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 $2.3 million for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, primarily due to increases in manufacturing expenses, professional fees, employee head count, and the ramp up of research and development activities.
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 fair value of warrant liabilities was $0 at December 31, 2021 and September 30, 2021, therefore, no change in fair value was recognized during the three months ended December 31, 2021. We recognized a gain of $0.6 million from the change in fair value of warrant liabilities for the three months ended December 31, 2020.
Equity in Losses on Equity Method Investment
We account for our investment in DepYmed common shares using the equity method of accounting and record our proportionate share of DepYmed’s net income and losses. The carrying value of our investment in DepYmed common shares was reduced to zero, therefore, during the three months ended December 31, 2021, we recorded our share of equity losses to the extent of our investment in preferred shares of DepYmed. We will continue to monitor the operating results of DepYmed and will record equity in earnings when the equity in earnings exceeds our previously unrecognized losses.
Liquidity, Capital Resources and Financial Condition
We have had no revenues from product sales and have incurred operating losses since inception. As of December 31, 2021, we had cash and cash equivalents of $47.3 million. We have historically funded our 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 our pipeline assets.
Net working capital decreased from September 30, 2021 to December 31, 2021 by $6.4 million (to $44.3 million from $50.7 million). Our quarterly cash burn has increased compared to prior periods due to increased research and development and corporate activities, and we expect it to continue to increase in future periods. We expect that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months following the issuance of December 31, 2021 financial statements. We have based this expectation on assumptions that may prove to be incorrect, and we may use our available capital resources sooner than we currently expect. In addition, we may elect to raise additional funds before we need them if the conditions for raising capital are favorable due to market conditions or strategic considerations, even if we expect we have sufficient funds for our current or future operating plans.
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 our business operations. There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all.