ITEM 2.MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosures Regarding Forward-Looking Statements
The following should be read in conjunction
with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report as well
as in conjunction with the Risk Factors section in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020
as filed with the United States Securities and Exchange Commission (“SEC”) on December 23, 2020. This report and our
Form 10-K include forward-looking statements made based on current management expectations pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995, as amended.
This report includes “forward-looking
statements” within the meaning of Section 21E of the Exchange Act. Those statements include statements regarding the intent,
belief or current expectations of the Company and its subsidiaries and our management team. Any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those
projected in the forward-looking statements. These risks and uncertainties include but are not limited to those risks and uncertainties
set forth in Part II, Item 1A – Risk Factors of this Quarterly Report and in Part I, Item 1A – Risk Factors of our
Annual Report on Form 10-K. In light of the significant risks and uncertainties inherent in the forward-looking statements included
in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, the inclusion of such statements should not be regarded
as a representation by us or any other person that our objectives and plans will be achieved. Further, these forward-looking statements
reflect our view only as of the date of this report. Except as required by law, we undertake no obligations to update any forward-looking
statements and we disclaim any intent to update forward-looking statements after the date of this report to reflect subsequent
developments. Accordingly, you should also carefully consider the factors set forth in other reports or documents that we file
from time to time with the SEC.
Overview
Recent Developments
December 2020 Announcement of Positive Preclinical Data
On December 16, 2020, we announced additional positive preclinical
data on our platform and DM1 program. In vitro data highlights in DM1 patient-derived fibroblasts include activity of an
anti-gene (Compound A) that targets the CUG repeat in DM1:
|
·
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Compound A traffics
to the nucleus, engages and normalizes DMPK mRNA.
|
|
·
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Compound A rescues mis-splicing
of two key DM1 dysregulated transcripts (MBNL1 and MBNL2) within two days after initial treatment. Notably, induction of rescue
continues to improve through day 9, the latest time point analyzed.
|
|
·
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Compound A significantly
induces broad correction of global exon inclusion levels of mis-spliced transcripts.
|
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o
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Statistically significant
improvement in global splicing as measured by the human differential splice inclusion (hDSI) statistic.
|
|
o
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More than 175 dysregulated
human transcripts achieved statistically significant improvement in splicing, many with completely normalized exon usage.
|
|
·
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DMPK protein levels
remain unchanged 5 days after a single Compound A dose, supporting the hypothesized mechanism of action maintaining DMPK.
|
In vivo data highlights in the HSALR transgenic
mouse model of DM1 that expresses high levels of mutant CUG-repeat-containing mRNA (HSA) in skeletal muscle:
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·
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A single intravenous
(IV) injection of 29 mg/kg of Compound A traffics to the nucleus and engages HSA mRNA within 24 hours in tibialis anterior
(TA) skeletal muscle.
|
|
·
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A single intravenous
(IV) injection of Compound A significantly induces broad correction of global exon inclusion levels of mis-spliced transcripts
in HSALR TA skeletal muscle at day 13.
|
|
·
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Statistically significant
improvement in global splicing as measured by the murine differential splice inclusion (mDSI) statistic.
|
|
o
|
More than 50 unique
dysregulated murine transcripts achieved statistically significant improvement in splicing post-treatment, with many achieving
complete normalization of appropriate exon usage.
|
|
·
|
Compound A was well
tolerated after single dose administration at the dose demonstrating activity in vivo.
|
March 2020 Announcement of Positive
Preclinical Data
On March 31, 2020, we announced positive
preclinical data from our pharmacokinetics studies in non-human primates (“NHPs”) and in vitro pharmacodynamics
data in patient-derived cell lines. Our pharmacokinetics studies in NHPs demonstrated, among other things: rapid uptake of our
PATrOL™-enabled compound out of the body’s circulation after systemic intravenous administration, with a half-life
in circulation of approximately 1.5 hours; penetration by our PATrOL™-enabled compound in every organ system studied, including
the central nervous system and skeletal muscle; and retention of therapeutically relevant doses for greater than one week after
single-dose injection.
Our pharmacodynamics studies in patient-derived
cell lines demonstrated, among other things: activity in engaging target disease-causing transcripts and knocking-down resultant
malfunctioning mutant HTT protein levels preferentially over normal HTT protein knock-down; and dose-limiting toxicities were not
observed relative to a control either at or above the doses demonstrating activity in human cells in vitro.
In addition, PATrOL™ enabled compounds
were generally well-tolerated in vivo after systemic administration, both after single-dose administration in NHPs and multi-dose
administration in mice for over a month.
We believe the intersection of the NHP pharmacokinetic data
and the in vitro and in vivo pharmacodynamic data provides a roadmap to create a pipeline of therapeutic candidates
which can reach target tissues of interest after systemic administration and achieve the desired activity at that dose. We believe
that the data from these studies provides a roadmap for the future expansion of the Company’s therapeutic pipeline into other
indications.
Description
of the Company
We are a biotechnology company accelerating
the genetic revolution using a new class of synthetic medicines. Our modular peptide-nucleic acid antisense oligo (“PATrOL™”)
platform which outputs “anti-gene” candidate therapies is designed to combine the specificity of genetic sequence-based
target recognition with a modularity that enables use of various in vivo delivery technologies to enable broad and also
selective tissue distribution capabilities. Given that every human disease may have a genetic component, we believe that our differentiated
platform technology has the potential for broad impact by increasing, decreasing or changing gene function at either the DNA or
RNA levels to resolve the progression to disease, as appropriate in a particular indication. We plan to use our platform to address
diseases driven by a genetic abnormality and we are initially focused on Huntington’s disease (“HD”) and myotonic
dystrophy type 1 (“DM1”).
Mutated proteins resulting from errors
in deoxyribonucleic acid (“DNA”) sequences cause rare genetic diseases and cancer. DNA in each cell of the body is
transcribed into pre-messenger ribonucleic acid (“pre-mRNA”), which is then processed (spliced) into mRNA, which is
exported into the cytoplasm of the cell and translated into a protein. This is termed the “central dogma” of biology.
Therefore, when errors in a DNA sequence occur, they are often propagated into RNAs and can produce a damaging protein.
We are developing
“anti-gene” therapies. Anti-genes are similar, but distinct, from antisense oligonucleotides (ASOs). ASOs are
short single strands of nucleic acids (traditionally thought of as single-stranded RNA molecules) which bind to defective RNA
targets in cells and inhibit their ability to form defective proteins. We believe we are a leader in the discovery and
development of this new class of anti-gene drugs derived from peptide-nucleic acids (“PNAs”). The key
differentiator between ASOs and anti-genes is that the scaffold is not derived from a natural sugar-phosphate nucleic acid
backbone, rather is a synthetic polyamide which is charge-neutral (and thus high affinity to allow invasion of
double-stranded targets), semi-rigid, and apparently non-biodegradable and immunologically inert. These features provide
potential advantages over ASOs and other genetic therapies for modulating disease-causing genes including increased unique
target opportunities, improved target specificity and a reduction in both sequence-dependent and independent toxicities. In
addition, as these anti-genes are manufactured via standard peptide synthesis methods, they efficiently leverage the
advancements in the synthetic peptide industry to enable modulating pharmacophore delivery, pharmacokinetics, sub-cellular
placement and endosomal escape.
In addition to the scaffold, we also have
a kit of natural nucleobases, chemically modified nucleobases which add further precision to a nucleic acid target of interest,
and proprietary bi-specific nucleobases which can be added to the scaffold to allow precise target engagement. These bi-specific
nucleobases, in particular, can be used in any combination to more specifically access double stranded DNA targets and RNA targets
comprised of secondary structures such as hairpins (double stranded RNA targets which are folded upon themselves). This allows
us to potentially access regions of the target transcript which may be unique in secondary structure to allow enhanced selectivity
for the target (mutant) RNA as compared to the normal RNA. Enhanced selectivity for mutant RNAs as compared to normal RNAs is critical
as normal RNAs are likely required for effective functioning of the cell. These bi-specific nucleotides can also target genomic
loci and microRNAs in their double-stranded form.
A third component of the modular platform
is the ability to add delivery technology to the pharmacophores so as to reach a desired cell or tissue upon in vivo administration.
There is flexibility to append various delivery technologies to the pharmacophore to allow either broad tissue distribution or
narrow cell and/or tissue targeting if so desired based on targets. One such technology is a chemical moiety that can be used to
decorate the scaffold directly and allows the anti-genes to penetrate cell membranes and into subcellular compartments where they
act as well as to distribute throughout the body when administered systemically.
Finally, in addition to the scaffold, modified
nucleobases and delivery technology, the platform toolkit also includes linker technology which, when added to both ends of the
PNAs, allow cooperative binding between individual drug molecules once they are engaged with the target RNA to form longer and
more tightly bound drugs.
This toolkit of components forms the PATrOL™
platform and allows us to manufacture gene and transcript-specific anti-genes.
We are currently focused on therapeutic
areas in which we believe our drugs will provide the greatest benefit with a significant market opportunity. We intend to utilize
our technology to build out a pipeline of custom designed therapeutics for additional high-value disease targets. We are developing
several preclinical programs using our PATrOL™ platform, including the NT0100 program, targeted at Huntington’s disease
(“HD”), a repeat expansion disorder, and the NT0200 program, targeted at myotonic dystrophy, type 1 (“DM1”).
Preclinical studies are being conducted to evaluate the PATrOL™ platform technology and program candidates in the areas of
pharmacokinetics, pharmacodynamics and tolerability, and we reported results from certain of those studies in the first calendar
quarter of 2020 and have extended upon certain of those studies in the fourth calendar quarter of 2020 which illustrated that our
anti-gene technology can be administered to human patient-derived cell lines and systemically (via intravenous (IV) administration)
into animals with DM1 (a genetically modified model accepted as the most representative of the human disease) and can resolve the
causal genetic defect. We expect to present additional results from ongoing preclinical studies evaluating the PATrOLTM
platform and pipeline indications in the first half of calendar 2021, begin IND enabling studies in one or more of our programs
in calendar year 2021 and begin a clinical trial in one or more of our programs in calendar 2022. See “recent developments”
above for additional detailed results from certain of our preclinical studies. In addition, the emerging pipeline of other assets
that target primary and secondary RNA structure and genomic DNA allows a unique market advantage across a variety of rare diseases
and oncology targets.
Overall, using our PATrOL™ platform,
we believe we can create anti-gene therapies that have distinct advantages over other chemical entities currently in the market
or in development for genetic medicine applications to modulate mutant genes and resolve a clinical trait or disorder. These advantages
may differ by indication and can include, among others:
|
·
|
increased unique target opportunities, improved target specificity and a reduction in both sequence-dependent and independent toxicities by virtue of a synthetic polyamide scaffold which is charge-neutral (and thus high affinity to allow invasion of double-stranded targets) and semi-rigid which imparts precision to target engagement, and are apparently immunologically inert to not aggregate via charge-based interaction in vivo;
|
|
·
|
potentially long durability by nature of the non-biodegradable polyamide scaffold;
|
|
·
|
our anti-genes are manufactured via standard peptide synthesis methods and thus they efficiently leverage advances in the synthetic peptide industry to enable facile addition of known moieties enabling modulating pharmacophore delivery, pharmacokinetics, sub-cellular placement and endosomal escape; and
|
|
·
|
our anti-genes can uniquely target double stranded structures in DNA and RNA, which allow unique target opportunities that standard ASOs cannot access.
|
With these unique component parts and their
advantages, our PATrOL™ platform-enabled anti-gene therapies can potentially address a multitude of rare genetic diseases
and cancer, among other indications.
We employ a rational approach to selecting
disease targets, considering many scientific, technical, business and indication-specific factors before choosing each indication.
We intend to build a diverse portfolio of therapies custom-designed to treat a variety of health conditions, with an initial emphasis
on rare genetic diseases and cancers. A key component of this strategy is continuing to improve the scientific understanding and
optimization of our platform technology and programs, including how various components of our platform technology perform, and
our drug candidates impact the biological processes of the target diseases, so that we can utilize this information to reduce risk
in our future programs and indications. In addition, with our expertise in discovering and characterizing novel anti-gene drugs,
we believe that our scientists can optimize the properties of our PATrOL™-enabled drug candidates for use with particular
targets that we determine to be of high value.
The depth of our knowledge and expertise
with PNAs, bifacial and engineered nucleotides, genetics and genomics and therapeutic development of first-in-class modalities
provides potential flexibility to determine the optimal development and commercialization strategy to maximize the near and longer-term
value of our drug candidates.
We have distinct partnering strategies
that we plan to employ based on the specific drug candidate, therapeutic area expertise and resources potential partners may bring
to a collaboration. For some drug candidates, we may choose to develop and, if approved, commercialize them ourselves or through
our affiliates. For other drug candidates, we may form single or multi asset partnerships leveraging our partners’ global
expertise and resources needed to support large commercial opportunities.
Globally, there are thousands of genetic
diseases, most of which lack any therapeutic options. In addition, rare genetic diseases are often particularly severe, debilitating
or fatal. Traditionally, therapeutic development for each rare genetic disorder has been approached with a unique strategy, which
is inefficient, as there are thousands of diseases that need treatment solutions. The collective population of people with rare
diseases stands to benefit profoundly from the emergence of a scalable and modular treatment development platform that allows for
a more efficient discovery of drug product candidates to address these conditions cohesively.
Mutated proteins resulting from errors
in deoxyribonucleic acid (“DNA”) sequences cause many rare genetic diseases and cancer. DNA in each cell of the body
is transcribed into pre-RNA, which is then processed (spliced) into mRNA which is exported into the cytoplasm of the cell and translated
into protein. This is termed the “central dogma” of biology. Therefore, when errors in a DNA sequence occur, they are
propagated to RNAs and can become a damaging protein.
Conceptually, we have learned that ASOs
can inactivate target RNAs before they can produce harmful proteins by binding them in a sequence-specific manner, which can delay
disease progression or even eliminate genetic disease symptoms. ASOs designed by others to target known disease-related mutant
RNA sequences have been shown to be able to degrade these transcripts and have a positive clinical impact. Similarly, applications
in modifying splicing of pre-RNA in the nucleus of the cell have been developed by others to exclude damaging exons from the final
mRNA product and have been approved by the Food and Drug Administration (“FDA”). We plan to extend upon these conceptual
breakthroughs by utilizing our first-in-class technology which we believe has significant benefits in certain application areas
to better resolve a clinical disorder with well tolerated anti-gene therapies.
We believe the breadth of the PATrOL™
platform gives us the ability to potentially address a multitude of inherited genetic diseases. The technology may also allow us
to target and inactivate gain-of-function and change-of-function mutations, and address targets in recessive disease and haploinsufficiencies
by altering splicing to remove damaging exons/mutations or increasing expression of wild-type alleles by various means.
Gamma-modified scaffolds, an
optimized version of which we utilize, have demonstrated preclinical in vivo efficacy in several applications which we
believe can be translated across many targets and into humans. For example, in oncology such scaffolds have reduced
expression of an activated oncogene (the epidermal growth factor receptor of the EGFR gene) and have modified gene regulation
by targeting microRNAs to slow tumor growth. Such scaffolds have also demonstrated in vivo engagement with the
double-stranded genome in studies done by others to perform in vivo single-base genome editing.
Product Pipeline
NT0100 Program - PATrOL™ Enabled
Anti-Gene for Huntington’s Disease
HD is a devastating rare neurodegenerative
disorder. After onset, symptoms such as uncontrolled movements, cognitive impairments and emotional disturbances worsen over time.
HD is caused by toxic aggregation of mutant huntingtin protein, leading to progressive neuron loss in the striatum and cortex of
the brain. The wild-type huntingtin gene (HTT) has a region in which a three-base DNA sequence, CAG, is repeated many times. When
the DNA sequence CAG is repeated 26 or fewer times in this region, the resulting protein behaves normally. While the wild-type
function of HTT protein is largely uncharacterized, it is known to be essential for normal brain development. When the DNA sequence
CAG is repeated 40 times or more in this region, the resulting protein becomes toxic and causes HD. Every person has two copies,
or alleles, of the HTT gene. Only one of the alleles (the “mutant” allele) needs to bear at least 40 CAG repeats for
HD to occur. HD is one of many known repeat expansion disorders, which are a set of genetic disorders caused by a mutation that
leads to a repeat of nucleotides exceeding the normal threshold. Current therapies for patients with HD can only manage individual
symptoms. There is no approved therapy that has been shown to delay or halt disease progression. There are approximately 30,000
symptomatic patients in the U.S. and more than 200,000 at-risk of inheriting the disease globally.
One especially important advantage of the
PATrOL™ platform that makes it promising for the treatment of repeat expansion disorders like HD is the ability of our small
anti-genes to potentially target the RNA hairpin. As the number of repeats increases, the PATrOL™ anti-genes bind more tightly
to each other and the mutant RNA. This allows our therapies to potentially inactivate mutant HTT mRNA before it can be translated
into harmful protein via selective binding to the expanded CAG repeats while leaving the normal HTT mRNA largely unbound to drug
and producing functional protein. Achieving mutant allele selectivity would be a key advantage for any RNA-based approach aiming
to treat HD. In March of 2020, we illustrated the ability of our anti-gene technology to enrich for translational inhibition and
resultant mutant protein in human patient-derived cell lines versus wild-type HTT alleles. We illustrated that our anti-genes can
inhibit ribosomal elongation via a high-affinity binding. The PATrOL™-enabled NT0100 program is currently in preclinical
development for the treatment of HD.
NT0200 Program- PATrOL™ Enabled
Anti-Gene for Myotonic Dystrophy Type 1
Our pipeline also contains a second potentially
transformative medicine, which we believe has significant potential for DM1, a severe and rare trinucleotide repeat disease. DM1
is a multisystem disorder that primarily affects skeletal, cardiac and smooth muscle, as well as the brain. DM1 is caused by expansion
of a CUG trinucleotide repeat in the 3’ untranslated region (UTR), a noncoding region of the myotonic dystrophy protein kinase
gene (DMPK) transcript, which captures and sequesters protein that have critical functions in the nucleus related to appropriate
splicing of hundreds of transcripts. These sequestered proteins cannot then fulfill their normal functions. In addition, it has
been documented that sequestration of the mutant transcripts in the nucleus results in their inability to be translated and results
in haploinsufficiency, a situation where 50% of the protein in not enough to maintain normal function. Mice with both copies of
their DMPK gene knocked out manifest a cardiac conduction defect (Berul CI, Maguire CT, Aronovitz MJ, Greenwood J, Miller C, Gehrmann
J, Housman D, Mendelsohn ME, Reddy S. DMPK dosage alterations result in atrioventricular conduction abnormalities in a mouse myotonic
dystrophy model. J Clin Invest. 1999 Feb;103(4):R1-7. doi: 10.1172/JCI5346. PMID: 10021468; PMCID: PMC408103.) and a CNS phenotype
characterized by abnormal long-term potentiation (Schulz PE, McIntosh AD, Kasten MR, Wieringa B, Epstein HF. A role for myotonic
dystrophy protein kinase in synaptic plasticity. J Neurophysiol. 2003 Mar;89(3):1177-86. doi: 10.1152/jn.00504.2002. Epub 2002
Nov 13. PMID: 12612014.) hypothesized to be due to inappropriate cytoskeletal remodeling. We propose that our mechanism of action
is via direct engagement of our anti-gene with the expanded CUG repeat hairpin structure in the 3’ UTR of mutant transcript,
invasion and opening of the hairpin structure, and release of the sequestered CUG-repeat binding proteins. This release of sequestered
proteins which are normally involved in developmentally appropriate pre-mRNA splicing in the nucleus resolves the generalized splice
defect and thus the major causal event. Our DM1 anti-gene is designed to not specifically degrade the mutant transcript, rather
to release these RNA-protein aggregates through steric displacement, which could also resolve any haploinsufficiency and as a result
may improve endophenotypes of the clinical condition, such as in the heart and brain (contingent on delivering effective concentrations
of anti-gene to these tissues).
DM1 is characterized clinically by myotonia
(inability to relax a muscle after contraction), muscle weakness, muscle wasting and a CNS endophenotype that is characterized
by and is confirmed by molecular genetic testing of DMPK trinucleotiode repeat expansion. CTG repeat length (in the genome) exceeding
34 repeats is abnormal and often patients have hundreds or thousands of repeat units. Molecular genetic testing detects pathogenic
variants in nearly 100% of affected individuals. It is estimated that the global prevalence of DM1 is 1 in 20,000 individuals.
Our recent data illustrates that we are able to systemically deliver our anti-genes intravenously in DM1 genetic mouse models,
engage the target in the skeletal muscles of the animals, and induce rescue of the causal splice defects.
Additional Indications
In addition, we are in the process of building
an early stage pipeline of other therapies that focus on the unique advantages of our technology across a variety of diseases with
an underlying genetic driver.
Critical Accounting Estimates and Policies
The preparation of financial statements
in accordance with United States generally accepted accounting principles (“U.S. GAAP”) requires management to make
estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes
to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may
impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we
may not have control. If market and other conditions change from those that we anticipate, our unaudited condensed consolidated
financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or
take other corrective actions, either of which may also have a material effect in our unaudited condensed consolidated financial
statements. We review our estimates, judgments, and assumptions used in our accounting practices periodically and reflect the effects
of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, our
actual results may differ from these estimates.
Our critical accounting policies and estimates
are discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and there have been no material changes
to such policies or estimates during the three months ended December 31, 2020.
Recent Accounting Pronouncements
Please refer to Note 2, Significant Accounting
Policies—Recent Accounting Pronouncements, in Item 1, Financial Statements, for a discussion of recent accounting pronouncements.
Results of Operations
Results of operations for the quarter ended
December 31, 2020 reflect the following changes from the quarter ended December 31, 2019:
|
|
Three Months ended December 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
2,641,470
|
|
|
$
|
2,554,680
|
|
|
$
|
86,790
|
|
Research and development
|
|
|
2,019,924
|
|
|
|
1,227,686
|
|
|
|
792,238
|
|
TOTAL OPERATING EXPENSES
|
|
|
4,661,394
|
|
|
|
3,782,366
|
|
|
|
879,028
|
|
LOSS FROM OPERATIONS
|
|
|
(4,661,394
|
)
|
|
|
(3,782,366
|
)
|
|
|
(879,028
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,737
|
)
|
|
|
(1,311
|
)
|
|
|
(8,426
|
)
|
Change in fair value of warrant liabilities
|
|
|
630,112
|
|
|
|
(694,134
|
)
|
|
|
1,324,246
|
|
Loss on disposal of fixed asset
|
|
|
-
|
|
|
|
(3,230
|
)
|
|
|
3,230
|
|
Equity in losses on equity method investment
|
|
|
(25,412
|
)
|
|
|
(24,509
|
)
|
|
|
(903
|
)
|
Total other expenses, net
|
|
|
594,963
|
|
|
|
(723,184
|
)
|
|
|
1,318,147
|
|
NET LOSS
|
|
$
|
(4,066,431
|
)
|
|
$
|
(4,505,550
|
)
|
|
$
|
439,119
|
|
Until we are able to generate revenue
from product sales, our management expects to continue to incur net losses.
General and Administrative Expenses
General and administrative expenses consist
primarily of legal and professional fees, wages and stock-based compensation. General and administrative expenses increased by
$0.09 million for the quarter ended December 31, 2020, as compared to the quarter ended December 31, 2019, primarily due to an
increase in employee head count, taxes, and legal fees, partially offset by a decrease in stock-based compensation and accounting
expenses.
Research and Development Expenses
Research and development expenses consist
primarily of professional fees, research, development, and manufacturing expenses, and wages and stock-based compensation. Research
and development expenses increased by $0.8 million for the quarter ended December 31, 2020, as compared to the quarter ended December
31, 2019, primarily due to an increase in manufacturing expenses, employee head count and the ramp up of research and development
activities; partially offset by a decrease in professional fees.
Interest Expense
Interest expense consists primarily of
interest on notes payable. Interest expense increased by $0.01 million for the quarter ended December 31, 2020, as compared to
the quarter ended December 31, 2019.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities
reflects the changes in the fair value of outstanding warrants which is primarily driven by changes in our stock price. The company
recognized a gain of $0.6 million from the change in fair value of warrant liabilities for the quarter ended December 31, 2020,
as compared to a loss of $0.7 million for the quarter ended December 31, 2019.
Equity in Losses on Equity Method
Investment
The Company accounts for its investment
in DepYmed common shares using the equity method of accounting and records its proportionate share of DepYmed’s net income
and losses. Equity in losses was $0.03 million for the quarter ended December 31, 2020, as compared to $0.02 million for the quarter
ended December 31, 2019.
Liquidity, Capital Resources and Financial
Condition
We have no revenues from product
sales and have incurred operating losses since inception. As of December 31, 2020, we had an accumulated deficit of $47.6
million. The Company has historically funded its operations through the sale of common stock and the issuance of convertible
notes and warrants. We expect to continue to incur significant operating losses for the foreseeable future and may never
become profitable. As a result, we will likely need to raise additional capital through one or more of the following: the
issuance of additional debt or equity or the completion of a licensing transaction for one or more of the Company’s
pipeline assets.
Net working capital decreased from September 30,
2020 to December 31, 2020 by $3.1 million (to $26.6 million from $29.7 million). Our quarterly cash burn has increased significantly
compared to prior periods due to increased research and development activities. We anticipate that our cash needs will likely continue
to increase relative to prior periods as we increase our research and development activities, and believe that our current cash
balance will provide sufficient capital to continue operations into the first calendar quarter of 2022.
At present, we have no bank line of credit
or other fixed source of capital reserves. Should we need additional capital in the future, we will be primarily reliant upon a
private or public placement of our equity or debt securities, or a strategic transaction, for which there can be no warranty or
assurance that we may be successful in such efforts. If we are unable to maintain sufficient financial resources, our business,
financial condition and results of operations will be materially and adversely affected. This could affect future development and
business activities and potential future clinical studies and/or other future ventures. Failure to obtain additional equity or
debt financing will have a material, adverse impact on the Company’s business operations. There can be no assurance that
we will be able to obtain the needed financing to achieve its goals on acceptable terms or at all. Accordingly, there are material risks and uncertainties that raise substantial doubt about the Company’s
ability to continue as a going concern.
Cash Flow Summary
The following table summarizes selected
items in our unaudited condensed consolidated statements of cash flows:
|
|
Three Months ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(3,780,861
|
)
|
|
$
|
(2,441,486
|
)
|
Net cash used in investing activities
|
|
|
(208,541
|
)
|
|
|
(68,400
|
)
|
Net cash used in financing activities
|
|
|
(26,111
|
)
|
|
|
(73,426
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(4,015,513
|
)
|
|
$
|
(2,583,312
|
)
|
Operating Activities
Net cash used in operating activities was
approximately $3.8 million for the quarter ended December 31, 2020, as compared to approximately $2.4 million for the quarter ended
December 31, 2019. Net cash used in operating activities in the quarter ended December 31, 2020 was primarily the result of our
net loss, the change in the fair value of warrant liabilities, and decreases in accounts payable, offset by our stock-based compensation
expense. Net cash used in operating activities in the quarter ended December 31, 2019 was primarily the result of our net loss,
offset by our stock-based compensation expense and the change in fair value of warrant liabilities.
Investing Activities
Net cash used in investing activities was
approximately $0.2 million for the quarter ended December 31, 2020, as compared to $0.07 million for the quarter ended December
31, 2019. Net cash used in investing activities for both periods was primarily the result of purchases of laboratory equipment.
Financing Activities
Net cash used in financing activities was
approximately $0.03 million for the quarter ended December 31, 2020, as compared to $0.07 million for the quarter ended December
31, 2019. Net cash used in financing activities for the quarter ended December 31, 2020 reflects the principal payments of financed
insurance, net of proceeds from the exercise of stock options. Net cash used in financing activities for the quarter ended December
31, 2019 reflects the principal payments of financed insurance.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have
any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.