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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission file number 001-36577

ContraFect Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

39-2072586

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

28 Wells Avenue, 3rd Floor, Yonkers, NY

 

10701

(Address of principal executive offices)

 

(Zip Code)

(914) 207-2300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock,

$0.0001 par value per share

 

CFRX

 

Nasdaq Capital Market*

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares of the registrant’s Common Stock outstanding as of November 10, 2023 was 10,704,803.

* As previously reported, effective November 9, 2023, the registrant’s common stock has been suspended from trading on the Nasdaq Capital Market. The registrant expects that its shares will be delisted from the Nasdaq Capital Market after the Nasdaq Stock Market LLC files a Form 25-NSE with the SEC and the registrant’s common stock will no longer be registered pursuant to Section 12(b) of the Act following the effectiveness of such filing. The registrant’s common stock is currently being quoted on the OTC Pink Open Market under the symbol “CFRX”.

 


CONTRAFECT CORPORATION

INDEX

 

 

Page No.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

 

PART II – OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

63

Item 3.

Defaults Upon Senior Securities

63

Item 4.

Mine Safety Disclosures

63

Item 5.

Other Information

63

Item 6.

Exhibits

64

SIGNATURES

65

 


FORWARD LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains forward-looking statements and information 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. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, our ability to continue as a going concern, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

our efforts to seek financial and strategic alternatives and, if we are unsuccessful in such efforts, the possibility that our Board of Directors may determine to place us in bankruptcy or other dissolution proceedings;
the success, cost, timing and potential indications of our product development activities and clinical trials;
our ability to advance into and through clinical development, make regulatory filings and ultimately obtain U.S. Food and Drug Administration (“FDA”) approval for our product candidates;
our research and development plans and ability to bring forward additional product candidates into preclinical and clinical development;
continued trading of our common stock;
our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;
the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;
our future marketing and sales programs;
the effect of competition and proprietary rights of third parties;
our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern;
anticipated reductions in operating expenses;
the availability of and our ability to obtain additional financing;
the effects of existing and future federal, state and foreign regulations;
the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and
the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

As more fully described under the heading “Risk Factors” contained elsewhere in this Quarterly Report on Form 10-Q, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


 

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have a need for substantial additional funding. If we are unable to raise capital soon, we could be forced to delay, reduce or eliminate our product development programs, or place the Company into bankruptcy or dissolution.
Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.
The suspension and anticipated delisting of our common stock from The Nasdaq Capital Market and our trading on the OTC Pink Open Market are expected to result in a more limited market and lack of liquidity for our securities and may make it more difficult to raise funds on terms acceptable to us, or at all.
We currently have no source of product revenue and have not yet generated any revenues from product sales.
We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
The timing of the milestone and royalty payments we are required to make to The Rockefeller University (“Rockefeller”) under certain agreements is uncertain and could adversely affect our cash flows and results of operations.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Any pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.
We are heavily dependent on the success of our leading product candidates. If we are ultimately unable to obtain regulatory approval for any of our product candidates, our business will be substantially harmed.
If clinical trials of any of our product candidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar international regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete the development and commercialization of our product candidates.
We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of any of our product candidates.
Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.
We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.
We rely on Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.
We rely on contract manufacturing organizations (“CMOs”) to manufacture clinical and commercial supplies of our product candidates. In addition to the risks associated with the manufacture of our product candidates, which could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.
Even if the FDA approves any of our product candidates, adverse effects discovered after approval could adversely affect our markets.
Any Breakthrough Therapy designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

i


 

Developments by competitors may render our products or technologies obsolete or non-competitive.
The level of commercial success of any of our product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.
Coverage and reimbursement may not be available for any of our product candidates that we develop, including as a result of healthcare reform measures.
We may not successfully execute or achieve the expected benefits of our restructuring program and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations.
If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
Risks related to regulatory approval of our product candidates and other legal and compliance matters.
Risks related to employee matters and our operations.
Risks related to our intellectual property.
Risks related to our securities and organizational documents.
Security breaches, cybersecurity attacks, failure of our data and personal information protections and those of third parties and other disruptions could compromise our information and technology systems and expose us to liability, which would cause our business and reputation to suffer.
Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the European Union (“EU”) and European Economic Area (“E.E.A.”).

ii


 

CONTRAFECT CORPORATION

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONTRAFECT CORPORATION

Consolidated Balance Sheets

(in thousands, except share data)

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(unaudited)

 

 

(audited)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,413

 

 

$

8,907

 

Marketable securities

 

 

 

 

 

4,775

 

Prepaid expenses

 

 

1,095

 

 

 

1,382

 

Other current assets

 

 

12

 

 

 

2,642

 

Total current assets

 

 

6,520

 

 

 

17,706

 

Property and equipment, net

 

 

511

 

 

 

627

 

Operating lease right-of-use assets

 

 

1,989

 

 

 

2,241

 

Other assets

 

 

105

 

 

 

105

 

Total assets

 

$

9,125

 

 

$

20,679

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,179

 

 

$

13,671

 

Accrued and other current liabilities

 

 

3,464

 

 

 

6,498

 

Current portion of lease liabilities

 

 

680

 

 

 

671

 

Total current liabilities

 

 

12,323

 

 

 

20,840

 

Warrant liabilities

 

 

652

 

 

 

9,299

 

Long-term portion of lease liabilities

 

 

1,873

 

 

 

2,210

 

Other liabilities

 

 

38

 

 

 

182

 

Total liabilities

 

 

14,886

 

 

 

32,531

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none issued and
   outstanding at September 30, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.0001 par value, 125,000,000 shares authorized, 10,704,803 and
   
594,983 shares outstanding at September 30, 2023 and December 31, 2022

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

334,243

 

 

 

313,884

 

Accumulated other comprehensive loss

 

 

 

 

 

(32

)

Accumulated deficit

 

 

(340,003

)

 

 

(325,705

)

Total stockholders’ deficit

 

 

(5,759

)

 

 

(11,852

)

Total liabilities and stockholders’ deficit

 

$

9,125

 

 

$

20,679

 

 

See accompanying notes.

1


 

CONTRAFECT CORPORATION

Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

3,869

 

 

$

10,814

 

 

$

14,034

 

 

$

40,299

 

General and administrative

 

 

2,808

 

 

 

3,366

 

 

 

9,476

 

 

 

9,886

 

Restructuring

 

 

 

 

 

7,719

 

 

 

 

 

 

7,719

 

Total operating expenses

 

 

6,677

 

 

 

21,899

 

 

 

23,510

 

 

 

57,904

 

Loss from operations

 

 

(6,677

)

 

 

(21,899

)

 

 

(23,510

)

 

 

(57,904

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

109

 

 

 

9

 

 

 

310

 

 

 

64

 

Other expense

 

 

 

 

 

 

 

 

(96

)

 

 

 

Change in fair value of warrant liabilities

 

 

1,209

 

 

 

4,823

 

 

 

8,998

 

 

 

2,527

 

Total other income

 

 

1,318

 

 

 

4,832

 

 

 

9,212

 

 

 

2,591

 

Net loss

 

$

(5,359

)

 

$

(17,067

)

 

$

(14,298

)

 

$

(55,313

)

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.50

)

 

$

(34.72

)

 

$

(2.57

)

 

$

(112.51

)

Basic and diluted weighted average shares outstanding

 

 

10,704,803

 

 

 

491,626

 

 

 

5,559,348

 

 

 

491,626

 

 

See accompanying notes.

2


 

CONTRAFECT CORPORATION

Consolidated Statements of Comprehensive Loss

(unaudited)

(in thousands)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

 

$

(5,359

)

 

$

(17,067

)

 

$

(14,298

)

 

$

(55,313

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

 

 

 

73

 

 

 

32

 

 

 

(56

)

Comprehensive loss

 

$

(5,359

)

 

$

(16,994

)

 

$

(14,266

)

 

$

(55,369

)

 

See accompanying notes.

3


 

CONTRAFECT CORPORATION

Consolidated Statements of Stockholders’ (Deficit) Equity

(unaudited)

(in thousands, except share data)

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Stockholders’
Deficit

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

594,983

 

 

$

1

 

 

$

313,884

 

 

$

(32

)

 

$

(325,705

)

 

$

(11,852

)

Issuance of securities in registered
   offering

 

 

128,000

 

 

 

 

 

 

10,000

 

 

 

 

 

 

 

 

 

10,000

 

Financing cost of sale of securities

 

 

 

 

 

 

 

 

(883

)

 

 

 

 

 

 

 

 

(883

)

Issuance of common stock for exercise
   of pre-funded warrants

 

 

842,937

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Stock-based compensation

 

 

 

 

 

 

 

 

932

 

 

 

 

 

 

 

 

 

932

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

32

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,371

)

 

 

(1,371

)

Balance, March 31, 2023

 

 

1,565,920

 

 

$

1

 

 

$

323,938

 

 

$

 

 

$

(327,076

)

 

$

(3,137

)

Issuance of common stock for exercise
   of pre-funded warrants

 

 

2,104,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for exercise
   of warrants

 

 

7,034,883

 

 

 

 

 

 

7,774

 

 

 

 

 

 

 

 

 

7,774

 

Financing cost of warrant inducement and exercise

 

 

 

 

 

 

 

 

(414

)

 

 

 

 

 

 

 

 

(414

)

Reversal of warrant liability due to exercise of warrants

 

 

 

 

 

 

 

 

1,442

 

 

 

 

 

 

 

 

 

1,442

 

Stock-based compensation

 

 

 

 

 

 

 

 

795

 

 

 

 

 

 

 

 

 

795

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,568

)

 

 

(7,568

)

Balance, June 30, 2023

 

 

10,704,803

 

 

$

1

 

 

$

333,535

 

 

$

 

 

$

(334,644

)

 

$

(1,108

)

Stock-based compensation

 

 

 

 

 

 

 

 

708

 

 

 

 

 

 

 

 

 

708

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,359

)

 

 

(5,359

)

Balance, September 30, 2023

 

 

10,704,803

 

 

$

1

 

 

$

334,243

 

 

$

 

 

$

(340,003

)

 

$

(5,759

)

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Stockholders’
(Deficit) Equity

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

491,626

 

 

$

1

 

 

$

310,011

 

 

$

(84

)

 

$

(260,552

)

 

$

49,376

 

Stock-based compensation

 

 

 

 

 

 

 

 

919

 

 

 

 

 

 

 

 

 

919

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

 

 

 

(140

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,157

)

 

 

(20,157

)

Balance, March 31, 2022

 

 

491,626

 

 

$

1

 

 

$

310,930

 

 

$

(224

)

 

$

(280,709

)

 

$

29,998

 

Stock-based compensation

 

 

 

 

 

 

 

 

965

 

 

 

 

 

 

 

 

 

965

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,089

)

 

 

(18,089

)

Balance, June 30, 2022

 

 

491,626

 

 

$

1

 

 

$

311,895

 

 

$

(213

)

 

$

(298,798

)

 

$

12,885

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,006

 

 

 

 

 

 

 

 

 

1,006

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,067

)

 

 

(17,067

)

Balance, September 30, 2022

 

 

491,626

 

 

$

1

 

 

$

312,901

 

 

$

(140

)

 

$

(315,865

)

 

$

(3,103

)

 

See accompanying notes.

4


 

CONTRAFECT CORPORATION

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(14,298

)

 

$

(55,313

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

120

 

 

 

115

 

Stock-based compensation expense

 

 

2,436

 

 

 

2,890

 

Issuance costs allocated to warrants

 

 

96

 

 

 

 

Change in fair value of warrant liabilities

 

 

(8,998

)

 

 

(2,527

)

Net amortization of premium on marketable securities

 

 

57

 

 

 

556

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Decrease (increase) in prepaid expenses and other current and non-current assets

 

 

2,857

 

 

 

6,709

 

(Decrease) increase in accounts payable, accrued and other liabilities

 

 

(7,888

)

 

 

11,564

 

Net cash used in operating activities

 

 

(25,618

)

 

 

(36,006

)

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from maturities of marketable securities

 

 

4,750

 

 

 

21,531

 

Sales of marketable securities

 

 

 

 

 

2,504

 

Purchases of property and equipment

 

 

(20

)

 

 

(19

)

Net cash provided by investing activities

 

 

4,730

 

 

 

24,016

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of securities

 

 

19,567

 

 

 

 

Payment of financing costs of securities sold

 

 

(1,393

)

 

 

 

Repayments of insurance premium financing

 

 

(785

)

 

 

 

Proceeds from the exercise of pre-funded warrants

 

 

5

 

 

 

 

Net cash provided by financing activities

 

 

17,394

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(3,494

)

 

 

(11,990

)

Cash and cash equivalents at beginning of period

 

 

8,907

 

 

 

16,654

 

Cash and cash equivalents at end of period

 

$

5,413

 

 

$

4,664

 

Supplemental schedule of cash flow information

 

 

 

 

 

 

Issuance of warrants to purchase common stock

 

$

1,793

 

 

$

 

Cash paid for interest

 

$

21

 

 

$

 

Supplemental schedule of non-cash financing activities

 

 

 

 

 

 

Insurance premium financing

 

$

900

 

 

$

 

 

See accompanying notes.

5


 

CONTRAFECT CORPORATION

Notes to Unaudited Consolidated Financial Statements

September 30, 2023

1. Organization and Description of Business

Organization and Business

ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targets S. aureus, including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis. S. aureus is also a frequent source of biofilm-dependent infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy.

Exebacase was being studied in a pivotal Phase 3 superiority study (the “DISRUPT study”) to evaluate the safety, tolerability, efficacy and pharmacokinetics of intravenous (“IV”) exebacase when used in addition to background standard of care antibiotic therapy for the treatment of S. aureus bacteremia, including right-sided endocarditis in adolescent and adult patients. On July 7, 2022, the Data Safety Monitoring Board (“DSMB”) conducted an interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the pre-specified threshold for futility. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped (“Trial Closure”). The Company continued to monitor all already enrolled patients and all patients completed their follow-up visits. The Company expects to complete all clinical study reports as required by the U.S. Food and Drug Administration (“FDA”).

On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and CF-370 and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of $7.7 million, including $1.6 million related to employee termination costs and other related expenses from the workforce reduction and $6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase related activities.

The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $340.0 million as of September 30, 2023. For the nine months ended September 30, 2023, the Company used $25.6 million of cash in operations. The Company has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding and government contracts. The Company expects operating losses and negative cash flows to continue at significant levels in the future to the extent it continues to advance its programs. As of September 30, 2023, the Company had $5.4 million in cash, cash equivalents and marketable securities, which, without additional funding, the Company believes will not be sufficient to meet its obligations soon after the date of issuance of these consolidated financial statements. The Company's future viability is dependent on its ability to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all, particularly in light of the suspension from trading of the Company's common stock on the Nasdaq Capital Market. As such, management has not considered the potential for future capital raises in its assessment of the Company’s ability to meet its obligations for the next twelve months, and substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date the financial statements were issued. If the Company is unable to obtain funding in the near-term, the Company would be forced to delay, further reduce its workforce or reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations or continue as a going concern.

The Company has sought a strategic partnership or collaboration with one or more parties and has also sought other financial and strategic alternatives. To date, the Company has continued research and development activities while managing its cash position. However, the Company requires additional resources in order to continue as a going concern. The Company can provide no assurance that it will be successful in obtaining additional resources to improve its financial condition. If the Company is unable to obtain additional resources soon, the Company’s Board of Directors is likely to determine to place the Company into bankruptcy or other dissolution proceedings.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

6


 

On March 22, 2021, the Company completed an underwritten public offering under the Company’s registration statement on Form S-3 (Reg. No. 333-246359) (the “Form-S-3”). The Form S-3 was declared effective by the SEC on August 31, 2020 and allows the Company to offer and sell from time-to-time up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. The Company issued 143,750 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $400.00 per share, resulting in net proceeds to the Company of $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.

On December 15, 2022, the Company completed (i) a registered direct offering under the Form S-3 of 54,375 shares of its common stock and a pre-funded warrant to purchase 623,919 shares of common stock (the “2022 pre-funded warrant”) and (ii) a concurrent private placement in which the Company issued a Class A warrant to purchase up to an aggregate of 1,356,589 shares of common stock (the “Class A Warrant”) and a Class B warrant to purchase up to an aggregate of 678,294 shares of common stock (the “Class B Warrant”) (collectively, the “2022 Offering”). All shares of common stock, the 2022 pre-funded warrant, the Class A Warrant and the Class B Warrant were issued together to a single accredited investor purchaser for consideration equating to $10.32 per share of common stock (or 2022 pre-funded warrant to purchase one share of common stock, less a nominal exercise price), together with a Class A Warrant to purchase two shares of common stock and a Class B warrant to purchase one share of common stock, in the case of each of the Class A Warrant and Class B Warrant, for no additional consideration but each with an exercise price per share of $10.32, for aggregate net proceeds to the Company of $6.1 million after placement agent fees and offering expenses payable by the Company.

On March 2, 2023, the Company completed (i) a registered direct offering under the Form S-3 of 128,000 shares of its common stock and a pre-funded warrant to purchase 2,372,000 shares of common stock (the “2023 pre-funded warrant”) and (ii) a concurrent private placement in which the Company issued a warrant to purchase up to an aggregate of 5,000,000 shares of common stock (the “2023 Warrant”) (collectively, the “2023 Offering”). All securities in the 2023 Offering were issued to the same single accredited investor purchaser as in the 2022 Offering for consideration equating to $4.00 per share of common stock (or 2023 pre-funded warrant to purchase one share of common stock, less a nominal exercise price), together with a 2023 Warrant to purchase two shares of common stock for no additional consideration but with an exercise price per share of $4.00, for aggregate net proceeds to the Company of $9.1 million after placement agent fees and offering expenses payable by the Company.

On June 26, 2023, the Company entered into an inducement offer to exercise common stock purchase warrants (the “Inducement Agreement”) with an institutional investor (the “Holder”) to purchase up to an aggregate of 7,034,883 shares of the Company’s common stock. The Inducement Agreement provided the Holder with the opportunity to exercise all of (i) the Class A Warrant, (ii) Class B Warrant and (iii) the 2023 Warrant (collectively, the “Existing Warrants”) held by the Holder, each at a reduced exercise price from $4.00 to $1.36 per underlying share, which was equal to the most recent closing price of the Company’s common stock on The Nasdaq Capital Market prior to the execution of the Inducement Agreement. In consideration for exercising the Existing Warrants (the “Warrant Exercise”), at an exercise price equal to $1.36 per underlying share, the Company issued to the Holder or (i) a new unregistered Class C Common Stock Purchase Warrant (the “Class C Warrant”) to purchase up to 1,406,977 shares of common stock, at an exercise price equal to $1.36 per underlying share and (ii) a new unregistered Class D Common Stock Purchase Warrant (the “Class D Warrant” and together with the Class C Warrant, the “New Warrants”) to purchase up to 5,627,906 shares of common stock, at an exercise price equal to $1.36 per underlying share (such shares of common stock issuable upon exercise of the New Warrants, the “New Warrant Shares”). The proceeds to the Company from the Warrant Exercise were $9.6 million, prior to deducting fees to the financial advisor and estimated expenses.

The significant changes in common stock outstanding have impacted and are expected to continue to impact the year-over-year comparability of the Company’s net loss per share calculations. All share and per share amounts have been adjusted for all periods presented to reflect a one-for-eighty reverse stock split effected on February 14, 2023.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial information as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited consolidated financial statements, including all related disclosures, included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 31, 2023. There have been no material changes to the complete listing of significant accounting policies as described in Note 2 thereof.

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In the opinion of management, the unaudited financial information as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Principles of Consolidation