CYTODYN INC. Certain information included in this quarterly report on Form 10-Q contains, or incorporates by reference, forward-looking statements within the meaning of Section 21E of the Exchange Act. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as "believes," "hopes," "intends," "estimates," "expects," "projects," "plans," "anticipates" and variations thereof, or the use of future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Our forward-looking statements are not guarantees of performance, and actual results could vary materially from those contained in or expressed by such statements. In evaluating all such statements, we urge you to specifically consider various risks identified in this quarterly report, and those set forth in Item 1A. Risk Factors in our 2022 Form 10-K, any of which could cause actual results to differ materially from those indicated by our forward-looking statements. Our forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic, scientific, and competitive data and information about current business plans. Forward-looking statements include, among others, statements about leronlimab, its ability to have positive health outcomes, the Company's ability to resolve the clinical hold imposed by theU.S. Food and Drug Administration (the "FDA") and information regarding future operations, future capital expenditures and future net cash flows. You should not place undue reliance on our forward-looking statements, which are subject to risks and uncertainties relating to, among other things: the regulatory determinations of leronlimab's safety and effectiveness by the FDA and various drug regulatory agencies in other countries; the Company's ability to raise additional capital to fund its operations; the Company's ability to meet its debt and other payment obligations; the Company's ability to enter into or maintain partnership or licensing arrangements with third-parties; the Company's ability to recruit and retain key employees; the timely and sufficient development, through internal resources or third-party consultants, of analyses of the data generated from the Company's clinical trials required by the FDA or other regulatory agencies in connection with the Company's regulatory submissions or applications for approval of the Company's drug product; the Company's ability to achieve approval of a marketable product; the design, implementation and conduct of clinical trials; the results of any such clinical trials, including the possibility of unfavorable clinical trial results; the market for, and marketability of, any product that is approved; the existence or development of vaccines, drugs, or other treatments that are viewed by medical professionals or patients as superior to the Company's products; regulatory initiatives, compliance with governmental regulations and the regulatory approval process; legal proceedings, investigations or inquiries affecting the Company or its products; general economic and business conditions; changes in foreign, political, and social conditions; stockholder actions or proposals with regard to the Company, its management, or its Board of Directors; and various other matters, many of which are beyond the Company's control. Should one or more of these risks or uncertainties develop, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated, or otherwise indicated by our forward-looking statements. Except as required by law, we do not undertake any responsibility to update these forward-looking statements to take into account events or circumstances that occur after the date of this quarterly report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events that may cause actual results to differ from those expressed or implied by these forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K (the "2022 Form 10-K"), and the other sections of this Form 10-Q, including our consolidated financial statements and related notes set forth in Part I, Item 1. This discussion and analysis contain forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.
Overview
The Company is a clinical stage biotechnology company focused on the clinical development and potential commercialization of its product candidate, leronlimab, which is being studied for NASH, NASH-HIV, solid tumors in oncology, and other HIV indications. Our current business strategy is to seek the removal of the partial clinical hold imposed by theUS FDA inMarch 2022 . InOctober 2022 , the Company voluntarily withdrew its BLA submission, for leronlimab as a combination therapy for highly treatment experienced HIV patients, due to management's conclusion 27 Table of Contents
that a significant risk existed that the BLA would not receive FDA approval due to the inadequate process and performance around the monitoring and oversight of the clinical data from its clinical trials by its former CRO. As further discussed in Part I, Item 1, Note 2, Summary of Significant Accounting Policies - Inventories, and Note 3, Inventories, net, the Company previously capitalized procured or produced pre-launch inventories in preparation for product launches. The Company has reserved for or written off$99.2 million in previously capitalized pre-launch inventories. Although these inventories have been written off from an accounting perspective, they may still have clinical use. The Company's strategy and efforts are currently primarily directed toward obtaining the removal of the partial clinical hold on its HIV program, preparation for and development of a Phase 2b/3 NASH clinical trial protocol, research and development of longer-acting molecules including for the treatment and/or prevention of HIV, maintenance and testing of clinical drug product, and resolving legal and regulatory matters. See below for updates on these initiatives.
Third Quarter Overview
Partial clinical hold on HIV program
InMarch 2022 , the FDA notified the Company that it had placed a partial clinical hold on the Company's HIV program; the Company was not enrolling any new patients in the trials placed on hold. The partial clinical hold on the HIV program impacted patients enrolled in HIV extension trials, who were transitioned to other available therapeutics. No new clinical studies can be initiated or resumed for the HIV indication until the partial clinical hold is resolved. Recent efforts by the Company have been focused on activities that will allow us to resolve this partial clinical hold. During the third quarter endedFebruary 28, 2023 , the Company submitted the documents requested by the FDA in itsMarch 2022 clinical hold letter. Subsequently, the FDA responded through written communication to the Company, requesting additional information and clarification regarding our benefit-risk assessment for the HIV population, which had previously been submitted, and made a supplemental request that the Company submit a general investigational plan under the HIV program IND. InMarch 2023 , the Company responded to and submitted to the FDA the additional information and clarifications requested for the items previously requested. The FDA then responded with further written communication requesting information relating to the benefit-risk assessment, as well as requesting the submission of a new protocol for the HIV indication. At the end ofMarch 2023 , the Company and the FDA held an informal meeting in which the FDA clarified certain questions with respect to the clinical hold submission and further information requests made by the FDA. The Company is currently preparing a supplemental submission to address items discussed with the FDA during the informal meeting.
NASH clinical developments
DuringDecember 2022 , the Company presented expanded data on the efficacy data from the CDI-NASH-01 trial (NCT04521114), which was previously presented at the EASLD meeting inJune 2022 ,American Association for the Study of Liver Diseases (AASLD) meeting inWashington, DC November 2022 , NASH and Obesity Drug Development Summit held inBoston inNovember 2022 , which is discussed in more detail below. The data presented included the functional biomarker and supportive mechanism of action data for leronlimab in NASH and further raised the clinical development needs for addressing NASH in people living with HIV. Similar data were also presented during the Company's R&D Investor Update onDecember 7, 2022 , which is available on the Company's website. NASH is a chronic liver disease characterized by the presence of hepatic inflammation and fibrosis. Patients with advanced fibrosis due to NASH are at significantly higher risk of liverrelated mortality. There is currently no approved drug for NASH. Liver disease is one of the leading causes of non-AIDS-related death in HIV patients. The Company is identifying the next steps in clinical development to continue the investigation of leronlimab in the NASH indication and in HIV patients with NASH.
In NASH, liver homeostasis is impaired due to an accumulation of toxic lipids which can activate both Kupffer cells (KCs) and tissue-resident macrophages resulting in the production of fibrogenic cytokines and chemoattractant chemokines such as transforming growth factor-beta (TGF-?) and monocyte chemoattractant protein-1 (MCP-1). Not
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only do these cytokines/chemokines promote transdifferentiation of hepatic
stellate cells (HSCs) into myofibroblasts (the primary source for fibrillary
collagens), but they also amplify the immune response by recruiting additional
cells into the damaged area. Recruitment of extra-hepatic inflammatory cells to
the site of hepatic injury is typically mediated by interactions between
cytokines/chemokines and their receptors. It has also been shown that patients
with NASH also have high levels of C-C chemokine receptor 5 (CCR5) and the
associated ligand, CCL5, thus demonstrating a potential role of CCR5 and its
ligands in liver fibrosis.
The potential for leronlimab in the treatment of NASH was demonstrated in a
pre-clinical model of fatty liver disease. Immunodeficient, NOD-SCID Gamma (NSG)
mice were fed a high fat, NASH-inducing diet, transplanted with human stem cells
to repopulate the deficient immune system, and treated with leronlimab. Sixteen
(16) male NOD.Cg-Prkdcscid Il2rgtm1Wjl/SzJ, commonly known as the NOD scid IL-2
receptor gamma knockout mice (NSG), were first humanized by intravenous
inoculation with normal human umbilical cord blood cells (105). After 5 weeks on
normal mouse chow, mice were successfully humanized, demonstrating >25% human
CD45 cells in peripheral blood. Mice were switched to high fat (52%) high
cholesterol (1.25%) diet (FPC diet: fructose, palmitate, cholesterol, trans-fat;
Envigo-Teklad TD.160785). Leronlimab and control antibody (normal human IgG,
Sigma) were administered i.p. at a dose of 2mg i.p. twice weekly, n=8
mice/group. The results showed that leronlimab inhibited fatty liver
development, a key characteristic of early-stage NASH, such that treatment of
humanized NSG mice with leronlimab caused a three-fold reduction in hepatic
steatosis compared to control in an animal model of high fructose, high
palmitate, high cholesterol diet.
The Company has reported clinical data from patients with NASH from the
CDI-NASH-01 trial which was designed as a multi-center Phase 2a study and was
subsequently converted into an exploratory study to evaluate the dose, efficacy,
and safety of leronlimab at 350 mg and 700 mg, versus placebo. The study also
included an expansive biomarker program designed to inform future clinical
trials and to more fully understand leronlimab's mechanism of action within the
NASH setting. CDI-NASH-01 was run in two parts. Part 1 of the study was to
assess the efficacy of leronlimab 700 mg (n=22) in improving NAFLD/NASH measures
in adult patients diagnosed with NASH compared to placebo (n=28). Part 2 was
subsequently added to assess leronlimab 350 mg in improving NAFLD/NASH measures
in adult patients diagnosed with NASH (n=22). In Part 1 of the study, eligible
subjects were randomized 1:1 to one of the two study arms to receive either
leronlimab 700mg (Group A), or placebo (Group B), given once per week (±1day) at
the study site for up to 13 weeks during the treatment period (with up to 60
participants). In Part 2 of the study, eligible subjects enrolled to receive
leronlimab 350 mg open-label given once per week (±1day) at the study site for
up to 13 weeks during the treatment period (with up to 28 participants). The
primary efficacy objective was percent change from baseline in hepatic fat
fraction, as assessed by magnetic resonance imaging-derived proton density fat
fraction (MRI-PDFF) at week 14. The secondary efficacy objective was absolute
change from baseline in fibro-inflammatory activity in the liver as assessed by
MRI-corrected T1 imaging (MRI-cT1) at week 14. MRI-cT1 is obtained by
multiparametric magnetic resonance imaging of the liver and is a quantitative
metric for assessing a composite of liver inflammation and fibrosis, expressed
in milliseconds (msec). MRI-PDFF is being studied as an imaging surrogate
endpoint for the fat density in the liver. MRI-cT1 is being studied as an
imaging surrogate endpoint for hepatic fibro-inflammation. This is a critical
unmet need in the NASH space, as many agents have been unable to show reductions
in fibro-inflammation despite reductions in hepatic steatosis.
All analyses performed are being treated as exploratory. Treatment with
leronlimab was well tolerated in both Part 1 and Part 2 compared to placebo. In
Part 1 of the study, leronlimab 700 mg did not reduce mean change in PDFF and
cT1 from baseline to week 14 vs. placebo. In Part 2, leronlimab 350 mg reduced
mean change in PDFF and cT1 from baseline to week 14 vs. the placebo group from
Part 1, despite increased degree of baseline fibro-inflammation. In the combined
group of patients with moderate (? 875 msec) and severe (? 950 msec) cT1 values
at baseline, leronlimab 350 mg reduced cT1 from baseline to week 14 vs. placebo.
Based on post hoc CCR5 haplotype analysis of a small subgroup (n=5), we are
considering further investigation of the 700mg dose of leronlimab for specific
haplotypes.
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Pre-clinical development of a long-acting CCR5 antagonist
InDecember 2022 , researchers fromOregon Health and Sciences University , an academic research collaboration partner of the Company, presented at theHIV DART Conference and theHIV Persistence During Therapy Conference results from two pre-clinical studies performed on macaque monkeys for two different potential longer-acting therapeutics targeting the CCR5 receptor. The first longer-acting potential therapeutic is a modified monoclonal antibody designed to have a longer half-life, which could lead to the development of an HIV prophylactic for humans at high risk of contracting HIV. The second longer-acting potential therapeutic is a gene therapy that could lead to the development of a functional cure for humans living with HIV. While both longer-acting therapeutics are still in the early stages of development, early data from pre-clinical macaque monkey studies suggest that longer dosing intervals from once weekly to over three months are possible. Data from both potential therapeutics were also presented during the Company's R&D Investor Update onDecember 7, 2022 , which is available on the Company's website. By making this and other references to the Company's website, we do not intend to incorporate by reference into this report any information posted on our website. The website should not be considered part of this report. InMarch 2023 , as part of its conveyed long-term development and value creation initiatives, the Company made efforts to pursue the continued development of a longer-acting agent. In furtherance of this initiative, the Company entered into a joint development agreement with a third-party company to develop one or more longer-acting molecules. In addition to potentially leading to a modified therapeutic that will have greater acceptance by patients, the services provided by the third party may yield extended intellectual property protection, thereby increasing the value of the Company's patent portfolio.
Cancer clinical developments
The Company continues to identify the next steps in clinical development and is exploring potential business opportunities to continue the investigation of leronlimab for solid tumors in oncology based on data generated to date by
the
Company.
Summary of TNBC data
To assess the impact of leronlimab treatment on mTNBC patients, we pooled the
data from 3 studies: CD07_TNBC Phase 1b/2, CD07_TNBC_Compassionate Use, and
CD-09 Basket. The study population for pooled efficacy analysis was a total of
28 subjects (10 subjects from the Phase 1b/2 study, 16 subjects from the
Compassionate Use Study, and 2 subjects from the Basket Study).
To explore the impact of leronlimab in the mTNBC patients' disease progression,
investigator assessed Progression Free Survival (PFS) was analyzed in the 28
subjects. There was a total of 19 subjects dosed between 525 mg and 700 mg (4
subjects increased dose from 350 mg to 525 mg and were included in the higher
dose cohort). The median PFS (mPFS) for the 525 mg - 700 mg cohort was 6.2
months (95% CI 2.6 months - 7.5 months). There were 9 subjects dosed at 350 mg,
mPFS was 2.2 months (95% CI 0.7 months - 12+ months). There was a meaningful PFS
advantage at the higher doses when compared with the lower, 350 mg dose cohort.
Furthermore, the preliminary results of the leronlimab studies also showed
similarity in the PFS outcomes of mTNBC patients treated with leronlimab +
carboplatin compared to overall leronlimab treated population. Of the 28
subjects enrolled, 13 subjects received leronlimab + carboplatin treatment. The
mPFS for leronlimab + carboplatin population was 3.9 months (95% CI 2.3 months -
6.0 months).
The subgroup analysis of PFS based on the individual subjects in each study was
also reviewed. The mPFS for Phase 1b/2 study was 3.9 months (95% CI 2.3 months -
6.2 months), mPFS for the Compassionate Use study was 3.3 months (95% CI 1.3
months - 7.5 months), and mPFS for the Basket Study was 2.8 months (95% CI N/A).
Combined, the overall mPFS for all 28 patients treated with leronlimab in the
population of mTNBC patients regardless of dosage, conjunction therapy type,
brain or bone metastases that have failed more than one line of previous therapy
was 4.1 months (95% CI 2.5 months - 7.0 months). The mean PFS was 3.7 ± 2.93
standard deviation (SD).
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To explore the impact of leronlimab in the mTNBC patients' disease progression,
Overall Survival (OS) was analyzed in the same 28 subjects. The median OS (mOS)
for leronlimab + carboplatin population was 12+ months (95% CI 5.4 months - 12+
months).
The mOS for the 350 mg cohort was 4.6 months (95% CI 1.1 months -12+ months). The mOS for the 525-700 mg cohort was 12+ months (95% CI 5.5 months - 12+ months).
The overall median OS for leronlimab treated population of mTNBC patients regardless of brain or bone metastases that have failed more than one line of previous therapy was 6.5 months (95% CI 5.0 months - 12+ months). The mean value for OS was 5.5 ±4.31 standard deviation (SD).
Corporate developments
OnDecember 19, 2022 ,Scott A. Kelly , M.D. resigned as the Company's Chief Medical Officer ("CMO") and Head of Business Development. The Company is in the hiring process for a new CMO and anticipates filling this position in the near future.Dr. Kelly previously resigned from his role as a director of the Company onOctober 13, 2022 ; this director vacancy was filled onOctober 13, 2022 with the appointment ofStephen M. Simes to the Board of Directors.
During
? Audit Committee - Chair:
? Compensation Committee - Chair:
and
?
Lishomwa C. Ndhlovu, M.D., Ph.D. and
During the quarter ended
Results of Operations
Fluctuations in operating results
The Company's operating results may fluctuate significantly depending on the
outcomes, number and timing of pre-clinical and clinical studies, patient
enrollment and/or completion rates in the studies, and their related effect on
research and development expenses, regulatory and compliance activities,
activities related to seeking removal of the partial clinical hold and FDA
approval of our drug product, general and administrative expenses, professional
fees, and legal and regulatory proceedings and related consequences. We require
a significant amount of capital to continue to operate; therefore, we regularly
conduct financing offerings to raise capital, which may result in various forms
of non-cash interest expense or other expenses. Additionally, we periodically
seek to negotiate settlement of debt payment obligations in exchange for equity
securities of the Company and enter into warrant exchanges or modifications that
may result in non-cash charges. Our ability to continue to fund operations will
depend on our ability to raise additional funds. Refer to Risk Factors,
Liquidity and Capital Resources, and Going Concern sections included in this
quarterly report.
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The results of operations were as follows for the periods presented:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands, except
for per share data) 2023 2022 $ % 2023 2022 $ %
(Restated) (1) (Restated) (1)
Revenue $ - $ - $ - - % $ - $ 266 $ (266) (100) %
Cost of goods sold - - - - - 53 (53) (100)
Gross profit - - - - - 213 (213) (100)
Operating expenses:
General and
administrative 2,971 10,140 (7,169) (71) 14,347 33,960 (19,613) (58)
Research and
development 938 3,569 (2,631) (74) 1,651 23,036 (21,385) (93)
Amortization and
depreciation 12 129 (117) (91) 165 657 (492) (75)
Inventory charge - 5,559 (5,559) (100) 20,633 8,916 11,717 131
Total operating
expenses 3,921 19,397 (15,476) (80) 36,796 66,569 (29,773) (45)
Operating loss (3,921) (19,397) 15,476 80 (36,796) (66,356) 29,560 45
Interest and other
expenses:
Interest on convertible
notes (1,142) (1,187) 45 4 (3,447) (4,299) 852 20
Amortization of discount on convertible notes (565) (637) 72 11 (1,721) (2,382) 661 28 Amortization of debt issuance costs (17) (19) 2 11 (51) (70) 19 27 Loss on induced conversion (2,018) (12,066) 10,048 83 (2,656) (37,381) 34,725 93 Finance charges (5,884) (7,025) 1,141 16 (7,761) (8,084) 323 4 Inducement interest expense - (954) 954 100 - (6,186) 6,186 100 Legal settlement - - - - - (1,941) 1,941 100 Loss on derivatives (155) - (155) (100) (8,756) - (8,756) (100) Total interest and other expenses (9,781) (21,888) 12,107 55 (24,392) (60,343) 35,951 60 Loss before income taxes (13,702) (41,285) 27,583 67 (61,188) (126,699) 65,511 52 Income tax benefit - - - - - - - - Net loss$ (13,702) $ (41,285) $ 27,583 67 %$ (61,188) $ (126,699) $ 65,511 52 % Basic and diluted: Weighted average common shares outstanding 832,215 695,614 136,601 20 810,986 663,373 147,613 22 Loss per share $ (0.02) $ (0.06)$ 0.04 67$ (0.08) $ (0.19)$ 0.11 58
(1) See Note 2, Summary of Significant Accounting Policies-Revision and Restatement of Financial Statements.
Product revenue, Cost of goods sold ("COGS") and Gross margin
We had no revenue in the three- and nine-months endedFebruary 28, 2023 as compared to approximately$266.0 thousand in the nine months endedFebruary 28, 2022 ; none in the three months endedFebruary 28, 2022 . Revenue was related to the fulfillment of orders under a Compassionate Special Permit ("CSP") inthe Philippines for the treatment of COVID-19 patients. Sales were made under theApril 2021 exclusive supply and distribution agreement granting Chiral the right to distribute and sell up to 200,000 vials of leronlimab throughApril 15, 2022 . At the time of the sales, FDA approval had not yet been received for leronlimab and the product sold was previously expensed as research and development expense due to its being manufactured prior to the commencement of the manufacturing of commercial grade pre-launch inventories. Therefore, COGS consists only of the costs of packaging and shipping of the vials, including related customs and
duties.
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General and administrative ("G&A") expenses
G&A expenses consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2023 2022 $ % 2023 2022 $ %
Salaries, benefits, and
other compensation $ 918 $ 3,227 $ (2,309) (72) % $ 3,175 $ 5,463 $ (2,288) (42) %
Stock-based compensation 419 (438) 857 196 3,537 4,219 (682) (16)
Legal fees 255 5,161 (4,906) (95) 2,752 16,718 (13,966) (84)
Other 1,379 2,190 (811) (37) 4,883 7,560 (2,677) (35)
Total general and
administrative $ 2,971 $ 10,140 $ (7,169) (71) % $ 14,347 $ 33,960 $ (19,613) (58) %
The decreases in G&A expenses for the three- and nine-month periods ended
February 28, 2023 , compared to the same periods in the prior year, were
primarily due to a reduction in legal fees, salaries, benefits, and other
compensation, and other. The decreases in legal fees were due to lowered legal
fees related to the SEC and DOJ investigations, Pestell employment dispute
(which was resolved in May 2022 ), Amarex dispute, the absence of legal fees
related to the prior year proxy contest and related lawsuits, and the payment of
certain legal fees by the Company's insurance carriers. The decreases in
salaries, benefits, and other compensation were the result of decreased
headcount and cash compensation. The decreases in other expenses were the result
of a reduction in expenses related to the prior year proxy contest, insurance
premiums, and recruiting and contract services, offset by an increase in auditor
fees. The increase in stock-based compensation for the three-month period was
primarily related to a credit balance in the prior year for the same three-month
period related to the forfeiture of unvested equity grants of the former CEO
upon separation.
Research and development ("R&D") expenses.
R&D expenses consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2023 2022 $ % 2023(1) 2022 $ %
Clinical $ 486 $ 2,612 $ (2,126) (81) % $ (145) $ 17,273 $ (17,418) (101) %
Non-clinical 4 203 (199) (98) 31 878 (847) (96)
CMC 203 508 (305) (60) 1,122 4,170 (3,048) (73)
License and patent fees 245 246 (1) (0) 643 715 (72) (10)
Total research and
development $ 938 $ 3,569 $ (2,631) (74) % $ 1,651 $ 23,036 $ (21,385) (93) %
(1) Certain prior quarter amounts totaling approximately$215 thousand have been reclassified from CMC to Clinical for consistency with the current quarter presentation. These reclassifications have no effect on the reported results of operations. The decreases in R&D expenses in the three- and nine-month periods endedFebruary 28, 2023 , compared to the same periods in the prior year, were primarily the result of clinical trials related to COVID-19, NASH, HIV extension, and oncology studies, being completed, paused, or closed that had been active in the same periods of the prior year in addition to decreased activity related to the BLA resubmission, partially offset by increased costs related to activities focused on addressing the HIV program partial clinical hold. The credit balance in clinical expenses for the nine months endedFebruary 28, 2023 , is related to credits received related to the uncompleted Brazilian COVID-19 trials. The decreases in non-clinical expenses from the same periods in the prior year were the result of decreased activity related to non-clinical studies related to the BLA. The decreases in CMC related expenses from the same periods last year were the result of decreased activity related to CMC manufacturing. The future trend of our R&D expenses is dependent on the timing of FDA clearance of the clinical hold and any future clinical trials, our decision-making and timing of which indications on which to focus our future efforts toward the clinical development and study of leronlimab, which may include the treatment of NASH, NASH-HIV, oncology, and other HIV related indications, and the timing
and
outcomes of such efforts.
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Amortization and depreciation expenses
The decreases in amortization and depreciation expenses for the three- and nine-month periods endedFebruary 28, 2023 , compared to the same periods last year were attributable to the ProstaGene noncompete intangible asset becoming fully amortized as ofNovember 30, 2021 and the remaining ProstaGene intellectual property being returned in connection with a legal settlement
inMay 2022 . Inventory charge The decrease in the inventory charge for the three-month period endedFebruary 28, 2023 , compared to the same period in the prior year was attributable to the full inventory write-off in the prior quarter. The increase in the inventory charge for the nine-month period endedFebruary 28, 2023 , compared to the same period in the prior year was primarily attributable to pre-launch inventories no longer qualifying for inventory capitalization due to the withdrawal of the BLA submission, in addition to expected expiration based on estimated shelf lives for the nine-month period. See Note 3, Inventories, net, for additional information.
Interest and other expense
Interest and other expense consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
2023 2022 $ % 2023 2022 $ %
(in thousands) (Restated) (1) (Restated) (1)
Interest on convertible
notes payable $ 1,142 $ 1,187 $ (45) (4) % $ 3,447 $ 4,299 $ (852) (20) %
Amortization of discount
on convertible notes 565 637 (72) (11) 1,721 2,382 (661) (28)
Amortization of debt
issuance costs 17 19 (2) (11) 51 70 (19) (27)
Loss on induced conversion 2,018 12,066 (10,048) (83) 2,656 37,381 (34,725) (93)
Finance charges 5,884 7,025 (1,141) (16) 7,761 8,084 (323) (4)
Inducement interest
expense - 954 (954) (100) - 6,186 (6,186) (100)
Legal settlement - - - - - 1,941 (1,941) (100)
Loss on derivatives 155 - 155 - 8,756 - 8,756 100
Total interest and other
expenses $ 9,781 $ 21,888 $ (12,107) (55) % $ 24,392 $ 60,343 $ (35,951) (60) %
(1) See Note 2, Summary of Significant Accounting Policies-Revision and Restatement of Financial Statements.
The decreases in interest and other expenses for the three-month period endedFebruary 28, 2023 , compared to the same period in the prior year was primarily due to a decrease in non-cash loss on induced conversion, finance charges and inducement interest expense. The decreased non-cash loss on induced conversions resulted from the Company settling less outstanding convertible debt with common stock during the current period as compared to the same period last year (refer to Part II, Item 8, Note 14, Restatement in the 2022 Form 10-K). The decrease in finance charges is the result of lower expenses related to the issuance of warrants under the Surety Bond Backstop Agreement (as amended, the "Backstop Agreement"). The decrease in inducement interest expense is the result of its now being recorded in stockholders' equity as a result of the adoption of ASU No. 2021-04 (refer to Note 2, Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements). For the nine-month period endedFebruary 28, 2023 , the decrease was primarily due to decreases in loss on induced conversion, finance charges and inducement interest expense as discussed above, as well as a decrease in legal settlement expenses, partially offset by an increase in loss on derivatives. The decrease in legal settlement expense resulted from there being no legal settlements during the nine months endedFebruary 28, 2023 . The increase in loss on derivatives was primarily attributable to the change in the fair value of liability-classified warrants related to the Backstop Agreement and placement agent warrants issued in connection with an offering for which the related warrants subsequently became equity classified upon stockholder approval of an increase in authorized shares onAugust 31, 2022 . 34
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Liquidity and Capital Resources
As ofFebruary 28, 2023 , we had a total of approximately$5.1 million in cash and$6.0 million in restricted cash and approximately$121.3 million in short-term liabilities. We expect to continue to incur operating losses and require a significant amount of capital in the future as we continue to develop and seek approval to commercialize leronlimab. Despite the Company's negative working capital position, vendor relations remain relatively accommodative, and we do not currently anticipate significant delays in our business initiatives schedule due to liquidity constraints. We cannot be certain, however, that future funding will be available to us when needed on terms that are acceptable to us, or at all. We sell securities and incur debt when the terms of such arrangements are deemed acceptable to both parties under then current circumstances and as necessary to fund our current and projected cash needs. Since inception, the Company has financed its activities principally from the public and private sale of equity securities as well as with proceeds from issuance of convertible notes and related party notes payable. The Company intends to finance its future operating activities and its working capital needs largely from the sale of equity and debt securities. The sale of equity and convertible debt securities to raise additional capital is likely to result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises funds through the issuance of additional preferred stock, convertible debt securities or other debt or equity financing, the related transaction documents could contain covenants restricting its operations. During the 2021 fiscal year, the Company entered into long-term convertible notes that are secured by all of our assets (excluding our intellectual property), and include certain restrictive provisions, including limitations on incurring additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms. In exchange for warrants, the Company entered into the Backstop Agreement with an accredited investor whereby the Company pledged its patents and the investor agreed to indemnify the issuer of the Surety Bond in the Amarex dispute with respect to the Company's obligations under the Surety Bond. As described in Note 11, Subsequent Events, the Indemnitor has released all encumbrances on the Company's patents and the Company has assumed the surety bond from the Indemnitor. Future third-party funding arrangements may also require the Company to relinquish valuable rights. Additional capital, if available, may not be available on reasonable or non-dilutive terms.
Cash
The Company's cash and restricted cash position of approximately$5.1 million and$6.0 million , respectively, as ofFebruary 28, 2023 increased by approximately$0.9 million and$6.0 million , respectively, when compared to the balance of$4.2 million and$0.0 million , respectively, as ofMay 31, 2022 . This increase was primarily the result of approximately$28.6 million in cash provided by financing activities, offset by approximately$21.7 million in cash used in our operating activities during the nine months endedFebruary 28, 2023 . Refer to Item 1, Note 2, Summary of Significant Accounting Policies - Going Concern, and the Going Concern discussion below for information regarding concerns about the Company's ability to continue to fund its operations and satisfy its payment obligations and commitments. A summary of cash flows and changes between the periods presented is as follows: Nine months endedFebruary 28 ,
Change
(in thousands) 2023 2022
$
Net cash (used in) provided by: Net cash used in operating activities$ (21,698) $ (71,679) $ 49,981 Net cash used in investing activities $ - $ (30) $ 30 Net cash provided by financing activities$ 28,577 $ 40,129
Cash used in operating activities
Net cash used in operating activities totaled approximately$21.7 million during the nine months endedFebruary 28, 2023 , representing an improvement of approximately$50.0 million compared to the nine months endedFebruary 28, 2022 . The decrease in the net amount of cash used was due primarily to a decrease in our net loss, primarily attributable 35
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to decreased G&A, R&D, and working capital fluctuations, all of which are highly variable. Refer to General and Administrative, and Research and Development Expense sections for further discussion.
Cash used in investing activities
Net cash used in investing activities for the nine months ended
Cash provided by financing activities
Net cash provided by financing activities totaled approximately$28.6 million , a decrease of approximately$11.6 million compared to the nine months endedFebruary 28, 2022 . The decrease in net cash provided was primarily the result of raising less funds from private placements of common stock and warrants, and a decrease in cash received from warrant transactions and exercises.
Pre-launch inventories
The Company previously capitalized pre-launch inventories which were subsequently charged-off in October of 2022 for GAAP accounting purposes due to no longer qualifying for pre-launch inventory capitalization resulting from the withdrawal of the BLA submission. Work-in-progress and finished drug product inventories continue to be physically maintained, can be used for clinical trials, and can be sold commercially upon regulatory approval if the shelf-lives can be extended as a result of the performance of on-going stability tests. Raw material continued to be maintained so that they can be used in the future if needed. During the first quarter of fiscal year 2023, the Company reviewed purchase commitments made by its manufacturing partner, Samsung, under the master agreement between the Company and Samsung, and its vendors for specialized raw materials for which the Company made a prepayment in the amount of$2.7 million in the third quarter of fiscal year 2022, which were recorded as prepaid expenses in the consolidated financial statements as ofMay 31, 2022 . As discussed in Note 9, Commitments and Contingencies - Commitments with Samsung BioLogics Co., Ltd. ("Samsung"), the Company and Samsung remain in ongoing discussions about, among other things, deferring the unfulfilled commitments. These additional specialized raw materials are estimated to have shelf-lives ranging from 2023 to 2026. The entire amount of approximately$2.7 million was charged-off as ofAugust 31, 2022 . InOctober 2022 , the Company voluntarily withdrew its BLA submission after concluding that a significant risk existed that the BLA would not receive FDA approval due to the inadequate process and performance by its former CRO around the monitoring and oversight of the clinical data from its trials. Following this decision, none of the Company's inventories qualify for capitalization as pre-launch inventories. For the three months endedNovember 30, 2022 , the Company charged-off the remaining raw material resin and work-in-progress bulk product inventories of approximately$16.3 million and$1.7 million , respectively. 36 Table of Contents The table below summarizes previously capitalized pre-launch inventories which were subsequently charged-off for GAAP accounting purposes due to no longer qualifying for pre-launch inventory capitalization due to the withdrawal of the BLA submission and estimated expiration based on remaining shelf life. Work-in-progress and finished drug product inventories continue to be physically maintained, can be used for clinical trials, and can be commercially sold upon regulatory approval if the shelf-lives can be extended as a result of the performance of on-going stability tests. Raw materials continue to be maintained so that they can be used in the future if needed. Raw Materials Work-in-progress (in thousands, Expiration Total period inventories ending Remaining February shelf-life Total Raw Finished 28,) (mos) Specialized Resins Other Materials Bulk drug product drug product 2023 0 to 12$ 4,764 $ 16,264 $ 1,589 $ 22,617 $ - $ -$ 22,617 2024 13 to 24 2,511 - - 2,511 1,661 29,142 33,314 2025 25 to 36 884 - - 884 - 32,343 33,227 2026 37 to 48 1,420 - - 1,420 - - 1,420
Thereafter 49 or more - - -
- - - - Inventories, gross 9,579 16,264 1,589 27,432 1,661 61,485 90,578 Inventory charge (9,579) (16,264) (1,589) (27,432) (1,661) (61,485) (90,578) Inventories, net $ - $ - $ - $ - $ - $ - $ - For additional information, refer to Note 2, Summary of Significant Accounting Policies - Pre-launch Inventories in this Form 10-Q, and to Note 3, Inventories, net, in the 2022 Form 10-K. Convertible debt
OnApril 2, 2021 , we issued a convertible note with a principal amount of$28.5 million resulting in net cash proceeds of$25.0 million , after$3.4 million of debt discount and$0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of$10.00 per share, and matures inApril 2025 (see Note 11, Subsequent Events for further information regarding extension of the originalApril 2023 maturity date). TheApril 2, 2021 Note required monthly debt reduction payments of$7.5 million for the six months beginning inMay 2021 , which could also be satisfied by payments on other notes held by the noteholder or its affiliates. Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to$3.5 million . As ofFebruary 28, 2023 , the outstanding balance of theApril 2, 2021 Note, including accrued interest, was approximately$11.4 million .
OnApril 23, 2021 , we issued a convertible note with a principal amount of$28.5 million resulting in net cash proceeds of$25.0 million , after$3.4 million of debt discount and$0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of$10.00 per share, and matures inApril 2025 (see Note 11, Subsequent Events for further information regarding the extension of the originalApril 2023 maturity date). Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to$7.0 million . As ofFebruary 28, 2023 , the outstanding balance of theApril 23, 2021 Note, including accrued interest, was approximately$34.4 million . 37 Table of Contents Common stock
We have 1,350.0 million authorized shares of common stock. The table below summarizes intended uses of common stock.
As of
(in millions) February 28, 2023
Issuable upon:
Warrants exercise 179.9Convertible preferred stock and undeclared dividends conversion 33.3 Outstanding stock options exercise or vesting of outstanding RSUs and PSUs 23.4
Reserved for issuance pursuant to future stock-based awards under equity incentive plan
17.9
Reserved and issuable upon conversion of outstanding convertible notes 12.0
Reserved for private placement of common stock and warrants through a placement agent
141.1
Reserved for private placement of common stock and warrants 0.8
Total shares reserved for future uses
408.4
Common stock outstanding 836.6
As of February 28, 2023 , we had approximately 105.0 million unreserved
authorized shares of common stock available for issuance. Our ability to
continue to fund our operations depends on our ability to raise capital. The
funding necessary for our operations may not be available on acceptable terms,
or at all. If we deplete our cash reserves, we may be forced to file for
bankruptcy protection, discontinue operations or liquidate our assets.
Off-Balance Sheet Arrangements
As of
Contractual Obligations
Refer to Note 4, Accounts Payable and Accrued Liabilities, Note 5, Convertible Instruments and Accrued Interest, and Note 9, Commitments and Contingencies included in Part I, Item 1 of this Form 10-Q, and Notes 6 and 10 in Part II, Item 8 in the 2022 Form 10-K.
Legal Proceedings
The Company is a party to various legal proceedings described in Part I, Item 1, Note 9, Commitments and Contingencies - Legal Proceedings of this Form 10-Q. We are unable to predict the outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by the Company, as the outcomes of legal proceedings are inherently uncertain. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, if any, could be material to the Company's consolidated financial statements. As ofFebruary 28, 2023 , the Company had not recorded any accruals related to the outcomes of the legal matters discussed in this Form 10-Q. Regulatory Matters
Voluntary Withdrawal of HIV BLA Submission
InJuly 2020 , the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients. InNovember 2021 , the Company resubmitted the non-clinical and CMC sections of the BLA. InOctober 2022 , the Company voluntarily withdrew its BLA submission due to management's conclusion that a severe risk of the BLA not receiving approval by the FDA existed due to the Company's former CRO's inadequate process and performance around the monitoring and 38 Table of Contents
oversight of the clinical data. For additional information see Note 9, Commitments and Contingencies - Legal Proceedings.
FDA warning letter re COVID-19 misbranding of investigational drug
InJanuary 2022 , the Company received a Warning Letter from the FDA alleging that its former CEO had made references in a video interview to COVID-19 and leronlimab in a promotional context to the effect that leronlimab, an investigational new drug, is safe and effective for the purpose for which it is being investigated or otherwise promoted the drug. The FDA warned the Company that leronlimab has not been approved or authorized by the FDA, its safety and effectiveness have not yet been established, and the related clinical trial data was mischaracterized in the video. The FDA further alleged that the video misbranded leronlimab under section 502(f)(1) of said Act and in violation of section 301(a) of the Food Drug and Cosmetic Act, as the claims in the video made representations in a promotional context regarding the safety and efficacy of an investigational new drug that has not been approved or authorized by the FDA.CytoDyn has completed all the corrective steps requested by the FDA. OnSeptember 26, 2022 ,CytoDyn sent a letter to the FDA informing the FDA that it had completed all corrective steps and requested that FDA issue a close-out letter.
FDA HIV partial clinical hold and COVID-19 full clinical hold letters
InMarch 2022 , the FDA placed a partial clinical hold on the Company's HIV program and a full clinical hold on its COVID-19 program inthe United States . The Company was not enrolling any new patients in the trials placed on hold inthe United States . Under the full clinical hold on the COVID-19 program, no new clinical studies may be initiated for the COVID-19 indication until the clinical hold is resolved. The Company has made a business decision not to pursue the use of leronlimab in COVID-19 patients, has no plans for further trials under the COVID-19 indication and has withdrawn the IND for COVID-19. Should the opportunity arise, the Company may explore potential non-dilutive clinical development options.CytoDyn is working diligently with the FDA to resolve the partial clinical hold for HIV as soon as possible, no new clinical studies can be initiated or resumed for the HIV indication until the partial clinical hold is resolved. During the third quarter endedFebruary 28, 2023 , the Company submitted the documents requested by the FDA in itsMarch 2022 clinical hold letter. Subsequently, the FDA responded through written communication to the Company, requesting additional information and clarification regarding an item that was previously submitted, the benefit-risk assessment for the HIV population, and made a supplemental request that the Company submit a general investigational plan under the HIV program IND. InMarch 2023 , the Company responded to and submitted to the FDA the additional information and clarifications requested for the items previously requested. The FDA responded with further written communication requesting information relating to the benefit-risk assessment, as well as requesting the submission of a new protocol for the HIV indication.
At
the end ofMarch 2023 , the Company and the FDA held an informal meeting in which the FDA addressed certain clarifying questions with respect to the clinical hold submission and further information requests made by the FDA. As of the date of this filing, the Company has submitted the following to the FDA in connection with resolving the clinical hold: an aggregate analysis of cardiovascular events across all leronlimab clinical programs, a Safety Surveillance Plan, an aggregate safety data analysis, an updated Investigator's Brochure, annual reports, a benefit-risk assessment, and a general investigational plan. The Company is currently working on a supplemental submission to address items discussed with the FDA during the informal meeting.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of approximately$61.2 million in the nine months endedFebruary 28, 2023 and has an accumulated deficit of approximately$823.1 million as ofFebruary 28, 2023 . These factors, among several others, including the various legal matters discussed in Note 9, Commitments and Contingencies - Legal Proceedings, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. 39
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The Company's continuance as a going concern is dependent upon its ability to obtain additional operating capital, complete the development of its product candidate, leronlimab, obtain approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve revenues and attain profitability. The Company plans to continue to engage in research and development activities related to leronlimab for multiple indications and expects to incur significant research and development expenses in the future, primarily related to its regulatory compliance, including seeking the lifting of theFDA's partial clinical hold with regard to the Company's HIV program, performing additional clinical trials, and seeking regulatory approval of its product candidate for commercialization. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs primarily from the sale of equity and debt securities, combined with additional funding from other sources. However, there can be no assurance that the Company will be successful in these endeavors.
New Accounting Pronouncements
Refer to Part I, Note 2, Summary of Significant Accounting Policies - Recent Accounting Pronouncements of this Form 10-Q.
Critical Accounting Policies and Estimates
This discussion and analysis of the Company's financial condition and results of operations is based on our consolidated financial statements, which we have been prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company's critical accounting policies are described under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our 2022 Form 10-K.
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