The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K for the period ended December 31, 2022. As further described in Note
1of the notes to our consolidated financial statements included elsewhere in
this Annual Report, Private Histogen was determined to be the accounting
acquirer in the Merger. In addition, references to the Company's operating
results prior to the Merger will refer to the operating results of Private
Histogen. Except as otherwise indicated herein or as the context otherwise
requires, references in this Annual Report on Form 10-K to "Histogen" "the
Company," "we," "us" and "our" refer to Histogen Inc., a Delaware corporation,
on a post-Merger basis, and the term "Private Histogen" refers to the business
of privately-held Histogen Inc. prior to completion of the Merger. The following
discussion and analysis of our financial condition and results of operations
contains forward-looking statements that involve a number of risks,
uncertainties and assumptions. Actual events or results may differ materially
from our expectations. Important factors that could cause actual results to
differ materially from those stated or implied by our forward-looking statements
include, but are not limited to, those set forth in the "Risk Factors" section
of this annual report, many of which are outside of our control. All
forward-looking statements included in this annual report are based on
information available to us as of the time we file and, except as required by
law, we undertake no obligation to update publicly or revise any forward-looking
statements.
Overview
We are clinical-stage therapeutics company focused on developing potential
first-in-class clinical and preclinical small molecule pan-caspase and caspase
selective inhibitors that protect the body's natural process to restore immune
function. Our product candidates include emricasan, CTS-2090 and CTS-2096.
Currently, we are developing emricasan for acute bacterial skin and skin
structure infections (ABSSSI) as well evaluating its use for other infectious
diseases. Our pipeline also includes novel preclinical product candidates
including CTS-2090 and CTS-2096, which are highly selective small molecule
inhibitors of caspase-1 designed for the treatment of certain inflammatory
diseases.
Previously, our focus was on developing our proprietary hypoxia-generated growth
factor technology platform and stem cell-free biologic products as potential
first-in-class restorative therapeutics that ignite the body's natural process
to repair and maintain healthy biological function. In December 2022, we
announced termination of our HST-003 study for futility related to patient
recruitment and due to pipeline reprioritization, in the third quarter of 2022,
we suspended all IND enabling activities on our HST-004 program.
While we are actively seeking collaboration partners or acquirors for our Human
Multipotent Cell Conditioned Media, or CCM and our Human Extracellular Matrix,
or hECM, there are no assurances that we will find a collaboration partner or
acquirer for CCM or hECM or that the terms and timing of any such arrangements
would be acceptable to us.
Components of Results of Operations
Revenue
Our revenues to date have been generated primarily from the sale of cosmetic
ingredient products ("CCM"), license fees, professional services revenue, and a
National Science Foundation grant award.
License and Product Revenue
Our license and product revenue to date has been generated primarily from
payments received under the Allergan Agreements.
Grant Revenue
In March 2017, the National Science Foundation ("NSF"), a government agency,
awarded us a research and development grant to develop a novel wound dressing
for infection control and tissue regeneration. As of March 31, 2021, we
completed all obligations under the NSF grant and, as such, no longer generate
any revenue in connection with the research and development grant.
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Operating Expenses
Cost of Revenues
Cost of product revenue represents direct and indirect costs incurred to bring
the product to saleable condition, including write-offs of inventory.
Research and Development
Research and development expenses consist primarily of costs incurred for the
preclinical and clinical development of our product candidates, which include:
•
expenses under agreements with third-party contract organizations, investigative
clinical trial sites that conduct research and development activities on our
behalf, and consultants;
•
costs related to develop and manufacture preclinical study and clinical trial
material;
•
salaries and employee-related costs, including stock-based compensation;
•
costs incurred and reimbursed under our grant awarded by the U.S. Department of
Defense ("DoD") to partially fund our Phase 1/2 clinical trial of HST-003 for
regeneration of cartilage in the knee;
•
costs incurred for IND enabling activities for HST-004 for spinal disc repair;
•
costs incurred for completing the feasibility assessment of emricasan for the
potential treatment of skin bacterial infections including those related to
ABSSSI's, as well as other infectious diseases; and
•
laboratory and vendor expenses related to the execution of preclinical and
clinical trials.
We accrue all research and development costs in the period for which they are
incurred. Costs for certain development activities are recognized based on an
evaluation of the progress to completion of specific tasks using information and
data provided to us by our vendors, collaborators and third-party service
providers. Advance payments for goods or services to be received in future
periods for use in research and development activities are deferred and then
expensed as the related goods are delivered and as services are performed.
We expect our research and development expenses to increase substantially for
the foreseeable future as we: (i) invest in additional operational personnel to
support our planned product development efforts, and (ii) continue to invest in
developing our product candidates as our product candidates advance into later
stages of development, and as we begin to conduct larger clinical trials.
Product candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
Our direct research and development expenses are tracked by product candidate
and consist primarily of external costs, such as fees paid under third-party
license agreements and to outside consultants, contract research organizations
("CROs"), contract manufacturing organizations and research laboratories in
connection with our preclinical development, process development, manufacturing
and clinical development activities. We do not allocate employee costs and costs
associated with our discovery efforts, laboratory supplies and facilities,
including other indirect costs, to specific product candidates because these
costs are deployed across multiple programs and, as such, are not separately
classified. We use internal resources primarily to conduct our research as well
as for managing our preclinical development, process development, manufacturing
and clinical development activities. These employees work across multiple
programs and, therefore, we do not track our costs by product candidate unless
such costs are
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includable as subaward costs. The following table shows our research and
development expenses by type of activity (in thousands):
Years Ended
December 31,
2022 2021
Pre-clinical and clinical $ 1,418 $ 2,700
Salaries and benefits 2,182 4,149
Facilities and other costs 1,421 1,624
Total research and development expenses $ 5,021 $ 8,473
We cannot determine with certainty the timing of initiation, the duration or the
completion costs of current or future preclinical studies and clinical trials of
our product candidates due to the inherently unpredictable nature of preclinical
and clinical development, including any potential expanded dosing beyond the
original protocols based in part on ongoing clinical success. Clinical and
preclinical development timelines, the probability of success and development
costs can differ materially from expectations. We anticipate that we will make
determinations as to which product candidates to pursue and how much funding to
direct to each product candidate on an ongoing basis in response to the results
of ongoing and future preclinical studies and clinical trials, regulatory
developments and our ongoing assessments of each product candidate's commercial
potential. We will need to raise substantial additional capital in the future.
In addition, we cannot forecast which product candidates may be subject to
future collaborations, when such arrangements will be secured, if at all, and to
what degree such arrangements would affect our development plans and capital
requirements.
General and Administrative
General and administrative expenses consist primarily of personnel-related
costs, insurance costs, facility costs and professional fees for legal, patent,
consulting, investor and public relations, accounting and audit services.
Personnel-related costs consist of salaries, benefits, and stock-based
compensation. We expect our general and administrative expenses to increase
substantially as we: (i) incur additional costs associated with being a public
company, including audit, legal, regulatory, and tax-related services associated
with maintaining compliance with exchange listing and SEC requirements, director
and officer insurance premiums, and investor relations costs, (ii) hire
additional personnel, and (iii) protect our intellectual property.
Other Income (Expense)
Interest Income
Interest income consists of interest earned on our cash equivalents, which
consist of money market funds. Our interest income has not been significant due
to low interest earned on invested balances.
Other Income
Other income primarily consists of the Paycheck Protection Program Loan forgiven
by the Small Business Administration on May 21, 2021.
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Results of Operations
Comparison of Years Ended December 31, 2022 and 2021
The following table sets forth our selected statements of operations data for
the years ended December 31, 2022 and 2021 (in thousands):
Years Ended December 31,
2022 2021 Change
Revenues
Product revenue $ - $ 892 $ (892 )
License revenue 3,769 27 3,742
Grant revenue - 113 (113 )
Total revenues 3,769 1,032 2,737
Operating expenses
Cost of product revenue - 220 (220 )
Research and development 5,021 8,473 (3,452 )
General and administrative 9,391 7,796 1,595
Total operating expenses 14,412 16,489 (2,077 )
Loss from operations (10,643 ) (15,457 ) 4,814
Total other income (expense), net (1 ) 448 (449 )
Net loss $ (10,644 ) $ (15,009 ) $ 4,365
Revenues
For the years ended December 31, 2022 and 2021, we recognized license revenues
of $3.8 million and $27 thousand, respectively. The increase in the current
period is due to a one-time payment of $3.75 million received in March 2022 as
consideration for execution of the Allergan Letter Agreement.
For the years ended December 31, 2022 and 2021, we recognized product revenues
of $0 and $0.9 million, respectively. The product revenue for the year ended
December 31, 2021 was due to a one-time unanticipated sale of CCM to Allergan,
unrelated to the Allergan Agreements. As of March 31, 2021, all obligations of
the Company related to the additional supply of CCM to Allergan under the
Allergan Agreements had been completed.
For the years ended December 31, 2022 and 2021, we recognized grant revenue of
$0 and $0.1 million, respectively. The grant revenue for 2021 is associated with
a research and development grant awarded to the Company from the NSF. As of
March 31, 2021, all work required by the Company under the grant has been
completed.
Total Operating Expenses
Cost of Revenues
For the years ended December 31, 2022 and 2021, we recognized $0 and $0.2
million, respectively, for cost of product sold to Allergan under the Allergan
Agreements.
Research and Development Expenses
Research and development expenses for the years ended December 31, 2022 and 2021
were $5.0 million and $8.5 million, respectively. The decrease of $3.5 million
was primarily due to decreases in personnel related expenses, the number of
clinical and preclinical candidates in development and corresponding reduction
of costs, partially offset by facility rent increases.
General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2022 and
2021 were $9.4 million and $7.8 million, respectively. The increase of $1.6
million was primarily due to increases in royalty expenses, legal fees,
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outside services, rent expenses and personnel expenses, partially offset by
reductions in insurance and other administrative expenses.
Liquidity and Capital Resources
From inception through December 31, 2022, we have an accumulated deficit of
$88.3 million and expect to incur operating losses and generate negative cash
flows from operations for the foreseeable future. As of December 31, 2022, we
had approximately $12.1 million in cash and cash equivalents.
We have not yet established ongoing sources of revenues sufficient to cover our
operating costs and will need to continue to raise additional capital to support
our future operating activities, including progression of our development
programs, preparation for potential commercialization, and other operating
costs. Our plans with regard to these matters include entering into a
combination of additional debt or equity financing arrangements, strategic
partnerships, collaboration and licensing arrangements, or other similar
arrangements. There can be no assurance that we will be able to obtain
additional financing on terms acceptable to us, on a timely basis or at all. The
aforementioned factors raise substantial doubt about our ability to continue as
a going concern.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business. Based on the current business plan and operating budget, there is
substantial doubt about the Company's ability to continue as a going concern
within one year from the date the consolidated financial statements are issued.
The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Redeemable Convertible Preferred Stock
March 2022 Offering of Preferred Stock
As described in Note 7 to the consolidated financial statements, in March 2022,
the Company completed a private placement offering (the "March 2022 Offering")
of Series A Preferred Stock and Series B Preferred Stock. The proceeds of $4.76
million were held in escrow and were only permitted to be disbursed to the
Company upon conversion of the Series A and Series B Preferred Stock.
Between June 2, 2022, and June 29, 2022, the Company redeemed for cash proceeds
totaling $5,250,500, 2,500 outstanding shares of Series A Preferred Stock and
2,500 outstanding shares of Series B Preferred Stock based on the receipt of the
Redemption Notices (the "Preferred Redemption") at a price equal to 105% of the
$1,000 stated value per share.
As of December 31, 2022, all shares of the Series A and B Preferred Stock are no
longer outstanding and the Company's only class of outstanding stock is its
common stock. No proceeds were received from the March 2022 Offering.
Common Stock
January 2021 Offering of Common Stock
In January 2021, the Company completed an S-1 offering (the "January 2021
Offering") of an aggregate of 580,000 shares of common stock, pre-funded
warrants to purchase up to 120,000 shares of its common stock, and common stock
warrants to purchase up to an aggregate of 700,000 shares of common stock. To
the extent that an investor determines, at their sole discretion, that they
would beneficially own in excess of the Beneficial Ownership Limitations (or as
such investor may otherwise choose), in lieu of purchasing shares of Common
Stock and Common Warrants, such investor could have elected to purchase
Pre-Funded Warrants and Common Warrants at the Pre-Funded Purchase Price in lieu
of the shares of Common Stock and Common Warrants in such a manner to result in
the same aggregate purchase price being paid by such investor to the Company.
The combined purchase price of one share of common stock and the accompanying
common stock warrant was $20.00, and the combined purchase price of one
pre-funded
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warrant and accompanying common stock warrant was $19.998. The common stock
warrants are exercisable for five (5) years at an exercise price of $20.00 per
share. The pre-funded warrants are immediately exercisable at an exercise price
of $0.002 per share and may be exercised at any time until all of the pre-funded
warrants are exercised in full. Placement agent warrants were issued to purchase
up to 35,000 shares of common stock, are immediately exercisable for an exercise
price of $25.00, and are exercisable for five (5) years following the date of
issuance. The Company received gross proceeds of $14.0 million and incurred
placement agent's fees and other offering expenses of approximately $1.9
million.
As of December 31, 2022, a total of 336,060 warrants issued in the January 2021
Offering to purchase shares of common stock have been exercised and the Company
issued 336,060 shares of its common stock. The Company received gross proceeds
of approximately $6.8 million.
As of December 31, 2022, the Company had 387,565 shares and 11,375 shares of
common stock reserved for issuance pursuant to the warrants and placement
agent's warrants, respectively, issued by the Company in the January 2021
Offering, at an exercise price of $20.00 per share and $25.00 per share,
respectively.
June 2021 Offering of Common Stock
In June 2021, the Company completed a registered direct offering (the "June 2021
Offering") of an aggregate of 298,865 shares of common stock, together with
accompanying warrants to purchase up to an aggregate of 239,093 shares of common
stock, at a public offering price of $22.00 per share. The accompanying warrants
permit the investor to purchase additional shares equal to 80% of the number of
shares of the Company's common stock purchased by the investor. The warrants
have an exercise price of $20.00 per share, are immediately exercisable, and
expire five and a half (5.5) years following the date of issuance. In addition,
the Company's placement agent was issued compensatory warrants equal to 5.0%, or
14,946 shares, of the aggregate number of common stock sold in the offering,
which are immediately exercisable for an exercise price of $27.50 and expire
five (5) years following the date of issuance on June 7, 2026. The Company
received gross proceeds of $6.6 million and incurred cash-based placement agent
fees and other offering expenses of approximately $0.9 million.
As of December 31, 2022, no warrants associated with the June 2021 Offering have
been exercised.
As of December 31, 2022, the Company had 90,910 shares and 14,946 shares of
common stock reserved for issuance pursuant to the warrants and placement
agent's warrants, respectively, issued by the Company in the June 2021 Offering,
at an exercise price of $20.00 per share and $27.50 per share, respectively. In
connection with the July 2022 Offering, the Company agreed to amend warrants, by
reducing the exercise price and extending the expiration date, to purchase up to
an aggregate of 148,183 shares of common stock of the Company that were
originally issued to the investor in the June 2021 Offering.
December 2021 Offering of Common Stock
In December 2021, the Company completed a registered direct offering (the
"December 2021 Offering") of an aggregate of 411,764 shares of common stock and
411,766 warrants to purchase up to 411,766 shares of common stock, at a public
offering price of $8.50 per share. The accompanying warrants permit the investor
to purchase additional shares equal to approximately the same number of shares
of the Company's common stock purchased by the investor. The warrants have an
exercise price of $8.50 per share, may be exercised any time on or after 6
months and one (1) day after the issuance date, and expire five and a half (5.5)
years following the date of issuance. In addition, the Company's placement agent
was issued compensatory warrants equal to 5.0%, or 20,590 shares, of the
aggregate number of shares of common stock sold in the offering, which are
immediately exercisable for an exercise price of $10.626 and expire five and a
half (5.5) years following the date of issuance on June 21, 2027. The Company
received gross proceeds of $3.5 million and incurred cash-based placement agent
fees and other offering expenses of approximately $0.5 million.
As of December 31, 2022, no warrants associated with the December 2021 Offering
have been exercised.
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As of December 31, 2022, the Company had 164,707 shares and 20,590 shares of
common stock reserved for issuance pursuant to the warrants and placement
agent's warrants, respectively, issued by the Company in the December 2021
Offering, at an exercise price of $8.50 per share and $10.626 per share,
respectively. In connection with the July 2022 Offering, the Company agreed to
amend warrants, by reducing the exercise price and extending the expiration
date, to purchase up to an aggregate of 247,059 shares of common stock of the
Company that were originally issued to the investor in the December 2021
Offering.
July 2022 Offering of Common Stock
On July 12, 2022, the Company entered into a Securities Purchase Agreement (the
"July 2022 Purchase Agreement") with a single healthcare-focused institutional
investor for the sale by the Company of (i) a pre-funded warrant to purchase up
to 1,774,309 shares of Common Stock (the "Pre-Funded Warrant"), (ii) a Series A
warrant to purchase up to an aggregate of 1,774,309 shares of common stock (the
"Series A Warrant"), and (iii) a Series B warrant to purchase up to an aggregate
of 1,774,309 shares of common stock (the "Series B Warrant," and together with
the Pre-Funded Warrant and the Series A Warrant, the "Warrants"), in a private
placement offering (the "Offering"). The combined purchase price of one
Pre-Funded Warrant and accompanying Series A Warrant and accompanying Series B
Warrant was $2.818.
Subject to certain ownership limitations, the Series A Warrant is exercisable
immediately after the issuance date at an exercise price equal to $2.568 per
share of common stock, subject to adjustments as provided under the terms of the
Series A Warrant, and has a term of five and a half (5.5) years from the
issuance date. Subject to certain ownership limitations, the Series B Warrant is
exercisable immediately after the issuance date at an exercise price equal to
$2.568 per share of common stock, subject to adjustments as provided under the
terms of the Series B Warrant, and has a term of one and a half (1.5) years from
the issuance date. Subject to certain ownership limitations described in the
Pre-Funded Warrant, the Pre-Funded Warrant was immediately exercisable and may
be exercised at an exercise price of $0.0001 per share of common stock any time
until all of the Pre-Funded Warrant is exercised in full. As of December 31,
2022, the Pre-Funded Warrant to purchase up to an aggregate of 1,774,309 shares
of common stock had been fully exercised and the Company issued 1,774,309 shares
of common stock.
The Company also agreed to amend certain warrants to purchase up to an aggregate
of 447,800 shares of common stock of the Company that were issued to the
investor in the private placement in November 2020, June 2021 and December 2021
with exercise prices ranging from $8.50 to $34.00 per share and expiration dates
ranging from May 18, 2026 to June 21, 2027, so that such warrants have a reduced
exercise price of $2.568 per share and expiration date of five and a half (5.5)
years following the closing of the private placement, for an additional offering
price of $0.0316 per amended warrant. The incremental fair value resulting from
the modifications to the warrants was adjusted against the gross proceeds from
the offering as an equity issuance cost.
The gross proceeds to the Company were approximately $5 million, before
deducting the placement agent's fees and other offering expenses, and excluding
the proceeds, if any, from the exercise of the Series A Warrant, the Series B
Warrant, and amended warrants.
As of December 31, 2022, no warrants associated with the July 2022 Purchase
Agreement have been exercised.
As of December 31, 2022, the Company had 3,996,418 shares and 124,202 shares of
common stock reserved for issuance pursuant to the warrants and placement
agent's warrants, respectively, issued by the Company in the July 2022 Purchase
Agreement, at an exercise price of $2.568 per share and $3.5225 per share,
respectively.
Common Stock Purchase Agreement with Lincoln Park
In July 2020, the Company entered into a common stock purchase agreement (the
"2020 Purchase Agreement") with Lincoln Park which provided that, upon the terms
and subject to the conditions and limitations in the 2020 Purchase Agreement,
Lincoln Park was committed to purchase up to an aggregate of $10.0 million of
shares of the Company's common stock at the Company's request from time to time
during a 24 month period that began in July 2020 and at prices based on the
market price of the Company's common stock at the time of each sale. Upon
execution of the 2020 Purchase Agreement, the Company sold 16,425 shares of
common stock at $60.88 per share to Lincoln Park for gross
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proceeds of $1.0 million. During the year ended December 31, 2020, the Company
sold an additional 15,000 shares of common stock to Lincoln Park for gross
proceeds of approximately $0.5 million. In addition, in consideration for
entering into the 2020 Purchase Agreement and concurrently with the execution of
the 2020 Purchase Agreement, the Company issued 3,348 shares of its common stock
to Lincoln Park. During the year ended December 31, 2022, the Company did not
sell any shares of common stock to Lincoln Park.
The 2020 Purchase Agreement expired automatically pursuant to its term on August
1, 2022, and the Company did not sell any additional shares of common stock to
Lincoln Park through the date of expiration of the 2020 Purchase Agreement.
Common Stock Warrants
In 2016, Private Histogen issued warrants to purchase common stock as
consideration for settlement of prior liability claims. The warrants for the
purchase of up to 180 common shares at an exercise price of $461.60 per share
expired on July 31, 2021.
In addition, as of December 31, 2022, warrants to purchase 68 shares of common
stock with an exercise price of $1,486.00 per share remain outstanding that were
issued by Conatus in connection with obtaining financing in 2016. These warrants
expire on July 3, 2023.
See warrant discussion above in connection with the January 2021 Offering, the
June 2021 Offering, the December 2021 Offering, and the July 2022 Offering.
Cash Flow Summary for the Years Ended December 31, 2022 and 2021
The following table shows a summary of our cash flows for the years ended
December 31, 2022 and 2021 (in thousands):
Years Ended December 31,
2022 2021
Net cash provided by (used in)
Operating activities $ (9,683 ) $ (14,532 )
Investing activities (216 ) (241 )
Financing activities 3,323 27,085
Net increase (decrease) in cash, cash equivalents
and restricted cash $ (6,576 ) $ 12,312
Operating activities
Net cash used in operating activities was $9.7 million for the year ended
December 31, 2022, resulting from our net loss of $10.6 million, which included
non-cash charges of $0.7 million primarily related to depreciation and
amortization and stock-based compensation, coupled with a $0.2 million net
increase in operating assets and liabilities.
Net cash used in operating activities was $14.5 million for the year ended
December 31, 2021, resulting from our net loss of $15.0 million, which included
non-cash charges of $0.4 million related to depreciation and amortization,
stock-based compensation and forgiveness of our Paycheck Protection Program
Loan, coupled with a $0.1 million net increase in operating assets and
liabilities.
Investing activities
Net cash used in investing activities was $0.2 million for the year ended
December 31, 2022, which was related to the purchase of property and equipment.
Net cash used in investing activities was $0.2 million for the year ended
December 31, 2021, all of which was related to the purchase of property and
equipment.
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Financing activities
Net cash provided by financing activities was $3.3 million for the year ended
December 31, 2022, primarily related to $4.4 million net proceeds from a July
2022 private placement, offset by $0.6 million of issuance costs resulting from
the issuance and sale of our redeemable convertible preferred stock in a March
2022 private placement offering coupled with $0.5 million related to the
redemption premium paid to repurchase the redeemable convertible preferred
stock.
Net cash provided by financing activities was $27.1 million for the year ended
December 31, 2021, resulting from sales of our common stock in registered direct
offerings and the exercise of warrants.
Funding Requirements
We are subject to a number of risks similar to those of clinical stage
companies, including dependence on key individuals, uncertainty of product
development and generation of revenues, dependence on outside sources of
capital, risks associated with clinical trials of products, need for marketing
authorization of products, risks associated with protection of intellectual
property, and competition with larger, better-capitalized companies. We are
closely monitoring ongoing developments in connection with the COVID-19
pandemic, which has resulted in disruptions to clinical trials and may
negatively impact our ability to raise capital. To fully execute our business
plan, we will need, among other things, to complete our research and development
efforts and clinical and regulatory activities. These activities may take
several years and will require significant operating and capital expenditures in
the foreseeable future. Based on the current business plan and operating budget,
there is substantial doubt about the Company's ability to continue as a going
concern within one year from the date the consolidated financial statements are
issued. There can be no assurance that we will be able to obtain additional
financing on terms acceptable to us, on a timely basis or at all. In addition,
changing circumstances may cause us to increase our spending significantly
faster than we currently anticipate, and we may need to spend more money than
currently expected because of circumstances beyond our control. Our future
capital requirements will depend on many factors, including:
•
the type, number, scope, progress, expansions, results, costs, and timing of our
preclinical studies and clinical trials of our product candidates which we are
pursuing or may choose to pursue in the future;
•
the costs and timing of manufacturing for our product candidates, including
commercial manufacturing if any product candidate is approved;
•
the costs, timing, and outcome of regulatory review of our product candidates;
•
the costs of obtaining, maintaining, and enforcing our patents and other
intellectual property rights;
•
our efforts to enhance operational systems and hire additional personnel to
satisfy our obligations as a public company, including enhanced internal
controls over financial reporting;
•
the costs associated with hiring additional personnel and consultants as our
preclinical and clinical activities increase;
•
the costs and timing of establishing or securing sales and marketing
capabilities if any product candidate is approved;
•
our ability to achieve sufficient market acceptance, adequate coverage and
reimbursement from third-party payors, and adequate market share and revenue for
any approved products;
•
the terms and timing of establishing and maintaining collaborations, licenses,
and other similar arrangements;
•
the impact of any natural disasters or public health crises, such as the
COVID-19 pandemic, on our operations (including clinical trials and product
candidate development); and
•
costs associated with any products or technologies that it may in-license or
acquire.
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Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, we expect to finance our losses from operations and
capital funding needs through a combination of equity offerings, debt
financings, and other sources, including potentially collaborations, licenses
and other similar arrangements. To the extent we raise additional capital
through the sale of convertible debt or equity securities, the ownership
interest of our stockholders will be or could be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
funds through collaborations, licenses and other similar arrangements with third
parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs or product candidates or grant licenses on
terms that may not be favorable to us and/or may reduce the value of our common
stock. If we are unable to raise additional funds through debt or equity
financings when needed, we may be required to delay, limit, reduce or terminate
our product development or future commercialization efforts or grant rights to
develop and market our product candidates even if we would otherwise prefer to
develop and market such product candidates by ourselves. There can be no
assurance that we will be able to obtain any sources of financing on acceptable
terms, or at all.
We may be unable to raise additional funds on acceptable terms or at all. As a
result of the COVID-19 pandemic and actions taken to slow its spread, the global
credit and financial markets have recently experienced extreme volatility and
disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, increases in
unemployment rates and uncertainty about economic stability. If the equity and
credit markets deteriorate, it may make any necessary debt or equity financing
more difficult, more costly and more dilutive. If we are unable to raise
additional funds, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant rights to
develop and market our product candidates even if we would otherwise prefer to
develop and market such product candidates ourselves.
Contractual Obligations and Commitments
Pfizer Inc.
In July 2010, the Company entered into a Stock Purchase Agreement with Pfizer
pursuant to which it acquired all of the outstanding capital stock of Idun
Pharmaceuticals, Inc. ("Idun"), a wholly-owned subsidiary of Pfizer at the time.
Pursuant to the Stock Purchase Agreement, the Company will be required to make
additional payments to Pfizer totaling $18.0 million upon the achievement of
specified regulatory milestones relating to emricasan.
Prior to the termination of the Collaboration Agreement with Amerimmune on
November 28, 2022, the obligations pursuant to the Stock Purchase Agreement were
the responsibility of our former collaboration partner, Amerimmune. In
accordance with authoritative guidance, amounts for the milestone payments will
be recognized when it is probable that the related contingent liability has been
incurred and the amount owed is reasonably estimated. No amounts for the
milestone payments have been recorded during the year ended December 31, 2022.
Idun Distribution Agreement
In January 2013, the Company conducted a spin-off of its subsidiary Idun, which
the Company had acquired from Pfizer in the transaction described above, to
stockholders at that time. Immediately prior to the spin-off, all rights
relating to emricasan were distributed to the Company pursuant to a distribution
agreement.
PUR
PUR was formed to develop and market applications along with products in the
surgical/orthopedic and device markets. In April 2019, Histogen entered into a
Settlement, Release and Termination Agreement with PUR and its members ("PUR
Settlement") which terminated the License, Supply and Operating Agreements
between Histogen and PUR, eliminated Histogen's membership interest in PUR and
returned all in-process research and development assets to Histogen (the
"Development Assets"). The agreement also provided indemnifications and complete
releases by and among the parties. The acquisition of the Development Assets was
accounted for as an asset acquisition in accordance with ASC 805-50-50,
Acquisition of Assets Rather than a Business.
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As consideration for the reacquisition of the Development Assets, Private
Histogen compensated PUR with both equity and cash components, including 8,366
shares of Series D convertible preferred stock with a fair value of $1.75
million and a potential cash payout of up to $6.25 million (the "Cap Amount").
Private Histogen paid PUR $0.5 million in upfront cash, forgave approximately
$22 thousand of accounts receivable owed by PUR to Private Histogen, and settled
an outstanding payable of PUR of approximately $23 thousand owed to a third
party. The Company is also obligated to make milestone and royalty payments,
including (a) a $0.4 million payment upon the unconditional acceptance and
approval of a New Drug Application or Pre-Market Approval Application by the FDA
related to the Development Assets, (b) a $0.4 million commercialization
milestone upon reaching gross sales (by the Company or licensee) of the $0.5
million of products incorporating the Development Assets, and (c) a five percent
(5%) royalty on net revenues collected by Histogen from commercial sales (by the
Company or licensee) of products incorporating the Development Assets. The
aforementioned cash payments, along with any future milestone and royalty
payments, are all applied against the Cap Amount. In accordance with
authoritative guidance, amounts for the milestone and royalty payments will be
recognized when it is probable that the related contingent liability has been
incurred and the amount owed is reasonably estimated. No amounts for the
milestone and royalty payments have been recorded through the year ended
December 31, 2022.
Allergan License and Supply Agreements
In July 2017, the Company and Allergan entered into a letter agreement to
transfer Suneva Medical, Inc.'s Amended and Restated License and Supply
Agreements (collectively the "Allergan Agreements") to Allergan, which grants
exclusive rights to commercialize our CCM skin care ingredient worldwide,
excluding South Korea, China, and India, in exchange for royalty payments to us
based on Allergan's sales of product including the licensed ingredient. Through
December 31, 2020, we entered into several amendments to the Allergan Agreements
to, among other things, expand Allergan's license rights, identify exclusive and
non-exclusive fields of use, and clarify responsibilities related to regulatory
filings. For these amendments to the Allergan Agreements, we have received cash
payments of $19.5 million through December 31, 2022. The Allergan Agreements
also include a potential future milestone payment of $5.5 million if Allergan's
net sales of products containing our CCM skin care ingredient exceeds $60
million in any calendar year through December 31, 2027.
From time to time, we may improve our CCM skin care ingredient, and to the
extent that these are within the field of use in the Allergan Agreements, we
will provide the improvements to Allergan. The remaining performance obligations
related to the Allergan Agreements from 2017 were our obligations to supply CCM
and provide potential future improvements to Allergan, for which our obligation
to supply CCM was satisfied during the fourth quarter of 2019.
On January 17, 2020, the Company and Allergan amended the Allergan Agreements,
further clarifying the fields of use, the product definition, and rights to
certain improvements, as well as us agreeing to supply additional CCM in 2020
and provide further technical assistance to Allergan (the cost of which was
reimbursed to the Company), for a one-time payment of $1.0 million. Our
obligation to supply additional CCM to Allergan was satisfied during the first
quarter of 2021.
Pursuant to the 2017 Allergan Amendment, Histogen had the right to a potential
milestone payment of $5.5 million if Allergan's net sales of products containing
the Company's CCM skin care ingredient exceeds $60.0 million in any calendar
year through December 31, 2027. In lieu of the potential payment of $5.5
million, the Company entered into a Letter Agreement on March 18, 2022 with
Allegan. In consideration for the execution of the Letter Agreement, Histogen
received a one-time payment equal to $3.8 million in March 2022. In exchange,
among other things, the Company agreed that the final payment represents a full
and final satisfaction of all money due to the Company pursuant to the Letter
Agreement.
Under the Amended and Restated License Agreement, as amended, Allergan will
indemnify the Company for third party claims arising from Allergan's breach of
the agreement, negligence or willful misconduct, or the exploitation of products
by Allergan or its sublicensees. We will indemnify Allergan for third party
claims arising from our breach of the agreement, negligence or willful
misconduct, or the exploitation of products by us prior to the effective date.
Allergan may terminate the agreement for convenience upon one business days'
notice to us.
Amerimmune Collaborative Development and Commercialization Agreement
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In October 2020, we entered into a Collaborative Development and
Commercialization Agreement ("the Collaboration Agreement") with Amerimmune to
jointly develop emricasan for the potential treatment of COVID-19. The FDA
approved an investigational new drug application (IND) to initiate a Phase 1
study of emricasan in mild COVID-19 patients to assess safety and tolerability
in 2020. Under the Collaboration Agreement, during the agreed upon research
term, Amerimmune, at its own expense and in collaboration with us, was required
to use commercially reasonable efforts to lead the development activities for
emricasan, limited to the treatment of COVID-19.
Pursuant to the terms of the Collaboration Agreement, each party retained
ownership of their legacy intellectual property and was responsible for ongoing
patent application prosecution and maintenance costs and jointly owned any
intellectual property developed during the term of the agreement. In addition,
we granted Amerimmune an exclusive option, subject to terms and conditions
including completion of a Phase 2 clinical trial by Amerimmune during the
research term, to obtain an exclusive license that, if granted by us, allowed
Amerimmune alone, or in conjunction with one or more strategic partners, to use
its commercially reasonable efforts to develop, manufacture, and commercialize
emricasan and other caspase modulators, including CTS-2090 and CTS-2096, and we
would share the profits equally with Amerimmune. No consideration would be
transferred to the Company until profits, as defined in the Collaboration
Agreement, were generated by Amerimmune from developing or commercializing
products.
We identified multiple promises to deliver goods and services, which include at
the inception of the agreement: (i) a license to technology and patents,
information, and know-how; (ii) supply of emricasan and (iii) collaboration,
including our participation in a Joint Development Committee and Joint
Partnering Committee. At inception and through December 31, 2022, we identified
one performance obligation for all the deliverables under the Collaboration
Agreement since the delivered elements were either not capable of being distinct
or are not distinct within the context of the contract. No upfront consideration
was exchanged between the parties and any consideration received would have been
dependent on the successful execution of a qualifying strategic partnership, as
defined, on the successful commercialization of emricasan, or upon a change in
control of Amerimmune, as defined. Although we would have recognized revenue
upon the occurrence of one of these events, no such events have occurred as of
December 31, 2022.
On January 19, 2022, we provided a notice of material breach in connection with
Amerimmune's non-performance under the Collaboration Agreement and, on March 3,
2022, we filed the Arbitration Demand. As part of our Arbitration Demand, we
have requested that the Collaboration Agreement be terminated. We further
brought the Arbitration Demand for breach of contract, seeking an award of
specific performance requiring Amerimmune to comply with the terms of the
Agreement, which provide that, in the event of termination for material breach,
all rights and licenses granted to Amerimmune by us shall terminate, and any and
all rights granted by us to Amerimmune revert to Histogen.
On March 8, 2022, Amerimmune provided written notice to exercise an option for
additional license rights to develop additional products, provided, however, we
rejected Amerimmune's election of the option and believe that Amerimmune no
longer has the right to exercise the option based on, among other reasons, our
belief that the Collaboration Agreement is properly terminated as set forth in
our Arbitration Demand. On March 11, 2022, Judicial Arbitration and Mediation
Services, Inc. ("JAMS") issued a Notice of Commencement of Arbitration letter,
confirming the commencement of the arbitration as of that date.
On November 28, 2022, we received an Interim Award ("Interim Award") issued by
the Arbitrator presiding over the Arbitration Demand filed by us in the County
of San Diego, against Amerimmune LLC seeking a declaratory judgment that
Amerimmune has materially breached the terms of the Collaboration Agreement to
jointly develop emricasan for the potential treatment of COVID-19 entered into
by and between the us and Amerimmune on October 26, 2020, and that we are
therefore entitled to terminate the Collaboration Agreement. In the Interim
Award, the Arbitrator ruled in our favor by finding that we lawfully and
properly terminated the Collaboration Agreement and are entitled to declaratory
relief and specific performance of the terms of the Collaboration Agreement on
the finding that Amerimmune materially breached the terms of the Collaboration
Agreement, and no affirmative defense excuses the breach by Amerimmune.
Furthermore, the Arbitrator denied Amerimmune's request to exercise an option
for additional license rights to develop additional products, as well as its
claims for breach of the implied covenant of good faith and fair dealing, breach
of contract, and tortious interference.
As affirmed by the Interim Award, we terminated the Collaboration Agreement and
all rights and licenses granted to Amerimmune by us have been terminated, and
Amerimmune shall cease any and all development, manufacture and
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commercialization activities under the Agreement, and any and all rights granted
by us to Amerimmune reverted to us except any such rights that shall survive
termination of the Collaboration Agreement.
On January 2, 2023, the parties received the Final Award affirming the
arbitration outcome set forth in the Interim Award. Amerimmune will have 100
days from the date it receives the final award to petition a court to vacate or
correct the Final Award. We have sought to confirm the award to judgment by
filing a petition to confirm award filed.
Off Balance Sheet Arrangements
As of December 31, 2022 and 2021, we had no off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP"). The preparation of these consolidated financial statements requires us
to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities as of
the date of the balance sheet and the reported amounts of expenses during the
reporting period. Our estimates are based on historical trends and other factors
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We consider our critical accounting policies and estimates to be related to
accrued research and development expenses and revenue recognition. Our
significant accounting policies are described in more detail in Note 2 in the
notes to consolidated financial statements as of and for the years ended
December 31, 2022 and 2021 appearing elsewhere in this Annual Report on Form
10-K.
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HISTOGEN INC. 
