|
Item 2. |
Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
|
You should read this discussion together with the
unaudited interim condensed consolidated financial statements,
related notes, and other financial information included elsewhere
in this Quarterly Report on Form 10-Q together with our audited
consolidated financial statements, related notes, and other
information contained in our Annual Report on Form 10-K
filed with the Securities and
Exchange Commission (the “SEC”) on March 20, 2023 (the “2022
10-K”). The following discussion
contains or is based on assumptions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties, including those discussed under “Risk Factors,” in
Part I, Item 1A of the 2022 10-K and as described from time to time
in our other filings with the SEC. These risks could cause our
actual results to differ materially from those anticipated in these
forward-looking statements.
Overview
We are a life
science company committed to realizing the potential of mRNA cell
engineering to provide patients with transformational new
medicines. We have in-licensed a portfolio of over 100
patents covering key mRNA cell engineering technologies, including
technologies for mRNA cell reprogramming, mRNA gene editing, the
NoveSliceTM
and UltraSliceTM
gene-editing proteins, and the ToRNAdoTM
mRNA delivery system, which we collectively refer to as our “mRNA
technology platform.” We plan to develop and advance a pipeline of
therapeutic products, both internally and through strategic
partnerships, with the near-term focus on deploying our mRNA
technology platform through strategic partnerships. We
license our mRNA technology platform from Factor Bioscience Limited
(“Factor Limited”) under the Exclusive Factor License Agreement (as
defined below).
Through
strategic partnerships, we expect that our mRNA technology platform
will be used for preclinical and eventual clinical development of
product candidates for a variety of clinical indications. We expect
that the initial product candidates developed by our strategic
partners utilizing our mRNA technology platform will include
hypoimmune induced pluripotent stem cell (“iPSC”)-derived product
candidates for the treatment of neurological indications and
iPSC-derived immune-modulating cells (“iIMCs”) for indications such
as acute myeloid leukemia (“AML”) and solid tumors.
We refer to
aspects of our mRNA technology platform as “mRNA delivery,” “mRNA
gene editing” and “mRNA cell reprogramming.”
mRNA
Delivery
Nucleic acids,
such as mRNA, can be used to induce cells to express desired
proteins, including proteins that are capable of re-writing genetic
and epigenetic cellular programs. However, the plasma membrane
surrounding cells normally protects cells from exogenous nucleic
acids, preventing efficient uptake and protein translation.
Delivery systems can be used to enhance the uptake of nucleic acids
by cells. Conventional delivery systems, such as lipid
nanoparticle (“LNP”)-based delivery, often suffer from endosomal
entrapment and toxicity, which can limit their therapeutic
use. Our mRNA delivery technology is designed to use a novel
chemical substance that is designed to deliver nucleic acids,
including mRNA, to cells both ex
vivo and in vivo.
Our nucleic-acid delivery technology is also designed for
ex vivo delivery of mRNA
encoding gene-editing proteins and reprogramming factors, including
to primary cells, insertion of exogenous sequences into genomic
safe-harbor loci, and in
vivo delivery of mRNA to the brain, eye, skin, and lung,
which may be useful for the development of mRNA-based
therapeutic.
mRNA Gene
Editing
Our mRNA
gene-editing technology is designed to delete, insert, and repair
DNA sequences in living cells, which may be useful for correcting
disease-causing mutations, making cells resistant to infection and
degenerative disease, modulating the expression of immunoregulatory
proteins to enable the generation of durable allogeneic cell
therapies, and engineering immune cells to more effectively fight
cancer.
Conventional
gene-editing technologies typically employ plasmids or viruses to
express gene-editing proteins, which can result in low-efficiency
editing and unwanted mutagenesis when an exogenous nucleic acid
fragment is inserted at random locations in the genome. Our mRNA
gene-editing technology instead is designed to employ mRNA to
express gene-editing proteins, which can potentially enable gene
editing without unwanted insertional mutagenesis, because, unlike
conventional gene-editing technologies that employ viruses or
DNA-based vectors, mRNA does not typically cause unwanted
insertional mutagenesis. We believe the efficiency of our mRNA
gene-editing technology has the potential to support development of
product candidates that could create new therapeutic approaches.
For example, we anticipate that our mRNA gene-editing technology
can be used to generate allogeneic chimeric antigen receptor T-cell
(“CAR-T”) therapies for the treatment of cancer. In such allogeneic
CAR-T therapies, mRNA encoding gene-editing proteins would be used
to inactivate the endogenous T-cell receptor to prevent therapeutic
T-cells from causing graft-versus-host disease (“GvHD”). GvHD
occurs when transplanted cells view the patient’s (i.e. the host’s)
cells as a threat and attack the host’s cells. We expect that this
same mechanism of action can generate allogeneic stem cell-derived
therapies in which mRNA encoding gene-editing proteins could be
used to inactivate one or more components of the human leukocyte
antigen (“HLA”) complex to render the cells immuno-nonreactive or
“stealth,” which may be useful for the development of allogeneic
cell-based therapies.
mRNA Cell
Reprogramming
Our mRNA
cell-reprogramming technology is capable of generating clonal lines
of pluripotent stem cells that can be expanded and differentiated
into many desired cell types that may be useful for the development
of regenerative cell therapies.
Conventional
cell-reprogramming technologies (e.g., using Sendai virus or
episomal vectors) can result in low efficiency reprogramming, can
select for cells with abnormal growth characteristics, and can
leave traces of the vector in reprogrammed cells. Our mRNA cell-reprogramming
technology instead is designed to employ mRNA to express
reprogramming factors, which can enable cell reprogramming without
leaving traces of the vector in reprogrammed cells, because, unlike
conventional cell-reprogramming technologies that employ viruses or
DNA-based vectors, mRNA does not typically leave traces of the
vector in reprogrammed cells.
Recent
Developments
Exacis Asset
Purchase
On April 26,
2023, we entered into an asset
purchase agreement (the “Exacis Purchase Agreement”), together with
Exacis Biotherapeutics Inc. (“Exacis”), the stockholders party
thereto (the “Exacis Stockholders”) and, with respect to specified
provisions therein, Factor Limited. Pursuant to the Exacis
Purchase Agreement, we acquired from Exacis substantially all of
Exacis’ intellectual property assets (the “Purchased Assets”),
including all of Exacis’ right, title and interest in and to an
exclusive license agreement by and between Exacis and Factor
Limited (the “Purchased License”). We assumed none of Exacis’
liabilities, other than liabilities under the Purchased License
that accrue subsequent to the Closing Date.
In
consideration for the Purchased Assets, on the closing date of the
transaction, we issued to Exacis an aggregate of 69,343 shares of
our common stock, which shares are subject to a 12-month lockup,
pursuant to which Exacis may not sell or otherwise transfer such
shares. We additionally agreed to make the following
contingent payments: (i) if, at any time during the
three-year period commencing on such closing date and ending on the
three-year anniversary of the closing date, our market
capitalization equals or exceeds $100.0 million for at least ten
consecutive trading days, then we will issue to Exacis a number of
shares of common stock equal to (x) $2.0 million divided by (y) the
quotient of $100.00 million divided by the number of our then
issued and outstanding shares of common stock; (ii) if, at any time
during the three-year period commencing on such closing date and
ending on the three-year anniversary of the closing date, our
market capitalization equals or exceeds $200.0 million for at least
ten consecutive trading days, then we will issue to Exacis a number
of additional shares of common stock equal to (x) $2.0 million
divided by (y) the quotient of $200.00 million divided by the
number of our then issued and outstanding shares of common stock;
and (iii) during the five-year period commencing on the closing
date and ending on the five-year anniversary of the closing date
(the “Five-Year Period”), we will pay or deliver to Exacis 20% of
all cash or other consideration (collectively, “License
Consideration”) actually received by us during the Five-Year Period
from (i) third-party licensees or sublicensees of the intellectual
property rights acquired by us from Exacis pursuant to the Exacis
Purchase Agreement, or (ii) subject to certain exceptions, the sale
of such intellectual property rights; provided, that the License
Consideration shall not in any event exceed $45.0 million.
Dr.
Matthew Angel, our President and Chief Executive Officer, is the
co-founder, President, CEO, and a director of Factor Bioscience
Inc., which is the parent of Factor Limited and a wholly owned
subsidiary of Factor Bioscience LLC, the latter of which is the
majority stockholder of Exacis. Dr. Gregory Fiore, one of our
directors, is the Chief Executive Officer and a 10% stockholder of
Exacis. The Exacis Purchase Agreement and the transactions
contemplated thereby were approved by the audit committee of our
board of directors, as well as by all of our disinterested
directors, comprising a majority of the board of directors.
Standby Securities
Purchase Agreement
On
April 5, 2023, we and Lincoln Park
Capital Fund, LLC (the “Lincoln Park”) entered into a
purchase agreement (the “ELOC Purchase Agreement”), pursuant to
which we have the right, but not the obligation, to sell to Lincoln
Park, and Lincoln Park would be obligated to purchase, up to $10.0
million of shares of our common stock. Sales of common stock by us
are subject to certain limitations, and may occur from time to
time, at our sole discretion. As consideration for Lincoln Park’s
commitment to purchase shares of common stock in accordance with
the ELOC Purchase Agreement, we issued to Lincoln Park 73,659
shares of common stock. In connection with entry into the ELOC
Purchase Agreement, we terminated our prior purchase agreements
with Lincoln Park entered into during 2021.
Cell Line Customization and License
Agreement
On February
21, 2023, we entered into a cell line customization and license
agreement (the “Lineage Agreement”)
with Lineage Cell Therapeutics, Inc. (“Lineage”), pursuant
to which, prior to August 22, 2023,
Lineage may request that we develop for, and deliver to,
Lineage certain induced
pluripotent stem cell lines, which Lineage would use to evaluate the possible
development of cell transplant therapies for treatment of diseases
of the central nervous system in humans, excluding certain indications. The
Lineage Agreement also
provides Lineage with the
option to obtain an exclusive sublicense to certain related
technology for preclinical, clinical and commercial purposes, which
would permit Lineage to
sublicense such intellectual property, subject to payment of
certain sublicense royalty fees. Lineage has six months from our delivery
to Lineage of such induced
pluripotent stem cell lines to exercise such option, and upon any
such exercise, Lineage would
agree to use its commercially reasonable efforts to exploit and
make commercially available one or more licensed products derived
from such induced pluripotent stem cell lines in accordance with
the Lineage Agreement. Upon
entry into the Lineage Agreement,
Lineage paid us a $250,000 non-refundable up-front
payment. We are also entitled to certain cell line
customization fees with respect to cell lines that Lineage may request that we develop for
Lineage, as well as royalty
payments with respect to any such licensed products, certain
sublicense fees and certain milestone payments under the
Lineage Agreement.
Certain Related Party
Transactions
On February
20, 2023, we and Factor Limited entered into an exclusive license
agreement (the “Exclusive Factor License Agreement”), which
terminated and replaced in its entirety the Factor License
Agreement, dated as of April 26, 2021, and amended on November 22,
2022, by and among us, Eterna Therapeutics LLC, Factor Limited and
Novellus Therapeutics Limited. Subject to certain exclusive
licenses or other rights granted by Factor Limited to certain third
parties as of the effective date of the Exclusive Factor License
Agreement, Factor granted us the exclusive, sublicensable license
under certain patents owned by Factor Limited (the “Factor
Patents”).
The term of
the Exclusive Factor License Agreement expires on November 22,
2027, but will be automatically extended for an additional two and
a half years (such period, the “Renewal Term”) if we receive at
least $100 million in fees from sublicenses to the Factor Patents
(“Sublicense Fees”) granted by us pursuant to the Exclusive Factor
License Agreement. Pursuant to the Exclusive Factor License
Agreement, we will pay to Factor Limited 20% of any Sublicense Fee
received by us before the initial expiration date of such license
and 30% of any Sublicense Fees received by us during the Renewal
Term. We may terminate the Exclusive Factor License Agreement
upon 120 days’ written notice to Factor Limited, and both parties
otherwise have additional customary termination rights, including
in connection with certain uncured material breaches of the
Exclusive Factor License Agreement and specified bankruptcy
events. Under the Exclusive Factor License Agreement, we are
obligated to pay the expenses incurred by Factor Limited in
preparing, filing, prosecuting and maintaining the Factor Patents
and agreed to bear all costs and expenses associated with enforcing
and defending the Factor Patents in any action or proceeding
arising from pursuit of sublicensing opportunities under the
license granted under the Exclusive Factor License Agreement.
There can be
no assurance that we can successfully develop and commercialize the
technology licensed under the Exclusive Factor License Agreement.
See Item 1A “Risk Factors—Risks Related to our Business and
Industry—We depend
substantially, and expect in the future to continue to depend, on
in-licensed intellectual property. Such licenses impose obligations
on our business, and if we fail to comply with those obligations,
we could lose license rights, which would substantially harm our
business” contained in the 202210-K.
Basis of
Presentation
Revenues
We are a
pre-clinical stage company and have had no revenues from product
sales to date. We will not have revenues from product sales until
such time as we receive regulatory approval of our product
candidates and successfully commercialize our products.
During the quarter ended March 31, 2023, we entered into the
Lineage Agreement, which is an agreement with a customer that
includes an up-front option fee recognized as deferred revenue
until the applicable performance obligation has been
satisfied. This agreement could also include additional
licensing and cell line customization revenues at Lineages’s
discretion. There can be no assurances that we will recognize
such additional revenues or that we will enter into other
agreements with customers in the future.
License
Costs
We recognize
certain license costs payable to Factor Limited under the Exclusive
Factor License Agreement in connection with contracts with
customers..
Research and
Development Expenses
We expense our
research and development costs as incurred. Our research and
development expenses consist of costs incurred for
company-sponsored research and development activities, as well as
support for selected investigator-sponsored research. Upfront
payments and milestone payments we make for the in-licensing of
technology are expensed as research and development in the period
in which they are incurred if the technology is not expected to
have any alternative future uses other than the specific research
and development project for which it was intended. In-process
research and development (“IPR&D”) that we acquire and which
has no alternative future uses and, therefore, no separate economic
values, is expensed to research and development costs at the time
the costs are incurred.
The major
components of research and development costs have included
preclinical study costs, clinical manufacturing costs, clinical
study and trial expenses, insurance coverage for clinical trials,
expensed licensed technology, consulting, scientific advisors and
other third-party costs, salaries and employee benefits,
stock-based compensation expense, supplies and materials and
allocations of various overhead costs related to our product
development efforts.
We have contracted with third parties to perform various clinical
study and trial activities in the development and testing of
potential products. The financial terms of these agreements vary
from contract to contract and may result in uneven payment flows.
We accrue for third party expenses based on estimates of the
services received and efforts expended during the reporting
period. If the actual timing of the performance of the
services or the level of effort varies from the estimate, the
accrual is adjusted accordingly. The expenses for some
third-party services may be recognized on a straight-line basis if
the expected costs are expected to be incurred ratably during the
period. Payments under the contracts depend on factors such as the
achievement of certain events or milestones, the successful
enrollment of patients, the allocation of responsibilities among
the parties to the agreement, and the completion of portions of the
clinical study or trial or similar conditions. Preclinical and
clinical study and trial associated activities such as production
and testing of clinical material require significant up-front
expenditures.
General and
Administrative Expenses
Our general
and administrative expenses consist primarily of salaries, benefits
and other costs, including equity-based compensation, for our
executive and administrative personnel, legal and other
professional fees, travel, insurance, and other corporate
costs.
Results of
Operations
Comparison of
the Three Months Ended March 31, 2023 and 2022
|
|
|
Three months
ended March 31,
|
|
|
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
License costs
|
|
$
|
50
|
|
|
$
|
-
|
|
|
$
|
50
|
|
|
Research and development
|
|
|
1,674
|
|
|
|
1,782
|
|
|
|
(108
|
)
|
|
General and administrative
|
|
|
3,592
|
|
|
|
4,514
|
|
|
|
(922
|
)
|
|
Total operating expenses
|
|
|
5,316
|
|
|
|
6,296
|
|
|
|
(980
|
)
|
|
Loss from operations
|
|
|
(5,316
|
)
|
|
|
(6,296
|
)
|
|
|
980
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
(45
|
)
|
|
|
(1,322
|
)
|
|
|
1,277
|
|
|
Loss on non-controlling investment
|
|
|
(51
|
)
|
|
|
(615
|
)
|
|
|
564
|
|
|
Other income (expense), net
|
|
|
1
|
|
|
|
(1,142
|
)
|
|
|
1,143
|
|
|
Total other expense, net
|
|
|
(95
|
)
|
|
|
(3,079
|
)
|
|
|
2,984
|
|
|
Loss before income taxes
|
|
|
(5,411
|
)
|
|
|
(9,375
|
)
|
|
|
3,964
|
|
|
Provision for income taxes
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
Net loss
|
|
$
|
(5,416
|
)
|
|
$
|
(9,375
|
)
|
|
$
|
3,959
|
|
License
Costs
During the
three months ended March 31, 2023, we recognized $50,000 of direct
costs for amounts owed to Factor Limited in connection with the
$250,000 of deferred revenue received from the Lineage Agreement,
which represents Factor Limited’s share of such amount in
accordance with the Exclusive Factor License Agreement. There
was no comparable expense for the three months ended March 31,
2022.
Research and
Development Expenses
|
|
|
Three
months ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
MSA expense
|
|
$
|
813
|
|
|
$
|
-
|
|
|
$
|
813
|
|
|
Payroll-related
|
|
|
203
|
|
|
|
962
|
|
|
|
(759
|
)
|
|
Stock-based compensation
|
|
|
64
|
|
|
|
422
|
|
|
|
(358
|
)
|
|
Other expenses, net
|
|
|
594
|
|
|
|
398
|
|
|
|
196
|
|
|
Total research and development
expenses
|
|
$
|
1,674
|
|
|
$
|
1,782
|
|
|
$
|
(108
|
)
|
For the three
months ended March 31, 2023, our total research and development
expenses decreased compared to the three months ended March 31,
2022, which was primarily the result of less payroll expense and
stock-based compensation expense due to employee terminations,
offset by an increase in expense recognized during the three months
ended March 31, 2023 related to the MSA with Factor (see Note 7 to the unaudited condensed
consolidated financial statements contained in this Quarterly
Report on Form 10-Q), which did not exist during the three
months ended March 31, 2022.
General and
Administrative Expenses
|
|
|
Three
months ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Payroll-related
|
|
$
|
357
|
|
|
$
|
749
|
|
|
$
|
(392
|
)
|
|
Stock-based compensation
|
|
|
625
|
|
|
|
761
|
|
|
|
(136
|
)
|
|
Occupancy expense
|
|
|
23
|
|
|
|
171
|
|
|
|
(148
|
)
|
|
Professional fees
|
|
|
1,935
|
|
|
|
2,071
|
|
|
|
(136
|
)
|
|
Other expenses, net
|
|
|
652
|
|
|
|
762
|
|
|
|
(110
|
)
|
|
Total general and administrative
expenses
|
|
$
|
3,592
|
|
|
$
|
4,514
|
|
|
$
|
(922
|
)
|
Our general
and administrative expenses decreased for the three months ended
March 31, 2023 primarily due to decreases in payroll expenses and
stock-based compensation expense resulting from lower headcount,
occupancy expense due to having fewer leased offices, as well as
professional fees and other miscellaneous expenses when compared to
the three months ended March 31, 2022.
Change in
Fair Value of Warrant Liabilities
For the three
months ended March 31, 2023, we recognized an increase in the
change in the fair value of warrant liabilities due to an increase
in the market price of our common stock as of March 31, 2023.
The $1.3 million of warrant liabilities expense recognized for the
three months ended March 31, 2022 included (i) $0.6 million related
to the excess fair value of the Common Warrants and Pre-Funded
Warrant (each as defined in Note 4 to
the unaudited condensed consolidated financial statements contained
in this Quarterly Report on Form 10-Q) issued in connection
with the March 2022 private placement over the $12.0 million gross
proceeds received and (ii) the change in the aggregate fair value
of the Common Warrants and Pre-Funded Warrants of approximately
$0.7 million from the March 2022 issuance date of the warrants to
March 31, 2022.
Loss on
Non-Controlling Investment
We account for
our investment in NoveCite, Inc. (“NoveCite”) under the equity
method. During the three months ended March 31, 2023 and
2022, we recognized approximately $0.1 million and $0.6 million of
loss, respectively, on our 25% non-controlling investment in
NoveCite. We have not guaranteed any obligations of NoveCite
nor are we otherwise committed to providing further financial
support for NoveCite. Therefore, we will record losses only
up to our investment carrying amount.
Other Income
(Expense), Net
|
|
|
Three
months ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Private placement transaction fees
|
|
$
|
-
|
|
|
$
|
(992
|
)
|
|
$
|
992
|
|
|
Liquidated damages
|
|
|
-
|
|
|
|
(240
|
)
|
|
|
240
|
|
|
Interest income (expense), net
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
Other
|
|
|
(1
|
)
|
|
|
91
|
|
|
|
(92
|
)
|
|
Total other income (expense),
net
|
|
$
|
1
|
|
|
$
|
(1,142
|
)
|
|
$
|
1,143
|
|
For the three
months ended March 31, 2022, we recognized fees associated with the
private placement transaction completed in March 2022, all of which
were allocated to the warrants issued in connection with the
transaction, and we accrued for a loss for the estimated liquidated
damages we incurred as a result of not timely filing with the SEC
our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2022. There were no comparable expenses for the
three months ended March 31, 2023.
Provision for
Income Taxes
During
2023, we expect to incur state income tax liabilities related to
our operations. We have established a full valuation allowance for
all deferred tax assets, including our net operating loss
carryforwards, since we could not conclude that we were more likely
than not able to generate future taxable income to realize these
assets. The effective tax rate differs from the statutory tax rate
due primarily to our full valuation allowance.
Liquidity and
Capital Resources
At March 31,
2023, we had cash, cash equivalents and restricted cash of
approximately $9.5 million, of which approximately $4.1 million was
restricted cash, as discussed below.
In October
2022, we entered into a facility sublease agreement (the
“Sublease”) for approximately 45,500 square feet of office and
laboratory space in Somerville, Massachusetts.
The term of the Sublease
is approximately 10 years, and we will pay approximately $63.0
million in base rental payments over the 10-year term, plus our
share of the Sublessor’s parking spaces and operating expenses. As
part of the Sublease, we delivered a security deposit in the form
of a letter of credit in the amount of $4.1 million, which will be
reduced on an incremental basis throughout the term of the
lease. The letter of credit was issued
by our commercial bank,
which required that we cash collateralize the letter of credit with
$4.1 million of cash deposited in a restricted account maintained
by such bank. The amount of required restricted cash
collateral will decline in parallel with the reduction in the
amount of the letter of credit over the term of the sublease.
In February
2023, we entered into the Lineage Agreement, pursuant to
which we received a $0.3 million upfront, nonrefundable payment for
an option right to obtain a sublicense of intellectual property
that we license from Factor Limited under the Exclusive Factor
License Agreement. This customer agreement may also provide
for future payments to us if Lineage requests that we develop
certain customized cell line activities or if the customer
exercises its right to obtain the sublicense, which would include a
license fee, milestone payments, royalties, and sublicense
fees.
On April 5, 2023, we entered into the ELOC Purchase Agreement, pursuant to which
Lincoln Park committed to
purchase up to $10.0 million of our common stock. Such sales of common stock by
us, if any, are subject to
certain limitations set forth in the
ELOC Purchase Agreement, and may occur from time to time, at
our sole discretion, over a period of
up to 24-months, commencing April 25, 2025, which was the date on
which each of the conditions to the Lincoln Park’s purchase
obligations set forth in the ELOC Purchase Agreement were initially
satisfied (the “Commencement Date”). Pursuant to a
registration rights agreement entered into in connection with the
ELOC Purchase Agreement, we filed a registration statement with the
SEC on April 17, 2023 to register for resale shares of common stock
issuable pursuant to such purchase agreement and the shares
previously issued to Lincoln Park as consideration
for entry into the
ELOC Purchase Agreement,
and the SEC declared such
registration statement effective on April 24, 2023.
From
and after the Commencement Date, we may from time to time, on any
business day selected by us on which the closing sale price per
share of common stock as reported on The Nasdaq Capital Market is
not less than the “floor price” threshold set forth in the ELOC
Purchase Agreement (each such business day, a “purchase date”)
direct the investment group to purchase up to 30,000 shares of
common stock on such purchase date, at a purchase price per share
that will be determined and fixed in accordance with the ELOC
Purchase Agreement. The maximum number of shares we may sell to
Lincoln Park in a regular purchase may be increased by certain
amounts to up to 90,000 shares, with the applicable maximum share
limit determined by whether the closing sale price per share of
common stock on the applicable purchase date for such regular
purchase equals or exceeds certain minimum price thresholds;
however, the Lincoln Park’s maximum purchase commitment in any
single regular purchase may not exceed $1,000,000. In
addition, the Selling Stockholder has committed to purchase other
“accelerated amounts” or “additional accelerated amounts” under
certain circumstances.
Under
applicable Nasdaq listing rules, the aggregate number of shares of
common stock that we may issue to Lincoln Park under the ELOC
Purchase Agreement cannot exceed 19.99% of our shares of common
stock issued and outstanding immediately prior to the execution of
the ELOC Purchase Agreement (the “Exchange Cap”), unless (i) we
first obtain stockholder approval to issue shares of common stock
in excess of the Exchange Cap in accordance with applicable Nasdaq
listing rules, or (ii) at the time we have issued shares of common
stock equal to the Exchange Cap and at all times thereafter, the
average price per share of common stock for all shares of common
stock sold by us to Lincoln Park under the ELOC Purchase Agreement
equals or exceeds $3.35 per share (representing the lower of the
official closing price of the common stock on Nasdaq on the trading
day immediately preceding the date of the ELOC Purchase Agreement
and the average official closing price of the common stock on
Nasdaq for the five consecutive trading days ending on the trading
day immediately preceding the date of the ELOC Purchase Agreement,
as adjusted pursuant to applicable Nasdaq rules), such that the
Exchange Cap limitation would no longer apply to issuances and
sales of common stock by us to Lincoln Park pursuant to the ELOC
Purchase Agreement under applicable Nasdaq listing rules.
We
may not direct Lincoln Park to purchase any shares of common
stock under the ELOC Purchase
Agreement if such purchase would
result in Lincoln Park beneficially owning more than 4.99% of our
issued and outstanding shares of common stock.
We have to
date incurred operating losses, and we expect these losses to
continue in the future as we further develop our product
development programs and operate as a publicly traded
company. In the near-term, we intend to focus on licensing
opportunities for our in-licensed technology, but there can be no
assurance that we will enter into agreements with respect to such
opportunities on such terms and within a timeframe necessary to
satisfy our need for working capital. While we are not
presently pursuing product development, we may do so in the future,
and current and potential licensing partners may seek to do
so. Developing product candidates, conducting clinical trials
and commercializing products are expensive, and we would need to
raise substantial additional funds if we were to pursue the
development of one or more product candidates Based on our current
financial condition and forecasts of available cash, we believe we
do not have sufficient funds to fund our operations for the next
twelve months from the filing of the financial statements contained
in this Quarterly Report on Form 10-Q for the three months ended
March 31, 2023. We can provide no assurance that we will be able to
satisfy our near- or long-term cash needs through licensing
transactions, or that we will obtain any additional financing that
we require in the future or, even if such financing is available,
that it will be obtainable on terms acceptable to us.
In that
regard, our future funding requirements will depend on many
factors, including:
|
• |
the terms and timing of any collaborative, licensing and other
agreements that we may establish;
|
|
• |
the cost of filing and potentially prosecuting, defending and
enforcing any patent claims and other intellectual property
rights;
|
|
• |
the cost and timing of regulatory approvals;
|
|
• |
the cost and delays in product development as a result of any
changes in regulatory oversight applicable to our products;
|
|
• |
the cost and timing of establishing sales, marketing and
distribution capabilities;
|
|
• |
the effect of competition and market developments;
|
|
• |
the scope, rate of progress and cost of clinical trials and
other product development activities; and
|
|
• |
future clinical trial results.
|
We plan to
raise additional funds to support our product development
activities and working capital requirements through public or
private equity offerings, debt financings, strategic partnerships,
out-license collaborations or other means. Any sale by us of
additional equity or convertible debt securities could result in
dilution to our stockholders. There can be no assurance that any
such required additional funding will be available to us at all or
available on terms acceptable to us.
Further, to
the extent that we raise additional funds through collaborative
arrangements, it may be necessary to relinquish some rights to our
technologies or grant sublicenses on terms that are not favorable
to us. If we are not able to secure additional funding when needed,
we may have to delay the commercialization of our products, reduce
the scope of or eliminate one or more research and development
programs, which could have an adverse effect on our business.
Cash Flows
Cash flows
from operating, investing and financing activities, as reflected in
the accompanying condensed consolidated statements of cash flows,
are summarized as follows:
|
|
|
For the
three months ended
March 31,
|
|
|
|
|
|
(in
thousands)
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(6,049
|
)
|
|
$
|
(5,432
|
)
|
|
$
|
(617
|
)
|
|
Investing
activities
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
46
|
|
|
Financing
activities
|
|
|
-
|
|
|
|
11,993
|
|
|
|
(11,993
|
)
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
$
|
(6,049
|
)
|
|
$
|
6,515
|
|
|
$
|
(12,564
|
)
|
Net Cash Used in Operating
Activities
The increase
in cash used in operating activities was due to an increase in cash
used in operating assets and liabilities of $1.7 million during the
three months ended March 31, 2023 compared to the three months
ended March 31, 2022, offset by a decrease in net loss of $1.3
million for the 2023 period, after giving effect to adjustments
made for non-cash transactions. The increase in cash used in
operations was primarily driven by decreased accrued compensation
due to payments of severance accruals and payments of accrued costs
for litigation matters.
Net Cash Used in Investing
Activities
We did not use
any cash for investing activities during the three months ended
March 31, 2023 and made immaterial purchases of capital equipment
during the three months ended March 31, 2022.
Net Cash Provided by Financing
Activities
Net cash
provided by financing activities for the three months ended March
31, 2022 related to proceeds received in connection with the
private placement of equity completed in March 2022. We did
not have a comparable transaction during the three months ended
March 31, 2023.
Critical
Accounting Estimates
There were no
significant changes in our critical accounting estimates during the
three months ended March 31, 2023 from those described in
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” section of the 2022 10-K.
Recent
Accounting Pronouncements
There have been no recent Accounting Standards Updates (“ASUs”)
issued by the Financial Accounting Standards Board that would apply to us since the ASUs disclosed
in the 2022 10-K.
|
Item 3. |
Quantitative and Qualitative
Disclosures About Market Risk.
|
Under the
rules and regulations of the SEC, as a smaller reporting company we
are not required to provide the information otherwise required by
this item.
| Item 4. |
Controls and Procedures.
|
Disclosure Controls and
Procedures
We maintain
“disclosure controls and procedures,” as such term is defined under
Rule 13a-15(e) promulgated under the Exchange Act, designed to
ensure that information required to be disclosed in our reports
filed pursuant to the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our principal executive
officer and our principal financial officer, as appropriate, to
allow timely decisions regarding required disclosures.
In designing
and evaluating the disclosure controls and procedures, we
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and we were required to
apply our judgment in evaluating the cost-benefit relationship of
possible controls and procedures. We have carried out an evaluation
as of the end of the period covered by this Quarterly Report on
Form 10-Q under the supervision, and with the participation, of our
management, including our Chief Executive Officer and President
(who serves as our principal executive officer) and our Chief
Financial Officer (who served as our principal financial officer
through the end of the three month period ended March 31, 2023 and
resigned from the Company effective May 4, 2023), of the
effectiveness of the design and operation of our disclosure
controls and procedures.
Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were not
effective as of the end of the period covered by this Quarterly
Report on Form 10-Q in providing reasonable assurance of achieving
the desired control objectives due primarily to the material
weakness discussed below.
Management’s
Plan for Remediation of Material Weakness in Internal Control over
Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
We were unable
to timely file our Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2022 with the SEC due to identifying errors
in our financial statements reported in the Annual Report on Form
10-K for the years ended December 31, 2021 and 2020 during our
preparation of the financial statements for the quarter ended March
31, 2022. Management concluded that the errors were the result of
accounting personnel’s lack of technical proficiency in complex
matters. We filed an amendment to our Annual Report on Form 10-K/A
for the years ended December 31, 2021 and 2020 on June 30, 2022 to
correct the errors in our financial statements for the years ended
December 31, 2021 and 2020 and for the quarters ended June 30,
2020, September 30, 2020, March 31, 2021, June 30, 2021 and
September 30, 2021.
Management is
implementing measures designed to ensure that the deficiencies
contributing to the ineffectiveness of our internal control over
financial reporting are promptly remediated, such that the internal
controls are designed, implemented and operating effectively. The
remediation actions include:
|
• |
enhancing the business process controls related to reviews
over technical, complex, and non-recurring transactions;
|
|
• |
providing additional training to accounting personnel;
and
|
|
• |
consulting with an accounting advisor for technical, complex
and non-recurring matters, with whom we have engaged and begun
consulting.
|
The material
weakness cannot be considered remediated until the applicable
remedial controls operate for a sufficient period of time and
management has concluded, through testing, that these controls are
operating effectively.
We are
committed to developing a strong internal control environment, and
we believe the remediation efforts that we have implemented and
will implement will result in significant improvements in our
control environment. Our management will continue to monitor and
evaluate the relevance of our risk-based approach and the
effectiveness of our internal controls and procedures over
financial reporting on an ongoing basis and is committed to taking
further action and implementing additional enhancements or
improvements, as necessary.
Changes in
Internal Control over Financial Reporting
Except for the
actions intended to remediate the material weakness as described
above, there was no change in our internal control over financial
reporting during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II — OTHER
INFORMATION
| Item 1. |
Legal Proceedings.
|
This
information is set forth under “Note 9—Commitments and
Contingencies—Legal Matters” to the condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q
and is incorporated in this Item 1 by reference.
From time to
time we may become involved in legal proceedings arising in the
ordinary course of business. Except as described above, we do not
believe there is any litigation pending that could have,
individually or in the aggregate, a material adverse effect on our
results of operations, financial condition or cash flows.
During the reporting period covered by this
Quarterly Report on Form 10-Q, there have been no material changes
to our risk factors as set forth in the 2022 10-K.
| Item 2. |
Unregistered Sales of Equity
Securities and Use of Proceeds.
|
None
|
Item 3. |
Defaults
Upon Senior Securities.
|
None.
| Item 4. |
Mine
Safety Disclosures.
|
Not Applicable.
| Item 5. |
Other Information.
|
None.
|
Exhibit
|
Description
|
Incorporated By
Reference
|
|
|
Exclusive License Agreement, dated
February 20, 2023, by and between Factor Bioscience Limited and
Eterna Therapeutics Inc.
|
Exhibit 10.1 to Form 8-K filed on February 22, 2023
|
|
|
Purchase Agreement, dated as of April
5, 2023, by and between Eterna Therapeutics Inc. and Lincoln Park
Capital Fund, LLC
|
Exhibit 10.1 to Form 8-K filed on April 11, 2023
|
|
|
Registration Rights Agreement, dated
as of April 5, 2023, by and between Eterna Therapeutics Inc. and
Lincoln Park Capital Fund, LLC
|
Exhibit 10.1 to Form 8-K filed on April 11, 2023
|
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
Filed herewith
|
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
Filed herewith
|
|
|
Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished herewith
|
|
|
Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished herewith
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document).
|
Filed herewith
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
Filed herewith
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
|
Filed herewith
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase
Document
|
Filed herewith
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
Filed herewith
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
|
Filed herewith
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and
contained in Exhibit 101).
|
|
Pursuant to
the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
|
ETERNA THERAPEUTICS INC.
|
|
|
|
|
Date: May 11, 2023
|
By:
|
/s/ Matthew Angel
|
|
|
Matthew Angel
|
|
|
Chief Executive Officer and
President
|
|
|
(on behalf of the Registrant and
as Principal Executive Officer)
|