. The Company does not include options to extend or terminate the lease term unless it is reasonably certain that the
Company will exercise any such options. Rent expense is recognized under the operating leases on a straight-line basis. The Company does
not recognize right-of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less, and instead
will recognize lease payments as expense on a straight-line basis over the lease term.
Marketable Securities
The
Company’s marketable securities consist of government and agency securities, corporate bonds, and mutual funds. We classify our
marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date.
We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify
our investments, including securities with maturities beyond twelve months as current assets in the accompanying consolidated balance
sheets. Available-for-sale debt securities are recorded at fair value each reporting period. Unrealized gains and losses are excluded
from earnings and recorded as a separate component within “Accumulated other comprehensive income” on the consolidated balance
sheets until realized. Interest is reported within “Interest income” and dividend income is reported within “Other income,
net” on the consolidated statements of operations. We evaluate our investments to assess whether the amortized cost basis is in
excess of estimated fair value and determine what amount of that difference, if any, is caused by expected credit losses. Allowance for
credit losses are recognized as a charge in “Other (expense) income, net” on the consolidated statements of operations, and
any remaining unrealized losses are included in “Accumulated other comprehensive loss” on the consolidated balance sheets.
There were no credit losses recorded for the three and nine months ended September 30, 2021. There was no impairment
charge for any unrealized losses for the three and nine months ended September 30, 2021. We determine realized gains and losses on the
sale of marketable securities based on the specific identification method and record such gains and losses in “Other (expense) income,
net” on the consolidated statements of operations. The Company purchased all marketable securities during the nine months ended
September 30, 2021 and as a result, there was no impact on prior periods.
New Accounting Pronouncements,
Not Yet Adopted
Current Expected Credit
Loss
In
June 2016 the FASB issued Accounting Standard Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).
This introduces new methodology for recognition of credit losses - the current expected credit loss (“CECL”) method. The CECL
method requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument,
unless the company elects to recognize such instruments at fair value with changes in profit and loss. CECL is effective for the Company
on January 1, 2023. The Company does not anticipate a material impact from the adoption of this new standard on its financial statements.
Note 4. Commitments
and Contingencies
General.
The
Company has entered into, and expects to enter into from time to time in the future, license agreements, strategic alliance agreements,
assignment agreements, research service agreements, and similar agreements related to the advancement of its product candidates and research
and development efforts. Significant agreements are described in detail below (collectively, the “License, Strategic Alliance, and
Research Agreements”). During the three and nine months ended September 30, 2021, the Company expensed a total of approximately
$2,077,000 and $3,200,000, respectively, and during the three and nine months ended September 30, 2020, the Company expensed a total of
approximately $125,000 and $181,000, respectively, under the License, Strategic Alliance, and Research Agreements described below. These
expense amounts are included under research and development expenses in the accompanying condensed consolidated statements of operations.
During
the three and nine months ended September 30, 2021, the Company made payments of approximately $1,877,000 and $3,466,000, respectively,
and during the three and nine months ended September 30, 2020, the Company made payments of approximately $225,000 and $324,000, respectively,
under the License, Strategic Alliance, and Research Agreements.
Approximately
$914,000 and $120,000 are accrued and payable under the License, Strategic Alliance, and Research Agreements at September 30, 2021 and
December 31, 2020, respectively, which amounts are included in accounts payable and accrued expenses in the accompanying condensed consolidated
balance sheets.
Approximately
$1,156,000 and $97,000 are included in prepaid expenses and other current assets under the License, Strategic Alliance, and Research Agreements
at September 30, 2021 and December 31, 2020, respectively, which amounts are included in the accompanying condensed consolidated balance
sheets.
BioNumerik Pharmaceuticals
In
January 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with BioNumerik Pharmaceuticals,
Inc. (“BioNumerik”), pursuant to which the Company acquired rights to domestic and international patents, trademarks and related
technology and data relating to LP-300 (Tavocept) for human therapeutic treatment indications. The Assignment Agreement replaced a License
Agreement that was entered into between the Company and BioNumerik in May 2016. The Company made upfront payments totaling $25,000 in
connection with entry into the Assignment Agreement.
In
the event the Company develops and commercializes LP-300 internally, the Company is required to pay to the BioNumerik-related payment
recipients designated in the Assignment Agreement a percentage royalty in the low double digits on cumulative net revenue up to $100 million,
with incremental increases in the percentage royalty for net cumulative revenue between $100 million and $250 million, $250 million and
$500 million, and $500 million and $1 billion, with a percentage royalty payment that could exceed $200 million for net cumulative revenue
in excess of $1 billion. The Company has the right to first recover certain designated portions of patent costs and development and regulatory
costs before the payment of royalties described above.
If
the Company enters into a third party transaction for LP-300, the Company is required to pay the BioNumerik-related payment recipients
a specified percentage of any upfront, milestone, and royalty amounts received by the Company from the transaction, after first recovering
specified direct costs incurred by the Company for the development of LP-300 that are not otherwise reimbursed from such third party transaction.
In
addition, the Assignment Agreement provides that the Company will use commercially diligent efforts to develop LP-300 and make specified
regulatory filings and pay specified development and regulatory costs related to LP-300. The Assignment Agreement also provides that the
Company will provide TriviumVet DAC (“TriviumVet”) with (i) specified data and information generated by the Company with respect
to LP-300, and (ii) an exclusive license to use specified LP-300-related patent rights, trademark rights and related intellectual property
to support LP-300 development in non-human (animal) treatment indications.
The
Company is also required to pay all patent costs on covered patents related to LP-300. These patent costs are included in general and
administrative expenses in the accompanying condensed consolidated statements of operations. These patent costs are fully recoverable
at the time of any net revenue from LP-300, with up to 50% of net revenue amounts to be applied towards repayment of patent costs until
such costs are fully recovered.
In
addition to the recovery of patent costs, the Company has the right to recover the $25,000 upfront payments made in connection with entry
into the Assignment Agreement, which payments are recoverable prior to making any royalty or third party transaction sharing payments.
The Company also has the right to recover previously incurred LP-300 development and regulatory costs, with up to a mid-single digit percentage
of net revenue amounts to be applied towards repayment of development and regulatory costs until such costs are fully recovered.
AF Chemicals
In
January 2015, the Company entered into a Technology License Agreement to exclusively license domestic and international patent rights
from AF Chemicals, LLC (“AF Chemicals”) for the treatment of cancer in humans for the compounds LP-100 (Irofulven) and LP-184.
In February 2016, the Company and AF Chemicals entered into an Addendum (the “Addendum”) providing for additions and amendments
to the Technology License Agreement. In December 2020, the Company and AF Chemicals entered into a Second Addendum (the “Second
Addendum”) providing for further additions and amendments to the Technology License Agreement. The Technology License Agreement,
Addendum and Second Addendum are collectively referred to as the “AFC License Agreement”.
Pursuant
to the Second Addendum, the Company made specified payments to AF Chemicals within 10 days after signing and prior to March 31, 2021.
The Second Addendum also provides that, from December 30, 2020 until January 15, 2025, the Company will have no obligation to pay annual
licensing fees, development diligence extension payments, or patent maintenance fee payments to AFC under the AFC License Agreement.
As
part of the Second Addendum, the Company has agreed to apply for specified orphan drug designations for LP-184 in the US and EU. The Second
Addendum also amends and clarifies other provisions of the Technology License Agreement, and provides the Company with the ability to
recover a portion of initial payments made under the Second Addendum from sublicense fees or royalty payments that may be made to AFC
by the Company or third parties prior to January 15, 2025.
Pursuant
to the AFC License Agreement the Company made annual licensing fee payments to AF Chemicals during the nine months ended September 30,
2020 relating to LP-184. Such amounts are included in research and development expenses in the accompanying condensed consolidated statements
of operations. In addition, the Company is obligated to make milestone payments to AF Chemicals at the time of an Investigational New
Drug Application (“IND”) filing relating to LP-184 and also upon reaching additional specified milestones in connection with
the development and potential marketing approval of LP-184 in the United States, specified countries in Europe, and other countries.
The
AFC License Agreement also provides that the Company will pay AF Chemicals a royalty of at least a very small single digit percentage
of specified net sales of LP-184 and other analogs. In addition, the AFC License Agreement contains specified time requirements for the
Company to file an IND, enroll patients in clinical trials, and file a potential NDA with respect to LP-184, with the ability for the
Company to pay AF Chemicals additional amounts ranging up to an amount in the low hundreds of thousands of dollars for each one, two,
three and four year extension to such development time requirements, with additional extensions beyond four years to be negotiated by
the Company and AF Chemicals.
Pursuant
to the Second Addendum, no additional payments of annual licensing fees or development diligence extension payments are required to be
made by the Company until January 15, 2025, at which time these obligations will resume. The Company will also be obligated to make annual
licensing fee payments to AF Chemicals relating to LP-100 beginning January 15, 2025, as described below under Allarity Therapeutics.
In
the event of a sublicense of the LP-184 rights, the Company is obligated to pay AF Chemicals (a) a low double digit percentage of the
gross income and fees received by the Company with respect to the United States in connection with such sublicense, and (b) a lower double
digit percentage of the gross income and fees received by the Company with respect to Europe and Japan in connection with such sublicense.
The
amounts to be paid to AF Chemicals with respect to LP-100 under the AFC License Agreement are in many ways similar to the amounts to be
paid with respect to LP-184 as described above. In addition, the AFC License Agreement contains specified time requirements for the Company
to enroll patients in clinical trials, and file a potential NDA with respect to LP-100. Extension fees may be paid by the Company to AF
Chemicals from time to time related to these requirements. Pursuant to the Second Addendum with AF Chemicals, no additional payments of
annual licensing fees or development diligence extension payments are required to be made by the Company with respect to LP-100 until
January 15, 2025, at which time these obligations will resume.
Allarity Therapeutics
(formerly known as Oncology Venture)
In
May 2015, the Company licensed various rights to LP-100 to Oncology Venture (now known as Allarity Therapeutics) pursuant to a Drug License
and Development Agreement. In February 2016, the Company and Allarity Therapeutics entered into an addendum and an amendment providing
for additions and amendments to the Drug License and Development Agreement. In connection with the Drug License and Development Agreement,
as amended (collectively, the “Allarity License and Development Agreement”), Allarity Therapeutics agreed to directly pay
to AF Chemicals on behalf of the Company certain amounts to satisfy the Company’s milestone obligations to AF Chemicals with respect
to LP-100 under the AFC License Agreement. Amounts paid by Allarity Therapeutics to AF Chemicals on behalf of the Company are then deducted
from amounts owed by Allarity Therapeutics to the Company.
On July 23, 2021, the Company
entered into an Asset Purchase Agreement to reacquire global development and commercialization rights for Irofulven (LP-100) from Allarity.
The transaction includes global rights to LP-100, as well as the developed clinical protocol for an intended study in bladder and prostate
cancer patients who have a mutation in the ERCC2/3 genes. As a result of this transaction, the Company will have full authority to manage
and guide future clinical development and commercialization of LP-100. Under the terms of the Asset Purchase Agreement, the Company paid
an initial upfront payment of $1,000,000 to Allarity. The Company determined there was no planned alternative future use for these assets
outside of the clinical development of LP-100 and therefore the full amount of the upfront payment was included in research and development
expense during the three months ended September 30, 2021. Future payments of up to $1,000,000 currently held in escrow also have the potential
to deliver an additional amount to Allarity based on drug manufacturing and trial enrollment milestones within the 24 months following
the date of the transaction. Allarity is also eligible to receive additional milestone payments over the life of the program based on
IP license milestones and regulatory filings and approvals in the US and EU, and low- to mid-single-digit royalties on future commercial
net sales. As part of the Asset Purchase Agreement, the Allarity License and Development Agreement was terminated.
Califia Pharma
In
December 2020, the Company entered into an Evaluation and Limited Use Agreement (the “Evaluation Agreement”) with Califia
Pharma, Inc. (“Califia”). The Evaluation Agreement provides for the Company and Califia to collaborate on the in vitro and
in vivo testing and evaluation of novel Califia payloads conjugated to a Lantern targeting entity. The Evaluation Agreement also provides
the Company with the right to negotiate with Califia for exclusive license rights to use LP-184 and related analogs as the payload with
an affinity drug conjugate or small molecule drug conjugate targeting entity supplied by the Company. The Company also has the right under
the Evaluation Agreement to negotiate for non-exclusive license rights to use a targeting entity from the Company with a payload and linker
combination selected from novel specified Califia payloads and linkers.
Patheon API Services
The
Company has entered into agreements with Patheon API Services, Inc. (“Patheon”) for the manufacture and supply of cGMP material
to support the Company’s planned Phase II clinical trial for its product candidate LP-300. In addition to producing LP-300 API (active
pharmaceutical ingredient) under cGMP (current Good Manufacturing Practices) conditions, Patheon is transferring previously validated
manufacturing processes and analytical methods for LP-300 and is producing non-GMP material that can be used to support non-clinical studies
for LP-300. The agreements provide for payments in stages as specified process and manufacturing milestones are achieved. Patheon, a part
of Thermo Fisher Scientific, has previously developed and/or manufactured more than 700 pharmaceuticals for biopharma clients and has
more than 55 locations around the world, providing access to a fully integrated global network of facilities. The Company expects to pay
additional amounts to Patheon in future periods in accordance with specified process and manufacturing milestones under the Patheon agreements.
Southwest Research
Institute
As
part of the Company’s research and development activities, the Company has engaged Southwest Research Institute (“SwRI”)
from time to time to assist with compound synthesis and manufacturing related activities for the Company’s product candidates. The
Company has entered into agreements with SwRI for the non-GMP synthesis of LP-184 material and related analytical development to assist
with preclinical studies. The Company expects to pay additional amounts to SwRI in future periods as synthesis and analytical work is
conducted by SwRI under the agreements.
The Research Institute
of Fox Chase Cancer Center
In
September 2020, the Company entered into a research agreement with the Research Institute of Fox Chase Cancer Center (“FCCC”)
as part of the Company’s research and development activities, with a focus on advancing the targeted use of LP-184 in molecularly-defined
sub-types of pancreatic cancer. The Company expects to pay additional amounts to FCCC in future periods in accordance with the payment
schedule specified under the FCCC agreement.
Piramal Pharma
Solutions
In
January 2021, the Company entered into an agreement with Piramal Pharma Solutions (“Piramal”) for the fill and finish manufacture
of LP-300 drug product at Piramal’s Lexington, Kentucky site in support of future Phase II clinical testing. The agreement, as amended,
provides for Piramal to conduct activities in support of the cGMP manufacturing of LP-300, including analytical and process transfer activities,
manufacture of cGMP clinical batches, and performance of stability studies on cGMP batches of LP-300 drug product. The Company expects
to pay additional amounts to Piramal in future periods in accordance with the payment schedule specified under the Piramal agreement.
VivoPharm
In
September 2021, the Company’s Australian subsidiary entered into an agreement with RDDT, a vivoPharm Company Pty Ltd (“vivoPharm”),
for multiple preclinical studies, including animal studies, as part of an IND-enabling program for LP-184. The Company expects that additional
amounts will be paid to vivoPharm in future periods in accordance with the payment schedule specified under the vivoPharm agreement.
Other Research
and Service Provider Agreements
In
addition to the agreements described above, the Company has entered into other research and service provider agreements for the advancement
of its product candidates and research and development efforts. The Company expects to pay additional amounts in future periods in connection
with existing and future research and service provider agreements.
EU Grant
In
September 2018, Lantern Pharma Limited, a wholly owned subsidiary of Lantern Pharma Inc., was awarded a grant by the UK government in
the form of state aid under the Commission Regulations (EU) No. 651/2014 of 17 June 2014 (the “General Block Exemption”),
Article 25 Aid for research and development projects, state aid notification no. SA.40154. The grant was awarded to conduct research and
development activities for the prostate cancer biomarker analysis of the LP-184 drug candidate. Following the Company’s research
and development activities in Northern Ireland, the grant will reimburse the Company 50% of its research and development expenses not
exceeding GBP 24,215 of vouched and approved expenditures within specific categories. The grant contains some reporting and consent requirements.
The grant will remain in force for a period of five years. No payments to the Company have been made under the grant as of September 30,
2021 and December 31, 2020. No revenue has been recognized from this grant through September 30, 2021.
Actuate Therapeutics
In
May 2021, the Company entered into a Collaboration Agreement with Actuate Therapeutics, Inc. (“Actuate”), a clinical stage
private biopharmaceutical company focused on the development of compounds for use in the treatment of cancer, and inflammatory diseases
leading to fibrosis. Pursuant to the agreement, the Company and Actuate will collaborate on utilization of the Company’s RADR®
platform to develop novel biomarker derived signatures for use with one of Actuate’s product candidates. As part of the collaboration,
the Company received 25,000 restricted shares of Actuate stock, subject to meeting certain conditions of the collaboration, as well as
the potential to receive additional Actuate stock if results from the collaboration are utilized in future development efforts. The Company’s
director Mr. Kreis is also a director of Actuate. Affiliates of Mr. Kreis hold substantial beneficial ownership interests in both the
Company and Actuate. Through September 30, 2021, no revenues have been recognized under the Agreement.
The
restricted shares of Actuate stock had a nominal value when acquired and, therefore, were recorded at a cost of $0. These shares do not
have a readily determinable fair value, but will be adjusted for observable price changes, if any, in future periods. There were no adjustments
to the carrying amount through September 30, 2021.
Note 5. Leases
The operating lease cost recognized
in general and administrative expenses in our consolidated statements of operations was approximately $38,000 and $67,000 for the three
and nine months ended September 30, 2021, and approximately $1,000 and $25,000 during the three and nine months ended September 30, 2020.
The following provides balance
sheet information related to leases as of September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
Operating lease, right-of-use asset, net
|
|
$
|
219,431
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
148,960
|
|
|
$
|
-
|
|
Operating lease liabilities, net of current portion
|
|
|
92,024
|
|
|
|
-
|
|
Total operating lease liabilities
|
|
$
|
240,984
|
|
|
$
|
-
|
|
At September 30, 2021, the
future estimated minimum lease payments under non-cancelable operating leases are as follows:
2021 (remaining 3 months)
|
|
$
|
38,698
|
|
|
2022
|
|
|
158,403
|
|
|
2023
|
|
|
53,403
|
|
|
Total minimum lease payments
|
|
|
250,504
|
|
|
Less amount representing interest
|
|
|
(9,520)
|
|
|
Present value of future minimum lease payments
|
|
|
240,984
|
|
|
Less current portion of operating lease liabilities
|
|
|
(148,960)
|
|
|
Operating lease liabilities, net of current portion
|
|
$
|
92,024
|
|
|
In April 2021, we entered
into two operating leases for office space that commenced in May 2021. The leases expire in April 2023 and automatically renew month-to-month
unless we provide three-months written notice to the landlord prior to initial expiration. The exercise of lease renewal options is at
our sole discretion and is assessed as to whether to include any renewals in the lease term at inception. The following table provides
a reconciliation for our right of use assets and lease liabilities:
|
|
Right-of-Use Asset
|
|
|
Operating Lease Liability
|
|
Balance at January 1, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions
|
|
|
274,472
|
|
|
|
276,603
|
|
Amortizations and Reductions
|
|
|
(55,041
|
)
|
|
|
(35,619
|
)
|
Balance at September 30, 2021
|
|
|
219,431
|
|
|
|
240,984
|
|
Other supplemental information related to operating
leases is as follows:
|
|
As of September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Weighted average remaining term of operating leases (in years)
|
|
|
1.58
|
|
|
|
-
|
|
Weighted average discount rate of operating leases
|
|
|
4.65
|
%
|
|
|
-
|
%
|
The
Company also leased office space in Dallas, Texas under month-to-month lease arrangements during the three and nine months ended September
30, 2021. In August 2019, the Company entered into a leasing agreement for office space in New Jersey. Monthly rent was approximately
$2,000, plus electrical utilities. The lease expired on July 31, 2020 and was not renewed. Under these short-term leases, the Company
elected the short-term lease measurement and recognition exemption under ASC 842 and recorded rent expense as incurred.
Note 6. Stockholders’
Equity
Common Stock
On June 15, 2020, the Company
received net proceeds of $23,419,721 in its IPO, after deducting underwriting discounts and commissions of $1,968,750 and other offering
expenses of $861,529 borne by the Company. The Company issued and sold 1,750,000 shares of common stock in its IPO at a price of $15.00
per share. In connection with the IPO, all shares of the Company’s Series A Preferred Stock were converted into 2,438,851 shares
of common stock.
The
Company made payments of approximately $261 in the aggregate in connection with fractional shares resulting from the stock split and the
conversion of the preferred stock that took place in connection with the IPO.
During
the three and nine months ended September 30, 2020, the Company issued zero and 50,460 shares of common stock relating to the exercise
of stock options. The shares were issued at a purchase price of $1.03 for total proceeds of $52,000.
On
January 20, 2021, the Company closed a public offering of 4,928,571 shares of its common stock at a public offering price of $14.00 per
share, which amount included 642,856 shares sold upon full exercise of the underwriter’s over-allotment option. Total gross proceeds
from the offering were approximately $69,000,000, and net proceeds from the offering were approximately $64,167,000, after deducting underwriting
discounts and commissions of approximately $4,554,000 and other offering expenses of approximately $279,000, including $101,000 of deferring
offering costs previously recorded.
During
the three and nine months ended September 30, 2021, the Company issued zero and 11,782 shares of common stock, respectively, relating
to the exercise of stock options. The shares were issued at a purchase price of $1.03 per share for total proceeds of approximately $12,000.
During
the three and nine months ended September 30, 2021, the Company issued zero and 19,367 shares of common stock relating to the cash exercise
of warrants for total proceeds of approximately $61,000. During the three and nine months ended September 30, 2021 the Company also issued
2,960 and 6,352 shares of common stock relating to the cashless exercise of warrants to purchase 3,832 and 8,047 shares, respectively.
All of such warrants were exercisable at an exercise price of $3.13 per share of common stock.
As
of September 30, 2021 and December 31, 2020, the Company had 25,000,000 authorized shares of Common Stock, of which 11,186,999 and 6,220,927
shares were issued and outstanding, respectively.
Warrants
The
Company had warrants to purchase 298,204 shares of common stock outstanding and exercisable as of September 30, 2021 at a weighted average
exercise price of $6.80 per share, and with expiration dates ranging from December 31, 2021 to June 10, 2025. The Company had warrants
to purchase 325,618 shares of common stock outstanding and exercisable as of December 31, 2020 at a weighted average exercise price of
$6.49 per share, and with expiration dates ranging from December 31, 2021 to June 10, 2025.
Options
The
Company recorded stock-based compensation of approximately $224,000 and $716,000 related to stock options during the three and nine months
ended September 30, 2021, and $43,000 and $167,000 related to stock options during the three and nine months ended September 30, 2020,
respectively. These amounts are allocated between general and administrative and research and development expenses in the accompanying
condensed consolidated statements of operations.
A
summary of stock option activity under the Lantern Pharma Inc. 2018 Equity Incentive Plan, as amended and restated (the “Plan”)
during the nine months ended September 30, 2021 is presented below:
|
|
Options Outstanding
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise Price Per Share
|
|
Outstanding December 31, 2020
|
|
|
835,608
|
|
|
$
|
6.41
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(11,782
|
)
|
|
|
1.03
|
|
Cancelled or expired
|
|
|
(22,238
|
)
|
|
|
15.00
|
|
Outstanding September 30, 2021
|
|
|
801,588
|
|
|
$
|
6.25
|
|
Options
were exercisable for 663,756 shares of Common Stock at September 30, 2021 at a weighted average exercise price of $4.43.
During
the nine months ended September 30, 2020, options to purchase 306,743 shares of common stock were granted, options were exercised to purchase
50,460 shares of common stock, and options relating to 43,166 shares of common stock expired or were canceled.
Note 7. Marketable Securities
At September 30, 2021, marketable securities consisted of the following:
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Aggregate Fair Value
|
|
Government & Agency Securities
|
|
|
3,513,894
|
|
|
|
1
|
|
|
|
(6,093
|
)
|
|
|
3,507,802
|
|
Corporate Bonds
|
|
|
9,741,378
|
|
|
|
-
|
|
|
|
(96,597
|
)
|
|
|
9,644,781
|
|
Marketable Securities - Debt
|
|
$
|
13,255,272
|
|
|
$
|
1
|
|
|
$
|
(102,690
|
)
|
|
$
|
13,152,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds – Fixed Income
|
|
|
4,002,704
|
|
|
|
5,996
|
|
|
|
(8,200
|
)
|
|
|
4,000,500
|
|
Mutual Funds – Alternative Investments
|
|
|
2,023,154
|
|
|
|
-
|
|
|
|
(12,704
|
)
|
|
|
2,010,450
|
|
Marketable Securities – Mutual Funds
|
|
$
|
6,025,858
|
|
|
$
|
5,996
|
|
|
$
|
(20,904
|
)
|
|
$
|
6,010,950
|
|
The contractual maturities of the investments classified as Government
& Agency Securities and Corporate Bonds are as follows:
|
|
As of
September 30,
2021
|
|
Due within one year
|
|
$
|
2,185,149
|
|
Due in one to two years
|
|
|
4,908,428
|
|
Due in two to five years
|
|
|
6,059,006
|
|
|
|
$
|
13,152,583
|
|
The
following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position
as of September 30, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous
loss position:
|
|
As of September 30, 2021
|
|
|
|
Less than 12 months
|
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
Government & Agency Securities
|
|
$
|
3,157,732
|
|
|
$
|
(6,093
|
)
|
Corporate Bonds
|
|
|
9,644,781
|
|
|
|
(96,597
|
)
|
Mutual Funds – Fixed Income
|
|
|
1,988,500
|
|
|
|
(8,200
|
)
|
Mutual Funds – Alternative Investments
|
|
|
2,010,450
|
|
|
|
(12,704
|
)
|
|
|
$
|
16,801,463
|
|
|
$
|
(123,594
|
)
|
We
do not believe the unrealized losses represent credit losses based on our evaluation of available evidence as of September 30, 2021, which
includes an assessment of whether it is more likely than not we will be required to sell the investment before recovery of the investment’s
amortized cost basis.
Note 8. Fair Value
Measurements
We determine the fair values
of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes
that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or
liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants
would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the
lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels
that may be used to measure fair value:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 - Inputs are unobservable inputs based on our assumptions.
Financial Assets
When available, our marketable
securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities
using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market
prices for comparable instruments. As of September 30, 2021 our available-for-sale debt securities were valued through use of quoted prices
for comparable instruments in active markets and are classified as Level 2, and our mutual funds – alternative investments were
valued using NAV, net asset value per share, under the practical expedient methodology.
Based on our valuation of
our marketable securities, we concluded that they are classified in either Level 2 or NAV, and we have no financial assets measured using
Level 1 or 3 inputs. The following table presents information about our assets that are measured at fair value on a recurring basis
using the above input categories.
|
|
Fair Value Measurements as of September 30,
2021
|
|
|
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
NAV*
|
|
Government & Agency Securities
|
|
|
3,507,802
|
|
|
|
-
|
|
|
|
3,507,802
|
|
|
|
-
|
|
|
|
-
|
|
Corporate Bonds
|
|
|
9,644,781
|
|
|
|
-
|
|
|
|
9,644,781
|
|
|
|
-
|
|
|
|
-
|
|
Mutual Funds – Fixed Income
|
|
|
4,000,500
|
|
|
|
-
|
|
|
|
4,000,500
|
|
|
|
-
|
|
|
|
-
|
|
Mutual Funds – Alternative Investments
|
|
|
2,010,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,010,450
|
|
|
|
$
|
19,163,533
|
|
|
$
|
-
|
|
|
$
|
17,153,083
|
|
|
$
|
-
|
|
|
$
|
2,010,450
|
|
|
*
|
Certain
marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology.
|
Note 9. Notes and
Loan Payable
In
January 2020, the Company entered into a financing arrangement for commercial insurance with First Insurance Funding. The total amount
financed was approximately $66,000 with an annual interest rate of 6.64%, to be paid over a period of ten months. In June 2020, the insurance
policy was canceled, and the remaining loan balance was repaid.
On
May 1, 2020 (the “Origination Date”), the Company received $108,500 in aggregate loan proceeds (the “PPP Loan”)
from JPMorgan Chase Bank (the “Lender”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and
Economic Security (CARES) Act. The PPP Loan was evidenced by a loan application and payment agreement (the “PPP Loan Agreement”)
by and between the Company and the Lender. Subject to the terms of the PPP Loan Agreement, the PPP Loan bore interest at a fixed rate
of one percent (1.0%) per annum. Payments of principal and interest were deferred for the first six months following the Origination Date,
and the PPP Loan provided that it would mature two years after the Origination Date. The guidance under the Paycheck Protection Program
was later updated so that payments of principal and interest were extended past the current fiscal year and maturity was extended past
two years. The Company applied for forgiveness of the loan, and in April 2021 the Company received notice that the Small Business Administration
(SBA) had authorized full forgiveness of the PPP Loan. A gain on loan forgiveness attributed to the PPP Loan of approximately $0 and $110,000
of principal and interest forgiven was recognized during the three and nine months ended September 30, 2021 and included in Other income,
net in the accompanying condensed consolidated statements of operations.
Note 10. Loss Per
Share of Common Shares
Basic
loss per share is derived by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock
outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities,
such as warrants and stock options, which would result in the issuance of incremental shares of common stock unless such effect is anti-dilutive.
In calculating the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remained
the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation. Potentially
dilutive securities outstanding that have been excluded from diluted loss per share due to being anti-dilutive include the following:
|
|
Outstanding at
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants to purchase Common Stock
|
|
|
298,204
|
|
|
|
332,014
|
|
Stock options
|
|
|
801,588
|
|
|
|
820,608
|
|
|
|
|
1,099,792
|
|
|
|
1,152,622
|
|
Note 11. Subsequent
Events
In
October 2021, the Company entered into a Statement of Work with Translational Drug Development, LLC (“TD2”) providing for
TD2 to serve as the lead contract research organization (CRO) for the Company’s Phase II clinical trial for its product candidate
LP-300. The Company expects to pay approximately $6,500,000 to $7,500,000 to TD2 over the next 18 to 24 months in connection with
services provided by TD2 as well as clinical trial site and other pass through costs relating to the LP-300 Phase II clinical trial.