The following discussion and plan of operations should be read in conjunction
with the condensed consolidated financial statements and the notes to those
statements included elsewhere in this Form 10-Q and with our Annual Report on
Form 10-K for the year ended
Management's Plan of Operation
OVERVIEW OF OUR BUSINESS Overview
Recent Developments
As of the date of this filing, Brilacidin is being studied by independent
researchers funded by
On
On
On
On
In
In
26 Table of Contents
Business Development and Licensing
The Company is actively engaged in business development and licensing initiatives with specialty and global pharmaceutical companies. The Company may also seek to enter into agreements with other third-party entities for research, development, and commercialization of other types of technologies or products. The goal of these efforts is to diversify and add value to the Company's assets. From time to time, the Company may be party to various indications of interest and term sheets and participate in preliminary discussions and negotiations regarding potential licensing or partnership arrangements. It remains the Company's primary objective to complete licensing deals, territorial and/or global, to provide access to non-dilutive capital to advance clinical assets forward in the most expeditious and cost-effective manner. The Company can make no assurance that partnerships will occur, but is committed toward executing on these potential alliance and partnership opportunities.
In
The Company and
Development Programs Compound Target/Indication Clinical Status Brilacidin Oral Mucositis (OM) Phase 2 Study (completed) Phase 3 planned, contingent upon sufficient funding Inflammatory Bowel Disease (IBD) Phase 2 UP/UPS Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form (completed) ABSSSI (Acute Bacterial Skin and Phase 2 (completed) Skin Structure Infection)
We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Milestone payments from our licensee are also dependent on clinical/regulatory milestones. We are actively engaged in business development for partnering Brilacidin. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such pharmaceutical products for several years, if ever. Advancement of our Brilacidin clinical programs is dependent on securing sufficient working capital.
The Company devotes most of its efforts and resources on Brilacidin. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.
Set forth below is an overview of our most recent research and development efforts on Brilacidin through the date of this Quarterly Report on Form 10-Q:
27 Table of Contents Brilacidin
COVID-19 (SARS-CoV-2), Additional Viruses
In
IBD, Ulcerative Proctitis/Proctosigmoiditis (UP/
IBD, Ulcerative Colitis (UC) - Brilacidin has also been developed as a treatment in more extensive forms of IBD. Development of a delayed release oral formulation has been in progress, with development work expanding into immediate release formulations due to unexpected findings encountered. Such findings appear due to the inherent physiochemical properties of the compound, and those of polymers used to achieve delayed release. An immediate release, multi-particulate, capsule formulation has been developed, although further work has since been halted due to instability of that formulation being identified. Hence, further advancement in the indication of ulcerative colitis requires conduct of additional formulation development work prior to Phase 1 testing of that oral formulation. Completion of formulation/analytical development work, clinical trial supply manufacturing, and subsequent progression into clinical trials, are pending securing sufficient drug supply and working capital.
Oral Mucositis (OM) study - In a randomized, double-blind Phase 2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of Head and Neck Cancer (HNC), Brilacidin (administered three times daily as an oral rinse) markedly reduced the rate of severe OM (WHO Grade ? 3), delayed onset of severe OM and decreased duration of severe OM. The Company and the FDA have completed an End-of-Phase 2 meeting concerning the continuing development of Brilacidin oral rinse to decrease the incidence of severe OM in HNC patients receiving chemoradiation. Both parties agreed to an acceptable Brilacidin Phase 3 development pathway, including studying Brilacidin oral rinse effects on severe OM when cisplatin, the preferred chemotherapy regimen in HNC care, is administered in higher concentrations (80-100 mg/m2) every 21 days, and at lower concentrations (30-40 mg/m2) administered weekly as part of the chemoradiation regimen.
An optimized oral rinse formulation has been developed, and 12-month stability testing shows it to be stable. Further advancement in the indication of oral mucositis requires additional drug formulation/analytical work, followed by clinical trial supply manufacturing prior to progressing to Phase 3 clinical trials. Given the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program, at this time clinical trial supply manufacturing and Phase 3 clinical trial conduct are delayed, with such activities pending securing sufficient working capital and/or partnership.
ABSSSI - In
Antifungal - Recent data generated from independent researchers suggest Brilacidin has potential to be developed as a novel antifungal agent. Brilacidin converted caspofungin from a fungistatic into a fungicidal drug, enabling it to overcome both drug resistance and biofilm formation. Brilacidin exerted, to a lesser degree, synergistic effects with voriconazole in A. fumigatus. Further in vitro testing showed Brilacidin synergized with caspofungin in C. albicans, C. auris and C. neoformans. In an A. fumigatus immunosuppressed mouse model in invasive pulmonary aspergillosis, Brilacidin plus caspofungin cleared infection in the lungs by almost 95 percent, compared to ~50 percent when each compound was administered individually. In an A. fumigatus mouse model in keratitis, compared to control, Brilacidin reduced fungal burden and disease severity, while also improving corneal thickness. Brilacidin also showed in vitro an additive inhibitory effect when combined with posaconazole in several species of Mucorales, the main etiological agents of mucormycosis, commonly referred to as black fungus. Brilacidin further showed potent in vitro stand-alone efficacy in C. neoformans, a major driver of illness in people living with HIV/AIDS. Additional Minimum Inhibitory Concentration (MIC) in vitro testing via a third-party vendor has shown promising Brilacidin activity in other hard-to-treat fungal pathogens.
Expenditures on Brilacidin were
We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such for several years, if ever.
28 Table of Contents
Management's Plan of Operation
The Company historically devoted most of its efforts and resources on drug development, regulatory matters, and clinical trials. Presently, the Company does not have sufficient financial resources to advance our drug candidates meaningfully. Contingent upon sufficient funding, we anticipate that our efforts would primarily focus on advancement of our drug candidate Brilacidin for decreasing the incidence of severe oral mucositis as a complication of chemoradiation in Oral Mucositis. The antiviral and antifungal properties of Brilacidin also present potential clinical development opportunities going forward should sufficient funding be obtained via grants and/or pharmaceutical company partnerships. In general, we expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.
In the ordinary course of business, we engage in a continual review of opportunities to license our drug compound(s)/ indications and enter into partnering, joint development or similar arrangements with other companies. We may generally at any time have such opportunities in various stages of active review, including, for example, entry into indications of interest and term sheets and participation in preliminary discussions and negotiations. Any such transaction could be material to us.
The Company is monitoring BTL's progress in advancing its novel laser-based
thermal ablation technology platform targeting epilepsy and oncology procedures.
BTL will use the FDA 510(k) pathway to achieve its goal of marketing approval in
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations are based upon our accompanying financial statements, which have been
prepared in conformity with
Recently Issued Accounting Pronouncements
See Note 3. Significant Accounting Policies and Recent Accounting Pronouncements to the condensed consolidated financial statements, for a discussion of recent accounting pronouncements and their effect, if any, on our financial statements.
Results of Operations
We expect to incur losses from operations for the next few years. Contingent
upon sufficient funding, we expect to incur increasing research and development
expenses, including expenses related to additional clinical trials for our
proprietary programs. We currently anticipate that future budget expenditures
will be approximately
29 Table of Contents
For the three months ended
Revenue
We generated no revenue and incurred operating expenses of approximately
Research and Development Expenses for Proprietary Programs
Below is a summary of our research and development expenses for our proprietary programs by categories of costs (rounded to nearest thousand):
For the three months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Clinical studies and development research$ 168,000 $ 1,170,000 $ (1,002,000 ) (86 )% Refunds of unused project - deposits (175,000 ) - (175,000 ) % Reimbursement for Brilacidin - manufacturing expenses (238,000 ) - (238,000 ) % Employees payroll and payroll tax expenses related to R&D Department 112,000 263,000 (151,000 ) (57 )% Stock-based compensation - employee 7,000 29,000 (22,000 ) (76 )% Stock-based compensation - consultants - 12,000 (12,000 ) (100 )% Depreciation and amortization expenses 93,000 119,000 (26,000 ) (22 )% Total$ (33,000 ) $ 1,593,000 $ (1,626,000 ) (102 )%
Research and development expenses for proprietary programs decreased during the
three months ended
Employees payroll and payroll tax expenses decreased during the three months
ended
Stock-based compensation for employees decreased during the three months ended
Stock-based compensation - consultants decreased during the three months ended
Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers' payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. Clinical studies and development expenses may decrease in future reporting periods depending on the Company's current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.
30 Table of Contents
General and Administrative Expenses
General and administrative expenses consist mainly of compensation and associated fringe benefits not included in the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
Below is a summary of our general and administrative expenses (rounded to nearest thousand): For the three months ended Change December 31, 2022 vs. 2021 2022 2021 $ % D&O, health and clinical insurance expense$ 103,000 $ 71,000 $ 32,000 45 % Directors' fees 37,000 37,000 - - % Rent and utility expense 11,000 20,000 (9,000 ) (45 )% Stock-based compensation expense - Officers & Directors 14,000 111,000 (97,000 ) (87 )% Business development expense 4,000 - 4,000 - % Other G&A 22,000 27,000 (5,000 ) (19 )% Total$ 191,000 $ 266,000 $ (75,000 ) (28 )%
General and administrative expenses decreased during the three months ended
There was a decrease in stock-based compensation expenses for Officers &
Directors during the three months ended
Officers' Payroll and Payroll Tax Expenses
Below is a summary of our Officers' payroll and payroll tax expenses (rounded to nearest thousand): For the three months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Officers' payroll expenses$ 116,000 116,000 $ - - % Payroll tax expenses 2,000 (53,000 ) 55,000 104 %$ 118,000 $ 63,000 $ 55,000 87 %
There was no change in officers' payroll expenses for the Company during the
three months ended
Professional Fees
Below is a summary of our Professional fees (rounded to nearest thousand):
For the three months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Audit, legal and $ )% professional fees$ 57,000 $ 92,000 (35,000 ) (38
Professional fees decreased during the three months ended
31 Table of Contents
Other Operating Income and (Loss)
There was an increase in other expense which represents equity in loss from an
investment of approximately
Other Income (Expense)
Below is a summary of our other income (expense) (rounded to nearest thousand):
For the three months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Other income $ - 172,000$ (172,000 ) (100 )% Interest expense - debt (5,000 ) (17,000 ) 12,000 (71 )% Interest expense - preferred stock liability (9,000 ) (14,000 ) 5,000 (36 )%
Other Income (Expense), net
There was a decrease in other income which represents the forgiveness of the PPP
Loan in 2021. There was a decrease in interest expenses paid on the note payable
- related party, because the Company partially paid the note payable balance due
to
Net Losses
We incurred net losses of
For the six months ended
Revenue
We generated no revenue and incurred operating expenses of approximately
Research and Development Expenses for Proprietary Programs
Below is a summary of our research and development expenses for our proprietary programs by categories of costs (rounded to nearest thousand):
For the six months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Clinical studies and development research$ 801,000 $ 2,507,000 $ (1,706,000 ) (68 )% Refunds of unused project - deposits (175,000 ) - (175,000 ) % Reimbursement for Brilacidin - manufacturing expenses (238,000 ) - (238,000 ) % Employees payroll and payroll tax expenses related to R&D Department 224,000 405,000 (181,000 ) (45 )% Stock-based compensation - employee 36,000 40,000 (4,000 ) (10 )% Stock-based compensation - consultants 2,000 41,000 (39,000 ) (95 )% Depreciation and amortization expenses 186,000 191,000 (5,000 ) (3 )% Total$ 836,000 $ 3,184,000 $ (2,348,000 ) (74 )% 32 Table of Contents
Research and development expenses for proprietary programs decreased during the
six months ended
Employees payroll and payroll tax expenses decreased during the six months ended
Stock-based compensation for employee decreased during the six months ended
Stock-based compensation - consultants decreased during the six months ended
Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers' payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. Clinical studies and development expenses may decrease in future reporting periods depending on the Company's current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.
General and Administrative Expenses
General and administrative expenses consist mainly of compensation and associated fringe benefits not included in the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
Below is a summary of our general and administrative expenses (rounded to nearest thousand): For the six months ended Change December 31, 2022 vs. 2021 2022 2021 $ % D&O, health and clinical insurance expense$ 171,000 $ 140,000 $ 31,000 22 % Directors' fees 75,000 75,000 - - % Rent and utility expense 24,000 41,000 (17,000 ) (41 )% Stock-based compensation expense - Officers & Directors 161,000 111,000 50,000 45 % Business development expense 4,000 25,000 (21,000 ) (84 )% Other G&A 47,000 59,000 (12,000 ) (20 )% Total$ 482,000 $ 451,000 $ 31,000 7 %
General and administrative expenses increased during the six months ended
There was an increase in stock-based compensation expenses for Officers &
Directors during the six months ended
33 Table of Contents
Officers' Payroll and Payroll Tax Expenses
Below is a summary of our Officers' payroll and payroll tax expenses (rounded to nearest thousand): For the Six months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Officers' payroll expenses$ 233,000 233,000 $ - - % Payroll tax expenses 3,000 (51,000 ) 54,000 106 %$ 236,000 $ 182,000 $ 54,000 30 %
There was no change in officers' payroll expenses for the Company during the six
months ended
Professional Fees
Below is a summary of our Professional fees (rounded to nearest thousand):
For the six months ended Change December 31, 2022 vs. 2021 2022 2021 $ %
Audit, legal and professional fees
Professional fees decreased during the six months ended
Other Operating Income and (Loss)
There was an increase in other expense which represents equity in loss from an
investment of approximately
34 Table of Contents Other Income (Expense)
Below is a summary of our other income (expense) (rounded to nearest thousand):
For the six months ended Change December 31, 2022 vs. 2021 2022 2021 $ % Other income $ - 172,000$ (172,000 ) (100 )% Interest expense - debt (12,000 ) (50,000 ) 38,000 (76 )% Interest expense - preferred stock liability (17,000 ) (14,000 ) (3,000 ) 21 %
Other Income (Expense), net
There was a decrease in other income which represents the forgiveness of the PPP
Loan in 2021. There was a decrease in interest expenses paid on the note payable
- related party, because the Company paid partially the note payable balance due
to
Net Losses
We incurred net losses of
Liquidity, Going Concern and Capital Resources
Projected Future Working Capital Requirements - Next 12 Months
As of
This assessment is based on current estimates and assumptions regarding our clinical development programs and business needs. Actual working capital requirements could differ materially from this above working capital projection.
Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties and even if we are successful, future equity issuances would result in dilution to our existing stockholders. Our risk factors are described under the heading "Risk Factors" in Part I, Item 1A and elsewhere in our Annual Report on Form 10-K.
In the event that we are unable to raise additional funds from others, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through business development activities (for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.
Going Concern
Our financial statements were prepared assuming we will continue as a going
concern which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. We have negative working capital
of
35 Table of Contents
Shelf Registration Statement - Current Status
The Company does not satisfy the conditions for use of Form S-3 for primary offerings of securities, and as a result, the Company generally may only utilize Form S-1 to register the sale of its securities. Form S-1 offers less flexibility on the timing and types of offerings compared to Form S-3.
Cash Flows
The following table provides information regarding our cash position, cash flows
and capital expenditures for the six months ended
Six Months ended Increase/ December 31, (Decrease) 2022 2021 % Net cash used in operating activities$ (1,268,000 ) $ (4,201,000 ) (70 )% Net cash used in investing activities (31,000 ) (44,000 ) (30 )% Net cash provided by (used in) financing activities (85,000 ) 3,973,000 (102 )% Net decrease in cash$ (1,384,000 ) $ (272,000 ) 409 % Operating Activities
Net cash used in operating activities for the six months ended
Increases in operating cash flows caused by working capital changes include net
increase in accounts payable, accrued expenses and operating lease liability of
Investing activities
Net cash used in our investing activities for the six months ended
Financing activities
Net cash used in financing activities for the six months ended
During the six months ended
During the six months ended
Requirement for
The Company, contingent on future sales of its securities, currently expects to
incur total operating expenses of approximately
In the event that we are unable to raise additional funds from others, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through business development activities (for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.
36 Table of Contents Commitments and Contingencies
Please see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, for a discussion of recent contractual commitments and contingent liability - disputed invoices.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.
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