NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Tenax
Therapeutics, Inc. (the “Company”) was originally
formed as a New Jersey corporation in 1967 under the name Rudmer,
David & Associates, Inc., and subsequently changed its
name to Synthetic Blood International, Inc. On June 17, 2008,
the stockholders of Synthetic Blood International approved the
Agreement and Plan of Merger dated April 28, 2008, between
Synthetic Blood International and Oxygen Biotherapeutics, Inc., a
Delaware corporation. Oxygen Biotherapeutics was formed on
April 17, 2008 by Synthetic Blood International to participate
in the merger for the purpose of changing the state of domicile of
Synthetic Blood International from New Jersey to Delaware.
Certificates of Merger were filed with the states of New Jersey and
Delaware and the merger was effective June 30, 2008. Under the
Plan of Merger, Oxygen Biotherapeutics was the surviving
corporation and each share of Synthetic Blood International common
stock outstanding on June 30, 2008 was converted to one share
of Oxygen Biotherapeutics common stock. On September 19, 2014, the
Company changed its name to Tenax Therapeutics, Inc.
On October 18, 2013, the Company created a wholly owned subsidiary,
Life Newco, Inc., a Delaware corporation (“Life
Newco”), to acquire certain assets of Phyxius Pharma, Inc., a
Delaware corporation (“Phyxius”) pursuant to an Asset
Purchase Agreement, dated October 21, 2013 (the “Asset
Purchase Agreement”), by and among the Company, Life Newco,
Phyxius and the stockholders of Phyxius (the “Phyxius
Stockholders”). As further discussed in Note 7 below, on
November 13, 2013, under the terms and subject to the conditions of
the Asset Purchase Agreement, Life Newco acquired certain assets,
including a license granting Life Newco an exclusive,
sublicenseable right to develop and commercialize pharmaceutical
products containing levosimendan, 2.5 mg/ml concentrate for
solution for infusion / 5ml vial in the United States and
Canada.
On
October 9, 2020, the Company entered into an Amendment (the
“Amendment”) to the License between the Company and
Orion Corporation, a global healthcare company incorporated under
the laws of Finland (“Orion”), to include two new oral
products containing levosimendan, in capsule and solid dosage form,
and a subcutaneously administered product containing levosimendan
to the scope of the License, subject to specified limitations. The
Amendment also amends the tiered royalty payments based on net
sales of the Product in the Territory (each as defined in the
License, as amended by the Amendment) made by the Company and its
sublicensees. Pursuant to the
Amendment, the term of the License has been extended until 10 years
after the launch of the Product in the Territory, provided that the
License will continue after the end of the term in each country in
the Territory until the expiration of Orion’s patent rights
in the Product in such country. In the event that no regulatory
approval for the Product has been granted in the United States on
or before September 20, 2028, however, either party will have the
right to terminate the License with immediate effect. The Company
intends to conduct an upcoming Phase 3 study in pulmonary
hypertension patients utilizing one of these oral
formulations.
On
January 15, 2021, the Company, Life Newco II, Inc., a Delaware
corporation and a wholly-owned, direct subsidiary of the Company
(“Life Newco II”), PHPrecisionMed Inc., a Delaware
corporation (“PHPM,”) and Dr. Stuart Rich, solely in
his capacity as holders’ representative (in such capacity,
the “Representative”), entered into an Agreement and
Plan of Merger, dated January 15, 2021 (the “Merger
Agreement”), pursuant to which, subject to the satisfaction
or waiver of the conditions set forth in the Merger Agreement, the
Company would acquire 100% of the equity of PHPM. Under the terms
of the Merger Agreement, Life Newco II would merge with and into
PHPM, with PHPM surviving as a wholly owned subsidiary of the
Company (the “Merger”). On January 15, 2021, the
Company completed the acquisition contemplated by the Merger
Agreement (the “Acquisition”). As a result of the
Acquisition the Company intends to develop pharmaceutical products
containing imatinib for the treatment of pulmonary arterial
hypertension in the United States and the rest of the
world.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation of these
financial statements. The condensed consolidated balance sheet on
December 31, 2020 has been derived from the Company’s audited
consolidated financial statements included in its Annual Report on
Form 10-K for the period ended December 31, 2020. Certain footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the
United States (“GAAP”) have been condensed or omitted
pursuant to Article 8 of Regulation S-X of the Securities and
Exchange Commission (“SEC”) rules and regulations.
Operating results for the three-month period ended March 31, 2021
are not necessarily indicative of results for the full year or any
other future periods. As such, it is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2020.
Going Concern
Management
believes the accompanying condensed consolidated financial
statements have been prepared in conformity with GAAP, which
contemplate continuation of the Company as a going concern. The
Company has an accumulated deficit of $270 million on March 31,
2021 and $246 million on December 31, 2020 and used cash in
operations of $3.2 million and $2.7 million during the three months
ended March 31, 2021 and 2020, respectively. The Company requires
substantial additional funds to complete clinical trials and pursue
regulatory approvals. Management is actively seeking additional
sources of equity and/or debt financing; however, there is no
assurance that any additional funding will be
available.
In view
of the matters described above, recoverability of a major portion
of the recorded asset amounts shown in the accompanying March 31,
2021 balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company’s
ability to meet its financing requirements on a continuing basis,
to maintain present financing, and to generate cash from future
operations. These factors, among others, raise substantial doubt
about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
Use of Estimates
In
preparing the unaudited condensed consolidated financial
statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the dates of the unaudited condensed consolidated financial statements
and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from these estimates
and the operating results for the interim periods presented are not
necessarily indicative of the results expected for the full
year.
On an
ongoing basis, management reviews its estimates to ensure that
these estimates appropriately reflect changes in the
Company’s business and new information as it becomes
available. If historical experience and other factors used by
management to make these estimates do not reasonably reflect future
activity, the Company’s results of operations and financial
position could be materially impacted.
Principles of Consolidation
The
accompanying condensed
consolidated financial statements include the accounts and
transactions of the Company, Life
Newco and Life Newco II. All material intercompany transactions and
balances have been eliminated in consolidation.
Liquidity and Management’s Plan
On March 31, 2021, the Company had cash and cash equivalents,
including the fair value of its marketable securities, of
approximately $4.0 million. The Company used $3.2 million of cash
for operating activities during the three months ended March 31,
2021 and had stockholders’ equity of $3.1 million, versus
$4.6 million on December 31, 2020.
The
Company expects to continue to incur expenses related to
development of levosimendan for pulmonary hypertension and other
potential indications, as well as identifying and developing other
potential product candidates. Based on its resources on March 31,
2021, the Company believes that it has sufficient capital to fund
its planned operations through the third quarter of calendar year
2021. However, the Company will need substantial additional
financing in order to fund its operations beyond such period and
thereafter until it can achieve profitability, if ever. The Company
depends on its ability to raise additional funds through various
potential sources, such as equity and debt financing, or to license
its product candidates to another pharmaceutical company. The
Company will continue to fund operations from cash on hand and
through sources of capital similar to those previously described.
The Company cannot assure that it will be able to secure such
additional financing, or if available, that it will be sufficient
to meet its needs.
To the
extent that the Company raises additional funds by issuing shares
of its common stock or other securities convertible or exchangeable
for shares of common stock, stockholders will experience dilution,
which may be significant. In the event the Company raises
additional capital through debt financings, the Company may incur
significant interest expense and become subject to covenants in the
related transaction documentation that may affect the manner in
which the Company conducts its business. To the extent that the
Company raises additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to its
technologies or product candidates or grant licenses on terms that
may not be favorable to the Company.
Any or
all of the foregoing may have a material adverse effect on the
Company’s business and financial performance.
COVID-19 Impact and Related Risks
The continued spread of COVID-19 globally could adversely affect
the Company’s ability to retain principal investigators and
site staff who, as healthcare providers, may have heightened
exposure to COVID-19 if an outbreak occurs in their geography.
Further, some of these investigators and site staff may be unable
to comply with clinical trial protocols if quarantines or travel
restrictions impede movement or interrupt healthcare services, or
if they become infected with COVID-19 themselves, which would delay
the Company’s ability to initiate and/or complete planned
clinical and preclinical studies in the future.
The full extent to which the COVID-19 pandemic and the various
responses to it might impact the Company’s business,
operations and financial results will depend on numerous evolving
factors that are not subject to accurate prediction and that are
beyond the Company’s control.
Net Loss per Share
Basic
net loss per share, which excludes antidilutive securities, is
computed by dividing net loss by the weighted-average number of
common shares outstanding for that particular period. In contrast,
diluted net loss per share considers the potential dilution that
could occur from other equity instruments that would increase the
total number of outstanding shares of common stock. Such amounts
include shares potentially issuable under outstanding options,
convertible preferred shares and warrants.
The
following outstanding options, convertible preferred shares and
warrants were excluded from the computation of basic and diluted
net loss per share for the periods presented because including them
would have had an anti-dilutive effect.
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
Warrants
to purchase common stock
|
21,057,508
|
14,362,007
|
|
Options
to purchase common stock
|
751,137
|
581,694
|
|
Convertible
preferred shares outstanding
|
10,442
|
210
|
Leases
The
Company determines if an arrangement includes a lease at inception.
Operating leases are included in operating lease right-of-use
assets, other current liabilities, and long-term lease liabilities
in the Company’s condensed consolidated balance sheets.
Right-of-use assets represent the Company’s right to use an
underlying asset for the lease term and lease liabilities represent
the Company’s obligation to make lease payments arising from
the lease. Operating lease right-of-use assets and liabilities are
recognized at the lease commencement date based on the present
value of lease payments over the lease term. In determining the net
present value of lease payments, the Company uses the incremental
borrowing rate based on the information available at the lease
commencement date. The operating lease right-of-use assets also
include any lease payments made and exclude lease incentives. The
Company’s leases may include options to extend or terminate
the lease which are included in the lease term when it is
reasonably certain that the Company will exercise any such option.
Lease expense is recognized on a straight-line basis over the
expected lease term. The Company has elected to account for leases
with an initial term of 12 months or less similar to previous
guidance for operating leases, under which the Company will
recognize those lease payments in the consolidated statements of
operations and comprehensive loss on a straight-line basis over the
lease term.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board
(“FASB”) issued an accounting standard intended to
simplify accounting for income taxes. It removes certain exceptions
to the general principles in Topic 740, Income Taxes and amends
existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020 and early adoption
is permitted. The Company’s adoption of this standard did not
have a material impact on its consolidated financial
statements.
In June 2016, the FASB issued an accounting standard that amends
how credit losses are measured and reported for certain financial
instruments that are not accounted for at fair value through net
income. This standard requires that credit losses be presented as
an allowance rather than as a write-down for available-for-sale
debt securities and will be effective for interim and annual
reporting periods beginning January 1, 2023, with early
adoption permitted. A modified retrospective approach is to be used
for certain parts of this guidance, while other parts of the
guidance are to be applied using a prospective approach. The
Company does not believe the adoption of this standard will have a
material impact on its consolidated financial statements and
related disclosures.
NOTE
3. FAIR VALUE
The
Company determines the fair value of its financial assets and
liabilities in accordance with the Accounting Standards
Codification (“ASC”) 820 Fair Value Measurements. The
Company’s balance sheet includes the following financial
instruments: cash and cash equivalents, investments in marketable
securities, and warrant liabilities. The Company considers the
carrying amount of its cash and cash equivalents to approximate
fair value due to the short-term nature of these
instruments.
Accounting
for fair value measurements involves a single definition of fair
value, along with a conceptual framework to measure fair value,
with a fair value defined as “the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.” The fair value measurement hierarchy consists of three
levels:
|
Level
one
|
Quoted
market prices in active markets for identical assets or
liabilities;
|
|
Level
two
|
Inputs
other than level one inputs that are either directly or indirectly
observable; and
|
|
Level
three
|
Unobservable
inputs developed using estimates and assumptions, which are
developed by the reporting entity and reflect those assumptions
that a market participant would use.
|
The
Company applies valuation techniques that (1) place greater
reliance on observable inputs and less reliance on unobservable
inputs and (2) are consistent with the market approach, the
income approach and/or the cost approach, and include enhanced
disclosures of fair value measurements in the Company’s
condensed consolidated
financial statements.
Investments in Marketable Securities
The
Company classifies all of its investments as available-for-sale.
Unrealized gains and losses on investments are recognized in
comprehensive income/(loss), unless an unrealized loss is
considered to be other than temporary, in which case the unrealized
loss is charged to operations. The Company periodically reviews its
investments for other than temporary declines in fair value below
cost basis and whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company believes the individual unrealized losses represent
temporary declines primarily resulting from interest rate changes.
Realized gains and losses are reflected in other income in the
condensed consolidated
statements of comprehensive loss and are determined using the
specific identification method with transactions recorded on a
settlement date basis. Investments with original maturities at date
of purchase beyond three months and which mature at or less than 12
months from the balance sheet date are classified as current.
Investments with a maturity beyond 12 months from the balance sheet
date are classified as long-term. As of March 31, 2021, the Company
believes that the costs of its investments are recoverable in all
material respects.
The
following table summarizes the fair value of the Company’s
investments by type. The estimated fair value of the
Company’s fixed income investments is classified as Level 2
in the fair value hierarchy as defined in GAAP. These fair values
are obtained from independent pricing services which utilize Level
2 inputs:
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
$491,924
|
$3,357
|
$31
|
$(435)
|
$494,877
|
|
Total
investments
|
$491,924
|
$3,357
|
$31
|
$(435)
|
$494,877
|
All of
the Company’s investments have scheduled maturities of less
than one year as of March 31, 2021 and December 31,
2020.
The
following tables summarize information regarding assets and
liabilities measured at fair value on a recurring basis as of March
31, 2021 and December 31, 2020:
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance as of March 31, 2021
|
Quoted prices in Active Markets for Identical Securities
(Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
$3,536,787
|
$3,536,787
|
$-
|
$-
|
|
Marketable
securities
|
$494,877
|
$-
|
$494,877
|
$-
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance as of December 31, 2020
|
Quoted prices in Active Markets for Identical Securities
(Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
$6,250,241
|
$6,250,241
|
$-
|
$-
|
|
Marketable
securities
|
$462,687
|
$-
|
$462,687
|
$-
|
There were no significant transfers between levels in the three
months ended March 31, 2021.
NOTE 4. BALANCE SHEET COMPONENTS
Property and equipment, net
Property
and equipment consist of the following as of March 31, 2021 and
December 31, 2020:
|
|
|
|
|
Office
furniture and fixtures
|
$43,033
|
$43,033
|
|
Computer
equipment and software
|
21,757
|
23,307
|
|
|
64,790
|
66,340
|
|
Less:
Accumulated depreciation
|
(59,953)
|
(60,368)
|
|
|
$4,837
|
$5,972
|
Depreciation
expense was approximately $1,100 for each the three months ended
March 31, 2021 and 2020.
Accrued liabilities
Accrued
liabilities consist of the following as of March 31, 2021 and
December 31, 2020:
|
|
|
|
|
Employee
related
|
$107,442
|
$860,629
|
|
Operating
costs
|
84,595
|
319,608
|
|
Lease
liability
|
30,743
|
60,379
|
|
|
$222,780
|
$1,240,616
|
NOTE 5. LEASE
In
January 2011, the Company entered into the Lease with Concourse
Associates, LLC for office facilities located at the premises in
Morrisville, North Carolina (the “Lease”). The
Lease was amended in August 2015 to extend the term for the 5,954
square foot rental. The current term began on March 1, 2016
and continues for 64 months to June 30, 2021. Rent payments began
on July 1, 2016, following the conclusion of a four-month rent
abatement period. The Company has two five-year options to extend
the Lease and a one-time option to terminate the Lease thirty-six
months after the commencement of the initial term if no additional
space (“Expansion Space”) became available; none of
these optional periods have been considered in the determination of
the right-of-use asset or the lease liability for the Lease as the
Company did not consider it reasonably certain that it would
exercise any such options. The Lease further provides that
the Company is obligated to pay to the landlord certain variable
costs, including taxes and operating expenses. The Company also has
a right of first offer to lease the Expansion Space, of no less
than 1,000 square feet, as that additional space becomes available
adjacent to the premises over the remainder of the initial term of
the Lease, at the same rate per square foot as the current
premises, with an extension of the term of sixty additional months
starting at the commencement date of acquiring the Expansion
Space.
The
Company performed an evaluation of its other contracts with
customers and suppliers in accordance with ASC 842 and determined
that, except for the Lease described above, none of the
Company’s contracts contain a lease.
The
balance sheet classification of our lease liabilities was as
follows:
|
|
|
|
|
Current
portion included in accrued liabilities
|
$30,743
|
$60,379
|
|
|
$30,743
|
$60,379
|
As of
March 31, 2021, the maturities of our operating lease liabilities
were as follows:
|
Year ending December 31, 2021
|
|
|
Total
lease payments
|
$31,154
|
|
Less:
Imputed interest
|
(411)
|
|
Operating lease liability
|
$30,743
|
Operating
lease liabilities are based on the net present value of the
remaining Lease payments over the remaining Lease term. In
determining the present value of lease payments, the Company used
the incremental borrowing rate based on the information available
at the Lease commencement date. As of March 31, 2021, the remaining
Lease term is 3 months and the discount rate used to determine the
operating lease liability was 8.0%. For the three months ending
March 31, 2021, the Company paid $34,543 in total lease expenses,
including $3,895 for common area maintenance charges.
NOTE 6. NOTE PAYABLE
Payroll Protection Program Loan
On
April 30, 2020, the Company received a loan pursuant to the
Paycheck Protection Program (the “PPP Loan”) under the
Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”), as administered by the U.S. Small
Business Administration. The PPP Loan in the principal amount of
$244,657 was disbursed by First Horizon Bank (the
“Lender”) pursuant to a promissory note issued by us
(the “Note”).
The PPP
Loan has a two-year term and bears interest at a rate of 1.00% per
annum. Monthly principal and interest payments are deferred for
sixteen months. Beginning September 30, 2021, the Company is
required to make monthly payments of principal and interest of
approximately $31,100 to the Lender. The Company did not provide
any collateral or guarantees for the PPP Loan, nor did the Company
pay any facility charge to obtain the PPP Loan. The Note provides
for customary events of default, including, among others, those
relating to failure to make payment, bankruptcy, breaches of
representations, and material adverse effects. The Company may
prepay the principal of the PPP Loan at any time, subject to
certain notice requirements.
Under
the terms of the CARES Act, Paycheck Protection Program loan
recipients can apply for and be granted forgiveness for all or a
portion of a loan granted under the program. Such forgiveness will
be determined, subject to limitations, based on the use of loan
proceeds for payment of payroll costs and any payments of mortgage
interest, rent, and utilities. The Company is using the proceeds
from the PPP Loan to fund payroll costs in accordance with the
relevant terms and conditions of the CARES Act. However, no
assurance is provided that forgiveness for any portion of the PPP
Loan will be obtained.
As of
March 31, 2021, the current and long-term portions of the PPP Loan
were $213,577 and $31,080, respectively.
NOTE 7. MERGER
On
January 15, 2021, the Company, Life Newco II, PHPM, and Dr. Stuart
Rich, solely in his capacity as Representative, entered into the
Merger Agreement, pursuant to which, subject to the satisfaction or
waiver of the conditions set forth in the Merger Agreement, the
Company would acquire 100% of the equity of PHPM. Under the terms
of the Merger Agreement, Life Newco II would merge with and into
PHPM, with PHPM surviving as a wholly owned subsidiary of the
Company. On January 15, 2021, the Company completed the
Acquisition.
As
consideration for the Merger, the stockholders of PHPM received (i)
1,892,905 shares of the Company’s common stock (“Common
Stock”), and (ii) 10,232 shares of the Company’s Series
B convertible preferred stock, which are convertible into up to an
aggregate of 10,232,000 shares of Common Stock (“Preferred
Stock”) (collectively, the “Merger
Consideration”). The issuance of 1,212,492 shares of Common
Stock issuable upon conversion of the Preferred Stock, representing
approximately 10% of the Merger Consideration, will be delayed as
security for closing adjustments and post-closing indemnification
obligations of PHPM and the stockholders of PHPM. Each share of
Preferred Stock will automatically convert into (i) 881.5 shares of
Common Stock following receipt of the approval of the stockholders
of the Company for the Conversion (as defined herein), and (ii)
118.5 shares of Common Stock 24 months after the date of issuance
of the Preferred Stock, subject to reduction for indemnification
claims. The number of shares of Common Stock into which the
Preferred Stock converts is subject to adjustment in the case of
stock splits, stock dividends, combinations of shares and similar
recapitalization transactions. The Preferred Stock does not carry
dividends or a liquidation preference. The Preferred Stock carries
voting rights aggregating 4.99% of the Company’s Common Stock
voting power immediately prior to the closing of the Merger. The
rights, preferences and privileges of the Preferred Stock are set
forth in the Certificate of Designation of Series B Convertible
Preferred Stock that the Company filed with the Secretary of State
of the State of Delaware on January 15, 2021 (the
“Certificate of Designation”).
Pursuant
to the Merger Agreement, the Company must, no later than July 31,
2021, take all action necessary to call, convene and hold a meeting
of the Company’s stockholders to vote upon the conversion of
the Preferred Stock pursuant to the Certificate of Designation (the
“Conversion”). If stockholder approval is not obtained
at such meeting, the Company must call a meeting every 90 days
thereafter to seek stockholder approval for the Conversion until
the earlier of the date stockholder approval for the Conversion is
obtained or the Preferred Stock is no longer
outstanding.
The
terms of the Merger Agreement also require the board of directors
of the Company (the “Board”) to, subject to the
Board’s fiduciary duties under applicable law, (i) recommend
to the Company’s stockholders that they approve the
Conversion at any meeting of the Company’s stockholders
called for the approval of the Conversion, and (ii) use reasonable
best efforts to solicit from the Company’s stockholders, the
affirmative vote of the holders of shares representing a majority
of the shares of the Company’s capital stock voting in person
or by proxy at any such meeting. A vote on the Conversion is
expected to take place at the Company’s next annual meeting
of stockholders. In addition, (i) at the Company’s first
regularly scheduled Board meeting following the closing of the
Merger, the Board must appoint one director designated by the
Representative to serve on the Board, and (ii) as promptly as
practicable after the Company has obtained stockholder approval for
the Conversion, the Board must appoint two additional directors
designated by the Representative to serve on the Board. Dr. Stuart
Rich, the co-founder and Chief Executive Officer, and a stockholder
of PHPM, and Dr. Michael Davidson and Dr. Declan Doogan, the two
other designees of the Representative, were appointed to the Board
on February 25, 2021. In connection with the closing of the Merger,
Dr. Stuart Rich was also appointed Chief Medical Officer of the
Company.
The
Company evaluated this acquisition in accordance with ASC 805,
Business Combinations, to determine whether the assets and
operations of PHPM met the definition of a business. Included in
the in-process research and development project is the
historical know-how, formula protocols, designs, and
procedures expected to be needed to complete the related phase
of testing. The Company concluded that the in-process research
and development (“IPR&D”) project is an
identifiable intangible asset that would be accounted for as a
single asset in a business combination. The Company also
qualitatively concluded that there is no fair value associated
with the clinical research organization contract and the
clinical manufacturing organization contract because the
services are being provided at market rates and could be provided
by multiple vendors in the marketplace. Therefore, all of the
consideration in the transaction will be allocated to the
in-process research and development project. As such, the
Company concluded that substantially all of the fair value of the
gross assets acquired is concentrated in the single in-process
research and development asset and the set is not a
business.
The
Company is planning to use the acquired asset to further its
clinical develop in an upcoming phase 3 clinical trial for the
treatment of patients with PAH. Although the acquired asset may
have utility in other patient populations, future development
decisions for the acquired asset will be contingent upon the
results of the contemplated phase 3 program for PAH. As such, the
acquired asset does not have an alternative future use at the
acquisition date. In accordance with ASC 730, Research and
Development, the Company concluded the entire Purchase Price for
the asset acquisition will be recorded as an expense on the
acquisition date.
The
consideration transferred, assets acquired and liabilities assumed
were recognized as follows:
|
Fair
value of shares of Common Stock issued
|
$3,369,371
|
|
Fair
Value of Series B Convertible Preferred Stock issued at
closing
|
18,212,960
|
|
Total
fair value of consideration transferred
|
$21,582,331
|
|
|
|
|
Tangible
assets acquired
|
$-
|
|
Accounts
payable assumed
|
(150,000)
|
|
Total
identifiable net assets
|
(150,000)
|
|
IPR&D
expense recognized
|
21,732,331
|
|
Total
fair value of consideration
|
$21,582,331
|
NOTE 8. COMMITMENTS AND CONTINGENCIES
Simdax license agreement
On November 13, 2013, the Company acquired, through its
wholly owned subsidiary, Life Newco, that certain License Agreement (the
“License”), dated September 20, 2013 by and between
Phyxius and Orion Corporation, a global healthcare company
incorporated under the laws of Finland (“Orion”), and
that certain Side Letter, dated October 15, 2013 by and between
Phyxius and Orion. The License grants the Company an exclusive, sublicenseable right to develop and
commercialize pharmaceutical products containing levosimendan (the
“Product”) in the United States and Canada (the
“Territory”) from Orion. Pursuant to the
License, the Company must use Orion’s
“Simdax®” trademark to commercialize the
Product. The License also grants to the Company a right
of first refusal to commercialize new developments of the Product,
including developments as to the formulation, presentation, means
of delivery, route of administration, dosage or indication, i.e.,
line extension products. Orion’s ongoing role
under the License includes sublicense approval, serving as the sole
source of manufacture, holding a first right to enforce
intellectual property rights in the Territory, and certain
regulatory participation rights. Additionally, the
Company must grant back to Orion a broad non-exclusive license to
any patents or clinical trial data related to the Product developed
by the Company under the License. The License has a
fifteen (15) year term, provided, however, that the License will
continue after the end of the fifteen-year term in each country in
the Territory until the expiration of Orion’s patent rights
in the Product in such country.
On
October 9, 2020, the Company entered into the Amendment to include
two new oral products containing levosimendan, in capsule and solid
dosage form, and a subcutaneously administered product containing
levosimendan to the scope of the License, subject to specified
limitations. The Amendment also amends the tiered royalty payments
based on net sales of the Product in the Territory (each as defined
in the License, as amended by the Amendment) made by the Company
and its sublicensees. Pursuant to the Amendment, the term of the
License has been extended until 10 years after the launch of the
Product in the Territory, provided that the License will
continue after the end of the term in each country in the Territory
until the expiration of Orion’s patent rights in the Product
in such country. In the event that no regulatory approval for the
Product has been granted in the United States on or before
September 20, 2028, however, either party will have the right to
terminate the License with immediate effect.
Pursuant to the terms of the License, the Company paid to Orion a
non-refundable up-front payment in the amount of $1.0
million. The License also includes the following
development milestones for which the Company shall make
non-refundable payments to Orion no later than twenty-eight (28)
days after the occurrence of the applicable milestone event: (1)
$2.0 million upon the grant of United States Food and Drug
Administration approval, including all registrations, licenses,
authorizations and necessary approvals, to develop and/or
commercialize the Product in the United States; and (2) $1.0
million upon the grant of regulatory approval for the Product in
Canada. Once commercialized, the Company is obligated to make
certain non-refundable commercialization milestone payments to
Orion, aggregating up to $13.0 million, contingent upon achievement
of certain cumulative net sales amounts in the Territory. The
Company must also pay Orion tiered royalties based on net sales of
the Product in the Territory made by the Company and its
sublicensees. After the end of the term of the License, the Company
must pay Orion a royalty based on net sales of the Product in the
Territory for as long as the Company sells the Product in the
Territory.
As of
March 31, 2021, the Company has not met any of the developmental
milestones and, accordingly, has not recorded any liability for the
contingent payments due to Orion.
NOTE 9. STOCKHOLDERS’ EQUITY
Preferred Stock
Under
the Company’s Certificate of Incorporation, the Board is
authorized, without further stockholder action, to provide for the
issuance of up to 10,000,000 shares of preferred stock, par value
$0.0001 per share, in one or more series, to establish from time to
time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations and
restrictions thereof.
Series B
Stock
As
further discussed in Note 7 above, on January 15, 2021 the Company
issued 10,232 shares of its Series B Stock, which were convertible
into an aggregate of 10,232,000 shares of common stock, to the
stockholders of PHPM as partial consideration for the Merger with
PHPM pursuant to the Merger Agreement.
The
rights, preferences and privileges of the Series B Stock are set
forth in the Certificate of Designation. Each share of
Series B Stock will automatically convert into (i) 881.5 shares of
Common Stock following receipt of the approval of the stockholders
of the Company for the Conversion, and (ii) 118.5 shares of Common
Stock 24 months after the date of issuance of the Preferred Stock,
subject to reduction for indemnification claims. The number of
shares of Common Stock into which the Preferred Stock converts is
subject to adjustment in the case of stock splits, stock dividends,
combinations of shares and similar recapitalization transactions.
The Preferred Stock does not carry dividends or a liquidation
preference. The Preferred Stock carries voting rights aggregating
4.99% of the Company’s Common Stock voting power immediately
prior to the closing of the Merger.
As of
March 31, 2021, there were 10,232 shares of Series B Stock outstanding.
Series A Stock
On December 11, 2018, the Company closed its underwritten offering
of 5,181,346 units for net proceeds of approximately $9 million.
Each unit consists of (1) one share of the Company’s Series A
convertible preferred stock, par value $0.0001 per share (the
“Series A Stock”), (2) a two-year warrant to purchase
one share of common stock at an exercise price of $1.93, and (3) a
five-year warrant to purchase one share of common stock at an
exercise price of $1.93. In accordance with ASC 480, the
estimated fair value of $1,800,016 for the beneficial conversion
feature was recognized as a deemed dividend on the Series A Stock
during the year ended December 31, 2020.
The
table below sets forth a summary of the designation, powers,
preferences and rights of the Series A Stock.
|
Conversion
|
Subject to the ownership limitations described below, the Series A
Stock is convertible at any time at the option of the holder into
shares of the Company’s common stock at a conversion ratio
determined by dividing the stated value of the Series A Stock by a
conversion price of $1.93 per share. The conversion price is
subject to adjustment in the case of stock splits, stock dividends,
combinations of shares and similar recapitalization
transactions.
The
Company will not affect any conversion of the Series A Stock, nor shall a holder convert
its shares of Series A Stock,
to the extent that such conversion would cause the holder to have
acquired, through conversion of the Series A Stock or otherwise, beneficial
ownership of a number shares of common stock in excess of 4.99%
(or, at the election of the holder prior to the issuance of any
shares of Series A Stock, 9.99%) of the common stock outstanding
after giving effect to such exercise.
|
|
Dividends
|
In the event the Company pays dividends on its shares of common
stock, the holders of the Series A Stock will be entitled to
receive dividends on shares of Series A Stock equal, on an
as-if-converted basis, to and in the same form as paid on the
common stock. No other dividends will be paid on the shares of
Series A Stock.
|
|
Liquidation
|
Upon any liquidation, dissolution or winding up of the Company
after payment or provision for payment of debts and other
liabilities of the Company, the holders of Series A Stock shall be
entitled to be paid out of the assets of the Company available for
distribution to its stockholders an amount equal to the amount that
a holder of common stock would receive if the Series A Stock were
fully converted to common stock, which amounts will be paid pari
passu with all holders of common stock.
|
|
Voting rights
|
Shares
of Series A Stock will generally have no voting rights, except as
required by law and except that the consent of holders of a
majority of the then outstanding Series A Stock will be required to
amend the terms of the Series A Stock or to take other action that
adversely affects the rights of the holders of Series A
Stock.
|
As of
March 31, 2021, there were 210 shares of Series A Stock outstanding.
Common Stock
The
Company’s Certificate of Incorporation authorizes it to issue
400,000,000 shares of $0.0001 par value common stock. As of March
31, 2021, and December 31, 2020, there were 14,969,312 and
12,619,369 shares of common stock issued and outstanding,
respectively.
On
March 13, 2020, the Company completed a registered direct offering
to a single healthcare-focused institutional investor (the
“Investor”) for the issuance and sale of 750,000 shares
of its common stock at a purchase price of $1.1651 per share and
pre-funded warrants to purchase up to 1,610,313 shares of its
common stock, at a purchase price of $1.1650 per pre-funded warrant
(which represents the per share offering price for the common stock
less $0.0001, the exercise price of each pre-funded warrant), for
gross proceeds of approximately $2.75 million, priced at-the-market
under Nasdaq rules. Additionally, in a concurrent private
placement, the Company issued to the Investor unregistered warrants
to purchase up to 2,360,313 shares of its common stock. The
unregistered warrants have an exercise price of $1.04 per share and
exercise period commencing immediately upon the issuance date and a
term of five and one-half years. The net proceeds from the
offerings, after deducting placement agent fees and other direct
offering expenses were approximately $2.125 million. The fair value
allocated to the common stock, pre-funded warrants and warrants was
$0.5 million, $1.1 million and $1.1 million,
respectively.
On July
8, 2020, the Company completed a registered direct offering with
the Investor for the issuance and sale of 2,523,611 shares of its
common stock at a purchase price of $1.0278 per share and
pre-funded warrants to purchase up to 652,313 shares of its common
stock, at a purchase price of $1.0277 per pre-funded warrant (which
represents the per share offering price for the common stock less
$0.0001, the exercise price of each pre-funded warrant). The
Company issued in a concurrent private placement unregistered
pre-funded warrants to purchase up to 4,607,692 shares of common
stock at the same purchase price as the registered pre-funded
warrants, and unregistered common stock warrants to purchase up to
7,783,616 shares of common stock for aggregate gross proceeds of
approximately $8.0 million, priced at-the-market under Nasdaq
rules. The unregistered warrants have an exercise price of $0.903
per share and exercise period commencing immediately upon the
issuance date and a term of five and one-half years. The net
proceeds from the offerings, after deducting placement agent fees
and other direct offering expenses were approximately $6.5 million.
The fair value allocated to the common stock, pre-funded warrants
and warrants was $1.5 million, $3.0 million and $3.5 million,
respectively.
As of
March 31, 2021, there were 5,260,005 pre-funded warrants
outstanding.
Warrants
March 2020 Warrants
As part of the March 2020 registered direct offering, the Company
issued unregistered warrants to purchase 2,360,313 shares of its
common stock at an exercise price of $1.04 per share and
contractual term of five and one-half years. The
unregistered warrants were offered in a private placement under
Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Regulation D promulgated
thereunder and, along with the shares of common stock underlying
the warrants, have not been registered under the Securities Act, or
applicable state securities laws. In accordance with ASC 480, these
warrants are classified as equity and their relative fair value of
approximately $1.1 million was recognized as additional paid in
capital. The estimated fair value is
determined using the Black-Scholes Option Pricing Model
which is based on the value of the
underlying common stock at the valuation measurement date, the
remaining contractual term of the warrants, risk-free interest
rates, expected dividends and expected volatility of the price of
the underlying common stock.
July 2020 Warrants
As part of the July 2020 offering, the Company issued unregistered
warrants to purchase 7,783,616 shares of its common stock at an
exercise price of $0.903 per share and contractual term of five and
one-half years. The unregistered warrants were offered in a
private placement under Section 4(a)(2) of the Securities Act, and
Regulation D promulgated thereunder and, along with the shares of
common stock underlying the warrants, have not been registered
under the Securities Act, or applicable state securities laws. In
accordance with ASC 480, these warrants are classified as equity
and their relative fair value of approximately $3.5 million was
recognized as additional paid in capital. The estimated fair value is determined using
the Black-Scholes Option Pricing Model which is based on the value of the underlying
common stock at the valuation measurement date, the remaining
contractual term of the warrants, risk-free interest rates,
expected dividends and expected volatility of the price of the
underlying common stock.
Warrants Issued for Services
In connection with the March 2020 offering described above, the
Company issued designees of the placement agent warrants to
purchase 177,023 shares of common stock at an exercise price of
$1.4564 and a contractual term of five years. In accordance with
ASC 815, these warrants are classified as equity and its estimated
fair value of $66,201 was recognized as additional paid in
capital. Additionally, the Company
issued to its previous underwriter a warrant to purchase 94,413
shares of common stock at an exercise price of $1.4564 per share
and contractual term of five years. In accordance with ASC
815, this warrant is classified as equity and its estimated fair
value of $35,308 was recognized as additional paid in capital.
The estimated fair value is determined
using the Black-Scholes Option Pricing Model which is based on the value of the underlying
common stock at the valuation measurement date, the remaining
contractual term of the warrant, risk-free interest rates, expected
dividends and expected volatility of the price of the underlying
common stock.
In connection with the July 2020 offering described above, the
Company issued designees of the placement agent warrants to
purchase 583,771 shares of common stock at an exercise price of
$1.2848 and a contractual term of five years. In accordance with
ASC 815, these warrants are classified as equity and its estimated
fair value of $399,445 was recognized as additional paid in
capital. Additionally, the Company
issued to its previous underwriter a warrant to purchase 311,345
shares of common stock at an exercise price of $1.2848 per share
and contractual term of five years. In accordance with ASC
815, this warrant is classified as equity and its estimated fair
value of $213,038 was recognized as additional paid in capital.
The estimated fair value is determined
using the Black-Scholes Option Pricing Model which is based on the value of the underlying
common stock at the valuation measurement date, the remaining
contractual term of the warrant, risk-free interest rates, expected
dividends and expected volatility of the price of the underlying
common stock.
During
the three months ended March 31, 2021, the Company received
approximately $545,000 and issued 282,202 shares of common stock
upon the exercise of previously outstanding warrants issued in
connection with the Company’s December 2018
offering.
During
the three months ended March 31, 2021, the Company issued 119,491
shares of common stock upon the cashless exercise of previously
outstanding placement agent warrants issued in connection with the
Company’s March 2020 offering.
During
the three months ended March 31, 2021, the Company issued 399,883
shares of common stock upon the cashless exercise of previously
outstanding placement agent warrants issued in connection with the
Company’s July 2020 offering.
As of
March 31, 2021, the Company has 15,797,503 warrants outstanding.
The following table summarizes the Company’s warrant activity
for the three months ended March 31, 2021:
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding
at December 31, 2020
|
16,599,079
|
$1.29
|
|
Exercised
|
(801,576)
|
1.54
|
|
Outstanding
at March 31, 2021
|
15,797,503
|
$1.27
|
2016 Stock Incentive Plan
In June
2016, the Company adopted the 2016 Stock Incentive Plan (the
“2016 Plan”). Under the 2016 Plan, with the
approval of the Compensation Committee of the Board of Directors,
the Company may grant stock options, stock appreciation rights,
restricted stock, restricted stock units, performance shares,
performance units, cash-based awards or other stock-based awards.
On June 16, 2016, the Company’s stockholders approved the
2016 Plan and authorized for issuance under the 2016 Plan a total
of 150,000 shares of common stock. On June 13, 2019, the
Company’s stockholders approved an amendment to the 2016 Plan
which increased the number of shares of common stock authorized for
issuance under the 2016 Plan to a total of 750,000 shares, up from
150,000 previously authorized.
The
following table summarizes the shares available for grant under the
2016 Plan for the three months ended March 31, 2021:
|
|
Shares Available for Grant
|
|
Balances, at December 31, 2020
|
356,500
|
|
Options
granted
|
(300,000)
|
|
Balances, at March 31, 2021
|
56,500
|
2016 Plan Stock Options
Stock
options granted under the 2016 Plan may be either incentive stock
options (“ISOs”), or nonqualified stock options
(“NSOs”). ISOs may be granted only to employees. NSOs
may be granted to employees, consultants and directors. Stock
options under the 2016 Plan may be granted with a term of up to ten
years and at prices no less than fair market value at the time of
grant. Stock options granted generally vest over three to four
years.
The
following table summarizes the outstanding stock options under the
2016 Plan for the three months ended March 31, 2021:
|
|
|
|
|
|
Weighted Average Exercise Price
|
|
Balances at December 31, 2020
|
393,500
|
$1.81
|
|
Options
granted
|
300,000
|
$1.85
|
|
Balances at March 31, 2021
|
693,500
|
$1.83
|
The
Company chose the “straight-line” attribution method
for allocating compensation costs of each stock option over the
requisite service period using the Black-Scholes Option Pricing
Model to calculate the grant date fair value.
The Company recorded compensation expense for these stock option
grants of $90,319 and $60,161 for the three months ended March 31,
2021 and 2020, respectively.
As of
March 31, 2021, there were unrecognized compensation costs of
approximately $503,592 related to non-vested stock option awards
under the 2016 Plan that will be recognized on a straight-line
basis over the weighted average remaining vesting period of 1.57
years.
The
Company used the following assumptions to estimate the fair value
of options granted under the 2016 Plan for the three months ended
March 31, 2021:
|
|
|
For the three months ended March 31,
|
|
|
|
2021
|
|
2020
|
|
Risk-free interest rate (weighted average)
|
|
0.66%
|
|
1.03%
|
|
Expected volatility (weighted average)
|
|
99.49%
|
|
97.59%
|
|
Expected term (in years)
|
|
7
|
|
7
|
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
Risk-Free Interest Rate
|
The
risk-free interest rate assumption was based on U.S. Treasury
instruments with a term that is consistent with the expected term
of the Company’s stock options.
|
|
Expected Volatility
|
The
expected stock price volatility for the Company’s common
stock was determined by examining the historical volatility and
trading history for its common stock over a term consistent with
the expected term of its options.
|
|
Expected Term
|
The
expected term of stock options represents the weighted average
period the stock options are expected to remain outstanding. It was
calculated based on the Company’s historical experience with
its stock option grants.
|
|
Expected Dividend Yield
|
The
expected dividend yield of 0% is based on the Company’s
history and expectation of dividend payouts. The Company has not
paid and does not anticipate paying any dividends in the near
future.
|
|
Forfeitures
|
Stock
compensation expense recognized in the statements of operations for
the three months ended March 31, 2021 is based on awards ultimately
expected to vest, and it has been reduced for estimated
forfeitures. ASC 718 requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures were
estimated based on the Company’s historical
experience.
|
1999 Amended Stock Plan
In
October 2000, the Company adopted the 1999 Stock Plan, as amended
and restated on June 17, 2008 (the “1999 Plan”).
Under the 1999 Plan, with the approval of the Compensation
Committee of the Board of Directors, the Company could grant stock
options, restricted stock, stock appreciation rights and new shares
of common stock upon exercise of stock options. On March 13, 2014,
the Company’s stockholders approved an amendment to the 1999
Plan which increased the number of shares of common stock
authorized for issuance under the 1999 Plan to a total of 200,000
shares, up from 15,000 previously authorized. On September 15,
2015, the Company’s stockholders approved an additional
amendment to the 1999 Plan which increased the number of shares of
common stock authorized for issuance under the 1999 Plan to a total
of 250,000 shares, up from 200,000 previously authorized. The 1999
Plan expired on June 17, 2018 and no new grants may be made under
that plan after that date. However, unexpired awards granted under
the 1999 Plan remain outstanding and subject to the terms of the
1999 Plan.
1999 Plan Stock Options
Stock
options granted under the 1999 Plan may be either ISOs or NSOs.
ISOs could be granted only to employees. NSOs could be granted to
employees, consultants and directors. Stock options under the 1999
Plan could be granted with a term of up to ten years and at prices
no less than fair market value for ISOs and no less than 85% of the
fair market value for NSOs. Stock options granted generally vest
over one to six years.
The
following table summarizes the outstanding stock options under the
1999 Plan for the three months ended March 31, 2021:
|
|
|
|
|
|
Weighted Average Exercise Price
|
|
Balances at December 31, 2020
|
57,648
|
$46.34
|
|
Options
cancelled
|
(11)
|
$789.45
|
|
Balances at March 31, 2021
|
57,637
|
$46.20
|
The
Company chose the “straight-line” attribution method
for allocating compensation costs of each stock option over the
requisite service period using the Black-Scholes Option Pricing
Model to calculate the grant date fair value.
The Company recorded compensation expense for these stock option
grants of $1,290 and $12,215 for the three months ended March 31,
2021 and 2020, respectively.
As of
March 31, 2021, there were no unrecognized compensation costs
related to non-vested stock option awards under the 1999
Plan.
Inducement Stock Options
The
Company granted an employment inducement stock option award for
250,000 shares of common stock to our chief medical officer on
January 15, 2021. This employment inducement stock option was
awarded in accordance with the employment inducement award
exemption provided by NASDAQ Rule 5635(c)(4) and was therefore not
awarded under the Company’s stockholder approved equity plan.
The option award will vest as follows: 25% upon initiation of a
Phase 3 trial; 25% upon database lock; 25% upon acceptance for
review of an NDA; and 25% upon approval. The options have a 10-year
term and an exercise price of $1.78 per share, the January 15, 2021
closing price of the Company's common stock. As of March 31, 2021,
none of the vesting milestones have been achieved.
The
estimated fair value of the inducement stock option award granted
was $402,789 using a Black-Scholes option pricing model based on
market prices and the following assumptions at the date of
inducement option grant: risk-free interest rate of 1.11%, dividend
yield of 0%, volatility factor for our common stock of 103.94% and
an expected life of 10 years.
Inducement
stock option compensation expense totaled $0 for the three months
ended March 31, 2021. As of March 31, 2021, there was $402,789 of
remaining unrecognized compensation expense related to this
inducement stock option.
NOTE 10. SUBSEQUENT EVENTS
In
January 2011, the Company entered into the Lease with Concourse
Associates, LLC for office facilities located at the premises in
Morrisville, North Carolina (the “Lease”). The
Lease was amended in August 2015 to extend the term for the 5,954
square foot rental. The current term began on March 1, 2016
and continues for 64 months to June 30, 2021. Rent payments began
on July 1, 2016, following the conclusion of a four-month rent
abatement period. The Company has two five-year options to extend
the Lease and a one-time option to terminate the Lease thirty-six
months after the commencement of the initial term if no additional
space (“Expansion Space”) became available. On April 2,
2021, the Company negotiated a 3-year extension to the existing
lease term, commencing July 1, 2021.
Beginning
on the commencement date, the annual base rent will be increase to
$125,034 and will increase 2.5% annually for lease years 2 and 3.
In accordance with ASC 842, the Company remeasured its lease
classification, lease liability, its right-of-use asset and its
lease expense as of the date of the extension (remeasurement date)
as follows:
|
Current Lease
liability
|
$30,743
|
|
Remeasured Lease
liability
|
$364,523
|
|
|
|
|
Current Right of
use asset
|
$29,690
|
|
Remeasured Right of
use assset
|
$363,469
|
|
|
|
|
Original Lease
expense
|
$10,033
|
|
Remeasured Lease
expense
|
$10,634
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, which are subject to the “safe
harbor” created by those sections. Forward-looking statements
are based on our management’s beliefs and assumptions and on
information currently available to them. In some cases you can
identify forward-looking statements by words such as
“may,” “will,” “should,”
“could,” “would,” “expects,”
“plans,” “anticipates,”
“believes,” “estimates,”
“projects,” “predicts,”
“potential” and similar expressions intended to
identify forward-looking statements. Examples of these statements
include, but are not limited to, statements regarding: the
implications of interim or final results of our clinical trials,
the progress of our research programs, including clinical testing,
the extent to which our issued and pending patents may protect our
products and technology, our ability to identify new product
candidates, the potential of such product candidates to lead to the
development of commercial products, our anticipated timing for
initiation or completion of our clinical trials for any of our
product candidates, our future operating expenses, our future
losses, our future expenditures for research and development, our
relationship with Orion Corporation, or Orion, our ability to raise
capital, the sufficiency of our cash resources, our ability to
successfully integrate operations pursuant to our merger with PH
Precision Med, the impacts of the current COVID-19 pandemic and the
eligibility for forgiveness of our loan, or the PPP Loan, received
pursuant to the Paycheck Protection Program under the Coronavirus
Aid, Relief, and Economic Security Act, or the CARES Act, as
administered by the U.S. Small Business Administration, or the SBA.
Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the
risks faced by us and described in Part II, Item 1A of this
Quarterly Report on Form 10-Q, Part I, Item 1A of our Annual Report
on Form 10-K, and our other filings with the Securities and
Exchange Commission, or the SEC. You should not place undue
reliance on these forward-looking statements, which apply only as
of the date of this Quarterly Report on Form 10-Q. You should read
this Quarterly Report on Form 10-Q completely and with the
understanding that our actual future results may be materially
different from those we expect. Except as required by law, we
assume no obligation to update these forward-looking statements,
whether as a result of new information, future events or
otherwise.
The following discussion and analysis should be read in conjunction
with the unaudited condensed
consolidated financial statements and notes thereto included in
Part I, Item 1 of this Quarterly Report on Form 10-Q and with
the audited consolidated financial statements and related notes
thereto included as part of our Annual Report on Form 10-K for the
year ended December 31, 2020.
All references in this Quarterly Report to “Tenax
Therapeutics”, “we”, “our” and
“us” means Tenax Therapeutics, Inc.
The description or discussion, in this Quarterly Report on Form
10-Q of any contract or agreement is a summary only and is
qualified in all respects by reference to the full text of the
applicable contract or agreement.
Overview
Strategy
We are
a specialty pharmaceutical company focused on identifying,
developing and commercializing products that address
cardiovascular and pulmonary diseases of high unmet medical
need. On November 13, 2013, through our wholly owned
subsidiary, Life Newco, Inc., or Life Newco, we acquired a license
granting Life Newco an exclusive, sublicensable right to develop
and commercialize pharmaceutical products containing levosimendan,
2.5 mg/ml concentrate for solution for infusion / 5ml vial
in the United States and
Canada. On October 9, 2020, we entered into an amendment to
the license to include two new oral products containing
levosimendan, in capsule and solid dosage form, and a
subcutaneously administered product containing levosimendan, to the
scope of the license, subject to specified
limitations.
On
January 15, 2021, through our wholly owned subsidiary, Life Newco
II, Inc., or Life Newco II, we acquired 100% of the equity of
PHPrecisionMed Inc., a Delaware corporation, or PHPM. In accordance
with the terms of the merger agreement between Life Newco II and
PHPM, Life Newco II merged with and into PHPM, with PHPM surviving
as our wholly-owned subsidiary. As a result of the merger, we plan
to develop and commercialize pharmaceutical products containing
imatinib for the treatment of pulmonary arterial
hypertension.
Our Current Programs
Levosimendan Background
Levosimendan
was discovered and developed by Orion Corporation, a Finnish
company, or Orion. Levosimendan is a calcium sensitizer/K-ATP activator
developed for intravenous use in hospitalized patients with acutely
decompensated heart failure. It is currently approved in over 60
countries for this indication and not available in the United
States or Canada. It is estimated that to date over 1.5 million
patients have been treated worldwide with levosimendan.
Levosimendan
is a novel, first in class calcium
sensitizer/K-ATP activator. The therapeutic effects of
levosimendan are mediated through:
●
Increased cardiac
contractility by calcium sensitization of troponin C, resulting in
a positive inotropic effect which is not associated with
substantial increases in oxygen demand.
●
Opening of
potassium channels in the vasculature smooth muscle, resulting in a
vasodilatory effect on all vascular beds.
●
Opening of
mitochondrial potassium channels in cardiomyocytes, resulting in a
cardioprotective effect.
This
triple mechanism of action helps to preserve heart function during
cardiac surgery. Several studies have demonstrated that
levosimendan protects the heart and improves tissue perfusion while
minimizing tissue damage during cardiac surgery.
In
2013, we acquired certain assets of Phyxius Pharma, Inc., or
Phyxius, including its North American rights to develop and
commercialize levosimendan for any indication in the United States
and Canada. In the countries where levosimendan is marketed,
levosimendan is indicated for the short-term treatment of acutely
decompensated severe chronic heart failure in situations where
conventional therapy is not sufficient, and in cases where
inotropic support is considered appropriate. In acute decompensated heart failure patients,
levosimendan has been shown to significantly improve
patients’ symptoms as well as acute hemodynamic measurements
such as increased cardiac output, reduced preload and reduced
afterload.
The European Society of Cardiology, or the ESC, recommends
levosimendan as a preferable agent over dobutamine to reverse the
effect of beta blockade if it is thought to be contributing to
hypotension. The ESC guidelines also state that levosimendan is not
appropriate for patients with systolic blood pressure less than
85mmHg or in patients in cardiogenic shock unless it is used in
combination with other inotropes or vasopressors. Other unique
properties of levosimendan include sustained efficacy through the
formation of a long-acting metabolite, lack of impairment of
diastolic function, and evidence of better compatibility with beta
blockers than dobutamine.
Levosimendan Development for Pulmonary Hypertension
Patients
We
recently completed a Phase 2 clinical trial of levosimendan in
North America for the treatment of patients with pulmonary
hypertension associated with heart failure with preserved ejection
fraction, or PH-HFpEF. PH-HFpEF is defined hemodynamically by
a mean pulmonary artery pressure, or mPAP, ≥25 mmHg, and a
pulmonary capillary wedge pressure, or PCWP, >15 mmHg. Pulmonary
hypertension in these patients is believed to arise from a passive
backward transmission of elevated filling pressures from left-sided
heart failure. These mechanical components of pulmonary venous
congestion may trigger pulmonary vasoconstriction, decreased nitric
oxide availability, increased endothelin expression,
desensitization to natriuretic peptide induced vasodilation, and
vascular remodeling. Over time, these changes often lead to
advanced pulmonary arterial and venous disease, increased right
ventricle afterload, and right ventricle failure.
PH-HFpEF
is a common form of pulmonary hypertension with an estimated U.S.
prevalence exceeding 1.5 million patients. Currently, no
pharmacologic therapies are approved for treatment of
PH-HFpEF. Despite the fact that many therapies have been
studied in PH-HFpEF patients, including therapies approved to treat
pulmonary arterial hypertension patients, no therapies have been
shown to be effective in treating PH-HFpEF patients.
Published
pre-clinical and clinical studies indicate that levosimendan may
provide important benefits to patients with pulmonary hypertension.
Data from these published trials indicate that levosimendan may
reduce pulmonary vascular resistance and improve important
cardiovascular hemodynamics such as reduced pulmonary capillary
wedge pressure and pulmonary artery pressure in patients with
pulmonary hypertension. In addition, several published studies
provide evidence that levosimendan may improve right ventricular
dysfunction which is a common comorbidity in patients with
pulmonary hypertension. While none of these studies have focused
specifically on PH-HFpEF patients, the general hemodynamic
improvements in these published studies of various types of
pulmonary hypertension provide a basis to believe that levosimendan
may be beneficial in PH-HFpEF patients.
In
March 2018, we met with the United States Food and Drug
Administration, or FDA, to discuss development of levosimendan in
PH-HFpEF patients. The FDA agreed with our planned Phase 2 design,
patient entry criteria, and endpoints. It was agreed the study
could be conducted under the existing investigational new drug
application with no additional nonclinical studies required to
support full development. The FDA recognized there were no approved
drug therapies to treat PH-HFpEF patients and acknowledged this
provided an opportunity for a limited Phase 3 clinical program.
This topic was discussed further at the End-of-Phase 2 Meeting
following completion of the Phase 2 study in PH-HFpEF patients,
which is known as the HELP Study – Hemodynamic Evaluation of Levosimendan in PH-HFpEF.
We
initiated the first of our expected 10-12 HELP Study clinical sites
in November 2018 and the first of 37 patients were enrolled in the
HELP Study in March 2019. Enrollment in the HELP Study was
completed in March 2020. The primary endpoint of the HELP Study was
based on the change in PCWP during exercise versus baseline
compared to placebo. The HELP Study utilized a double-blind
randomized design following five weekly outpatient infusions of
levosimendan.
On June 2, 2020, we announced preliminary, top-line data from the
study. The primary efficacy analysis, pulmonary capillary wedge
pressure (PCWP) during exercise did not demonstrate a statistically
significant reduction from baseline. Levosimendan did demonstrate a
statistically significant reduction in PCWP compared to baseline
(p=<0.0017) and placebo (p=<0.0475) when the measurements at
rest, with legs up and on exercise were combined. Levosimendan also
demonstrated a statistically significant improvement in 6-minute
walk distance as compared to placebo (p=0.0329). These findings
from the HELP Study represent important discoveries related to the
use of levosimendan in PH-HFpEF patients since this is the first
study to evaluate levosimendan in PH-HFpEF patients and this is the
first study ever conducted of any therapy in PH-HFpEF patients to
show such positive improvements in hemodynamics and 6-minute walk
distance.
Hemodynamic Results
Hemodynamic measurements were made at rest (supine), after leg
raise on a supine bicycle (a test of rapid increase in ventricular
filling) and during exercise (25 watts for 3 minutes or until the
patient tired). In the initial open-label phase, 84% of the
patients had a significant reduction in right atrial pressure, or
RAP, pulmonary artery pressure, or PAP and PCWP at rest and during
exercise. In the randomized double-blinded 6-week trial,
levosimendan demonstrated a statistically significant reduction in
PCWP compared to baseline (p=<0.0017) and placebo (p=<0.0475)
when the measurements at rest, with legs up and on exercise were
combined. While there was no significant change in PCWP during
exercise, patients receiving levosimendan had reductions from
baseline at Week 6 in PCWP, PAP, and RAP that were significant when
patients were “at rest” and/or with their “legs
raised” (p<0.05).
Clinical Results (6-Minute Walk Distance)
The clinical efficacy was confirmed by a statistically significant
improvement in 6-minute walk distance of 29 meters (p=0.0329). The
6-minute walk distance was a secondary endpoint in the trial and is
a validated and accepted endpoint used in many pulmonary
hypertension registration trials. Levosimendan was given in
once-weekly home infusions for six weeks.
Safety
The incidence of adverse events or serious adverse events between
the control and treated groups were similar. In addition, there
were no arrhythmias observed, atrial or ventricular, when comparing
baseline electrocardiographic monitoring with 72-hour monitoring
after five weeks of treatment.
The detailed results from the Phase 2 HELP Study of levosimendan in
PH-HFpEF were presented at the Heart Failure Society of America
Virtual Annual Scientific Meeting on October 3, 2020 and at the
American Heart Association Scientific Sessions 2020 on November 13,
2020. Additionally, the full manuscript has been accepted for
publication in the peer-reviewed journal JACC:Heart
Failure.
Next Steps
On
October 9, 2020, we entered into an amendment, or the Amendment, to
the License between the Company and Orion to include two new
product formulations containing levosimendan, in a capsule solid
oral dosage form, and a subcutaneously administered dosage form
containing levosimendan, to the scope of the License, subject to
specified limitations.
We plan
to study the utility of the levosimendan oral capsule dosage form
in patients who have participated in the open-label extension of
the HELP Study and who continue to receive weekly infusions of
intravenous levosimendan. These patients are now eligible to
participate in the amendment to the HELP Study that will transition
them from the intravenous to an oral formulation. The investigators
at the centers that participated in the HELP Study have been
invited to participate and enroll their patients into this
study.
In October 2020, we met with the FDA for an End-of-Phase 2 Meeting
to discuss the Phase 2 clinical data and further development of
levosimendan in PH-HFpEF patients. The FDA agreed that one or two
Phase 3 clinical studies (depending on the size) with a primary
endpoint of change in 6-minute walk distance over 12 weeks or a
single Phase 3 trial with clinical worsening (e.g., death,
hospitalization for heart failure, or decline in exercise capacity)
over 24 weeks would be sufficient to demonstrate the effectiveness
of levosimendan in PH-HFpEF. The FDA also agreed to a plan to
replace weekly intravenous levosimendan dosing with daily oral
levosimendan doses in a Phase 3 clinical study. The FDA expressed
concern about a safety database as potentially necessary and
indicated that the need for a further safety database could be
dependent on the final design of the Phase 3 study. We expect that
this will be addressed when the final Phase 3 protocol is submitted
which will better characterize the trial design and primary
endpoints.
The HELP Study design was novel in several respects. To date, no
other multi-center study has evaluated levosimendan in heart
failure patients with preserved ejection fraction, or HFpEF,
patients or PH-HFpEF patients. Instead, all previous levosimendan
heart failure studies have enrolled heart failure patients with
reduced ejection fraction, or HFrEF, which specifically excluded
HFpEF patients. Also, the HELP Study utilized a unique 24-hour
weekly infusion regimen of 0.075- 0.1µm/kg/min. Finally, the
HELP Study employed a unique home-based intravenous infusion
administration via an ambulatory infusion pump. This home-based
weekly intravenous administration is unlike all other chronic
dosing studies of levosimendan that have typically employed a
shorter duration and less frequent infusion regimen administered in
a hospital setting. Despite the unique patient population,
weekly dosing, and home-based administration, there have been no
reported serious adverse events.
We believe that the combination of the unique HELP Study patient
population, innovative weekly 24-hour dosing, unique home-based
site of administration, and novel findings of efficacy and safety
in PH-HFpEF patients represent unique discoveries and significant
intellectual property. These discoveries, among others from the
HELP Study, form the basis for a U.S. patent application that we
have filed.
Imatinib Background
Imatinib (also known as “Gleevec”), is a tyrosine
kinase inhibitor, which revolutionized the treatment of chronic
myeloid leukemia, or CML, in 2001. The first clinical trial of
imatinib took place in 1998 and the drug received FDA approval in
May 2001. Encouraged by the success of Imatinib in treating CML
patients, scientists explored its effect in other cancers, and it
was found to produce a similar positive effect in other cancers
where tyrosine kinases were overexpressed.
Tyrosine kinases are important mediators of the signaling cascade,
determining key roles in diverse biological processes like growth,
differentiation, metabolism, and apoptosis in response to external
and internal stimuli. Deregulation of protein kinase activity has
been shown to play a central role in the pathogenesis of human
cancers. Imatinib, a 2-phenyl amino pyrimidine derivative, is a
tyrosine kinase inhibitor with activity against ABL, BCR-ABL,
PDGFRA, and c-KIT. Imatinib works by binding close to the ATP
binding site therefore inhibiting the enzyme activity of the
protein. Imatinib also inhibits the ABL protein of noncancer cells.
Imatinib is well absorbed after oral administration with a
bioavailability exceeding 90%. It is extensively metabolized,
principally by cytochrome P450 (CYP)3A4 and CYP3A5 and can
competitively inhibit the metabolism of drugs that are CYP3A4 or
CYP3A5 substrates. Imatinib is generally well tolerated in cancer
patients. Common side effects include fluid retention, headache,
diarrhea, loss of appetite, weakness, nausea and vomiting,
abdominal distention, edema, rash, dizziness, and muscle cramps.
Serious side effects may include myelosuppression, heart failure,
and liver function abnormalities. Novartis is the manufacturer of
Gleevec.
Previous Imatinib Development for Pulmonary Arterial Hypertension
Patients
In pulmonary arterial hypertension, or PAH, a rare disease,
subjects who remain symptomatic despite available therapies have a
high morbidity and mortality. Though several therapies are now
available, there is no cure for the disease, and there is no data
supporting that the existing therapies, all of which are pulmonary
vasodilators, halt progression or induce regression of the disease.
Imatinib is a tyrosine kinase inhibitor that has been shown in
animal models of pulmonary hypertension to induce disease reversal
by an effect on platelet derived growth factor, or PDGF, which
appears to be causal in the disease. After that discovery was made,
several case reports and small case series of patients with
advanced PAH failing combination pulmonary vasodilator therapy were
published showing a dramatic effect of imatinib on stabilizing and
improving these patients. This led Novartis to develop imatinib as
a treatment of PAH.
Novartis sponsored a Phase 2 proof-of-concept trial to evaluate the
safety, tolerability, and efficacy of imatinib as an adjunct to PAH
specific therapy in patients with PAH. This was a 24-week
randomized, double-blind, placebo-controlled study of PAH subjects
who remained symptomatic on one or more PAH therapies in WHO
Functional Class (FC) II-IV. The Phase 2 trial of imatinib in PAH
caused significant hemodynamic improvement in some patients but
failed to meet the primary endpoint of an increase in 6-minute walk
distance (22 meters, p=NS). Novartis then sponsored a Phase 3 trial
(IMPRES) which met its primary endpoint of significant increase in
6-minute walk (32 meters, p=0.002), an effect maintained in the
extension study in patients remaining on imatinib. However, the
data were confounded by a high rate of dropouts in the patients
randomized to imatinib attributed largely to gastric intolerance
during the first eight weeks. The sponsor proposed consideration of
a surrogate endpoint under the subpart H provision as a basis for
approval but was denied. Consequently, Novartis chose to withdraw
the Investigational New Drug application as the drug went off
patent.
Current Imatinib Development for Pulmonary Arterial Hypertension
Patients
On May
30, 2019, PHPM met with the FDA to discuss a proposal for a Phase 3
trial of imatinib for PAH. At that meeting, PHPM received agreement
for a single Phase 3 trial using change in 6-minute walk distance
as the primary endpoint (p<0.05). PHPM also received agreement
for submission under the 505(b)(2) regulatory pathway, and
thereafter received orphan designation. In August of 2019, PHPM was
given preliminary advice on its plans to submit an application for
Breakthrough Therapy Designation. In July 2020, PHPM received
agreement from the FDA for the development of a modified release
formulation that would require only a small comparative
PK/bioavailability study in 12 volunteers receiving a single dose
of the modified release formulation to be compared to a single dose
of the existing immediate release formulation. A Phase 3 study is
planned with the modified release formulation of
imatinib.
First Quarter 2021 Highlights
The
following summarizes certain key financial measures for the three
months ended March 31, 2021:
●
Cash and cash
equivalents, including the fair-value of our marketable securities,
were $4.0 million on March 31, 2021.
●
Our net loss from
operations was $23.7 million for the first quarter of fiscal 2021
compared to $2.7 million for the three months ended March 31,
2020.
●
Net cash used in
operating activities was $3.2 million and $2.7 million for the
three months ended March 31, 2021 and 2020,
respectively.
Opportunities and Trends
The continued spread of COVID-19 globally could adversely affect
our clinical trial operations in the United States and elsewhere,
including our ability to recruit and retain patients, principal
investigators and site staff who, as healthcare providers, may have
heightened exposure to COVID-19 if an outbreak occurs in their
geography. Further, some patients may be unable to comply with
clinical trial protocols if quarantines or travel restrictions
impede patient movement or interrupt healthcare services, or if the
patients become infected with COVID-19 themselves, which would
delay our ability to initiate and/or complete planned clinical and
preclinical studies in the future.
As we focus on the development of our existing product candidates,
we also continue to position ourselves to execute upon licensing
and other partnering opportunities. To do so, we will need to
continue to maintain our strategic direction, manage and deploy our
available cash efficiently and strengthen our collaborative
research development and partner relationships.
During 2021, we are focused on the following
initiatives:
●
Working
with collaborators and partners to accelerate product development,
reduce our development costs, and broaden our developmental
capabilities; and
●
Identifying
strategic alternatives, including, but not limited to, the
potential acquisition of additional products or product
candidates.
Financial Overview
Results of Operations- Comparison of the Three Months Ended March
31, 2021 and 2020
General and Administrative Expenses
General
and administrative expenses consist primarily of compensation for
executive, finance, legal and administrative personnel, including
stock-based compensation. Other general and administrative expenses
include facility costs not otherwise included in research and
development expenses, legal and accounting services, other
professional services, and consulting fees. General and
administrative expenses and percentage changes for the three months
ended March 31, 2021 and 2020, respectively, are as
follows:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
Personnel
costs
|
$795,510
|
$737,269
|
$58,241
|
8%
|
|
Legal
and professional fees
|
382,548
|
357,831
|
24,717
|
7%
|
|
Other
costs
|
154,645
|
189,593
|
(34,948)
|
(18)%
|
|
Facilities
|
40,757
|
38,266
|
2,491
|
7%
|
Personnel costs:
Personnel
costs increased approximately $58,000 for the three months ended
March 31, 2021 compared to the same period in the prior year. This
increase was due primarily to an increase of approximately $38,000
in salaries and benefits paid and an increase of approximately
$20,000 in expense recognized for vested employee stock options as
compared to the same period in the prior year.
Legal and professional fees:
Legal
and professional fees consist of the costs incurred for legal fees,
accounting fees, capital market expenses, consulting fees and
investor relations services, as well as fees paid to our Board of
Directors. Legal and professional fees increased approximately
$25,000 for the three months ended
March 31, 2021 compared to the same period in the prior
year. This increase was due primarily to an increase in accounting
fees and Board of Directors fees, partially offset by reductions in
legal fees, capital market expenses and investor relations
services.
●
Accounting fees
increased approximately $40,000 in the current period due primarily
to fees associated with the PHPM transaction that were not incurred
during the same period in the prior year.
●
Board of Director
fees increased approximately $12,000 in the current period due
primarily to fees paid to new directors that were not incurred
during the same period in the prior year.
●
Legal fees
decreased approximately $9,000 in the current period. This decrease
was due primarily to a decrease of approximately $50,000 in costs
incurred for arbitration partially offset by an increase of
approximately $32,000 in costs associated with the PHPM acquisition
and an increase of approximately $8,000 in fees associated with our
intellectual property portfolio.
●
Investor relations
costs decreased approximately $12,000 in the current period. This
decrease was primarily due to fees paid to a third-party investor
relations firm for direct outreach and communications in the prior
year that were not incurred in the current period.
Other costs:
Other
costs include costs incurred for franchise and other taxes, travel,
supplies, insurance, depreciation and other miscellaneous charges.
Other costs decreased approximately $35,000 in the current period
due primarily to a decrease in franchise taxes paid, partially
offset by an increase of approximately $26,000 in insurance
premiums paid in the current period as compared to the same period
of the prior year.
Facilities:
Facilities
expenses include costs paid for rent and utilities at our corporate
headquarters in North Carolina. Facilities costs remained
relatively consistent for the three months ended March 31, 2021 and 2020.
Research and Development
Expenses
Research
and development expenses include, but are not limited to,
(i) expenses incurred under agreements with clinical research
organizations, or CROs, and investigative sites, which conduct our
clinical trials and a substantial portion of our pre-clinical
studies; (ii) the cost of manufacturing and supplying clinical
trial materials; (iii) payments to contract service
organizations, as well as consultants; (iv) employee-related
expenses, which include salaries and benefits; and
(v) facilities, depreciation and other allocated expenses,
which include direct and allocated expenses for rent and
maintenance of facilities and equipment, depreciation of leasehold
improvements, equipment, laboratory and other supplies. All
research and development expenses are expensed as incurred.
Research and development expenses and percentage changes for the
three months ended March 31, 2020 and
2019, respectively, are as follows:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
Clinical
and preclinical development
|
$500,178
|
$1,282,662
|
$(782,484)
|
(61)%
|
|
Personnel
costs
|
136,242
|
55,143
|
81,099
|
147%
|
|
Other
costs
|
21,739,782
|
4,721
|
21,735,061
|
460391%
|
Clinical and preclinical development:
Clinical
and preclinical development costs include the costs associated with
our Phase 2 HELP Study for levosimendan, which was completed during
fiscal year 2020, the costs associated with our IV to oral
levosimendan transition study and development costs associated with
the formulation for imatinib. The decrease of approximately
$782,000 in clinical and preclinical development costs for the
three months ended March 31, 2021 compared to the same period in
the prior year was primarily due to a decrease of approximately
$384,000 in expenditures for CRO costs, a reduction of
approximately $524,000 in enrolled patient costs and a decrease of
approximately $66,000 in fees paid for clinical research associates
to manage the Phase 2 HELP Study in the current period as compared
to the same period in the prior year. These cost reductions were
partially offset by an increase of approximately $45,000 in costs
associated with oral levosimendan transition study drug material
and an increase of approximately $146,000 in costs associated with
formulation development of imatinib in the current period that were
not incurred in the same period in the prior year.
Personnel costs:
Personnel
costs increased approximately $81,000 for the three months
ended March 31, 2021 due primarily to
the addition of our Chief Medical Officer in the current
period.
Other costs:
Other
costs increased approximately $21.7 million for the three months
ended March 31, 2021 due primarily to
the recognition of IPR&D acquired as part of the merger with
PHPM in the current period that was not incurred in the same period
in the prior year.
The
process of conducting preclinical studies and clinical trials
necessary to obtain approval from the FDA is costly and time
consuming. The probability of success for each product candidate
and clinical trial may be affected by a variety of factors,
including, among other things, the quality of the product
candidate’s early clinical data, investment in the program,
competition, manufacturing capabilities and commercial viability.
As a result of the uncertainties discussed above, uncertainty
associated with clinical trial enrollment and risks inherent in the
development process, we are unable to determine the duration and
completion costs of current or future clinical stages of our
product candidates or when, or to what extent, we will generate
revenues from the commercialization and sale of any of our product
candidates. Development timelines, probability of success and
development costs vary widely. We are currently focused on
developing our most advanced product candidate, levosimendan;
however, we will need substantial additional capital in the future
in order to complete the development and potential
commercialization of levosimendan, and to continue with the
development of other potential product candidates.
Other income and expense, net
Other
income and expense include non-operating income and expense items
not otherwise recorded in our condensed consolidated statement of
comprehensive loss. These items include, but are not limited to,
changes in the fair value of financial assets and derivative
liabilities, interest income earned and fixed asset
disposals.
Other
income decreased approximately $9,000 for the three months ended
March 31, 2021 compared to the same period in the prior year. This
decrease is due primarily to a decrease in the interest earned on
our investment in marketable securities.
Liquidity, Capital Resources and Plan of Operation
We have
incurred losses since our inception, and as of March 31, 2021 we
had an accumulated deficit of approximately $270 million. We will
continue to incur losses until we generate sufficient revenue to
offset our expenses, and we anticipate that we will continue to
incur net losses for at least the next several years. We expect to
incur increased expenses related to our development and potential
commercialization of levosimendan for pulmonary hypertension and
other potential indications, as well as identifying and developing
other potential product candidates and, as a result, we will need
to generate significant net product sales, royalty and other
revenues to achieve profitability.
Liquidity
We have
financed our operations since September 1990 through the issuance
of debt and equity securities and loans from stockholders. We had
total current assets of $4,517,599 and $6,795,506 and working
capital of $3,083,799 and $4,676,543 as of March 31, 2021 and
December 31, 2020, respectively. Based on our working capital and
the value of our investments in marketable securities on March 31,
2021, we believe we have sufficient capital to fund our operations
through the third quarter of calendar year 2021.
Cash Flows
The following table shows a summary of our cash flows for the three
months ended March 31, 2021 and 2020:
|
|
Three months ended March 31,
|
|
|
|
|
|
Net
cash used in operating activities
|
$(3,221,141)
|
$(2,671,029)
|
|
Net
cash used in investing activities
|
(36,964)
|
(6,330)
|
|
Net
cash provided by financing activities
|
544,651
|
2,130,045
|
Net cash used in operating activities. Net cash used
in operating activities was approximately $3.2 million for the
three months ended March 31, 2021 compared to net cash used in
operating activities of approximately $2.7 million for the three
months ended March 31, 2020. The increase in cash used for
operating activities was due primarily to an increase in our annual
insurance premiums and accrued bonuses paid in the current period
as compared to the prior year.
Net cash provided by investing activities. Net cash
used for investing activities was approximately $37,000 for the
three months ended March 31, 2021 compared to approximately $6,000
used in the three months ended March 31, 2020. The increase in cash
used investing activities was primarily due to the purchase of
marketable securities in the current period.
Net cash provided by financing activities. Net cash
provided by financing activities was approximately $545,000 for the
three months ended March 31, 2021 compared to approximately $2.1
million for the three months ended March 31, 2020. The decrease in
cash provided by financing activities was due primarily to net
proceeds of approximately $2.1 million from the March 2020 offering
in the prior period, as compared with approximately $545,000
received upon the exercise of warrants in the current
period.
Operating Capital and Capital Expenditure Requirements
Our
future capital requirements will depend on many factors that
include, but are not limited to, the following:
|
-
|
the
initiation, progress, timing and completion of clinical trials for
our product candidate and potential product
candidates;
|
|
-
|
the
outcome, timing and cost of regulatory approvals and the regulatory
approval process;
|
|
-
|
the
impacts of COVID-19, including delays that may be caused by
COVID-19;
|
|
-
|
delays
that may be caused by changing regulatory
requirements;
|
|
-
|
the
number of product candidates that we pursue;
|
|
-
|
the
costs involved in filing and prosecuting patent applications and
enforcing and defending patent claims;
|
|
-
|
the
timing and terms of future collaboration, licensing, consulting or
other arrangements that we may enter into;
|
|
-
|
the
cost and timing of establishing sales, marketing, manufacturing and
distribution capabilities;
|
|
-
|
the
cost of procuring clinical and commercial supplies of our product
candidates;
|
|
-
|
the
extent to which we acquire or invest in businesses, products or
technologies; and
|
|
-
|
the
possible costs of litigation.
|
We
believe that our existing cash and cash equivalents, along with our
investment in marketable securities, will be sufficient to fund our
projected operating requirements through the third quarter of
calendar year 2021. We will need substantial additional capital in
the future in order to complete the development and
commercialization of levosimendan and to fund the development and
commercialization of other future product candidates. Until we can
generate a sufficient amount of product revenue, if ever, we expect
to finance future cash needs through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. Such funding may not be available on favorable terms,
if at all. In the event we are unable to obtain additional capital,
we may delay or reduce the scope of our current research and
development programs and other expenses.
To the
extent that we raise additional funds by issuing equity securities,
our stockholders may experience additional significant dilution,
and debt financing, if available, may involve restrictive
covenants. To the extent that we raise additional funds through
collaboration and licensing arrangements, it may be necessary to
relinquish some rights to our technologies or our product
candidates or grant licenses on terms that may not be favorable to
us. We may seek to access the public or private capital markets
whenever conditions are favorable, even if we do not have an
immediate need for additional capital.
Critical Accounting Policies and Significant Judgments and
Estimates
Our unaudited condensed consolidated financial statements have been
prepared in accordance with GAAP. The preparation of these
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 expenses during the reporting
periods. These items are monitored and analyzed by us for changes
in facts and circumstances, and material changes in these estimates
could occur in the future. 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.
Changes in estimates are reflected in reported results for the
period in which they become known. Actual results may differ
materially from these estimates under different assumptions or
conditions. For information regarding
our critical accounting policies and estimates, please refer to
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Summary of Critical
Accounting Policies” contained in our Annual Report on Form
10-K for the year ended December 31, 2020, and Note 2 to our
unaudited condensed consolidated financial statements included in
Part I, Item 1 of this Quarterly Report on Form
10-Q.
Recent Accounting Pronouncements
In December 2019, the FASB issued an accounting standard intended
to simplify accounting for income taxes. It removes certain
exceptions to the general principles in Topic 740, Income Taxes and
amends existing guidance to improve consistent application. This
guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020 and early
adoption is permitted. Our adoption of this new guidance did not
have a material impact on our consolidated financial
statements.
In June 2016, the FASB issued an accounting standard that amends
how credit losses are measured and reported for certain financial
instruments that are not accounted for at fair value through net
income. This standard requires that credit losses be presented as
an allowance rather than as a write-down for available-for-sale
debt securities and will be effective for interim and annual
reporting periods beginning January 1, 2023, with early
adoption permitted. A modified retrospective approach is to be used
for certain parts of this guidance, while other parts of the
guidance are to be applied using a prospective approach. We do not
believe the adoption of this standard will have a material impact
on our consolidated financial statements and related
disclosures.
Off-Balance Sheet Arrangements
Since
our inception, we have not engaged in any off-balance sheet
arrangements, including the use of structured finance, special
purpose entities or variable interest entities.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
Evaluation of Disclosure Controls and Procedures
As
required by paragraph (b) of Rules 13a-15 and 15d-15
promulgated under the Exchange Act, our management, including our
Chief Executive Officer and Chief Financial Officer, conducted an
evaluation as of the end of the period covered by this report, of
the effectiveness of our disclosure controls and procedures as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e).
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures were effective as of March 31, 2021, the end of the
period covered by this report in that they provide reasonable
assurance that the information we are required to disclose in the
reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods required
by the SEC and is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
during our most recently completed fiscal quarter that have
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. We routinely review
our internal controls over financial reporting and from time to
time make changes intended to enhance the effectiveness of our
internal control over financial reporting. We will continue to
evaluate the effectiveness of our disclosure controls and
procedures and internal controls over financial reporting on an
ongoing basis and will take action as appropriate.