ALZAMEND NEURO, INC. You should read the following management's discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission , or theSEC , onJuly 19 ,
2022.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains 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, as amended (the "Exchange Act"). This section
should be read in conjunction with our unaudited condensed financial statements
and related notes included in Part I, Item 1 of this report. The statements
contained in this report that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act.
These statements relate to future events or our future financial performance. We
have attempted to identify forward-looking statements by terminology including
"anticipates," "believes," "expects," "can," "continue," "could," "estimates,"
"expects," "intends," "may," "plans," "potential," "predict," "should" or "will"
or the negative of these terms or other comparable terminology. These statements
are only predictions; uncertainties and other factors may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
In this Quarterly Report, unless the context requires otherwise, references to the "Company," "Alzamend," "we," "our company" and "us" refer toAlzamend Neuro, Inc. , aDelaware corporation. Overview We were incorporated onFebruary 26, 2016 , asAlzamend Neuro, Inc. under the laws of theState of Delaware . We were formed to acquire and commercialize patented intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer's. With our two product candidates, we aim to bring treatment or cures not only for Alzheimer's, but also, bipolar disorder ("BD"), major depressive disorder ("MDD") and post-traumatic stress disorder ("PTSD"). Existing Alzheimer's treatments only temporarily relieve symptoms but do not, to our knowledge, slow or halt the underlying worsening of the disease. We have developed a novel approach in an attempt to combat Alzheimer's through immunotherapy.
Critical Accounting Policies and Estimates
Research and Development Expenses. Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees and lab supplies, as well as fees paid to other entities that conduct certain research and development activities on behalf of our company. We have acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, product or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects. Stock-Based Compensation. We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards. We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. 20
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
· Fair Value of Common Stock. See the subsection titled "Common Stock Valuations"
below.
· Risk-Free Interest Rate. The risk-free interest rate is based on the
Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.
· Expected Volatility. Because we do not have a sufficient trading history for
our common stock ("Common Stock"), the expected volatility was estimated based
on the average volatility for comparable publicly traded life sciences
companies over a period equal to the expected term of the stock option grants.
The comparable companies were chosen based on the similar size, stage in life
cycle or area of specialty. We will continue to apply this process until a
sufficient amount of historical information regarding the volatility of our own
stock price becomes available.
· Expected Term. The expected term represents the period that the stock-based
awards are expected to be outstanding and is determined using the simplified
method (based on the mid-point between the vesting date and the end of the
contractual term), as we do not have sufficient historical data to use any
other method to estimate expected term.
· Expected Dividend Yield. We have never paid dividends on our Common Stock and
have no plans to pay dividends on our Common Stock. Therefore, we used an
expected dividend yield of zero.
Certain of such assumptions involve inherent uncertainties and the application
of significant judgment. As a result, if factors or expected outcomes change and
we use significantly different assumptions or estimates, our stock-based
compensation could be materially different.
Common Stock Valuations. Prior to our initial public offering ("IPO") in June
2021 , there was no public market for our Common Stock, and, as a result, the
fair value of the shares of Common Stock underlying our stock-based awards was
estimated on each grant date by our Board. To determine the fair value of our
Common Stock underlying option grants, our Board considered, among other things,
input from management, and our Board's assessment of additional objective and
subjective factors that it believed were relevant, and factors that may have
changed from the date of the most recent valuation through the date of the
grant. These factors included, but were not limited to:
· our results of operations and financial position, including our levels of
available capital resources;
· our stage of development and material risks related to our business;
· progress of our research and development activities;
· our business conditions and projections;
· the valuation of publicly traded companies in the life sciences and
biotechnology sectors, as well as recently completed mergers and acquisitions
of peer companies;
· the lack of marketability of our Common Stock as a private company;
· the prices at which we sold shares of our Common Stock to outside investors in
arms-length transactions;
· the likelihood of achieving a liquidity event for our security holders, such as
an IPO or a sale of our company, given prevailing market conditions;
· trends and developments in our industry; and
· external market conditions affecting the life sciences and biotechnology
industry sectors. Following the closing of our IPO, our Board determined the fair market value of our Common Stock based on the closing price of our Common Stock as reported
on the date of grant. 21 Plan of Operations
Our plan of operations is currently focused on the development of both our
therapeutic candidates, which are at different stages of development. We
submitted an Investigational New Drug ("IND") application for AL001 to the FDA
on June 30, 2021 . On July 28, 2021 , we announced receipt of FDA "Study May
Proceed" letter for a Phase I study under our IND application for AL001, a
lithium-based ionic cocrystal oral therapy for patients with dementia related to
mild, moderate, and severe cognitive impairment associated with Alzheimer's.
On August 17, 2021 , we announced that we have contracted Altasciences Clinical
Kansas ("Altasciences") to conduct a six-month Phase I relative bioavailability
study for AL001 for dementia related to Alzheimer's beginning in September 2021 .
The Phase I first-in-human study was for the purpose of determining potential
clinically safe and appropriate dosing for AL001 in future studies. The Phase I
study investigated the pharmacokinetics (the movement of drug through the body)
of lithium following a single dose of AL001 (the "study drug") compared to a
typical single dose of a marketed 300 mg immediate-release lithium carbonate
capsule (the "comparator" - currently indicated to treat mood disorders) in
healthy male and female subjects. The lithium and salicylate components of AL001
was given within the amounts already approved for use in patients. The purpose
of the research study was to test the safety, tolerability, and bioavailability
(how much and when drug gets in the body) of the study drug, AL001, compared to
the currently marketed formulation of the comparator, lithium carbonate. This
was expected to ascertain what AL001 doses should be given, and how often, in
subsequent Phase 2 safety and efficacy trials involving Alzheimer's patients. At
least 24 healthy male and female human subjects participated in the Phase I
trial.
On September 13, 2021 , we announced that the first group of healthy participants
were dosed in a six-month Phase I relative bioavailability study for AL001 for
dementia related to Alzheimer's. On March 28, 2022 , we announced receipt of full
data set from the Phase I clinical trial for AL001. The full data set builds
upon topline data previously reported on December 17, 2021 . This data affirmed
that dose-adjusted relative bioavailability analysis of the rate and extent of
lithium absorption in plasma indicate that AL001 as 150 mg dosage is
bioavailability to the marketed 300 mg lithium carbonate product and the shapes
of the lithium plasma concentration versus time curves are similar. AL001
salicylate plasma concentrations are observed to be well tolerated and
consistently within safe limits and the safety profiles of both AL001 and the
marketed lithium carbonate capsule were benign.
During Phase I first-in-human trial, participants received a single dose of
AL001 containing lithium in an amount equivalent to 150 mg lithium carbonate;
this is the dose proposed by the inventors as likely appropriate for Alzheimer's
treatment when given three times daily ("TID"). Currently, marketed
immediate-release lithium carbonate 300 mg are given TID; for example, lithium
carbonate 300 mg TID is a dose commonly used for bipolar affective disorders. It
can be difficult to set the appropriate dose of lithium carbonate and other
lithium products due to the small margin between effective and toxic blood
levels and to avoid side effects or inadequate treatment outcomes. We see the
possibility of providing the benefits from lithium at up to 50% of the currently
approved lithium carbonate dosage, with the potential for better outcomes and
with elimination of the need for lithium therapeutic drug monitoring. Moreover,
the data confirms AL001's potential as a replacement of the current
lithium-based treatments and may provide a treatment for over 40 million
Americans suffering from Alzheimer's and other neurodegenerative diseases and
psychiatric disorders.
Such findings may allow us to design a development program that will potentially
reduce the amount of new data generated to support approval. Bioequivalence may
have utility for AL001 when seeking approval for the indications of currently
marketed lithium products, and for new indications as a benchmark for safety.
Given the systemic pharmacokinetic similarity to marketed immediate-release
lithium carbonate products, AL001 may be dosed TID in the planned Phase II
study, a multiple ascending dose safety study in Alzheimer's patients. In
addition, we are pursuing investigational new drug applications with the FDA for
BD, MDD, and PTSD.
On April 28, 2022 , we announced that Ault Lending, LLC ("AL") has made an
additional investment in our company. On March 28, 2022 , we announced receipt of
the full data set from Phase I clinical trial for AL001. Based on the
achievement of this milestone, under the March 12, 2021 , securities purchase
agreement, we sold an additional 2,666,667 shares of common stock to AL for $4
million , or $1.50 per share, and issued to AL warrants to acquire 1,333,333
shares of common stock with an exercise price of $3.00 per share.
On May 5, 2022 , we announced that the first patient with mild to moderate
Alzheimer's was dosed in a 12-month Phase IIA multiple ascending dose ("MAD")
study for dementia related to Alzheimer's. The Phase IIA study will evaluate the
safety and tolerability of AL001 under multiple-dose, steady-state conditions
and determine the maximum tolerated dose in patients diagnosed with mild to
moderate Alzheimer's. Lithium has been well characterized for safety and is
approved/marketed in multiple formulations for bipolar affective disorders.
Lithium dosing for the MAD cohorts is based on a fraction of the usual dose for
treatment of bipolar affective disorder (i.e., AL001 lithium content at a
lithium carbonate equivalent of 300 mg TID, daily total of 900 mg), with the
target dose for Alzheimer's treatment at half of that lithium carbonate
equivalent value (150 mg TID, daily total of 450 mg). In each cohort, consisting
of six active and two placebo patients (as per randomization), multiple
ascending doses will be administered TID for 14 days under fasted conditions (at
least 1 hour before or 4 hours after meals) up to tolerability/safety limits.
The lithium and salicylate components of AL001 will be given within the amounts
already approved for use in patients. Up to 40 subjects will complete the Phase
IIA trial. The maximum tolerated dose will then be used for further studies. On
October 5, 2022 , we announced the addition of a healthy adult subject cohort to
the MAD study and that the first healthy patient was dosed.
22
On May 17, 2022 , we announced submission of a Pre-IND meeting request for AL001
and supporting briefing documents to the FDA for the treatment of BD, MDD and
PTSD. On July 18, 2022 , we announced receipt of a written response from the FDA
to our meeting request relating to our Pre-IND application. The FDA's response
provided a path for our planned clinical development of AL001 for the treatment
of BD, MDD and PTSD. Based on the FDA's written feedback, we anticipate filing
INDs for BD, MDD and PTSD upon the completion of the current Phase IIA MAD
study. This will allow us to initiate Phase II clinical trials for all three new
indications.
We have an additional preclinical candidate for Alzheimer's, ALZN002, which has transitioned from early-stage development to an extensive program of preclinical study and evaluation, which was completed onMay 31, 2021 . This was followed by a comprehensive report prepared byCharles River Laboratories, Inc. , an independent preclinical service provider, received onJuly 23, 2021 . Our preclinical program included a toxicologic evaluation, histopathology study and brain beta amyloid analysis and was expanded to include an immunoglobulin analysis and biodistribution study. OnJuly 30, 2021 , we announced that we submitted a pre-IND meeting request for ALZN002 and supporting briefing documents to theCenter for Biological Evaluation and Research of the FDA. OnSeptember 30, 2021 , we announced that we have received a written response to our meeting request relating to our Type B Pre-IND application from the FDA providing a path for our planned clinical development of ALZN002. ALZN002 is a patented method using a mutant-peptide sensitized cell as a cell-based therapeutic vaccine that seeks to restore the ability of a patient's immunological system to combat Alzheimer's. Preclinical work supports ALZN002 being associated with a positive anti-inflammatory response and a decrease in brain amyloid contents. Based on ALZN002's positive toxicology results, the biologic nature of this product and the urgent need to deliver treatments for Alzheimer's to patients, we proposed, and the FDA agreed, to conduct a combined Phase I/II study. OnSeptember 29, 2022 , we announced that we submitted an IND application to the FDA for ALZN002 to conduct a Phase I/IIA clinical trial. The purpose of this trial is to assess the safety, tolerability, and efficacy of multiple ascending doses of ALZN002 compared with that of placebo in 20-30 subjects with mild to moderate dementia of the Alzheimer's type. Also, the trial is designed to determine the optimal dosage of ALZN002, allowing for induction of anti-Amyloid-beta antibody responses that can target Alzheimer's-associated brain proteins while maintaining safety. The primary goal of this initial clinical trial is to determine an appropriate dose of ALZN002 for treatment of patients with Alzheimer's in a larger Phase IIB efficacy and safety clinical trial (ALZN002-02), which we expect to initiate within three months of receiving data from the initial trial. OnOctober 31, 2022 we announced receipt of a "study may proceed" letter from the FDA for a phase I/IIA clinical trial under our IND application for ALZN002 to treat mild to moderate dementia of the Alzheimer's type. We are advancing the process and expect that the first patient will be dosed in the first quarter of 2023. The continuation of our current plan of operations with respect to completing our IND applications and conducting the series of human clinical trials for each of our therapeutics requires us to raise additional capital to fund our operations. Because our working capital requirements depend upon numerous factors, including the progress of our preclinical and clinical testing, timing and cost of obtaining regulatory approvals, changes in levels of resources that we devote to the development of manufacturing and marketing capabilities, competitive and technological advances, status of competitors, and our ability to establish collaborative arrangements with other organizations, we will require additional financing to fund future operations. 23 Results of Operations
Results of Operations for the Three Months Ended
The following table summarizes the results of our operations for the three
months ended
For the Three Months Ended January 31,
%
2023 2022 $ Change Change
OPERATING EXPENSES
Research and development $ 2,888,847 $ 873,653 $ 2,015,194 231 %
General and administrative 2,534,665 1,682,913 851,752 51 %
Total operating expenses 5,423,512 2,556,566
2,866,946 112 %
Loss from operations (5,423,512 ) (2,556,566 ) (2,866,946 ) 112 %
OTHER EXPENSE, NET
Interest expense (2,062 ) (16,299 ) 14,237 -87 %Total other expense, net (2,062 ) (16,298 )
14,237 -87 %
NET LOSS $ (5,425,574 ) $ (2,572,865 ) $ (2,852,709 ) 111 %
Basic and diluted net loss per common
share $ (0.06 ) $ (0.03 ) $ (0.03 ) *
Basic and diluted weighted average
common shares outstanding 98,326,175 94,165,225 *
* Not meaningful
Revenue
We were formed onFebruary 26, 2016 , to acquire and commercialize patented intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer's. With our two product candidates, we aim to bring treatments or cures not only for Alzheimer's, but also BD, MDD and PTSD. These product candidates are in the early clinical stage of development and will require extensive clinical study, review and evaluation, regulatory review and approval, significant marketing efforts and substantial investment before either or both of them, or any respective successors, will provide us with any revenue. We did not generate any revenues during the three months endedJanuary 31, 2023 and 2022, and we do not anticipate that we will generate revenue for the foreseeable future.
General and Administrative Expenses
General and administrative expenses for each of the three months endedJanuary 31, 2023 and 2022 were$2.5 million and$1.7 million , respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: stock-based compensation expense; professional fees; insurance; marketing fees; travel and entertainment; board fees; as well as salaries and benefits. For the three months endedJanuary 31, 2023 and 2022, the remaining general and administrative expenses of$119,000 and$102,000 , respectively, consisted of payments for filing fees, transfer agent fees, license fees, and other office expenses, none of which was significant individually. For the Three Months Ended January 31, % 2023 2022 $ Change Change
Stock-based compensation expense$ 1,550,911 $ 1,024,693
$ 526,218 51 % Professional fees 190,169 114,524 75,645 66 % Insurance 130,838 214,299 (83,461 ) -39 % Salary and benefits 233,246 203,954 29,292 14 % Travel and entertainment 25,436 23,917 1,519 6 % Marketing fees 247,333 - 247,333 * Board of director fees 37,500 - 37,500 *
Other general and administrative expenses 119,232 101,527 17,705 17 % Total general and administrative expenses$ 2,534,665 $ 1,682,914
$ 851,751 51 % * Not meaningful 24
Stock-Based Compensation Expense
During the three months endedJanuary 31, 2023 and 2022, we incurred general and administrative stock-based compensation expense of$1.6 million and$1.0 million , respectively, related to stock option grants to executives, employees and consultants as well as shares issued for previously issued for services toSpartan Capital Securities, LLC ("Spartan Capital "). All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model. We valued the shares issued for services at their intrinsic value on the date of issuance. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments. Marketing Fees
During the three months endedJanuary 31, 2023 , we reported marketing fees of$247,000 , which were principally comprised of the related party marketing and brand development agreement. Salaries and Benefits
During the three months ended
Henry C.W. Nisser , our Executive Vice President and General Counsel andKenneth S. Cragun , our Senior Vice President of Finance work for us on a part-time basis.Mr. Nisser spends no less than an average of 8 hours per week on our company's business andMr. Cragun spends no less than an average of 4 hours per week on our company's business.
Research and Development Expenses
Research and development expenses for the three months endedJanuary 31, 2023 and 2022 were$2.9 million and$874,000 , respectively. As reflected in the table below, research and development expenses primarily consisted of professional fees, clinical trial fees, licenses and fees, as well as stock-based compensation expense. For the Three Months Ended January 31, 2023 2022 $ Change % Change Professional fees$ 860,798 $ 479,549 $ 381,249 80 % Clinical trial fees 2,050,000 283,497 1,766,503 623 % Licenses and fees - (45,000 ) 45,000 *
Stock-based compensation expense (42,589 ) 106,102
(148,691 ) -140 %
Other research and development expenses 20,638 49,505
(28,867 ) -58 %
Total research and development expenses
231 %
*Not meaningful
Professional Fees
During the three months ended
Clinical Trial Fees During the three months endedJanuary 31, 2023 and 2022, we incurred clinical trial fees of$2.1 million and$283,000 , respectively, which were principally comprised of clinical trial fees attributed to our Phase I and Phase IIA clinical trials for AL001. Licenses and Fees There are certain initial license fees and milestone payments required to be paid to theUniversity of South Florida and the Licensor, for the licenses of the technologies, pursuant to the terms of the License Agreement with Sublicensing Terms.
Stock-Based Compensation Expense
During the three months endedJanuary 31, 2023 and 2022, we incurred$(43,000) and$106,000 , respectively, in research and development stock-based compensation expense related to stock option grants to consultants. All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments. 25 Other Expense, Net Interest Expense
Interest expense was
Results of Operations for the Nine Months Ended
The following table summarizes the results of our operations for the nine months
ended
For the Nine Months Ended January 31,
%
2023 2022 $ Change Change
OPERATING EXPENSES
Research and development $ 5,797,789 $ 3,540,111 $ 2,257,678 64 %
General and administrative 5,767,668 4,906,628 861,040 18 %
Total operating expenses 11,565,457 8,446,739
3,118,718 37 %
Loss from operations (11,565,457 ) (8,446,739 ) (3,118,718 ) 37 %
OTHER EXPENSE, NET
Interest expense (7,182 ) (45,922 ) 38,740 -84 %Total other expense, net (7,182 ) (45,922 )
38,740 -84 %
NET LOSS $ (11,572,639 ) $ (8,492,661 ) $ (3,079,978 ) 36 %
Basic and diluted net loss per common
share $ (0.12 ) $ (0.09 ) $ (0.03 ) *
Basic and diluted weighted average
common shares outstanding 97,765,471 89,484,601
*
* Not meaningful
Revenue
We were formed onFebruary 26, 2016 , to acquire and commercialize patented intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer's. With our two product candidates, we aim to bring treatment or cures not only for Alzheimer's, but also BD, MDD and PTSD. These product candidates are in the early clinical stage of development and will require extensive clinical study, review and evaluation, regulatory review and approval, significant marketing efforts and substantial investment before either or both of them, or any respective successors, will provide us with any revenue. We did not generate any revenues during the nine months endedJanuary 31, 2023 and 2022, and we do not anticipate that we will generate revenue for the foreseeable future.
General and Administrative Expenses
General and administrative expenses for each of the nine months endedJanuary 31, 2023 and 2022 were$5.8 million and$4.9 million , respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: stock-based compensation expense; professional fees; insurance; marketing fees; travel and entertainment; board of director fees; as well as salaries and benefits. For the nine months endedJanuary 31, 2023 and 2022, the remaining general and administrative expenses of$191,000 and$294,000 , respectively, consisted of payments for filing fees, transfer agent fees, license fees, and other office expenses, none of which is significant
individually.
26
For the Nine Months Ended January 31,
%
2023 2022 $ Change ChangeStock-based compensation expense$ 3,133,888 $ 2,791,515
$ 342,373 12 % Professional fees 566,674 615,765 (49,091 ) -8 % Insurance 456,838 500,031 (43,193 ) -9 % Salary and benefits 676,155 547,244 128,911 24 % Travel and entertainment 135,447 120,086 15,361 13 % Marketing fees 495,267 7,154 488,113 6,823 % Board of director fees 112,500 31,256 81,244 260 %
Other general and administrative expenses 190,899 293,577
(102,678 ) -35 %
Total general and administrative expenses
$ 861,040 18 %
Stock-Based Compensation Expense
During the nine months endedJanuary 31, 2023 and 2022, we incurred general and administrative stock-based compensation expense of$3.1 million and$2.8 million , respectively, related to stock option grants to executives, employees and consultants as well as shares issued for services toSpartan Capital . All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model. We valued the shares issued for services at their intrinsic value on the date of issuance. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments. Salaries and Benefits During the nine months endedJanuary 31, 2023 and 2022, we incurred$676,000 and$547,000 , respectively, in employee-related expenses. As ofJanuary 31, 2023 , we had four full-time and three part-time employees.Henry C.W. Nisser , our Executive Vice President and General Counsel andKenneth S. Cragun , our Senior Vice President of Finance work for us on a part-time basis.Mr. Nisser spends no less than an average of 8 hours per week on our company's business andMr. Cragun spends no less than an average of 4 hours per week on our company's business. Professional Fees During the nine months endedJanuary 31, 2023 and 2022, we reported professional fees of$567,000 and$616,000 , respectively, which were principally comprised ofSpartan Capital consulting fees and audit fees. Marketing Fees During the nine months endedJanuary 31, 2023 and 2022, we reported marketing fees of$495,000 and$7,000 , respectively, which were principally comprised of the related party marketing and brand development agreement. Insurance During the nine months endedJanuary 31, 2023 and 2022, we reported insurance expense of$457,000 and$500,000 , respectively, which was principally comprised of Directors and Officers insurance.
Research and Development Expenses
Research and development expenses for the nine months endedJanuary 31, 2023 and 2022 were$5.8 million and$3.5 million , respectively. As reflected in the table below, research and development expenses primarily consisted of professional fees, clinical trial fees, licenses and fees, as well as stock-based compensation expense. 27 For the Nine Months Ended January 31, 2023 2022 $ Change % Change Professional fees$ 2,969,835 $ 1,868,167 $ 1,101,668 59 % Clinical trials fees 2,625,271 1,006,503 1,618,768 161 % Licenses and fees 55,000 210,000 (155,000 ) -74 %
Stock-based compensation expense (42,589 ) 359,286
(401,875 ) -112 %
Other research and development expenses 190,272 96,155
94,117 98 %
Total research and development expenses
64 %
Professional Fees
During the nine months ended January 31, 2023 and 2022, we reported professional
fees of $3.0 million and $1.9 million , respectively, which were principally
comprised of professional fees attributed to various types of scientific
services, including FDA consulting services. The increase relates to
professional fees incurred related to preparation of Phase IIA clinical trials
for AL001 and IND preparation for ALZN002.
Clinical Trial Fees
During the nine months ended January 31, 2023 and 2022, we incurred clinical
trial fees of $2.6 million and $1.0 million , respectively, which were
principally comprised of clinical trial fees attributed to our Phase I and Phase
IIA clinical trials for AL001.
Licenses and Fees
There are certain initial license fees and milestone payments required to be
paid to the University of South Florida and the Licensor, for the licenses of
the technologies, pursuant to the terms of the License Agreement with
Sublicensing Terms.
Stock-Based Compensation Expense
During the nine months endedJanuary 31, 2023 and 2022, we incurred$(43,000) and$359,000 , respectively, in research and development stock-based compensation expense related to stock option grants to consultants. All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments. Other Expense, Net Interest Expense
Interest expense was
Liquidity and Capital Resources
The accompanying financial statements have been prepared on the basis that our company will continue as a going concern. As ofJanuary 31, 2023 , we had cash of$7.4 million and an accumulated deficit of$40.8 million . We have incurred recurring losses and reported losses for the three and nine months endedJanuary 31, 2023 totaling$5.4 million and$11.6 million , respectively. In the past, we have financed our operations principally through issuances of promissory notes and equity securities.
In March of 2021, we entered into a securities purchase agreement with AL, pursuant to which we sold an aggregate of 6,666,667 shares of Common Stock for an aggregate of$10 million , or$1.50 per share, which sales were made in tranches. OnMarch 9, 2021 , AL paid$4 million , less the$1.8 million in prior advances and the surrender for cancellation of the$50,000 convertible promissory note, previously issued toAult Alliance, Inc. (formerly, BitNile Holdings, Inc.), the parent company of AL, for an aggregate of 2,666,667 shares of Common Stock. Under the terms of the securities purchase agreement, AL (i) purchased, inJuly 2021 , an additional 1,333,333 shares of Common Stock upon FDA approval of our IND for our Phase IA clinical trials for AL001 for a purchase price of$2 million , and (ii) purchased, inApril 2022 , 2,666,667 shares of Common Stock upon completion of our Phase IA clinical trials for AL001 for a purchase price of$4 million . We issued AL warrants to purchase 3,333,333 shares of Common Stock at an exercise price of$3.00 per share. Finally, we agreed that for a period of eighteen months following the date of the payment of the final tranche of$4 million , AL will have the right to invest an additional$10 million on the same terms, except that no specific milestones have been determined with respect to the additional$10 million as of the date of this Quarterly Report. 28
We will need to obtain substantial additional funding in the future for our clinical development activities and continuing operations. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including:
· successful enrollment in, and completion of, clinical trials;
· our ability to establish agreements with third-party manufacturers for clinical
supply for our clinical trials and, if our product candidates are approved,
commercial manufacturing;
· our ability to maintain our current research and development programs and
establish new research and development programs;
· addition and retention of key research and development personnel;
· our efforts to enhance operational, financial, and information management
systems, and hire additional personnel, including personnel to support
development of our product candidates;
· negotiating favorable terms in any collaboration, licensing, or other
arrangements into which we may enter and performing our obligations in such
collaborations;
· the timing and amount of milestone and other payments we may receive under our
collaboration arrangements;
· our eventual commercialization plans for our product candidates;
· the costs involved in prosecuting, defending, and enforcing patent claims and
other intellectual property claims; and
· the costs and timing of regulatory approvals.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. We expect to continue to incur losses for the foreseeable future and need to raise additional capital until we are able to generate revenues from operations sufficient to fund our development and commercial operations. However, based on our current business plan, we believe that our cash atJanuary 31, 2023 , is sufficient to meet our anticipated cash requirements during the twelve-month period subsequent to the issuance of the financial statements included in this Quarterly Report. Cash Flows The following table summarizes our cash flows for the nine months endedJanuary 31, 2023 and 2022: For the Nine Months Ended January 31, 2023 2022 Net cash provided by (used in): Operating activities$ (6,687,970 ) $ (5,051,637 ) Financing activities -
14,912,656
Net (decrease) increase in cash
Operating Activities During the nine months endedJanuary 31, 2023 , net cash used in operating activities was$6.7 million . This consisted primarily of a net loss of$11.6 million , partially offset by an increase in our net operating assets and liabilities of$1.8 million and non-cash charges of$3.1 million . The non-cash charges primarily consisted of stock-based compensation expense. The increase in our net operating assets and liabilities was due to an increase in accounts payable and accrued liabilities and in prepaid expenses and other current assets. During the nine months endedJanuary 31, 2022 , net cash used in operating activities was$5.1 million . This consisted primarily of a net loss of$8.5 million , partially offset by an increase in non-cash charges of$3.2 million and our net operating assets and liabilities of$277,000 . The non-cash charges primarily consisted of stock-based compensation expense. The increase in our net operating assets and liabilities was primarily due to an increase in prepaid expenses and other current assets. Investing Activities
There were no investing activities for the nine months ended
29 Financing Activities
There were no financing activities for the nine months ended
License Agreement
OnMay 1, 2016 , we entered into a Standard Exclusive License Agreement for ALZN002 with Sublicensing Terms with theUniversity of South Florida Research Foundation, Inc. , as licensor (the "Licensor"), pursuant to which the Licensor granted us a royalty bearing exclusive worldwide license limited to the field of Alzheimer's Immunotherapy and Diagnostics, under United States Patent No. 8,188,046, entitled "Amyloid Beta Peptides and Methods of Use," filedApril 7, 2009 and grantedMay 29, 2012 . There are certain initial license fees and milestone payments required to be paid by us to the Licensor, pursuant to the terms of license agreements we have entered into with the Licensor. The license agreements for ALZN002 require us to pay royalty payments of 4% on net sales of products developed from the licensed technology for ALZN002 while the license agreements for AL001 require that we pay combined royalty payments of 4.5% on net sales of products developed from the licensed technology for AL001. We have already paid an initial license fee of$200,000 for ALZN002 and an initial license fee of$200,000 for AL001. As an additional licensing fee for the license of ALZN002, the Licensor received 3,601,809 shares of our common stock. As an additional licensing fee for the license of the AL001 technologies, the Licensor received 2,227,923 shares of our common stock. Minimum royalties for AL001 are$25,000 in 2023,$45,000 in 2024 and$70,000 in 2025 and every year thereafter, for the life of the agreement. Minimum royalties for ALZN002 are$20,000 in 2022,$40,000 in 2023 and$50,000 in 2024 and every year thereafter, for the life of the respective agreement. Additionally, we are required to pay milestone payments on the due dates to the Licensor for the license of the AL001 technologies and for the ALZN002 technology, as follows: Original AL001 License: Payment Due Date Event
$ 50,000 * CompletedSeptember 2019 Pre-IND meeting$ 65,000 * CompletedJune 2021 ND application filing$ 190,000 * CompletedDecember 2021 Upon first dosing of
patient in a
clinical trial
$ 500,000 * Completed March 2022 Upon Completion of first clinical
trial
$ 1,250,000 12 months from completion of the Upon first patient treated in a
first Phase II clinical trial Phase III clinical trial
$ 10,000,000 8 years from the effective date of Upon FDA approval
the agreement
*Milestone met and completed
ALZN002 License:
Payment Due Date Event$ 50,000 * CompletedSeptember 2022 Upon IND application
filing
12 months from IND application Upon first dosing of patient in
$ 50,000 filing date first Phase I clinicaltrial
12 months from first patient dosed Upon completion of first Phase I
$ 175,000 in Phase I clinical trial
24 months from completion of first Upon completion of first Phase II
$ 500,000 Phase I clinical trial clinical trial
12 months from completion of the Upon first patient treated in a
$ 1,000,000 first Phase II clinical trial Phase III clinical trial
7 years from the effective date of
$ 10,000,000 the agreement Upon FDA BLA approval
*Milestone met and completed
We have met the pre-IND meeting, IND application filing, and successfully
completed the Phase I clinical trial milestones encompassing AL001 and the IND
application filing milestone for ALZN002. If we fail to meet a milestone by its
specified date, Licensor may terminate the license agreement.
The Licensor was also granted a preemptive right to acquire such shares or other
equity securities that may be issued from time to time by us while the Licensor
remains the owner of any equity securities of our company.
30
OnJune 10, 2020 , we obtained two (2) additional royalty-bearing exclusive worldwide licenses from the Licensor to a therapy named AL001. One of the additional licenses is for the treatment of neurodegenerative diseases excluding Alzheimer's and the other license is for the treatment of psychiatric diseases and disorders. There are certain license fees and milestone payments required to be paid pursuant to the terms of the Standard Exclusive License Agreements with Sublicensing Terms, both datedJune 10, 2020 and effective as ofNovember 1, 2019 , with the Licensor and theUniversity of South Florida (the "June AL001 License Agreements"). Under each of the June AL001 License Agreements, a royalty payment of 3% is required on net sales of products developed from the licensed technology. For the two (2) additional AL001 licenses, in the aggregate, we have paid initial license fees of$20,000 . Additionally, under each of the June AL001 License Agreements, we are required to pay milestone payments on the due dates to the Licensor for the license of the technology, as follows: Additional AL001 Licenses: Payment Due Date Event$ 50,000 Upon IND application filing IND application filing Upon first dosing of patient in a$ 150,000 12 months from IND filing date clinical trial 12 months from first patient Upon Completion of first clinical$ 400,000 dosing trial 36 months from completion of the Upon first patient treated in a$ 1,000,000 first Phase II clinical trial Phase III clinical trial 8 years from the effective date$ 8,000,000 of the agreement First commercial sale
Recent Accounting Standards
For information about recent accounting pronouncements that may impact our financial statements, please refer to Note 3 of the Notes to Unaudited Condensed Financial Statements under the heading "Recent Accounting Standards."
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