Item 1. Unaudited Condensed Consolidated
Financial Statements.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,255,768
|
|
|
$
|
1,832,100
|
|
Prepaid expenses and other current assets
|
|
|
369,296
|
|
|
|
139,639
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,625,064
|
|
|
|
1,971,739
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,905
|
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,626,969
|
|
|
$
|
1,974,068
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,935,602
|
|
|
$
|
1,521,565
|
|
Convertible notes payable, net
|
|
|
2,543,490
|
|
|
|
2,283,731
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,479,092
|
|
|
|
3,805,296
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 20,000,000 shares authorized;
zero shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized;
15,727,597 and 14,577,597 shares issued and outstanding
|
|
|
15,728
|
|
|
|
14,578
|
|
Additional paid-in capital
|
|
|
23,587,284
|
|
|
|
14,224,000
|
|
Note receivable
|
|
|
(1,500,000
|
)
|
|
|
(1,500,000
|
)
|
Accumulated deficit
|
|
|
(17,907,046
|
)
|
|
|
(14,501,739
|
)
|
Accumulated other comprehensive loss
|
|
|
(48,089
|
)
|
|
|
(68,067
|
)
|
Total stockholders' equity (deficit)
|
|
|
4,147,877
|
|
|
|
(1,831,228
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
8,626,969
|
|
|
$
|
1,974,068
|
|
See accompanying notes to condensed consolidated financial statements.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,818,805
|
|
|
|
568,960
|
|
Research and development
|
|
|
1,254,497
|
|
|
|
50,284
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,073,302
|
|
|
|
619,244
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,073,302
|
)
|
|
|
(619,244
|
)
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(332,005
|
)
|
|
|
(6,892
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,405,307
|
)
|
|
|
(626,136
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
19,978
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(3,385,329
|
)
|
|
$
|
(611,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,337,041
|
|
|
|
12,509,024
|
|
See accompanying notes to condensed consolidated financial statements.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Note
Receivable
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive Loss
|
|
|
Total
Stockholders'
Equity (Deficit)
|
|
Balances as of
December 31, 2020
|
|
|
14,577,597
|
|
|
$
|
14,578
|
|
|
$
|
14,224,000
|
|
|
$
|
(1,500,000
|
)
|
|
$
|
(14,501,739
|
)
|
|
$
|
(68,067
|
)
|
|
$
|
(1,831,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock - net of
issuance costs of $1,168,900
|
|
|
1,150,000
|
|
|
|
1,150
|
|
|
|
9,179,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,181,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
183,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,978
|
|
|
|
19,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,405,307
|
)
|
|
|
-
|
|
|
|
(3,405,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of March 31, 2021
|
|
|
15,727,597
|
|
|
$
|
15,728
|
|
|
$
|
23,587,284
|
|
|
$
|
(1,500,000
|
)
|
|
$
|
(17,907,046
|
)
|
|
$
|
(48,089
|
)
|
|
$
|
4,147,877
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Note
Receivable
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive Loss
|
|
|
Total
Stockholders'
Equity (Deficit)
|
|
Balances as of December 31, 2019
|
|
|
12,509,024
|
|
|
$
|
12,509
|
|
|
$
|
3,577,533
|
|
|
$
|
-
|
|
|
$
|
(3,639,447
|
)
|
|
$
|
(33,454
|
)
|
|
$
|
(82,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
- net of
issuance costs of $200
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants with Convertible
Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
43,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
60,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,190
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(626,136
|
)
|
|
|
-
|
|
|
|
(626,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31,
2020
|
|
|
12,509,024
|
|
|
$
|
12,509
|
|
|
$
|
3,682,921
|
|
|
$
|
-
|
|
|
$
|
(4,265,583
|
)
|
|
$
|
(19,264
|
)
|
|
$
|
(589,417
|
)
|
See accompanying notes to condensed consolidated
financial statements.
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,405,307
|
)
|
|
$
|
(626,136
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
372
|
|
|
|
356
|
|
Stock-based compensation
|
|
|
183,334
|
|
|
|
60,255
|
|
Amortization of debt issuance costs and debt discount
|
|
|
259,759
|
|
|
|
5,360
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(229,658
|
)
|
|
|
64,594
|
|
Accounts payable and accrued expenses
|
|
|
394,690
|
|
|
|
368,826
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,796,810
|
)
|
|
|
(126,745
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Gross proceeds from issuance of common stock
|
|
|
10,350,000
|
|
|
|
-
|
|
Issuance costs related to the issuance of common stock
|
|
|
(1,149,775
|
)
|
|
|
-
|
|
Gross proceeds from issuance of Convertible Notes and warrants
|
|
|
-
|
|
|
|
130,000
|
|
Issuance costs related to the issuance of Convertible Notes and warrants
|
|
|
-
|
|
|
|
(27,977
|
)
|
Gross proceeds from issuance of units and warrants
|
|
|
-
|
|
|
|
2,000
|
|
Issuance costs related to the issuance of units and warrants
|
|
|
-
|
|
|
|
(200
|
)
|
Payment of deferred offering costs
|
|
|
-
|
|
|
|
(23,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
9,200,225
|
|
|
|
80,823
|
|
|
|
|
|
|
|
|
|
|
Effects of changes in foreign currency exchange rates on cash
|
|
|
20,253
|
|
|
|
13,969
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
6,423,668
|
|
|
|
(31,953
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,832,100
|
|
|
|
36,747
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
8,255,768
|
|
|
$
|
4,794
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Non-cash financing activity:
|
|
|
|
|
|
|
|
|
Offering costs in accounts payable and accrued expenses
|
|
$
|
19,125
|
|
|
$
|
322
|
|
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
Organization and Description of the Business
|
Nature
of Operations
Scopus BioPharma Inc.
(“Scopus”) and its subsidiary, Vital Spark, Inc. (“VSI”), are headquartered in New York. Its other
subsidiary, Scopus BioPharma Israel Ltd. (“SBI”), is headquartered in Jerusalem, Israel. Scopus, VSI, and SBI are
collectively referred to as the “Company.” The Company is a biopharmaceutical company developing transformational
therapeutics targeting serious diseases with significant unmet medical needs.
Going Concern
The provisions of Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 205-40, Presentation of Financial Statements
- Going Concern (ASC 205-40) requires management to assess an entity's ability to continue as a going concern within one year of the
date the financial statements are issued. In each reporting period (including interim periods), an entity is required to assess conditions
known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet
its financial obligations within one year from the financial statement issuance date. Substantial doubt about an entity's ability to continue
as a going concern exists when conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to
meet its financial obligations as they become due within one year after the date the financial statements are issued.
The Company is an early-stage company
and has not generated revenues to date. As such, the Company is subject to all of the risks associated with early stage companies. Since
inception, the Company has incurred losses and negative cash flows from operating activities which have been funded from the issuance
of common stock, convertible notes, and warrants (sees Notes 3, 5, and 8). The Company does not expect to generate positive cash flows
from operating activities in the near future, if at all, until such time it completes the development of its drug candidates, including
obtaining regulatory approvals, and anticipates incurring operating losses for the foreseeable future.
The Company incurred net losses of
$3,405,307 for the three months ended March 31, 2021 and had an accumulated deficit of $17,907,046 as of March 31, 2021. The Company’s
net cash used in operating activities was $2,796,810 for the three months ended March 31, 2021. Further, while the Company has raised
significant cash proceeds from a public offering (see Note 3), the Company still has significant obligations related to the Company’s
Convertible Notes (see Note 5), certain research and development agreements (see Note 6), and operating expenses.
The Company’s ability to fund
its operations is dependent upon management's plans, which include raising capital through issuances of debt and equity securities, securing
research and development grants, generating sufficient revenues, and controlling the Company’s expenses. A failure to raise sufficient
financing, generate sufficient revenues, or control expenses, among other factors, will adversely impact the Company’s ability to
meet its financial obligations as they become due and payable and to achieve its intended business objectives.
This evaluation is further impacted
by ongoing pandemic related to the COVID-19 coronavirus. While uncertain at this time, the extent of its impacts depends largely on the
spread and duration of the outbreak, and may result in disruptions to capital raises, employees, and vendors which could result in negative
impacts to operational and financial results.
Accordingly, management has concluded
this raises substantial doubt of the Company's ability to continue as a going concern within one year after the date the condensed consolidated
financial statements are issued.
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
1.
|
Organization and Description of the Business (Continued)
|
Going Concern (continued)
The Company’s condensed consolidated
financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities
and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company
be unable to continue as a going concern.
COVID-19 Pandemic
The Company is continually
monitoring the impact of the global pandemic on its business, especially since the Company conducts activities in multiple
locations, both inside and outside of the United States. These locations are New York City and Los Angeles in the United States and
Jerusalem and Tel Aviv in Israel. At various times since the onset of the global pandemic, these locations have been severely
affected by COVID-19 and, as a result, have been subject to various requirements to stay at home and self-quarantine, as well as
constraints on mobility and travel, especially international travel.
In many locations, the primary focus
of healthcare providers and hospitals has been to combat the virus. While the Company continues to advance its development programs, the
Company is also continually assessing the impact of the global pandemic on its product development efforts, including any impact on the
timing and/or costs for its clinical trials, investigational new drug application (“IND”) enabling work, and other research
and development activities. There is no certainty as to the length and severity of societal disruption caused by COVID-19. Consequently,
the Company does not have sufficient visibility to predict the impact of the global pandemic on its operations and overall business, including
delays in the progress of its planned pre-clinical work and clinical trials, or by limiting its ability to recruit physicians or clinicians
to run its clinical trials, enroll patients or conduct follow-up assessments in its clinical trials. Further, the business or operations
of its strategic partners and other third parties with whom the Company conducts business may also be adversely affected by the global
pandemic. The Company continues to monitor the impact of the global pandemic, including regularly reevaluating the timing of its research
and development and clinical milestones. In light of the more restrictive constraints on international travel, the Company continues to
adjust program emphasis and prioritization. Until the Company is able to gain greater visibility as to the impact of the global pandemic,
the Company intends to commit greater resources to its existing and future programs in the United States and is slowing investment in
program development outside the United States.
|
2.
|
Summary of Significant Accounting Policies
|
The Company's accounting policies are
the same as those described in Note 2 to the Company's Consolidated Financial Statements included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March
29, 2021, as amended on April 29, 2021 (collectively, “the 2020 10-K”).
The Company is an “emerging growth
company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging
growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such
time as those standards apply to private companies. The Company has irrevocably elected to avail itself of this exemption from new or
revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies
that are not emerging growth companies.
The Company has reviewed recent accounting
pronouncements and concluded they are either not applicable to the business or no material effect is expected on the condensed consolidated
financial statements as a result of future adoption.
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
2.
|
Summary of Significant Accounting Policies (Continued)
|
Basis
of Presentation and Principles of Consolidation
The condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations.
In management’s opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results
of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading.
Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. All significant intercompany
transactions have been eliminated upon consolidation. Certain prior period amounts have been reclassified to conform to current period
presentation.
The financial statements and notes
thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December
31, 2020 included in the Company’s 2020 10-K. The accompanying balance sheet at December 31, 2020 has been derived from the audited
balance sheet at December 31, 2020 contained in the Company’s 2020 10-K. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year.
Use of Estimates
The preparation of condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported
in the condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial
statements include those related to the fair value of common stock, warrants, stock-based compensation, the provision or benefit for income
taxes and the corresponding valuation allowance on deferred tax assets, and probability of meeting certain milestones. In addition, management’s
assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash
inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates
on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in making
estimates, actual results could differ materially from those estimates.
Offering Costs
Offering costs totaling $1,168,900
were recognized as a reduction of the proceeds of the Company’s follow-on public offering completed in February 2021 (See Note 3).
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
2.
|
Summary of Significant Accounting Policies (Continued)
|
Net Loss Per Share
Basic net loss per common share attributable
to common shareholders is calculated by dividing net loss attributable to common shareholders by the weighted average number of common
shares outstanding for the relevant period. Since the Company was in a loss position for all periods presented, basic net loss per share
is the same as dilutive net loss per share as the inclusion of the weighted-average number of all potential dilutive common shares which
consist of convertible debt, stock options and warrants, would be anti-dilutive.
The following table presents the weighted-average,
potentially dilutive shares that were excluded from the computation of diluted net (loss) per share of common stock attributable to common
stockholders, because their effect was anti-dilutive:
|
|
Three months ended March 31,
|
|
|
2021
|
|
|
2020
|
Warrants
|
|
|
17,318,876
|
|
|
|
4,444,314
|
Convertible Notes (if converted)
|
|
|
12,279,726
|
|
|
|
208,568
|
Stock options
|
|
|
1,337,111
|
|
|
|
600,000
|
Contingent consideration in common stock
|
|
|
2,533,333
|
|
|
|
-
|
Total
|
|
|
33,469,046
|
|
|
|
5,252,882
|
On February 10, 2021, the Company completed
a follow-on public offering of 1,150,000 shares, including the Company’s underwriters’ exercise, in full, of their over-allotment
option, of its common stock at a public offering price of $9.00 per share for aggregate gross proceeds of $10,350,000. The Company received
aggregate net proceeds of $9,181,100, after deducting offering costs of $1,168,900, related to the follow-on public offering.
|
4.
|
Accounts payable and accrued expenses
|
Accounts payable and accrued expenses
consist of the following as of:
|
|
March 31,
|
|
|
December 31,
|
|
|
2021
|
|
|
2020
|
Professional fees
|
|
$
|
1,046,427
|
|
|
$
|
659,446
|
Research and development expenses
|
|
|
309,769
|
|
|
|
305,870
|
Management service fees and expenses
|
|
|
198,530
|
|
|
|
308,246
|
Convertible Notes interest payable
|
|
|
230,599
|
|
|
|
156,014
|
Other accounts payable and accrued expenses
|
|
|
150,277
|
|
|
|
91,989
|
Total accounts payable and accrued expenses
|
|
$
|
1,935,602
|
|
|
$
|
1,521,565
|
Amounts due to related parties included
in accounts payable and accrued expenses totaled $199,999 and $308,246 as of March 31, 2021 and December 31, 2020, respectively (see Note
10).
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
In April 2020, the Company amended
the terms of its December 2019 Private Placement (see Note 8) to issue convertible promissory notes (“Convertible Notes”)
with W Warrants (“Convertible Notes Private Placement”) in an initial principal amount of up to $3,000,000. The Convertible
Notes have an annual interest rate of 10% and a scheduled maturity on the earlier of July 31, 2021 or a change of control of the Company
(the “Maturity Date”). For each $1.00 of initial principal, the purchaser also received one W Warrant. Prior to the Maturity
Date, the holder may elect to convert each $1.00 of initial principal amount of Convertible Notes plus accrued and unpaid interest into
W Warrants at a conversion price of $0.50 per W Warrant.
Between June 2020 and September 2020,
the Company issued an aggregate initial principal amount of $2,001,605 of Convertible Notes as part of the Convertible Notes Private Placement
for net cash proceeds of $1,741,531 in cash after issuance costs of $260,074, of which $192,787 was recognized as deferred financing costs
and the remaining $67,287 as a reduction of the proceeds allocated to the attached W Warrants.
Between February 2020 and June 2020,
the Company issued convertible notes on identical terms to those of the Convertible Notes Private Placement to HCFP/Portfolio Services
LLC (“Portfolio Services”) (see Note 8), investors and vendors, on a direct basis, in an aggregate initial principal amount
of $636,230 for $187,500 in cash, with the balance as consideration for legal and management services rendered and payable.
Investors who purchased W Warrants
in the December 2019 Private Placement prior to the amendment of its terms were provided the option to surrender two W Warrants for the
purchase of $1.00 of initial principal amount of Convertible Notes. On September 28, 2020, all holders of W Warrants purchased in the
December 2019 Private Placement elected to surrender their W Warrants and, accordingly, the Company issued an aggregate principal amount
of $252,000 of Convertible Notes in exchange for 504,000 surrendered W Warrants of equivalent fair market value.
The Convertible Notes principal amount
of $2,889,835, reduced for issuance costs of $260,074, was allocated to the Convertible Notes and W Warrants, based on their respective
relative fair value, resulting in an allocation of $1,733,769 and $895,992 to the Convertible Notes and W Warrants, respectively. The
resulting difference between the principal amount and the amount allocated to Convertible Notes of $1,156,066 is being recognized as debt
discount and deferred financing costs, amortized as interest expense over the term of the Convertible Notes. The amount allocated to the
W Warrants was recognized as an increase to “Additional paid-in capital” in the accompanying consolidated statements of stockholders’
equity (deficit) under the caption “Issuance of units and warrants.”
Balances related to the Convertible
Notes included the following as of:
|
|
March 31,
|
|
|
December 31,
|
|
|
2021
|
|
|
2020
|
Convertible Notes principal amount
|
|
$
|
2,889,835
|
|
|
|
2,889,835
|
Unamortized discount
|
|
|
(290,641
|
)
|
|
|
(508,622)
|
Deferred financing costs
|
|
|
(55,704
|
)
|
|
|
(97,482)
|
Convertible notes payable, net
|
|
$
|
2,543,490
|
|
|
$
|
2,283,731
|
Interest expense for the three
months ended March 31, 2021 and 2020 totaled $332,005 and $6,624, respectively, and is included in “Interest expense” in
the accompanying condensed consolidated statements of comprehensive loss. For the three months ended March 31, 2021 and 2020,
interest expense includes $72,246 and $1,264, respectively, of interest expense and $259,759 and $5,360, respectively, of debt
discount and amortization of deferred financing costs.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
6.
|
Research and Development Agreements
|
Agreement Related to Intellectual
Property Rights
In July 2017, VSI as “Licensee”
entered into a Patent License Agreement (the “Patent License Agreement”) with The U.S. Department of Health and Human Services,
as represented by the National Institute on Alcohol Abuse and Alcoholism (“NIAAA”) and the National Institute on Drug Abuse
(“NIDA”) of the National Institutes of Health (“NIH”), (collectively “Licensor”). In the course of
conducting biomedical and behavioral research, the Licensor developed inventions that may have commercial applicability. The Licensee
acquired commercialization rights to certain inventions in order to develop processes, methods, or marketable products for public use
and benefit.
Patent fee reimbursement under the
Patent license agreement was $5,017 and $6,680 for the three months ended March 31, 2021 and 2020, respectively. These costs are included
in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
Pursuant to the terms of the Patent
License Agreement, VSI is required to make minimum annual royalty payments on January 1 of each calendar year, which shall be credited
against any earned royalties due for sales made in that year, throughout the term of the Patent License Agreement. For the three months
ended March 31, 2021 and 2020, $6,250 of this prepaid royalty expense was recognized in each period in “Research and development”
expenses in the accompanying condensed consolidated statements of comprehensive loss. The third annual payment of $25,000 was made in
January 2021, of which the remaining $18,750 is included in “Prepaid expenses and other current assets” in the accompanying
condensed consolidated balance sheets.
The Patent License Agreement also provides
for payments from VSI to the Licensor upon the achievement of certain product development and regulatory clearance milestones, as well
as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents. Through March 31, 2021,
the Licensor has not achieved any milestones and therefore VSI has not made any milestone payments.
VSI is obligated to pay earned royalties
based on a percentage of net sales, as defined in the Patent License Agreement, of licensed product throughout the term of the Patent
License Agreement. Since April 18, 2017 (inception) through March 31, 2021, there have been no sales of licensed products. In addition,
VSI is also obligated to pay the Licensor additional sublicensing royalties on the fair market value of any consideration received for
granting each sublicense. Through March 31, 2021, VSI has not entered into any sublicensing agreements and therefore no sublicensing consideration
has been paid to Licensor.
Cooperative Research and Development
Agreement
Effective January 11, 2018, VSI signed
a two-year Cooperative Research and Development Agreement (the “CRADA Agreement”) with the NIH for preclinical testing relating
to the Patent License Agreement described above. Pursuant to the terms of the CRADA Agreement, each party will provide scientific staff
and other support necessary to conduct the research and other activities described in the research plan. This agreement was subsequently
amended to defer funding for year two subject to additional testing by NIH and approval of the results by VSI. On May 7, 2019, the Company
made the first of two equal payments of $55,870 to NIH. As of March 31, 2021 and December 31, 2020, the second payment of $55,870, which
is subject to delivery of final research results, is included in “Accounts payable and accrued expenses” on the accompanying
condensed consolidated balance sheet.
Total expenses incurred in
connection with the CRADA Agreement for the three months ended March 31, 2021 and 2020 amounted to $0 and $31,039, respectively.
These expenses are included in “Research and development” expenses in the accompanying consolidated statements of
comprehensive loss. As of March 31, 2021 and December 31, 2020, $55,870 and $55,870, respectively, were recognized in
“Accounts payable and accrued expenses” in the accompanying condensed consolidated balance sheets.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
6.
|
Research and Development Agreements (Continued)
|
Memorandums of Understanding
Effective July 28, 2018, SBI entered
into two Memorandums of Understanding (“MOUs”) with Yissum Research Development Company (“Yissum”) of the Hebrew
University of Jerusalem Ltd. (“Hebrew University”). Research under the Yissum MOUs was completed in December 2019 and March
2020, respectively, resulting in the license agreements below.
The fees incurred in connection with
these MOU’s for the three months ended March 31, 2021 and 2020 amounted to $0 and $12,565, respectively. These fees are included
in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
Effective March 5, 2019, the Company
entered in a license agreement with Yissum with respect to the results of the research relating to the combination of cannabidiol with
approved anesthetics as a potential treatment for the management of pain. Under the license agreement, the Company is obligated to pay
earned royalties based on a percentage of net sales, as defined in the license agreement, including net sales generated from sub-licensees.
In addition, the Company will be obligated to make payments upon the achievement of certain clinical development and product approval
milestones. From March 5, 2019 through March 31, 2021, there have been no sales of licensed products by the Company nor has the Company
entered into any sub-licensing agreements. Further, none of the milestones in the agreement have been reached and therefore as of March
31, 2021, there is no obligation to make any milestone payments.
Effective August 8, 2019, the Company
entered into a second license agreement with Yissum with respect to the research results relating to the synthesis of novel cannabinoid
dual-action compounds and novel chemical derivatives of cannabigerol and tetrahydrocannabivarin. Under this license agreement, the Company
is required to pay earned royalties based upon a percentage of net sales at one percentage for regulated products and a lesser percentage
for non-regulated products. The Company is obligated to pay development milestone payments tied to regulated products totaling $1,225,000
in the aggregate and $100,000 for non-regulated products in the aggregate. None of the milestones in the agreement have been reached and
therefore as of March 31, 2021 there is no obligation to make any milestone payments.
City of Hope License Agreement
and Sponsored Research Agreement
In June 2020, the Company entered into
an exclusive, worldwide license agreement with City of Hope relating to the STAT3 Inhibitor (the “COH License Agreement”).
In addition to the COH License Agreement, the Company also entered into a Sponsored Research Agreement (the “SRA”) relating
to on-going research and development activities in collaboration with City of Hope relating to the STAT3 Inhibitor. The Company obtained
the right to negotiate the COH License Agreement with City of Hope as part of the Bioscience Oncology Pty., Ltd. (“Bioscience Oncology”)
acquisition in June 2020. Under the terms of the COH License Agreement, the Company is obligated to pay earned royalties based on a percentage
of net sales, as defined in the COH License Agreement, including net sales generated from sub-licensees. In addition, the Company is obligated
to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $3,525,000 in the
aggregate. None of the milestones in the COH License Agreement have been reached and therefore as of March 31, 2021, there is no obligation
to make any milestone payments. Pursuant to the terms of the SRA, the Company has committed to fund research and development at City of
Hope for two years in accordance with a predetermined funding schedule. Total expenses incurred in connection with the SRA were $62,500
and $0 for the three months ended March 31, 2021 and 2020, respectively. These expenses are included in “Research and development”
expenses in the accompanying condensed consolidated statements of comprehensive loss.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
6.
|
Research and Development Agreements (Continued)
|
City of Hope License Agreement
and Sponsored Research Agreement (continued)
In March 2021, the Company
incurred costs of and paid to City of Hope approximately $1.2 million relating to the clinical lot manufacturing and IND preparation
costs for the Company’s STAT3 Inhibitor. In addition, the Company agreed to pay $10,000 per month to City of Hope for certain
project management and regulatory services relating to the planned Phase 1 clinical trial for the STAT3 Inhibitor through June 2021.
These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements
of comprehensive loss.
|
7.
|
Commitments and Contingencies
|
Research and Development Agreements
The Company has entered into various
research and development agreements which require the Company to provide certain funding and support. See Note 6 for further information
regarding these agreements.
Legal Proceedings
Except as hereinafter set forth, the Company is not a party to any
litigation. On April 7, 2021, Morris C. Laster, M.D., a co-founder of the Company, filed a Schedule 13D in which he claims sole beneficial
ownership of certain shares. Such Schedule 13D sets forth that Dr. Laster has initiated litigation against the Company in the Delaware
Court of Chancery with respect to ownership of 3,500,000 shares of the Company’s common stock. The Company has moved to dismiss
this lawsuit in its entirety. The Schedule 13D also provides that Dr. Laster has determined to vote against the future election of members
of the Company’s board of directors. Separate from the foregoing, the Company and Dr. Laster do not agree on numerous other matters,
which creates the potential for additional litigation. The Company does not currently have any contingency reserves established for any
potential litigation liabilities. Nonetheless, litigation is highly unpredictable and the costs of litigation, including legal fees and
expenses, could be significant. Given the inherent uncertainties, the Company may become subject to liabilities, including monetary damages.
Any such liabilities could have a material adverse impact on the Company’s business, financial position, results of operations and
cash flows. See Note 10.
Preferred Stock
The Company is authorized to issue
20,000,000 shares of preferred stock with a par value of $0.001 per share with such designation, rights and preferences as may be determined
from time-to-time by the Company’s board of directors. Authority is expressly vested in the board of directors to authorize the
issuance of one or more series of preferred stock. All 20,000,000 shares remained unissued as of March 31, 2021.
Common Stock
The Company is authorized to issue
50,000,000 shares of common stock with a par value of $0.001 per share. The number of authorized shares of common stock may be increased
or decreased (but not below the number of shares of common stock then outstanding) by an affirmative vote of the holders of a majority
of the common stock.
The powers, preferences, and rights
of the holders of the common stock are junior to the preferred stock and are subject to all the powers, rights, privileges, preferences,
and priorities of the preferred stock. The holder of each share of common stock shall have the right to one vote per share. Each holder
of common stock shall be entitled to receive dividends and distributions (whether payable in cash or otherwise) as declared by the board
of directors of the Company, subject to the rights of any class of preferred stock outstanding. In the event of any liquidation, dissolution
or winding-up of the Company (whether voluntary or involuntary), the assets available for distribution to holders of common stock will
be in equal amounts per share.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
8.
|
Stockholders’ Equity (Continued)
|
Equity Units
On February 4, 2020, the Company offered
up to 200,000 Series A units at a price of $5.00 per unit in a Regulation A+ Tier II offering (the “A Units”). Each A Unit
consists of one share of the Company’s common stock and two Series W Warrants (“W Warrants”). Each W Warrant is exercisable
for one Series B Unit (“B Unit”). Each B Unit consists of one share of common stock and one Series Z Warrant (“Z Warrant”).
Each Z Warrant is exercisable for one share of common stock. The exercise price of the W Warrant is $4.00, and the exercise price of the
Z Warrant is $5.00. The W Warrants and Z Warrants will be exercisable commencing on October 1, 2021 and July 1, 2022, respectively, and
expire on September 30, 2026 and June 30, 2027, respectively, unless previous exercised.
Warrants
On June 5, 2020, the Company issued
to HCFP/Capital Partners 18-B-2 LLC (“CP18B2”) 3,000,000 W Warrants in consideration of a $1.5 million contingent promissory
note (“Note Receivable”). The Note Receivable accrues interest at a rate of 1% per annum. Payment of this Note Receivable
is contingent on exercise or sale of the W Warrants prior to their expiration. If the W Warrants have not been sold or exercised prior
to their expiration by CP18B2, no payment of principal and interest of the Note Receivable is required.
During the three months ended March
31, 2021, no warrants were issued, exercised, or forfeited. As of March 31, 2021, 8,884,438 warrants were outstanding at a weighted-average
exercise price of $3.93, and 250,000 warrants were exercisable at a weighted-average exercise price of $1.50. As of March 31, 2021, the
remaining contractual term of the outstanding warrants was 5.45 years.
Contingent Common Stock
As a result of the Company’s
acquisition of Bioscience Oncology on June 10, 2020, the previous shareholders of Bioscience Oncology are eligible to receive additional
contingent consideration of up to approximately 2.5 million shares of common stock upon the achievement of specified milestones, which
will be recorded when it is determined the corresponding milestones are probable to be achieved.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Effective September 24, 2018, the Company
approved the Scopus BioPharma Inc. 2018 Equity Incentive Plan (the “Plan”), and reserved 1,000,000 shares of the Company’s
common stock, such amount subsequently being increased to 2,400,000 shares, for issuance under the Plan. The stock options shall be granted
at an exercise price per share equal to at least the fair market value of the shares of common stock on the date of grant and generally
vest over a three-year period.
In addition, in connection with the
Company’s follow-on offering (See Note 3), the Company granted options to purchase 115,000 shares of the Company’s common
stock to the underwriter.
Stock option activity is summarized as follows for the three
months ended March 31, 2021:
|
|
Options
|
|
|
Weighted-average
Exercise Price
|
|
|
Weighted-average
Grant Date
Fair Value
|
Outstanding at December 31, 2020
|
|
|
1,257,500
|
|
|
$
|
4.16
|
|
|
$
|
2.17
|
Granted
|
|
|
115,000
|
|
|
|
11.25
|
|
|
|
6.55
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
5.50
|
|
|
|
2.95
|
Outstanding at March 31, 2021
|
|
|
1,272,500
|
|
|
$
|
4.70
|
|
|
$
|
2.51
|
Vested and exercisable at March 31, 2021
|
|
|
430,972
|
|
|
$
|
2.78
|
|
|
$
|
1.36
|
Unvested at March 31, 2021
|
|
|
841,528
|
|
|
$
|
5.68
|
|
|
$
|
3.10
|
Stock-based compensation associated
with vesting options was $183,334 and $60,255 for the three months ended March 31, 2021 and 2020, respectively. This cost is included
in “General and administrative” expenses in the accompanying condensed consolidated statements of comprehensive loss. As of
March 31, 2021 total unrecognized stock-based compensation expense was $1,668,835 and is expected to be recognized over the remaining
weighted-average contractual vesting term of 1.62 years.
|
10.
|
Related Party Transactions
|
The Company has a management services
agreement, as amended, with Portfolio Services, an affiliated entity, to provide management services to the Company including, without
limitation, financial and accounting resources, general business development, corporate development, corporate governance, marketing strategy,
strategic development and planning, coordination with service providers and other services as agreed upon between the parties. The Company
pays Portfolio Services a monthly management services fee plus related expense reimbursement and provision of office space and facilities.
The monthly management services fee is $50,000 effective July 1, 2020. The monthly facilities fee is $3,000 effective May 1, 2019.
For the three months ended March
31, 2021 and 2020, the Company incurred expenses of $159,000 and $129,000, respectively, related to this management services
agreement. The costs are included in “General and administrative” expenses in the accompanying condensed consolidated
statements of comprehensive loss. Amounts payable to Portfolio Services as of March 31, 2021 and December 31, 2020 were $0 and
$109,640, respectively, and are included in “Accounts payable and
accrued expenses” on the accompanying condensed consolidated balance sheets.
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
10.
|
Related Party Transactions (Continued)
|
Pursuant to a management services
agreement with Clil Medical Ltd. (“Clil”), an affiliate of Dr. Laster, Dr. Laster was obligated to provide executive and
other management services to the Company. This management services agreement was terminated in June 2020. Concurrently, Dr. Laster resigned
as Co-Chairman and as a director, but continued to serve in various capacities for the Company and its subsidiaries. Subsequently, Dr.
Laster submitted resignations to the Company and its subsidiaries. The Company and Dr. Laster do not agree on
various matters, including Dr. Laster’s obligations under the management services agreement both prior and subsequent to its termination.
For the three months ended March 31, 2021 and 2020, the Company incurred expenses of $0 and $75,000, respectively, related to this management
services agreement. These costs are included in “General and administrative” expenses in the accompanying condensed consolidated
statements of comprehensive loss. As of March 31, 2021 and December 31, 2020, the total amount due to Clil was $198,530, and is included
in “Accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets.
In January and February of 2020, HCFP/Direct
Investments LLC (“Direct Investments”) advanced a total of $47,430 to the Company, and the Company incurred interest expense
of $268 during the three months ended March 31, 2020. Amounts owed to Direct Investments were repaid in July 2020.
On April 9, 2020, one of the
Company’s directors invested $7,500 in the Convertible Notes issued as part of the Company Direct Offering. During the three
months ended March 31, 2020, Portfolio Services agreed to defer some of the Company’s payment obligations pursuant to the
Portfolio Services management services agreement in the aggregate amount of $120,000. In June 2020, Portfolio Services agreed to
exchange an aggregate of $200,000 of deferred payments under the Portfolio Services management services agreement, including the
$120,000 of payments deferred during the three months ended March 31, 2020, into an equal principal amount of the Company’s
Convertible Notes on the same terms of unaffiliated investors. On June 5, 2020, the Company issued to CP18B2, an affiliated entity,
3,000,000 W Warrants in consideration of a Note Receivable (see Note 8).
Related party amounts included in “Accounts
payable and accrued expenses” in the accompanying condensed consolidated balance sheets were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
2021
|
|
|
2020
|
HCFP Portfolio Services
|
|
$
|
-
|
|
|
$
|
109,640
|
Clil Medical Ltd.
|
|
|
198,530
|
|
|
|
198,530
|
HCFP LLC
|
|
|
1,469
|
|
|
|
76
|
Total
|
|
|
199,999
|
|
|
|
308,246
|
SCOPUS BIOPHARMA INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The Company did not provide for
any income taxes for the three months ended March 31, 2021 and 2020, respectively. State net operating loss carryovers begin to
expire in 2037 and U.S. federal and foreign net operating loss carryover have indefinite lives. The Company has evaluated the
positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the
Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or
generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will
not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the
deferred tax assets as of March 31, 2021 and December 31, 2020. Management reevaluates the positive and negative evidence at each
reporting period.
All filings, beginning with the 2017
tax year, remain open to examination by the Internal Revenue Service. However, since the Company has net operating loss carryforwards,
which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities
if utilized, notwithstanding that the statute for assessment may have closed. There are not currently ongoing or pending examinations
in any jurisdictions.
The Company has evaluated subsequent
events through the date the condensed consolidated financial statements were available to be issued. Any material subsequent events that
occurred during this time have been properly recognized or disclosed in the condensed consolidated financial statements and accompanying
notes.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion
and analysis of our unaudited condensed consolidated financial condition and results of operations should be read in conjunction with
the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021, as amended on
April 29, 2021 (collectively, the “Form 10-K”).
Forward Looking Statements
This quarterly report on
Form 10-Q (“Quarterly Report”) and other reports filed by Scopus BioPharma Inc. (the “Company”) from time to time
with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, the Company’s management, as well as estimates and assumptions made by
Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are
only predictions and speak only as of the date hereof. When used in the Filings, the words “may”, “will”,
“anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”,
“plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management
are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to
future events and we caution you that these statements are not guarantees of future performance or events and are subject to risks, assumptions,
and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Unless otherwise
stated in this Quarterly Report, “we”, “us”, “our”, “Company”, “Scopus” and
“Scopus BioPharma” refer to Scopus BioPharma Inc.
Although the Company believes
that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States,
the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited condensed consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These
accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions
are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of
the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed
consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s
judgment in its application. There are also areas in which management’s judgment in selecting any available alternative
would not produce a materially different result. The following discussion should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this Quarterly Report.
Overview
We are a biopharmaceutical
company developing transformational therapeutics targeting serious diseases with significant unmet medical needs. Our mission is to improve
patient outcomes and save lives. To achieve our mission, we are capitalizing on groundbreaking scientific and medical discoveries at some
of the world’s foremost research and academic institutions.
Our lead development
program is a novel, targeted immuno-oncology gene therapy for the treatment of multiple cancers. We have partnered with the City of
Hope (“COH”) for CpG-STAT3siRNA, or CO-sTiRNATM, which is a STAT3 inhibitor gene therapy. Pre-clinical
testing at City of Hope was designed to determine whether CO-sTiRNA would reduce growth and metastasis of various pre-clinical tumor
models, including melanoma, and colon and bladder cancers, as well as leukemia and lymphoma. Based upon such testing, an IND for
CO-sTiRNA for B-cell lymphoma was filed with the United States Food and Drug Administration (“FDA”) in April 2021. We
currently anticipate that a first-in-human Phase 1 clinical trial for B-cell non-Hodgkin lymphoma (“B-cell lymphoma”)
will commence in H2 2021.
In conjunction with City of
Hope, Phase 1 clinical trials for additional cancer indications are being contemplated for CO-sTiRNA in combination with immune checkpoint
inhibitors and chimeric antigen receptor T-cells (“CAR-Ts”).
Our second lead development
program is MRI-1867, a peripherally-restricted, dual-action cannabinoid-1 (“CB1”) receptor inverse agonist and inhibitor of
inducible nitric oxide synthase (“iNOS”). We have partnered with the National Institutes of Health (“NIH”) for
MRI-1867 and are initially targeting systemic sclerosis (“SSc”). Over-activation of CB1 and iNOS has been implicated in the
pathophysiology of SSc, which includes fibrosis of the skin, lung, kidney, heart, and the gastrointestinal tract. We are currently continuing
to conduct pre-clinical work for MRI-1867 to support an IND filing with the FDA.
We are also partnered with
The Hebrew University of Jerusalem (“Hebrew University”) on several additional research and development programs. These programs
relate to a proprietary opioid-sparing anesthetic and synthesis of novel compounds and new chemical entities (“NCEs”).
We have devoted substantially
all of our resources to our development efforts relating to our drug candidates, including sponsoring research with world-renowned academic
and medical research institutions, designing future pre-clinical studies, providing general and administrative support for these operations,
and securing and protecting our licensed intellectual property. We do not have any products approved for sale and have not generated any
revenue from product sales. From inception (April 18, 2017) until March 31, 2021, we have funded our operations primarily through
the issuance of convertible notes, common stock, and warrants.
We have incurred net losses
in each year since our inception. As of March 31, 2021, we had an accumulated deficit of $17,907,046. Substantially all of our net losses
resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated
with our operations.
We expect to continue to incur
significant expenses and increasing operating losses for at least the next several years. We anticipate that all our expenses will
increase substantially as we:
•
continue our research and development efforts;
• contract
with third-party research organizations to management our clinical and pre-clinical trials for our drug candidates;
• outsource
the manufacturing of our drug candidates for clinical testing and pre-clinical trials;
• seek
to obtain regulatory approvals for our drug candidates;
• maintain,
expand, and protect our intellectual property portfolio;
• add
operational, financial and management information systems and personnel to support our research and development and regulatory efforts;
and
• operate
as a public company.
We do not expect to
generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or
more of our drug candidates, which we expect will take a number of years and is subject to significant uncertainty.
Accordingly, we will need to raise additional capital prior to the commercialization any of our current or future drug candidates.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities
through equity and debt offerings. We may also raise capital through government or other third-party funding and grants,
collaborations and development agreements, strategic alliances, and licensing arrangements. However, we may be unable to raise
additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or
enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to
develop our drug candidates.
Critical Accounting Policies and Estimates
Our management’s discussion
and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we
have prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates
and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting
policies are more fully described in Note 2 to our condensed consolidated financial statements appearing in our Form 10-K. We believe
that the accounting policies are critical for fully understanding and evaluating our financial condition and results of operations.
Net Loss Per Share
Basic net loss per common
share attributable to common shareholders is calculated by dividing net loss attributable to common shareholders by the weighted average
number of common shares outstanding for the period. Since the company was in a loss position for all periods presented, basic net loss
per share is the same as dilutive net loss per share as the inclusion of all potential dilutive common shares which consist of stock options
and warrants, would be anti-dilutive.
JOBS Act
On April 5, 2012, the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Under the JOBS Act, emerging growth companies can delay adopting
new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies.
We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be
subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As a result of this
election, our financial statements may not be comparable to companies that are not emerging growth companies.
We are in the process of evaluating
the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions
set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without
limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of
(i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day
of our fiscal year following the fifth anniversary of the date of the completion of an initial public offering; (iii) the date on
which we have issued more than $1 billion in non-convertible debt during the previous three years; or (iv) the date on
which we are deemed to be a large accelerated filer under the rules of the SEC.
Results of Operations
Three Months Ended March 31, 2021 Versus Three Months March 31,
2020
The following table summarizes our results of operation
for the fiscal years ended March 31, 2021 and 2020, respectively:
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
$
|
1,818,805
|
|
|
$
|
568,960
|
|
|
$
|
1,248,845
|
|
|
|
220%
|
Research and Development
|
|
|
1,254,497
|
|
|
|
50,284
|
|
|
|
1,204,213
|
|
|
|
2,395%
|
Loss from Operations
|
|
|
3,073,302
|
|
|
|
619,244
|
|
|
|
2,454,058
|
|
|
|
396%
|
Net Loss
|
|
|
3,405,307
|
|
|
|
626,136
|
|
|
|
2,779,171
|
|
|
|
444%
|
Our net losses were
$3,405,307 and $626,136 for the three months ended March 31, 2021 and 2020, respectively, an increase of $2,779,171 or 444%. We
anticipate our net losses will continue to accumulate as we advance our research and drug development activities and
incur additional general and administrative expenses to meet the needs of our business.
Revenue
We did not have any revenue
during the three months ended March 31, 2021 or 2020. Our ability to generate product revenues in the future will depend almost entirely
on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize a drug candidate in the United
States. In the event we choose to pursue a partnering arrangement to commercialize a drug candidate or other products outside the United
States, we would expect to initiate additional research and development in the future.
Operating Expenses
General and Administrative Expenses
General and
administrative expenses consist primarily of compensation and benefits to our personnel, including the costs related to our MSAs.
Other significant general and administrative expenses including accounting and legal services, expenses related to obtaining and
protecting our intellectual property and costs associated with our board of directors and scientific and senior advisors. We
incurred general and administrative expenses in the three months ended March 31, 2021 and 2020 of $1,818,805 and $568,960,
respectively, an increase of $1,249,845 or 220%. We attribute this increase in our general and administrative expenses to a greater
level of our business activities (managing our clinical and research programs at City of Hope, NIH and Hebrew University,
negotiating and executing our license agreements, pursuing patent protection for our intellectual property, investigating additional
business opportunities and operating as a public company, including increased costs for investor relations, directors and officers
insurance and to comply with corporate governance, internal controls and similar requirements applicable to public companies), all
of which have increased amounts payable as compensation and benefits, including stock-based compensation; for professional fees and
services; and to certain of our directors and scientific advisors. In the three months ended March 31, 2021 compared to the three
months ended March 31, 2020, approximately an additional $129,000, $960,000 and $180,000 were attributable to increased costs for
compensation and benefits; professional fees and services; and certain of our directors and scientific advisors, respectively,
offset primarily by a reduction of approximately $45,000 in management services fees. Included in professional fees and services are
legal fees and expenses incurred in connection with legal services provided to the board of directors and certain committees
thereof, including relating to a former executive officer and co-chairman (see Part II – Other Information, Item 1. Legal
Proceedings).
Research and Development and Expenses
We recognize research
and development expenses as they are incurred. Our research and development expenses consist of fees incurred under our agreements
with City of Hope, the NIH and Hebrew University, including the expenses associated with warrants issued in connection with the
agreements with Hebrew University. For the three months ended March 31, 2021 and 2020, we incurred research and development expenses
of $1,254,497 and $50,284, respectively, an increase of $1,204,213 or 2,395%. These expenses increased primarily as a result of the
costs and expenses under the COH License Agreement and SRA relating CO-sTiRNA and the clinical lot manufacturing and IND preparation
for the planned Phase 1 clinical trial for CO-sTiRNA. Expenses relating to the COH License Agreement and SRA were $70,000 and the
expenses relating to the clinical lot manufacturing and IND preparation were approximately $1.2 million. These expenses were
recognized in “Research and Development” expenses during the three months ended March 31, 2021. We plan to increase our
research and development expenses for the foreseeable future as we continue the clinical and pre-clinical development of our two
lead drug candidates, CO-sTiRNA and MRI-1867, and to further advance the development of our other research and development programs,
subject to the availability of additional funding.
Liquidity and Capital Resources
Since April 18, 2017 (inception),
we have incurred losses and, as of March 31, 2021, we had an accumulated deficit of $17,907,046. From inception through March 31, 2021,
we have funded our operations principally with $19,382,497 million in gross proceeds from the sale of convertible notes, common stock,
warrants and units comprised of common stock and warrants, and the exercise of a portion of such warrants, including aggregate gross proceeds
of $10,350,000 from the sale of 1,150,000 shares of common stock at a public offering price of $9.00 per share in a follow-on public offering
completed in February 2021. As of March 31, 2021, we had cash of $8,255,768.
Future Funding Requirements
We have not generated any
revenue. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue
from product sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates. We anticipate that
we will continue to incur losses for at least the next several years. We expect that our research and development costs and general and
administrative expenses will continue to increase as we advance our drug candidates through the pre-clinical and clinical development
processes and hire additional personnel and/or consultants to support such activities. In addition, subject to obtaining regulatory approval
of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and
distribution.
As a result, we anticipate
that we will need substantial additional funding in connection with our continuing operations to fund future clinical trials and pre-clinical
testing for our drug candidates, general and administrative costs and public company and other expenses, including legal fees (both general,
as well as related to litigation). We expect to finance our cash needs primarily through debt and equity offerings. We may also raise
capital through government or other third-party funding and grants, collaborations and development agreements, strategic alliances and
licensing arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of our
drug candidates, we are unable to estimate the amounts of additional capital outlays and operating expenditures necessary to complete
the development of our drug candidates. See Part II - Other Information, Item 1. Legal Proceedings.
Our future capital requirements will depend on
many factors, including:
|
•
|
the progress, costs, results and timing of our drug candidates’ future clinical studies and future pre-clinical trials, and the clinical development of our drug candidates for other potential indications beyond their initial target indications;
|
|
•
|
the willingness of the FDA and the EMA to accept our future drug candidate clinical trials, as well as our other completed and planned clinical and pre-clinical studies and other work, as the basis for review and approval of our drug candidates;
|
|
•
|
the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;
|
|
•
|
the number and characteristics of drug candidates that we pursue, including our drug candidates in future pre-clinical development;
|
|
•
|
the ability of our drug candidates to progress through clinical development successfully;
|
|
•
|
our need to expand our research and development activities;
|
|
•
|
the costs associated with securing and establishing commercialization and manufacturing capabilities;
|
|
•
|
the costs of acquiring, licensing or investing in businesses, products, drug candidates and technologies;
|
|
•
|
our ability to maintain, expand and defend the scope of our licensed intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
|
|
•
|
our need and ability to hire additional management and scientific and medical personnel;
|
|
•
|
the effect of competing technological and market developments;
|
|
•
|
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
|
|
•
|
the duration and spread of the COVID-19 pandemic, and associated operational delays and disruptions and increased costs and expenses; and
|
|
•
|
the economic and other terms, timing and success of any collaboration, licensing or other arrangements into which we may enter in the future.
|
Until such time, if ever,
as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of debt financings
and equity offerings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic
alliances and licensing arrangements. To the extent that we raise additional capital through the sale of debt and equity securities, the
ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other
collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us.
We have considered the spread
of the COVID-19 coronavirus outbreak, which the World Health Organization has declared a “Public Health Emergency of International
Concern.” The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries. The
extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration
and spread of the pandemic and its impact on our employees and vendors, and our ability to raise capital, all of which are uncertain and
cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.
Off-Balance Sheet Arrangements
We did not have during the
periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Recent Accounting Pronouncements
The Company is an
“emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to
avail itself of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or
revised accounting standards as public companies that are not emerging growth companies.
We have reviewed recent accounting
pronouncements and concluded they are either not applicable to the business or no material effect is expected on the condensed consolidated
financial statements as a result of future adoption.
Effect of Inflation and Changes in Prices
We do not believe that inflation and changes in prices will have a
material effect on our operations.