TREX WIND-DOWN, INC. Management's discussion and analysis of results of operations and financial condition is intended to assist the reader in understanding and assessing significant changes and trends related to the results of operations and financial position of
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our Company. This discussion and analysis should be read in conjunction with
Item 8, ""Financial Statements and Supplementary Data."" Certain statements in
this Item 7 constitute forward-looking statements. Various risks and
uncertainties, including those discussed in "Forward-Looking Statements" and
Item 1A, ""Risk Factors,"" may cause our actual results, financial position, and
cash used in operations to differ materially from these forward-looking
statements. Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and are presented
in U.S. dollars.
General
We are a clinical-stage biopharmaceutical company focused on the development and
commercialization of treatments for orphan dermatologic diseases. Our
investigational therapies have proven mechanisms-of-action backed by decades of
clinical experience and well-established CMC (chemistry, manufacturing and
control) and safety profiles. We are initially focused on developing
non-systemic treatments for rare dermatologic diseases including congenital
ichthyosis or CI including X-linked recessive CI, or XLRI, and autosomal
recessive CI, or ARCI and other sclerotic skin diseases. Our lead stage program
is TMB-001. TMB-003 is our earliest stage program.
TMB-001, a patented topical formulation of isotretinoin using our patented IPEG™
delivery system, completed its Phase 2b clinical trial or the CONTROL study, in
the fourth quarter of 2021, for the treatment of moderate to severe subtypes of
CI, a group of rare genetic keratinization disorders that lead to dry,
thickened, and scaling skin. This study demonstrated a clinically meaningful
reduction in targeted and overall severity of CI along with a favorable safety
profile. A prior Phase 1/2 study involving 19 patients with CI demonstrated
safety and a signal of preliminary efficacy of TMB-001, as well as minimal
systemic absorption. The FDA (through its Orphan Products Grant program) awarded
us a $1.5 million grant to support clinical trials evaluating TMB-001.
The product in its earliest stage in our pipeline is TMB-003, a proprietary
formulation of Sitaxsentan, a new chemical entity in the U.S. , which is a
selective endothelin-A receptor antagonist. It is currently in preclinical
development as a locally applied formulation for the treatment of sclerotic skin
diseases. The two disease areas under consideration include: Lichen Sclerosis a
rare chronic disease of vulvae and perianal areas, and Localized Scleroderma, a
chromic connective tissue disease that also affects other organ systems.
In connection with the Merger (as defined below), we acquired the BPX-01 and
BPX-04 assets. BPX-01 is a Phase 3 ready topical minocycline for the treatment
of inflammatory lesions of acne vulgaris, and BPX-04 is a Phase 3 ready topical
minocycline for the treatment of papulopustular rosacea. We are seeking to
monetize these assets through a license, co-development, or sale.
Corporate History
We have a limited operating history as we were formed onFebruary 26, 2019 . Since inception, our operations have focused on establishing its intellectual property portfolio, including acquiring rights to the proprietary formulations of isotretinoin, rapamycin and Sitaxsentan, as described above, organization and staffing of the Company, business planning, raising capital, and conducting clinical trials. We have financed our operations with$46 million through capital contributions over the past three years. Since inception, we have incurred significant operating losses. For the year endedDecember 31, 2022 , our net loss was$19.4 million . As ofDecember 31, 2022 , we had an accumulated deficit of approximately$48.3 million . We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we continue to develop the pipeline of programs.
Merger with
On
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BioPharmX,Timber Pharmaceuticals, LLC , aDelaware limited liability company ("Timber Sub") andBITI Merger, Inc. , aDelaware corporation and wholly-owned subsidiary of BioPharmX ("Merger Sub"), as amended onMarch 24, 2020 (and as subsequently amended onApril 27, 2020 as amended, the "Merger Agreement"), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as our wholly-owned subsidiary (the "Merger"). In connection with the Merger, BioPharmX effected a reverse stock split of the shares of common stock, at a ratio of 1-for-12 (the "2020 Reverse Stock Split"). Following the completion of the Merger, we changed our name to "Timber Pharmaceuticals, Inc. " and the officers and directors of Timber Sub became the officers and directors of our Company.
In connection with the Merger, the 11.68 VARs of Timber Sub that were outstanding immediately prior to Merger became denoted and payable in 7,353 shares of common stock at the effective time of the Merger (the "Effective Time"). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the Series A preferred stock (the "Series A Preferred Stock") at the Effective Time.
In connection with the Merger Agreement, onMarch 27, 2020 , Timber Sub and BioPharmX entered into a securities purchase agreement (the "Securities Purchase Agreement"), with certain accredited investors (the "Investors") pursuant to which Timber Sub issued to the Investors shares of Timber units immediately prior to the Merger and we issued to the Investors warrants to purchase shares of common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately$25 million . We issued to the Investors 167,695 Series A Warrants to purchase shares of common stock ("Series A Warrants") and 140,844 Series B Warrants to purchase shares of common stock ("Series B Warrants"). The Series A Warrants have a 5-year term and an exercise price of$2.7953 , subject to the number of shares and exercise price being reset based on our stock price after the Merger. The Series A Warrants were initially exercisable into 167,695 shares of common stock, subject to certain adjustments. The Series B Warrants had an exercise price per share of$0.05 , were exercisable upon issuance and were initially convertible into 140,844 shares of common stock in the aggregate. In addition, pursuant to the terms of the Securities Purchase Agreement, onMay 22, 2020 we issued to the Investors warrants to purchase 8,275 shares of common stock (the "Bridge Warrants") which had an exercise price of$111.81 per share, which was revised to$15.50 per share as a result of theNovember 2021 Offering, and subsequently revised to$1.00 per share as a result of theAugust 2022 Offering. OnJuly 17, 2020 , we entered into an Amended and Restated Registration Rights Agreement (as amended, the "Registration Rights Agreement") with the Investors. Pursuant to the Registration Rights Agreement, we agreed to provide certain demand registration rights to the Investors relating to the registration of the shares underlying the Investor Warrants and the Bridge Warrants. In connection with the entry into the Registration Rights Agreement and pursuant to the Securities Purchase Agreement, we were restricted from various financing activities untilAugust 16, 2022 . OnNovember 19, 2020 , we entered into a Warrant Waiver Agreement with each of the holders of the Series A Warrants and Series B Warrants (the "Warrant Waiver Agreement") which modified the terms of the original agreement and eliminated further resets. The aggregate number of Series A Warrants issued was fixed at 403,564 and the warrant exercise price was fixed at$58.00 . The aggregate number of Series B Warrants was fixed at 455,336. The exercise price of the Series B Warrants remained unchanged. In addition, certain restrictions contained in the Series A Warrants, Series B Warrants and Securities Purchase Agreement were modified including the restrictions on our ability to issue additional equity securities in connection with a financing and our ability to complete a fundamental transaction. Subject to certain restrictions detailed in the Warrant Waiver Agreement, the restriction date for an equity financing or a fundamental transaction ended onApril 30, 2021 . We remain restricted with respect to conducting variable rate transactions untilMay 18, 2023 . Further, in connection with the Warrant Waiver Agreement we agreed to immediately register 227,668 shares of common stock issuable upon exercise of the Series B Warrants. The warrant holders have additional demand registration rights as described in the Warrant Waiver Agreement. As ofMarch 4, 2021 , the Series B Warrants were exercised in full. As ofDecember 31, 2022 , 334,036 shares of common stock remain issuable upon exercise of the Series A Warrants. 55 Table of Contents 2022 Reverse Stock Split OnNovember 7, 2022 , we filed the Certificate of Amendment to our Certificate of Incorporation, as amended, with the Secretary of State of theState of Delaware , which effected, at5:00 p.m. Eastern Time onNovember 8, 2022 , the 2022 Reverse Stock Split of our issued and outstanding shares of common stock at a ratio of one-for-fifty. The 2022 Reverse Stock Split did not affect our authorized common stock of 450,000,000 shares. Proportionate adjustments were made to the conversion rate, the per share exercise price and the number of shares issuable upon the vesting, exercise or conversion of our outstanding derivative securities in accordance with the 2022 Reverse Stock Split ratio. As a result of the 2022 Reverse Stock Split, every fifty shares of common stock issued and outstanding was converted into one share of common stock. The 2022 Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder's percentage interest in our equity, except to the extent that the 2022 Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the 2022 Reverse Stock Split. Stockholders who would otherwise have been entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment. The common stock began trading on a post-split as-adjusted basis onNovember 9, 2022 . There can be no assurance that we will be able to maintain compliance with the NYSE American continued listing standards, even after the implementation of the 2022 Reverse Stock Split. All shares of common stock, including common stock underlying warrants, stock options, restricted stock units and VARs, as well as conversion ratios, exercise prices, conversion prices and per share information in this Annual Report on Form 10-K give retroactive effect to the 2022 Reverse Stock Split.
OnNovember 2, 2021 , we entered into an underwriting agreement withH.C. Wainwright & Co., LLC or Wainwright, as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of shares of our common stock and, to certain investors, pre-funded warrants to purchase shares of common stock, and accompanying warrants to purchase shares of our common stock. After giving effect to the sale of additional shares pursuant to the exercise of the option by Wainwright that closed onNovember 9, 2021 , the total number of shares of common stock (or common stock equivalents) sold by us in the offering was 539,063, together with the November Warrants to purchase up to 539,063 shares of common stock issued at the closing onNovember 5, 2021 , for total gross proceeds of$17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately$15.8 million . As a result of theNovember 2021 offering, the exercise price of the Bridge Warrants was adjusted to$15.50 per share. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a warrant to purchase one share of common stock. All the securities sold in the offering were sold by us. The public offering price of each share of common stock and accompanying November Warrant was$32.00 and$31.95 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of$0.05 per share of common stock and were exercised in full onNovember 5, 2021 . The November Warrants were immediately exercisable at a price of$35.00 per share of common stock and expire five years from the date of issuance. As ofDecember 31, 2022 , no November Warrants have been exercised.
OnMarch 1, 2022 , we entered into the Engagement Letter, as subsequently amended onJune 30, 2022 , with Wainwright, pursuant to which Wainwright agreed to act as the exclusive placement agent on a reasonable best-efforts basis in connection with a public offering of common stock. OnAugust 8, 2022 , we consummated theAugust 2022 Offering of (i) 931,667 shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 401,667 shares of common stock and (iii) August Warrants to purchase up to an aggregate of 1,333,333 shares of common stock. Each share of common stock and pre-funded warrant to purchase one 56
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share of common stock was sold together with an August Warrant to purchase one share of common stock. All of the securities sold in theAugust 2022 Offering were sold by us. The public offering price of each share of common stock and accompanying August Warrant was$6.00 and$5.995 for each pre-funded warrant and accompanying August Warrant. The pre-funded warrants were immediately exercisable at a price of$0.005 per share of common stock and were exercisable at any time until all of the pre-funded warrants were exercised in full. The August Warrants are immediately exercisable at a price of$6.00 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying August Warrants, were issued separately and were immediately separable upon issuance. All of the pre-funded warrants were exercised onAugust 8, 2022 . In connection with theAugust 2022 Offering, onAugust 4, 2022 , we entered into securities purchase agreements with certain institutional investors in theAugust 2022 Offering. The net proceeds to us from theAugust 2022 Offering were approximately$6.9 million , after deducting placement agent fees and expenses and estimated offering expenses payable by us, excluding the proceeds, if any, from the exercise of the August Warrants. We intend to use the net proceeds from theAugust 2022 Offering for research and development, including clinical trials, working capital and general corporate purposes. Further, the exercise price of the Bridge Warrants was reduced to the offering price per share of theAugust 2022 Offering less the Black Scholes value of the August Warrants issued in theAugust 2022 Offering which was$1.00 . As ofDecember 31, 2022 , 1,309,333 shares of common stock remain issuable upon exercise of the August Warrants.
OnOctober 3, 2022 , we entered into the October Securities Purchase Agreement with theOctober Investors to sell, in the Registered Direct Offering (i) 260,000 shares of common stock, and (ii) Series 1 Warrants to purchase up to an aggregate of 260,000 shares of Series 1 Warrant Shares. The Series 1 Warrants are immediately exercisable at an exercise price of$5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of us and theOctober Investors , and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent's fees and other estimated offering expenses, was$1.3 million . The Registered Offering closed onOctober 3, 2022 . In "the Concurrent Private Placement Offering we also agreed to issue (i) Series 2 Warrants to purchase up to an aggregate of 260,000 Series 2 Warrant Shares, and (ii) 13,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock had a stated value of$0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the 2022 Reverse Stock Split equal to 10,000,000 votes per share of Series B Preferred Stock. The voting rights of the Series B Preferred Stock were established in order to maintain our NYSE American listing by raising the average minimum bid price of the common stock to over$0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment, the outstanding shares of Series B Preferred Stock were automatically transferred to us and cancelled for no consideration with no action on behalf of the holders thereof and such shares resumed the status of authorized but unissued shares of preferred stock and were no longer designated as shares of Series B Stock. The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of$6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have not been, registered under the Securities Act, and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. As compensation to Wainwright, as the exclusive placement agent in connection with the Registered Offering, we paid Wainwright a cash fee of 6% of the aggregate gross proceeds raised in the Registered Offering and reimbursed Wainwright for legal fees and expenses up to$40,000 , non-accountable expenses of$25,000 and$15,950 for clearing expenses. In 57
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connection with theOctober 2022 Offerings, we received net proceeds of approximately$1.0 million . As ofDecember 31, 2022 , none of the Series 1 Warrants or Series 2 Warrants have been exercised and 260,000 shares of common stock and 260,000 shares of common stock remain issuable upon exercise of the Series 1 Warrants and Series 2 Warrants, respectively.
Material Agreements
Asset Purchase Agreements with
TMB-001
OnFebruary 28, 2019 , we acquired the intellectual property rights for a topical formulation of isotretinoin for the treatment of CI and identified as TMB-001, formerly PAT-001 including the IPEGTM brand, from Patagonia, which we refer to as the "TMB-001 Acquisition", pursuant to the Asset Acquisition Agreement.Zachary Rome , a former member of our board of directors and our former Executive Vice-President and Chief Operating Officer serves as President of Patagonia and also maintains an ownership interest therein. Under the terms of the TMB-001 Acquisition, we paid a one-time upfront payment of$50,000 to Patagonia. Patagonia is entitled to up to$27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being$4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA and defined as the first patient enrolled in such trial for the product. The next milestone payments relate to (i) a one-time payment of$7.0 million upon FDA approval of an NDA related to the product for the treatment of CI, or a substantially similar indication, and (ii) a one-time payment of$2.0 million upon EMA approval of an MMA related to the product for the treatment of CI, or a substantially similar indication. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits for the program licensed. We are responsible for all development activities under the agreement. The first regulatory and commercial milestone occurred inJune 2022 , as the first patient enrolled in the Phase 3 pivotal trial for the product and as such a$4.0 million milestone payment was accrued atJune 30, 2022 . There were no further milestone payments accrued atDecember 31, 2022 , because the potential regulatory and commercial milestones were not considered probable. OnJuly 20, 2022 , we entered into the Amendment to the Asset Acquisition Agreement with Patagonia, pursuant to which we and Patagonia extended the time for our payment of the first milestone payment, which became payable in the third quarter of 2022 upon the commencement of patient enrollment in our Phase 3 ASCEND clinical trial in the second quarter of 2022. The first milestone payment became payable by us in two tranches, with$2.25 million due bySeptember 1, 2022 , and$2.065 million due bySeptember 1, 2023 . The first milestone payment was made onSeptember 1, 2022 . We are accreting interest on the second tranche. The interest is recorded in our Consolidated Statement of Operations and Comprehensive Loss. In addition to the remedies for breach under the Asset Acquisition Agreement, including reversion under certain circumstances, we granted Patagonia a security interest in TMB-001 and certain other assets until the second milestone payment has been paid in full. Because the milestone payments due upon the achievement of certain events would be payable prior to the time in which we are able to generate revenue, such obligations under the Asset Acquisition Agreement, as amended, may impact the economic viability of developing and marketing TMB-001.
TMB-003
OnJune 26, 2019 , we acquired the intellectual property rights for a locally administered formulation of Sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia which we refer to as the TMB-003 Acquisition. Upon closing of the TMB-003 Acquisition, we paid a one-time upfront payment of$20,000 to Patagonia. Patagonia is entitled to up to$10.25 million of cash milestone payments subject to adjustments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of$250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits for 58 Table of Contents the program licensed. We are responsible for all development activities under the agreement. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued atDecember 31, 2022 or 2021, respectively. Because the milestone payments due upon the achievement of certain events would be payable prior to the time in which we are able to generate revenue, such obligations under the agreement may impact the economic viability of developing and marketing TMB-003.
Acquisition and Termination of License from AFT Pharmaceuticals Limited
OnJuly 5, 2019 , we entered into the AFT License Agreement which provided us with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize Pascomer inthe United States ,Canada andMexico and (ii) a co-exclusive license to develop Pascomer in this territory. Concurrently, we granted to AFT an exclusive license to commercialize Pascomer outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory. The development of Pascomer had been conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee, which had been reviewed on at least an annual basis. AFT agreed to perform clinical trials of Pascomer in the specified territory and perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. We were responsible for all expenses incurred by AFT during the term of the AFT License Agreement and equally shared all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the specified territory. We were also entitled to receive 50% of the economics (royalties and milestones) in any licensing transaction that AFT executed outside ofNorth America ,Australia ,New Zealand , andSoutheast Asia . Upon closing of the AFT License Agreement, we were obligated to reimburse AFT for previously spent development costs, subject to certain limitations and were obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT was entitled to up to$25.5 million of cash milestone payments if Pascomer achieved certain regulatory and commercial milestones, with the first payment of$1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial's primary clinical endpoints. In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones were not yet considered probable, and no milestone payments were accrued atDecember 31, 2021 . No milestones were accrued atDecember 31, 2022 as a result of the termination of the AFT License Agreement onJuly 25, 2022 and no regulatory and milestones were yet considered probable prior to termination. OnJuly 22, 2022 , we provided written notice to AFT of our decision to terminate the AFT License Agreement because we believed there was no longer a commercially reasonable path to approval and commercialization for the product inthe United States . Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, we were required to provide 120 days' prior written notice of termination to AFT which was waived by AFT onJuly 25, 2022 , or the Termination Date. On the Termination Date, the rights and licenses to Pascomer reverted to AFT, among other things, as set forth in the AFT License Agreement.
Letter Agreement with
We previously had a class of Series A Preferred Stock as to which the holder, TardiMed, had demanded redemption. The redemption price was equal to approximately$2.1 million in the aggregate, atDecember 31, 2021 , including accumulated and unpaid dividends which accrue dividends at the rate of 8% per annum. Redemption was subject to certain limitations underDelaware corporate law due to our current financial condition. As a result of the call for redemption, the Series A Preferred Stock had been reclassified as a liability atDecember 31, 2021 . Dividends continued to accrue and were recorded as non-cash interest expense in the Statement of Operations and Comprehensive Loss rather than to additional-paid-in-capital in 2022. 59
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OnJuly 27, 2022 , we entered into the Letter Agreement with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of Series A Preferred Stock plus accrued dividends for a pre-funded warrant to purchase 181,083 shares of common stock, or the TardiMed Warrant. The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by$11.95 , the last closing price of the common stock prior to the date the Letter Agreement was executed. Twenty percent of the TardiMed Warrant was immediately exercisable upon issuance. Beginning onSeptember 30, 2022 , and then at the end of each subsequent calendar quarter upon written request of TardiMed, we have agreed to allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant's exercise price is$0.005 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. As ofDecember 31, 2022 , 40% of the TardiMed Warrant has been exercised on a cashless basis and an aggregate of 72,363 shares of common stock have been issued to TardiMed.
Sublease Agreement
We currently lease an 11,793 square foot office and laboratory space at115 Nicholson Lane ,San Jose, California . This lease expires inDecember 2023 . OnFebruary 17, 2020 , we executed a sublease agreement covering the entire space for the remaining term of the lease. The current monthly rent at this location is$37,710 , which includes common area maintenance charges. The sublessee unexpectedly ceased making sublease payments in the fourth quarter of 2022 due substantial financial difficulties. We have been working with the owner of the property to market the location. The sublessee has been found to have made multiple alterations to the location without permits or the lessor's approval and we have received an estimate for repairs to the existing space and possible costs to clean the location will approximate$150,000 . This amount is recorded in accrued expenses atDecember 31, 2022 , as an asset retirement obligation.
Recent Developments
We entered into a lease for a 5,281 square foot office space at3 Mountain View Road , Suite 100,Warren, New Jersey onFebruary 8, 2023 . This lease expires onFebruary 28, 2028 . The current monthly rent at this location is$8,801.67 . Pursuant to the terms of the lease, we have an option to terminate the lease effective as of the completion of the thirty-seventh full calendar month of the lease term, provided that certain conditions are met. The lease of our prior headquarters inBasking Ridge, New Jersey expires onMarch 31, 2023 .
Subsequent to
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Results of Operations
Comparison of the Years Ended
Year Ended December 31,
2022 2021 Change $ Change %
Grant revenue $ 83,177 $ 590,794 $ (507,617) (86) %
Milestone revenue - 295,738 (295,738) NA %
Total revenue 83,177 886,532 (803,355) (91) %Research and development 9,301,958 6,149,586 3,152,372 51 % Research and development milestone expense forPatagonia Pharmaceuticals LLC 4,000,000 - 4,000,000 NA % Selling, general and administrative 6,016,615 5,387,164
629,451 12 %
Loss from operations (19,235,396) (10,650,218) (8,585,178) 81 %
Interest expense (228,456) (15,551) (212,905) NA %
Interest income 2,445 - 2,445 NA %
Other income 75,000 - 75,000 NA %
Forgiveness of PPP loan 37,772 - 37,772 NA %
Gain (loss) on foreign currency
exchange (23,215) (3,619) (19,596) 541 %
Net loss before provision for income
taxes (19,371,850) (10,669,388) (8,702,462) 82 %
Provision (benefit) for income taxes 7,600 (30,242) (37,842) NA %
Net loss (19,379,450) (10,639,146) (8,740,304) 82 %
Cumulative dividends on Series A
preferred stock - (129,992) 129,992 NA %
Net loss attributable to common
stockholders $ (19,379,450) $ (10,769,138) $ (8,610,312) 80 %
Revenues
For the year endedDecember 31, 2022 , grant revenue was approximately$0.08 million compared to$0.6 million for the year endedDecember 31, 2021 . The decrease in revenue of approximately$0.5 million was due to the reduction of reimbursements received from the FDA as a result of achieving certain clinical milestones in the development of TMB-001, and the reimbursements under the grant were completed in 2022. InSeptember 2018 , Patagonia was awarded a$1.5 million grant (the "Grant") from the FDA as part of the Orphan Products Clinical Trials Grants Program of theOffice of Orphan Products Development . The Grant funds were made available in three annual installments of$500,000 per year, which commenced inSeptember 2018 . The Grant was transferred to us pursuant to our TMB-001 Acquisition Agreement with Patagonia inFebruary 2019 . InMarch 2020 andMarch 2021 , the FDA awarded us the second and third tranches of the grant, respectively. Milestone revenue was nil for the year endedDecember 31, 2022 compared to approximately$0.3 million for the year endedDecember 31, 2021 . These revenues were related to an upfront milestone payment paid to AFT by Desitin to which we were entitled under the terms of the AFT License Agreement.
Operating Costs and Expenses
Research and Development Expense
For the year endedDecember 31, 2022 , research and development expenses were$13.3 million compared to$6.1 million for the year endedDecember 31, 2021 . The increase of$7.2 million is primarily related to expected increased costs incurred related to our Phase 3 clinical trial of TMB-001, such as CRO direct and pass-through expenses and the accrual of the$4.0 million milestone payment due to Patagonia as the first regulatory and commercial milestone occurred inJune 2022 , as the first patient enrolled in the Phase 3 pivotal trial for the product. 61 Table of Contents
Research and development costs were primarily attributable to costs incurred in connection with our research activities and include costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.
Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.
General and Administrative Expense
For the year endedDecember 31, 2022 , general and administrative expenses were approximately$6.0 million compared to approximately$5.4 million for the year endedDecember 31, 2021 . The increase in general and administrative expenses of approximately$0.6 million was due to increased personnel and related costs including stock-based compensation of approximately$0.6 million as stock compensation expense associated with certain option grants made in 2021 had a full year of expense as vesting and additional expense associated with accelerated vesting of stock options related to our former Chief Operating Officer's stock option grants in 2022, increased costs associated with being a public company (stock exchange fees and proxy solicitation fees of approximately$0.2 million , and approximately$0.2 million of costs associated with an asset retirement obligation for the former BioPharmX offices inCalifornia , offset by a reduction in consulting fees of approximately$0.2 million and a reduction of approximately$0.2 million of salary and bonus expense as a result of the departure of our former Chief Operating Officer in early 2022.
Other Income (Expense)
Interest Expense
Interest expense was$0.2 million for the year endedDecember 31, 2022 , which was due to interest charged for the Redeemable Series A convertible preferred stock under redemption and interest accreted on the milestone payment due toPatagonia Pharmaceuticals, LLC . Interest expense was minimal for the year endedDecember 31, 2021 . The remaining other income (expense) included, a gain on the forgiveness of our PPP loan of approximately$0.04 million and other income of approximately$0.08 million for fees received from a third party for their access to review certain agreements related to BPX-01 and BPX-04 and a loss on foreign currency transactions of approximately$0.02 million due to the currency fluctuation of the US$ versus the AUD$ as exchange rates were unfavorable in 2022.
Provision (benefit) for income taxes
The provision for the year ended
The benefit for the year ended
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Comparison of the Quarters Ended
Three Months Ended December 31,
2022 2021 Change $ Change %
Grant revenue $ - $ 190,005 $ (190,005) NA %
Milestone revenue - - - NA
Total revenue - 190,005 (190,005) (100) %
Research and development 2,100,971 1,525,775 575,196 38 %
Research and Development milestone
expense for Patagonia Pharmaceuticals
LLC - - - NA
Selling, general and administrative 1,465,209 1,475,452 (10,243) (1) %
Loss from operations (3,566,180) (2,811,222) (754,958) 27 %
Interest expense (60,925) (15,551) (45,374) 292 %
Interest income 2,445 - 2,445 N/A
Forgiveness of PPP loan - - - N/A
Gain (loss) on foreign currency exchange 9,475 (3,075) 12,550 (408) %
Provision (benefit) for income taxes 7,600 (30,242) 37,842 NA
Net (loss) income (3,622,785) (2,799,606) (823,179) 29 %
Cumulative dividends on Series A
preferred stock - (21,134) 21,134 NA %
Net (loss) income attributable to common
stockholders $ (3,622,785) $ (2,820,740) $ (802,045) 28 %
Revenues
For the quarter endedDecember 31, 2022 , grant revenue was nil compared to approximately$0.2 million for the year endedDecember 31, 2021 . The decrease in revenue of approximately$0.2 million is due to timing of reimbursements received from the FDA as a result of achieving certain clinical milestones in the development of TMB-001. InSeptember 2018 , Patagonia was awarded the$1.5 million Grant from the FDA as part of the Orphan Products Clinical Trials Grants Program of theOffice of Orphan Products Development . The Grant funds were made available in three annual installments of$500,000 per year, which commenced inSeptember 2018 . The Grant was transferred to us pursuant to our TMB-001 Acquisition Agreement with Patagonia inFebruary 2019 . InMarch 2020 andMarch 2021 , the FDA awarded us the second and third tranches of the grant, respectively.
There were no Milestone revenues for the quarters ended
Operating Costs and Expenses
Research and Development Expense
For the quarter endedDecember 31, 2022 , research and development expenses were approximately$2.1 million compared to approximately$1.5 million for the quarter endedDecember 31, 2021 . The increase of approximately$0.6 million is primarily related to increased costs incurred related to our Phase 3 ASCEND trial for TMB-001 such as CRO direct and pass-through expenses.
Research and development costs were primarily attributable to costs incurred in connection with our research activities and include costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.
General and Administrative Expense
For the quarter endedDecember 31, 2022 , general and administrative expenses were approximately$1.5 million compared to approximately$1.5 million for the quarter endedDecember 31, 2021 . The amounts were similar in general and 63
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administrative expenses due to an approximately$0.2 million reduction in stock-based compensation expense from the comparative quarter in 2021 offset by an increase of approximately$0.2 for costs associated with an asset retirement obligation estimate for the former BioPharmX offices inCalifornia .
Other Income (Expense)
Interest Expense
Interest expense was
Liquidity and Capital Resources
Since inception, we have not generated revenue from product sales and have incurred net losses and negative cash flows from our operations. AtDecember 31, 2022 , we had working capital of approximately$4.8 million , which included cash and cash equivalents of approximately$9.1 million . We reported a net loss of approximately$19.4 million , during the year endedDecember 31, 2022 . During the year endedDecember 31, 2022 , we raised net proceeds of approximately$8.1 million from our offerings of common stock, warrants and prefunded warrants and exercise of warrants. Our management believes that our existing cash and cash equivalents as ofDecember 31, 2022 are sufficient to satisfy our operating cash needs into the second quarter of 2023. Inflation has not had a significant impact on our historical operations, and we while we do not expect it to have a significant impact on our results of operations or financial condition in the near term, we have monitored and will continue to monitor, the cost of clinical trials and our operating expenses for the potential impact of inflation.
Cash Flows for the Years Ended
Year Ended December 31,
2022 2021
Cash provided by (used in) continuing operations:
Operating activities $ (15,854,921) $ (9,314,160)
Investing activities (7,084) (17,804)
Financing activities 8,133,892 15,791,810Net decrease in cash and cash equivalents$ (7,728,113) $
6,459,846 Operating Activities
For the year endedDecember 31, 2022 , net cash used in operating activities was approximately$15.9 million , which primarily consisted of our net loss of approximately$19.4 million , adjusted for non-cash expenses of approximately$3.2 million primarily consisting of approximately$1.0 million of stock-based compensation, approximately$0.3 million of amortization of the right of use assets, approximately$0.1 million of interest expense on redeemable preferred stock and the non-cash accrual of the second tranche of$1.75 million milestone payable toPatagonia Pharmaceuticals, LLC . The change in assets and liabilities of approximately$0.3 million is primarily due to increases in accounts payable and accrued expenses of approximately$1.2 million , an increase in prepaid research and development of approximately$0.5 million and a reduction in the lease liability of approximately$0.3 million . For the year endedDecember 31, 2021 , net cash used in operating activities was approximately$9.3 million , which primarily consisted of our net loss of approximately$10.6 million , adjusted for non-cash expenses of approximately$0.9 million primarily consisting of approximately$0.6 of stock-based compensation and approximately$0.3 million of amortization of the right of use assets. The change in assets and liabilities of approximately$0.4 million
was
primarily
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due to increases in accounts payable and accrued expenses of approximately
Investing Activities
For the years ended
Financing Activities
For the year endedDecember 31, 2022 , net cash provided by financing activities was approximately$8.1 million which consisted of the net proceeds received from the issuance of common stock, warrants, pre-funded warrants and exercise of warrants from theAugust 2022 andOctober 2022 Offerings. For the year endedDecember 31, 2021 , net cash provided by financing activities was approximately$15.8 million which consisted of the net proceeds received from the issuance of common stock and pre-funded warrants from the November
2021 Offering. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of our pipeline of programs. Our expenses related to clinical trials are expected to increase in 2023. Furthermore, we expect to continue to incur costs as a public company and as a result of our obligations under existing agreements with third parties. Accordingly, we will need to obtain additional funding. In addition, we remain restricted with respect to conduction variable rate transactions untilMay 18, 2023 pursuant to the terms of the Registration Rights Agreement. If we are unable to raise capital or otherwise obtain funding when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We expect that our research and development expenses in connection with our development programs for our various product candidates will continue to be significant. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future.
We have evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Annual Report on Form 10-K. Based on such evaluation and our current plans, which are subject to change, management believes that our existing cash and cash equivalents as ofDecember 31, 2022 are sufficient to satisfy our operating cash needs into the second quarter of 2023.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
? our ability to raise additional funds to finance our operations;
the outcome, costs and timing of clinical trial results for our current or
? future product candidates, including the timing, progress, costs and results of
our Phase 3 ASCEND study of TMB-001 for the treatment of CI;
? the outcome, timing and cost of meeting regulatory requirements established by
the FDA and other comparable foreign regulatory authorities;
? the emergence and effect of competing or complementary products;
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our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we may be
? required to make, or that it may receive, in connection with the licensing,
filing, prosecution, defense and enforcement of any patents or other
intellectual property rights;
? the cost and timing of completion of commercial-scale manufacturing activities,
if any of our products are approved for commercial sale;
the cost of establishing sales, marketing and distribution capabilities for our
? products in regions where we choose to commercialize our products on our own if
approved for commercial sale;
? the initiation, progress, timing and results of the commercialization of our
product candidates, if approved for commercial sale;
? our ability to retain our current employees and the need and ability to hire
additional management and scientific and medical personnel; and
? the terms and timing of any collaborative, licensing or other arrangements that
we have or may establish.
We will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of our product candidates. Further, we intend to continue to evaluate options for our strategic direction. We are exploring ways to efficiently fund the Company including entering into non-dilutive partnerships or licensing agreements. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of our existing stockholders. We are unable to accurately predict the full impact that COVID-19 may have on our business, results of operations, and financial conditions due to numerous uncertainties, including the full scope of the disease, the duration of the outbreak, the number and intensity of subsequent waves of infections, actions that may be taken by governmental authorities, the impact to the businesses of third parties we rely on, the development of treatments and vaccines, and other factors identified under "Risk Factors" in this Annual Report. We will continue to evaluate the nature and extent of the impact to our business, results of operations, and financial condition.
Critical Accounting Policies and Significant Estimates
Research and Development
Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Certain research and development costs are estimated based on contractual arrangements.
Accrued Outsourcing Costs
Substantial portions of our preclinical studies and clinical trials are
performed by third-party laboratories, medical centers, contract research
organizations and other vendors (collectively "CROs"). These CROs generally
bill monthly or quarterly for services performed, or bill based upon milestone
achievement. For preclinical studies, we accrue expenses based upon
estimated percentage of work completed and the contract milestones remaining.
Clinical trial costs are a significant
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component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist us with the execution of our clinical studies. For each clinical trial that we conduct, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information it receives.
Stock-Based Compensation
We expense stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. We account for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. We estimate the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual's role at the Company. We estimate the fair value of VARs using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of equity-based awards represented management's best estimates and involve inherent uncertainties and the application of management's judgment. All equity-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our financial statements beginning on page F-1 of this Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
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