VIRIOS THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties, including those set forth under "Cautionary Statement About Forward-Looking Statements." Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in this Item and in Item 1A - "Risk Factors." Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a development-stage biotechnology company focused on advancing novel antiviral therapies to treat diseases associated with a viral triggered abnormal immune response such as FM. Overactive immune response related to activation of tissue resident herpes virus has been postulated to be a potential root cause of chronic illnesses such as FM, IBS, chronic fatigue syndrome and functional somatic syndrome, all of which are characterized by a waxing and waning manifestation of disease. While not completely understood, there is general agreement in the medical community that activation of the herpes virus is triggered by some form of environmental and/or health stressor. Our lead product candidate, which we have named IMC-1, is a novel, proprietary, fixed dose combination of famciclovir and celecoxib. IMC-1 represents a novel combination antiviral therapy designed to synergistically suppress herpes virus activation and replication, with the end goal of reducing viral mediated disease burden.
IMC-1 combines two specific mechanisms of action purposely designed to inhibit
herpes virus activation and replication, thereby keeping the herpes virus in a
latent (dormant) state or "down-regulating" the herpes virus from a lytic
(active) state back to latency. The famciclovir component of IMC-1 inhibits
viral DNA replication. The celecoxib component of IMC-1 inhibits
cyclooxegenase-2 ("COX-2") and to a lesser degree cyclooxegenase-1 ("COX-1"),
enzymes used by the herpes virus to amplify or accelerate its own replication.
We are unaware of any other antivirals in development for the treatment of FM.
We believe this novel approach was a germane consideration in the
In
For the Phase 3 program, we intend to run two qualifying pivotal trials demonstrating the safety and efficacy of IMC-1 treating patients with FM. The first Phase 3 study is planned to be a four-arm, multifactorial design to demonstrate the relative safety and efficacy of IMC-1 as compared to celecoxib alone, famciclovir alone and placebo. The second Phase 3 study is planned to be a two-arm study comparing IMC-1 to placebo.
82
All patients from the Phase 3 program will be offered the opportunity to enroll into an open label safety follow-on extension study with all on IMC-1, which is the third key component of the Phase 3 program proposal.
We have not generated revenues and have incurred losses since inception. Our net
losses were
The global economy, including credit and financial markets, has experienced
extreme volatility and disruptions including severely diminished liquidity and
credit availability, declines in consumer confidence, declines in economic
growth, increases in unemployment rates, increases in inflation rates and
uncertainty about economic stability. For example, the current conflict between
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
Research and Development Expenses
Our research and development expenses consist of expenses incurred in development and clinical studies relating to our product candidates, including:
? payments to third-party contract research organizations, or CROs;
? payments to third-party contract development and manufacturing organizations,
or CMOs;
? personnel-related expenses, such as salaries, benefits and stock compensation;
and
? payments to contract laboratories and independent consultants.
We expense all research and development costs as incurred. Clinical development expenses for our product candidates are a significant component of our current research and development expenses. Products in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We track and record information regarding research and development expenses for each study or trial we conduct. We use third-party CROs, CMOs, contractor laboratories and independent contractors. We recognize the expenses associated with third parties performing services for us in our clinical studies based on the percentage of each study completed at the end of each reporting period.
Our research and development expenses in 2022 primarily related to our FORTRESS
study which completed in
83
numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
? successful enrollment in, and completion of, clinical trials;
? successful completion of Investigational New Drug-enabling activities,
including for IMC-1 for indications other than FM;
? receipt of marketing approvals from applicable regulatory authorities;
? making arrangements with third-party manufacturers or establishing our own
commercial manufacturing capabilities;
? obtaining and maintaining patent and trade secret protection and non-patent
exclusivity;
? launching commercial sales of IMC-1, if approved, whether alone or in
collaboration with others;
? acceptance of IMC-1, if approved, by patients, the medical community and
third-party payors;
? effectively competing with other therapies and treatment options;
? a continued acceptable safety profile following approval;
? enforcing and defending intellectual property and proprietary rights and
claims; and
? achieving desirable medicinal properties for the intended indications.
A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of IMC-1 and other potential product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related personnel costs, including equity and stock-based compensation, for personnel serving in our executive, finance and administrative functions. General and administrative expenses also include public company costs, directors' and officers' insurance, professional fees for legal, including patent related expenses, consulting, auditing and tax services.
We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.
84
Other Income (Expense), Net
In 2022, other income (expense), net consists of interest income earned on cash
in a money market account. In 2021, other income (expense), net primarily
consists of the cost associated with the Release and Settlement Agreement with
Related Parties
The Company uses
For a full discussion of related party transactions see Note 7 to the Financial Statements included in this Annual Report on Form 10-K.
Income Taxes
As of
The Company has recorded a full valuation allowance against its net deferred tax
assets as of
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with
While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Research and Development
Research and development costs are expensed as incurred. The Company arranges and contracts with third-party contract research organizations ("CROs"), contract development and manufacturing organizations
85
("CMOs"), contractor laboratories and independent consultants. As part of the process of preparing its financial statements, the Company may be required to estimate some of its expenses resulting from its obligations under these arrangements and contracts. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. The Company's objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are rendered. The Company determines any accrual estimates based on account discussions with applicable personnel and outside service providers as to the progress or state of completion. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. The Company's estimates are dependent upon the timely and accurate reporting of CROs, CMOs and other third-party vendors. At the end of each reporting period, the Company compares the payments made to each service provider to the estimated progress towards completion of the related project. Factors that the Company considers in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, the Company will record prepaid or accrued expenses related to these costs.
Equity and Share-Based Compensation
The Company recognizes compensation expense relating to equity-based payments based on the fair value of the equity or liability instrument issued. For equity-based instruments, the expense is based upon the grant date fair value and recognized over the service period. For awards with a performance condition, compensation expense is recognized over the requisite service period if it is probable that the performance condition will be satisfied. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the Company had paid cash for the goods or services. The Company estimates the fair value of options and warrants granted using an options pricing model. Expense is recognized within general and administrative expenses and forfeitures are recognized as they are incurred.
Results of Operations
Operating expenses and other (expense) income were comprised of the following:
Year Ended
December 31,
2022 2021
Operating expenses:
Research and development $ 8,069,628 $ 10,795,688
General and administrative 4,245,681 4,845,252
Total operating expenses 12,315,309 15,640,940
Other income (expense):
Interest income 67,475 5,672
Other expense - (325,000)
Total other income (expense) 67,475 (319,328)
Net loss before income taxes
Years Ended
Research and Development Expenses
Research and development expenses decreased by
86
development and manufacturing costs of
General and Administrative Expenses
General and administrative expenses decreased by
Other Income (Expense)
Other income (expense) increased by
Liquidity and Capital Resources
Since our inception, we have financed our operations through public offerings of
common stock and proceeds from private placements of membership interests and
convertible promissory notes. To date, we have not generated any revenue from
the sale of products and we do not anticipate generating any revenue from the
sales of products for the foreseeable future. We have incurred losses and
generated negative cash flows from operations since inception. As of
Equity Financings
On
Debt Financings
There were no debt financings during the years ended
Future Capital Requirements
We estimate our current cash of
We will need to raise additional capital before we exhaust our current cash in order to continue to fund our research and development, including, subject to consultation with the FDA, any plans for a Phase 3 trial
87
and any new product development, as well as to fund operations generally. We will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. To the extent that we raise additional funds by issuing equity or equity-linked securities, our shareholders will experience dilution. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. Failure to secure the necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company's strategy and value and could require the delay of product development and clinical trial plans.
Cash Flows
The following table summarizes our cash flows from operating, investing and
financing activities.
Years Ended
December 31,
2022 2021
Statement of Cash Flows Data:
Total net cash (used in) provided by:
Operating activities $ (11,467,797) $ (15,689,578)
Financing activities 4,490,605 (97,604)
Decrease in cash $ (6,977,192) $ (15,787,182) Years ended
Operating Activities
For the year ended
For the year ended
Financing Activities
Net cash provided by financing activities during the year ended
Net cash used by financing activities for the year ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
88
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies in the accompanying notes to the financial statements elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.
JOBS Act
On
Subject to certain conditions set forth in the JOBS Act, as an "emerging growth
company," we are not required to, among other things, (i) provide an auditor's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the
© Edgar Online, source
