NOTE
2 - LIQUIDITY AND MANAGEMENT’S PLANS
As
of March 31, 2021, the Company had cash and cash equivalents of approximately $58,055,000 and a working capital of approximately $57,959,000.
The Company has not generated revenues from commercial operations since inception and has incurred recurring operating losses. The Company
expects to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue its product development.
The
Company expects to further increase its research and development activities, which will increase the amount of cash utilized subsequent
to March 31, 2021. Specifically, the Company expects increased spending on research and development activities and higher payroll expenses
as it increases its professional and scientific staff and continues to prepare for anticipated manufacturing activities. If we encounter
unforeseen delays or expenses, we have the ability to curtail our presently planned level of operations. The Company currently believes
its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at
least the next 12 months from the date of issuance of these condensed consolidated financial statements.
TFF
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The Three Months Ended March 31, 2021 and 2020
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of
Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all
information and footnotes required by GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying
unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals)
to present the financial position of the Company as of March 31, 2021 and the results of operations, changes in stockholders’
equity and cash flows for the periods presented. The results of operations for the three months ended March 31, 2021 are not necessarily
indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2020.
Principles
of Consolidation
The
consolidated financial statements include the accounts of TFF Pharmaceuticals, Inc. and its wholly-owned subsidiary, TFF Australia. All
material intercompany accounts and transactions have been eliminated in consolidation.
Foreign
Currency
The
currency of TFF Australia, the Company’s international subsidiary, is in Australian dollars. Foreign currency denominated assets
and liabilities are translated into U.S. dollars using the exchange rates in effect at each balance sheet date. Results of operations
and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation
of assets and liabilities is included as a separate component of stockholders’ equity in accumulated other comprehensive income
(loss).
Cash
and Cash Equivalents
The
Company maintains its operating accounts in financial institutions in the U.S. and in Australia. The balances are insured up to specified
limits. The Company’s cash is maintained in checking accounts and money market funds with maturities of less than three months
when purchased, which are readily convertible to known amounts of cash, and which in the opinion of management are subject to insignificant
risk of loss in value. As of March 31, 2021 and December 31, 2020, the Company had cash in Australia of AUD$717,058 (US$546,163) and
AUD$214,240 (US$165,092), respectively.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. The Company calculates depreciation using the straight-line
method over the estimated useful lives of the assets, which range from two to five years for furniture, fixtures,
lab and computer equipment and software. Assets held within construction in progress are not depreciated. Construction in progress is
related to the construction or development of property and equipment that have not yet been placed in service for its intended use. As
of March 31, 2021 and December 31, 2020, approximately $1,489,000 and $1,103,000, respectively, of the Company’s property and equipment
consisted of lab equipment that are considered construction in progress. Expenditures for repairs and maintenance of assets are charged
to expense as incurred.
Fair
Value of Financial Instruments
Authoritative
guidance requires disclosure of the fair value of financial instruments. The Company’s financial instruments consist of cash and
cash equivalents and accounts payable, the carrying amounts of which approximate their estimated fair values primarily due to the short-term
nature of the instruments or based on information obtained from market sources and management estimates. The Company measures the fair
value of certain of its financial assets and liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and
reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent
to cost will be classified and disclosed in one of the following three categories:
Level
1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level
2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar
assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level
3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
TFF
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The Three Months Ended March 31, 2021 and 2020
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue
Recognition
The
Company entered into a feasibility and material transfer agreement (“Feasibility Agreement”) with a third party that provided
the Company funds in return for certain research and development activities. Revenue from the Feasibility Agreement is recognized in
the period during which the related qualifying services are rendered and costs are incurred, provided that the applicable conditions
under the Feasibility Agreement have been met.
The
Feasibility Agreement is on a best-effort basis and does not require scientific achievement as a performance obligation. All fees received
under the agreement are non-refundable. The costs associated with the agreement are expensed as incurred and are reflected as a component
of research and development expense in the accompanying condensed consolidated statements of operations.
Funds
received from the Feasibility Agreement are recorded as revenue as the Company is the principal participant in the arrangement because
the activities under the Feasibility Agreement are part of the Company’s development programs. In those instances where the Company
first receives consideration in advance of providing underlying services, the Company classifies such consideration as deferred revenue
until (or as) the Company provides the underlying services. In those instances where the Company first provides the underlying services
prior to its receipt of consideration, the Company records a grant receivable. During the three months ended March 31, 2021, the Company
rendered the related services and recognized revenue and research and development expenses of $24,315. As of March 31, 2021 and December
31, 2020, the Company had deferred grant revenue of $0 and $24,315, respectively.
Basic
and Diluted Earnings per Common Share
Basic
net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the
period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive
share equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. Since the Company has had
net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Basic weighted average shares outstanding
for the three months ended March 31, 2020 include 400,000 shares underlying a warrant to purchase common shares. As the shares underlying
this warrant can be issued for little consideration (an aggregate exercise price of $0.01 per share), these shares are deemed to be issued
for purposes of basic earnings per share. The warrant was exercised during the three months ended March 31, 2021.
For
the three months ended March 31, 2021 and 2020, the Company had the following potential common stock equivalents outstanding which were
not included in the calculation of diluted net loss per common share because inclusion thereof would be anti-dilutive:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Stock Options
|
|
|
2,375,839
|
|
|
|
2,236,333
|
|
Warrants
|
|
|
389,233
|
|
|
|
1,076,463
|
|
|
|
|
2,765,072
|
|
|
|
3,312,796
|
|
*
|
On an as-converted basis
|
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include the
fair value of stock-based compensation and warrants and the valuation allowance against deferred tax assets and related disclosures.
Actual results could differ from those estimates.
TFF
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The Three Months Ended March 31, 2021 and 2020
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Recent
Accounting Standards
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740), Simplifying
the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes. The
standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after
December 15, 2020. The adoption of this standard on January 1, 2021 did not have a material impact on the Company’s consolidated
financial statements.
In
January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities, Investments – Equity Method and Joint Ventures,
and Derivatives and Hedging – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815, intended to clarify
the interactions between ASC 321, ASC 323 and ASC 815. The new standard addresses accounting for the transition into and out of the equity
method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for annual
and interim periods beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires changes to be
made prospectively. The adoption of this standard on January 1, 2021 did not have a material impact on the Company’s consolidated
financial statements.
NOTE
4 - COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
October 2018, the Company entered into a lease agreement for office space in Doylestown, Pennsylvania. The lease commenced on October
15, 2018 and the Company exercised a one-year lease renewal in October 2019 that will expire on October 31, 2020. The lease has an additional
one-year option for renewal, and the base rent is $36,000 per year. The Company has determined that the lease agreement is considered
a short-term lease under ASC 842 and has not recorded a right-of-use asset or liability. Short-term lease expense for the three months
ended March 31, 2020 was $9,000.
In
October 2018, the Company entered into a lease agreement for office space in Doylestown, Pennsylvania. The lease commenced on October
15, 2018, the Company exercised a one-year lease renewal in October 2019, and another one-year lease renewal in October 2020 that will
expire on October 31, 2021. The lease has an additional one-year option for renewal, and the base rent is $36,000 per year. The Company
has determined that the lease agreement is considered a short-term lease under ASC 842 and has not recorded a right-of-use asset or liability.
The Company rents another office space on a month-to-month basis with no long-term commitment, which is considered a short-term lease
as well. Short-term lease expense for the three months ended March 31, 2021 and 2020 was approximately $15,000 and $14,000, respectively.
Approximate
future minimum lease payments required under the operating leases are as follows:
Year ending December 31,
|
|
Amount
|
|
2021 – Remaining
|
|
$
|
21,000
|
|
Legal
The
Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters
are subject to many uncertainties and outcomes and are not predictable with assurance. While management believes that such matters are
currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation
may have a material adverse effect on its business and financial condition. To the Company’s knowledge, neither the Company nor
any of its properties are subject to any pending legal proceedings.
TFF
PHARMACEUTICALS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The Three Months Ended March 31, 2021 and 2020
NOTE
5 - LICENSE AND AGREEMENTS
In
July 2015, the University of Texas at Austin (“UT”) granted to the Company’s former parent, LTI, an exclusive worldwide,
royalty bearing license to the patent rights for the TFF platform in all fields of use, other than vaccines for which LTI received a
non-exclusive worldwide, royalty bearing license to the patent rights for the TFF platform. In March 2018, LTI completed an assignment
to the Company all of its interest to the TFF platform, including the patent license agreement with UT, at which time the Company paid
UT an assignment fee of $100,000 in accordance with the patent license agreement. In November 2018, the Company and UT entered into an
amendment to the patent license agreement pursuant to which, among other things, the Company’s exclusive patent rights to the TFF
platform were expanded to all fields of use. The patent license agreement requires the Company to pay royalties and milestone payments
and conform to a variety of covenants and agreements, and in the event of the Company’s breach of agreement, UT may elect to terminate
the agreement. For the period ended December 31, 2018, the Company did not achieve any of the milestones and, as such, was not required
to make any milestone payments. During the ended December 31, 2019, the Company achieved one milestone by gaining IND approval on first
indication of a licensed product on November 24, 2019. The milestone fee associated with this achievement to be paid is $50,000 and the
Company must issue UT common shares equal to 1% of the Company’s outstanding shares of common stock, on a fully diluted basis,
as of 30 days after IND approval, which was December 24, 2019. The Company paid the $50,000 and issued the shares in January 2020. As
of the date of these condensed consolidated financial statements, the Company is in compliance with the patent license agreement as all
required amounts have been paid in accordance with the agreement.
In
May 2018, the Company entered into a master services agreement and associated individual study contracts with ITR Canada, Inc. (“ITR”)
to provide initial contract pre-clinical research and development services for the Company’s drug product candidates. In January
2019, the Company cancelled all of the individual study contracts with ITR and entered into contracts with 11036114 Canada Inc. (initially
dba VJO Non-Clinical Development and now dba Strategy Point Innovations (“SPI”)) and 11035835 Canada Inc., (dba Periscope
Research) to complete additional pre-clinical research and development services in order to take advantage of eligible Canadian Tax Credits.
The services related to the contract with SPI were sub-contracted to ITR and others under substantially the same terms as the initial
contract with ITR. Desire Ventures, LLC facilitates the invoicing for the various affiliates. The accounts payable due in connection
with this agreement was approximately $685,000 and $56,000 as of March 31, 2021 and December 31, 2020, respectively. During the three
months ended March 31, 2021 and 2020, the Company recorded research and development costs of approximately $1,812,000 and $779,000, respectively,
pertaining to this agreement.
In
April 2019, the Company entered into a master services agreement with Irisys, LLC to provide contract manufacturing services for one
of the Company’s drug product candidates, Voriconazole. The accounts payable due in connection with this agreement was approximately
$108,000 and $59,000 as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020,
the Company recorded research and development costs of approximately $494,000 and $341,000, respectively, pertaining to this agreement.
In
January 2020, TFF Australia entered into a master consultancy agreement with Novotech (Australia) Pty Ltd. (formally known as Clinical
Network Services Pty Ltd.) to provide initial contract clinical research and development services for the Company’s drug product
candidates. The accounts payable due in connection with this agreement was approximately AUD$83,000 (US$63,000) and AUD$170,000 (US$131,000)
as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, the Company recorded
research and development costs of approximately AUD$705,000 (US$545,000) and AUD$85,000 (US$56,000), respectively, pertaining to this
agreement.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three Months Ended March 31, 2021 and
2020
NOTE 5 - LICENSE AND AGREEMENTS, continued
In May 2020, TFF Australia entered into an amended
clinical trial research agreement with Nucleus Network Pty Ltd. to provide a Phase I study of one of the Company’s drug candidates,
Tacrolimus. The accounts payable due in connection with this agreement was approximately AUD$21,000 (US$16,000) and AUD$51,000 (US$40,000)
as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Company recorded research
and development costs of approximately AUD$244,000 (US$188,000), pertaining to this agreement.
In August 2020, TFF Australia entered into a clinical
trial research agreement with Q-Pharm Pty Ltd. to provide a Phase I study of one of the Company’s drug candidates, Tacrolimus. The
accounts payable due in connection with this agreement was approximately $0 as of March 31, 2021 and December 31, 2020, respectively.
During the three months ended March 31, 2021, the Company did not record any research and development costs pertaining to this agreement.
On August 12, 2020, the Company entered into a
licensing and collaboration agreement with UNION therapeutics A/S in which UNION acquired an option to obtain a worldwide exclusive license
for the TFF technology in combination with niclosamide. Pursuant to the terms of the license agreement, UNION can exercise its option
to obtain the license within 45 days after the complete data has been received by UNION from investigator-initiated trials. Upon exercise
of the option, UNION shall be responsible to pay all expenses incurred in the development of any licensed product. The Company will be
eligible to receive milestone payments upon the achievement of certain milestones in the development the licensed products, based on completion
of clinical trials, pre-marketing approvals and/or the receipt of at least $25,000,000 of grant funding. The Company will receive a single-digit
tiered royalty on net sales. The Company will also be entitled to receive sales-related milestone payments based on the commercial success
of the licensed products.
In January 2021, the Company entered into a master
services agreement with Experic to provide contract manufacturing services for one of the Company’s drug product candidates, Voriconazole.
The accounts payable due in connection with this agreement was approximately $9,000 as of March 31, 2021. During the three months ended
March 31, 2021, the Company recorded research and development costs of approximately $196,000, pertaining to this agreement.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
March 2021 Offering
On March 30, 2021, the Company completed the March
2021 Offering, selling 2,140,000 shares of common stock at an offering price of $14.00 per share. The Company received gross proceeds
of approximately $30,000,000. The Company received net proceeds of approximately $28,024,000, after deducting underwriting discounts and
commissions and offering-related expenses.
Stock Option Exercises
During the three months ended March 31, 2021,
244,656 shares of common stock were issued in connection with the exercise of stock options for total proceeds of $655,253.
Warrant Exercises
During the three months ended March 31, 2021,
415,917 shares of common stock were issued in connection with the cashless exercise of 424,288 common stock warrants.
During the three months ended March 31, 2021,
28,834 shares of common stock were issued in connection with the exercise of common stock warrants for total proceeds of $180,212.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three Months Ended March 31, 2021 and
2020
NOTE 7 – STOCK BASED COMPENSATION
In January 2018, the Company’s board of
directors approved its 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of non-qualified stock
options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share
awards and grant of restricted stock units. The Company has 3,284,480 shares of its common stock reserved under the 2018 Plan. All of
the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of
the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be
eligible to receive incentive awards under the 2018 Plan.
The following table summarizes the stock-based
compensation expense recorded in the Company’s results of operations during the three months ended March 31, 2021 and 2020 for stock
options and warrants:
|
|
Three
Months
Ended
|
|
|
Three
Months
Ended
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Research and development
|
|
$
|
67,279
|
|
|
$
|
—
|
|
General and administrative
|
|
|
963,136
|
|
|
|
425,844
|
|
|
|
$
|
1,030,415
|
|
|
$
|
425,844
|
|
As of March 31, 2021, there was approximately
$8,474,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to
vest. This cost is expected to be recognized over a weighted-average period of 2.2 years.
The Company records compensation expense for awards
with graded vesting using the straight-line method. The Company recognizes compensation expense over the requisite service period applicable
to each individual award, which generally equals the vesting term. The Company estimates the fair value of each option award using the
Black-Scholes-Merton option pricing model. Forfeitures are recognized when realized.
The Company estimated the fair value stock options
using the Black-Scholes option pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite
service periods of the respective awards. The fair value of stock options issued was estimated using the following assumptions:
|
|
Three Months
March 31,
2021
|
|
Weighted average exercise price
|
|
$
|
15.90
|
|
Weighted average grant date fair value
|
|
$
|
13.72
|
|
Assumptions
|
|
|
|
|
Expected volatility
|
|
|
89
|
%
|
Weighted average expected term (in years)
|
|
|
10.0
|
|
Risk-free interest rate
|
|
|
1.09
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
The risk-free interest rate was obtained from
U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for
industry peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified
method as a result of limited historical data regarding the Company’s activity for employee awards and the contractual term for
nonemployee awards. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends
in the foreseeable future. The Company uses the closing stock price on the date of grant as the fair value of the common stock.
TFF PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For The Three Months Ended March 31, 2021 and
2020
NOTE 7 – STOCK BASED COMPENSATION,
continued
The following table summarizes stock option activity
during the three months ended March 31, 2021:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Prices
|
|
|
Weighted-
Average
Remaining
Contractual
Term (In Years)
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2021
|
|
|
2,610,495
|
|
|
$
|
5.63
|
|
|
|
8.60
|
|
|
$
|
22,789,233
|
|
Granted
|
|
|
10,000
|
|
|
|
15.90
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(244,656
|
)
|
|
|
2.68
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2021
|
|
|
2,375,839
|
|
|
$
|
5.98
|
|
|
|
8.45
|
|
|
$
|
18,262,737
|
|
Exercisable at March 31, 2021
|
|
|
660,382
|
|
|
$
|
3.61
|
|
|
|
7.98
|
|
|
$
|
6,576,440
|
|
The aggregate intrinsic value of stock options
is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock
for those stock options that had strike prices lower than the fair value of the Company’s common stock. The intrinsic value of the
options exercised during 2021 was approximately $3,700,000.
Warrants
On February 1, 2021, the Company issued a five-year
warrant to purchase 25,000 shares of common stock at $15.90 per share to a consultant. The fair value of the warrant on the grant date
was estimated using the Black-Scholes-Merton option pricing model with a common stock value of $16.13 per share, a contractual life of
5.0 years, a dividend yield of 0%, volatility of 97.09% and an assumed risk-free interest rate of 0.42%. The warrant is immediately exercisable.
The fair value of the warrant was determined to be approximately $293,000 and was recorded in general and administrative expenses in the
condensed consolidated statement of operations during the three months ended March 31, 2021.
In determining the fair value for warrants, the
expected life of the Company’s warrants was determined using the contractual life. The methodology in determining all other inputs
to calculate the fair value utilizing the Black-Scholes-Merton option pricing model is the same as the stock option methodology described
in above for stock options.
NOTE 8 – SUBSEQUENT EVENTS
The Company has performed an evaluation of events
occurring subsequent to March 31, 2021 through the filing date of this Quarterly Report. Based on its evaluation, nothing other than the
events below need to be disclosed.
Leidos, Inc. awarded the Company on April 23,
2021 a subcontract to participate in the Personalized Protective Biosystems (“PPB”) Program to develop next-generation chemical
and biological protection for U.S. warfighters and stability operators. Under the 60-month, three-phase subcontract, the Company will
utilize its Thin Film Freezing platform.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Cautionary Statement
The following discussion and
analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained
elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business
or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made
by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our 2020 Annual Report on
Form 10-K filed with the SEC on March 10, 2021 and Amendment No. 1 to the 2020 Annual Report on Form 10-K filed with the SEC on April
29, 2021.
In this report we make, and
from time to time we otherwise make written and oral statements regarding our business and prospects, such as projections of future performance,
statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing
the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,”
“target,” “goal,” “plans,” “objective,” “should” or similar expressions identify
forward-looking statements, which may appear in our documents, reports, filings with the SEC, and news releases, and in written or oral
presentations made by officers or other representatives to analysts, stockholders, investors, news organizations and others, and in discussions
with management and other of our representatives.
Our future results, including
results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included in Part I,
Item 1 “Risk Factors” in our 2020 Annual Report on Form 10-K filed with the SEC on March 10, 2021. No assurance can be
given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the
date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates,
data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except
as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events
or circumstances arising after the date of such statement or (ii) the important factors that could cause our future results to differ
materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking
statement.
General
TFF Pharmaceuticals, Inc.
(NASDAQ: TFFP) is an early-stage biopharmaceutical company focused on developing and commercializing innovative drug products based on
our patented Thin Film Freezing, or TFF, technology platform. We believe, and early testing confirms, that our TFF platform can significantly
improve the solubility of poorly water-soluble drugs, a class of drugs that makes up approximately 33% of the major pharmaceuticals worldwide,
thereby improving the pharmacokinetic effect of those drugs. We believe that in the case of some new drugs that cannot be developed due
to poor water-solubility, our TFF platform has the potential to increase the pharmacokinetic effect of the drug to a level allowing for
its development and commercialization. In November 2019, we initiated Phase I human clinical trials of our lead product, TFF Voriconazole
Inhalation Powder, or VIP, completed the clinical portion of the Phase 1 trial in July 2020 and progressed to a Phase 1b clinical trial
in asthma patients in November 2020. In June 2020, we commenced Phase I human clinical trials of our TFF Tacrolimus Inhalation Powder,
or TIP, product in Melbourne, Victoria, Australia, but in July 2020, the Phase I trials of our TFF TIP product were delayed due to a resurgence
of COVID-19 in the Melbourne area. A second clinical trial site in Brisbane, Queensland, Australia was opened and we resumed dosing in
the Phase 1 clinical trials in Australia during the third quarter 2020. As of the date of this report, we have not progressed the development
of any other of our drug candidates to human clinical trials and our efforts have focused on the formulation, early stage animal testing
and formal toxicology studies of our initial drug candidates in preparation for our first clinical trials.
We intend to initially focus
on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. While the TFF platform was designed
to improve solubility of poorly water-soluble drugs generally, the researchers at University of Texas at Austin, or UT, found that the
technology was particularly useful in generating dry powder particles with properties which allow for superior inhalation delivery, especially
to the deep lung, which is an area of extreme interest in respiratory medicine. We believe that our TFF platform can significantly increase
the number of pulmonary drug products that can be delivered by way of breath-actuated inhalers, which are generally considered to be the
most effective and patient-friendly means of delivering medication directly to the lungs. Our dry powder drug products will be designed
for use with dry powder inhalers, which are generally considered to be the most effective of all breath-actuated inhalers. We plan to
focus on developing inhaled dry powder formulations of existing off-patent drugs intended for lung diseases and conditions, which we believe
includes dozens of potential drug candidates, many of which have a potential market ranging from $100 million to over $500 million.
We intend to initially focus
on the development of the following product candidates:
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TFF
Vori is an inhaled dry powder version of Voriconazole, generally considered to be the best antifungal drug used to treat invasive
pulmonary aspergillosis, or IPA, a severe fungal pulmonary disease with a mortality rate that can reach 90% in some patient populations.
In October 2019, we submitted to the U.S. Food and Drug Administration, or FDA, an Investigational New Drug Application, or IND, for
our TFF Vori product and initiated our Phase I human clinical trials in November 2019. In July 2020, we completed the clinical portion
of the Phase I trial with both single ascending and multiple ascending dose phases with 32 healthy subjects enrolled in each part to
evaluate the safety, tolerability and pharmacokinetic profile of TFF Vori. We believe, and our clinical testing to date confirms, that
our TFF platform can be used to formulate a dry powder version of Voriconazole, which is no longer subject to patent protection. Voriconazole
is currently marketed in Australia, Europe and the U.S. as Vfend®. As of the date of this report, the Clinical Practice Guidelines
released by the Infectious Diseases Society of America recommend Voriconazole as first-line monotherapy for IPA. However, since the registration
of Vfend in Europe and the U.S. in 2002, several studies have examined the exposure-response relationship with Voriconazole, identifying
a relationship between low Voriconazole exposure and higher rates of treatment failure, as well as a higher propensity for neurotoxicity
at higher exposures. We believe a TFF prepared dry powder formulation of Voriconazole administered directly to the lungs can maximize
both the prophylactic value for immunocompromised patients susceptible to IPA and the treatment value of patients suffering from acute
and chronic IPA. We also believe our dry powder drug formulation would benefit patients by providing the drug at the “port of entry”
of invasive fungal infections, while also reducing or eliminating the unpleasant and potentially fatal side effects associated with Voriconazole
and other last line antifungals.
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TFF
Tac-Lac is an inhaled dry powder version of tacrolimus, an immunosuppressive drug used in transplant medicine. Prograf tacrolimus
is currently the second most commonly administered immunosuppressive drug used in solid organ transplants, despite what we believe to
be the many challenges for patients and physicians when used for extended periods. Prograf tacrolimus can cause toxicity in the kidneys,
particularly when used in high doses that are required for effective immunosuppression in the lung. Tacrolimus is no longer under patent
protection, and we intend to develop a dry powder version suitable for use with a dry powder inhaler. Because our dry powder version
would provide for a high local lung concentration without the typical systemic toxicity frequently experienced with oral dosage form
immunosuppressants, we believe our drug candidate should have a high likelihood of success in competing in the immunosuppressant market
for lung and heart/lung transplants. As of the date of this report, we intend to submit to the FDA an IND for TFF Tac-Lac upon completion
of the Phase I clinical trials.
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TFF
Niclosamide is an inhaled dry powder formulation of Niclosamide. Niclosamide has been used to treat tapeworm infections in humans
since the 1960s and was recently reported to be one of the most potent approved drugs in screens for antiviral activity against the SARS-CoV2
virus that causes the COVID-19 disease, including the UK B.1.1.7 and South African B.1.351 variants. Early testing confirmed that our
TFF platform can be used to formulate a dry powder version of Niclosamide, which is no longer subject to patent protection. We believe
a TFF prepared dry powder formulation of Niclosamide administered directly to the lungs can maximize both the prophylactic value for
persons exposed to COVID-19 and for the treatment of patients with COVID-19 infections at risk for serious disease complications. TFF
has also obtained the rights to a novel formulation that may enhance the bioavailability of Niclosamide through oral delivery under our
license from the University of Texas. Systemically delivered Niclosamide has shown promise for the treatment of COVID -19 and various
forms of cancer. On August 12, 2020, we entered into a licensing and collaboration agreement with UNION therapeutics A/S in
which UNION acquired an option to obtain a worldwide exclusive license for the TFF technology in combination with niclosamide.
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TFF
mAb therapies is intended to be a dry powder formulation of a COVID-19 monoclonal antibody therapy. On November 1, 2020, the
Company entered into a joint development and collaboration agreement (the “Agreement”) with Augmenta Bioworks, Inc. (“Augmenta”
pursuant to which the parties have agreed to collaborate on the joint development of novel commercial products incorporating Augmenta’s
human-derived monoclonal antibodies (“mAbs”) for potential COVID-19 therapeutics. Under the terms of the Agreement, both
companies will collaborate to develop one or more commercial therapeutics utilizing the Company’s Thin-Film Freezing technology
to manufacture dry powder formulations of Augmenta’s mAbs for inhalation delivery directly to the lungs of patients.
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We have identified
a number of additional drug candidates that show promise upon initial evaluation, including dry powder formulations of:
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Cannabidiol,
or CBD, a controlled substance as defined in the federal Controlled Substances Act of 1970 that is reported to be used by some for the
treatment of various epilepsy syndromes as well as anxiety, insomnia, and different types of pain. We are in the early stages of developing
an inhaled dry powder form of CBD that could be used to support or to treat a variety of health issues that may benefit from CBD administration.
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Vaccines
containing aluminum salts, which make up approximately 35% of all vaccines. Aluminum salts are incorporated into many vaccine formulations
as an adjuvant, which is a substance added to vaccines to enhance the immune response of vaccinated individuals. A major limitation with
these vaccines is that they are fragile and to maintain their efficacy they must be formulated as liquid suspensions and kept in a cold
chain (2 – 8°C) during transport and storage, which is burdensome and expensive. We have conducted drug and performance characterization
activities of certain TFF formulated salt containing vaccines, which suggest that the salt containing vaccines can be successfully converted
from liquid suspension into dry powder, and then later be reconstituted at the time of use without causing a decrease in efficacy.
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As of the date of this report,
we intend to develop our dry powder formulations of CBD and salt containing vaccines with a pharmaceutical company active in the space
and we do not intend to pursue the development of our dry powder formulation of CBD or salt containing vaccines beyond performance characterization
and efficacy data through early animal testing until such time, if ever, as we obtain a development partner.
We are also focused on the
joint development of dry powder formulations of proprietary drugs owned or licensed by other pharmaceutical companies. As of the date
of this report, we are at various stages of different feasibility studies of new chemical entities owned by international pharmaceutical
companies. In addition, we recently commenced preliminary analysis and testing of dry powder formulations of certain drugs and vaccines
through topical, ocular and nasal applications in connection with our participation in submissions made to certain government agencies
for government contracts. Also, in May 2020, we authorized a third-party to conduct feasibility studies and market testing of dry powder
formulations of cannabis and cannabis-derived products.
Our business model is to
develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently available
alternatives. In our initial evaluation of the market, we have identified a number of potential drug candidates that show promise upon
initial assessment. In most cases, these are off-patent drugs for which we would directly pursue the development of a dry powder formulation,
however, we do not expect any dry powder formulation of a CBD drug product to be off-patent and our dry powder formulation of aluminum
salt vaccines may not be off-patent. In those cases where our initial dry powder drug candidate will be established drugs that are off-patent,
such as TFF Vori and TFF Tac-Lac, we believe that our drug product candidates may qualify for approval by the FDA through the FDA’s
505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does
not require clinical trials other than a bioequivalence trial. Our dry powder formulation of a CBD drug candidate will likely require
a full NDA through the FDA’s 505(b)(1) regulatory pathway, however, a non-pharmaceutical CBD dry formulation, such as a dietary
supplement, may not require FDA approval. We expect that our dry powder formulation of aluminum salt vaccines will require a biological
license application, or BLA, which is very similar to a full NDA through the FDA’s 505(b)(1) regulatory pathway. In addition, to
the extent we claim that any of our off-patent drug product candidates target a new indication or offer improved safety compared to the
existing approved products, and it is our present expectation that we will in many cases, it is likely that we will be required to conduct
additional clinical trials in order to obtain marketing approval. For example, based on separate pre-IND meetings with the FDA concerning
TFF Vori and TFF Tac-Lac, we believe we will need to conduct Phase I and Phase II studies prior to filing for marketing approval for TFF
Vori and Phase I and Phase IIb/IIIa studies prior to filing for marketing approval for TFF Tac-Lac. However, there can be no assurance
that the FDA will not ask for additional clinical data for either TFF Vori or TFF Tac-Lac.
We also believe that in some
cases our dry powder drug products may qualify for the FDA’s orphan drug status. Upon and subject to receipt of the requisite approvals,
we intend to commercialize our drug products through a combination of our internal direct sales and third-party marketing and distribution
partnerships. In some cases, such as the development of combination drugs or the development of dry powder formulations of patented drugs,
we intend to pursue the licensing of our TFF platform or a joint development arrangement.
On March 30, 2021, we closed
a public offering of 2,140,000 shares of common stock at a public offering price of $14.00 per share. After the payment of underwriter
discounts and offering expenses, we received net proceeds of approximately $28.0 million.
We were incorporated under
the laws of the state of Delaware on January 24, 2018. Our principal executive offices are located at 2600 Via Fortuna, Suite 360, Austin,
Texas 78746, and our telephone number is (737) 802-1973. Our website address is www.tffpharma.com. The information contained in, or accessible
through, our website is not incorporated by reference into this report, and you should not consider any information contained in, or that
can be accessed through, our website as part of this report or in deciding whether to purchase our common stock.
Results of Operations
We were formed in January
2018 and have not commenced revenue-producing operations. To date, our operations have consisted of the development and early-stage testing
of our initial product candidates. In connection with our organization on January 24, 2018, we entered into a Contribution and Subscription
Agreement with Lung Therapeutics, Inc., or LTI, our former parent, pursuant to which we agreed to acquire from LTI certain of LTI’s
non-core intellectual property rights and other assets, or the Acquired Assets, all of which relate to our Thin Film Freezing technology.
We closed on the acquisition of the Acquired Assets concurrent with the close of the initial Series A preferred stock financing in March
2018.
In December 2019, the Company
established a wholly-owned Australian subsidiary, TFF Pharmaceuticals Australia Pty Ltd. in order to conduct clinical research.
As of the date of this report,
the COVID-19 pandemic has had a relatively insignificant impact on our operations. During 2020, we experienced a temporary suspension
of dosing in the Phase I clinical trial for our TFF Tac-Lac due to the COVID-19 pandemic and the pandemic has otherwise caused minor slowing
in the timing of certain non-clinical and clinical activities by us and our collaborators and service providers during 2020 and the first
quarter of 2021. However, the COVID-19 pandemic has not caused us to forego, abandon or materially delay any proposed activities. While
we believe we have been able to effectively manage the disruption caused by the COVID-19 pandemic to date, there can be no assurance that
our operations, including the development of our drug candidates, will not be disrupted or materially adversely affected in the future
by the COVID-19 pandemic or an epidemic or outbreak of an infectious disease like the outbreak of COVID-19.
During the three months ended
March 31, 2021 and 2020, we recognized $24,315 and $0, respectively, of grant revenue. The grant revenue relates to a feasibility and
material transfer agreement entered into with a third party that provided us with funds in return for certain research and development
activities. There are currently no additional amounts due under the agreement from the third party.
During the three months ended
March 31, 2021 and 2020, we incurred $5,278,252 and $2,235,542 of research and development expenses and $2,647,415 and $1,617,924 of general
and administrative expenses, respectively. The increase in research and development expenses during 2021 was due to increased preclinical
activity related to Niclosamide and clinical activity related to TFF Vori and TFF Tac-Lac. The ramp up includes our preliminary analysis
and testing of dry powder formulations of certain drugs and vaccines we believe have the potential to become product candidates. We expect
our spending on research and development activities to continue to increase in upcoming quarters. The increase in general and administrative
expenses in 2021 from the prior year was mainly a result of increases in insurance and investor relation expenses of approximately $106,000,
increased expenses related to consulting and business development activities of approximately $221,000, payroll and related expense increases
of approximately $48,000 and an increase in stock-based compensation of approximately $537,000. While we expect our general and administrative
expenses to continue to increase over the next few years, we anticipate the rate of increase will begin to decrease. We incurred a net
loss of $7,654,575 and $3,797,198 for three months ended March 31, 2021 and 2020, respectively.
During the three months ended
March 31, 2021 and 2020, we recognized $246,777 and $56,268, respectively, of other income. The other income recognized during the three
months ended March 31, 2021 consists of $231,278 of research and development tax credits received from the Australian government for expenses
incurred in a prior year and $15,499 of interest earned on our cash and cash equivalents. The other income recognized during the three
months ended March 31, 2020 relates to interest earned on our cash and cash equivalents.
Financial Condition
As of March 31, 2021, we had
total assets of approximately $61.4 million and working capital of approximately $58.0 million. As of March 31, 2021, our liquidity included
approximately $58.0 million of cash and cash equivalents. We believe that our cash on-hand as of the date of this report is sufficient
to fund our proposed operating plan for, at least, the 12 months following the date of this report. However, as of the date of this report,
we believe that we will need additional capital to fund our operations through to the marketing approval for TFF Vori and TFF Tac-Lac,
assuming such approval can be obtained at all, and to engage in the substantial development of any other of our drug candidates, such
as formulation, early stage animal testing and formal toxicology studies. We intend to seek additional funds through various financing
sources, including the sale of our equity and debt securities, licensing fees for our technology and co-development and joint ventures
with industry partners, with a preference towards licensing fees for our technology and co-development and joint ventures with industry
partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue producing operations
and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available
on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue
our business plan and we may be unable to continue operations, in which case you may lose your entire investment.
Off Balance Sheet Transactions
We do not have any off-balance
sheet transactions.