PALISADE BIO, INC. Statements in this Quarterly Report that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our: ability to conduct and obtain successful results from ongoing pre-clinical and clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our operations. Some of these factors are more fully discussed, as are other factors, in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , as filed with theSEC , in our subsequent filings with theSEC as well as in the section of this Quarterly Report entitled "Risk Factors" and elsewhere herein. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law. We urge you to read this entire Quarterly Report on Form 10-Q, including the "Risk Factors" section, the condensed consolidated financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words "we," "us," "our," "the Company" and "Seneca" refers toSeneca Biopharma, Inc. and its subsidiary. Also, any reference to "common shares" or "common stock," refers to our$.01 par value common stock. Any reference to "Series A Preferred Stock" or "Preferred Stock" refers to our Series A 4.5% Convertible Preferred Stock. The information contained herein is current as of the date of this Quarterly Report (March 31, 2020 ), unless another date is specified. OnJuly 17, 2019 , we completed a 1-for-20 reverse stock split of our common stock. All share and per shares information in this report have been adjusted to reflect the reverse stock split. We prepare our interim financial statements in accordance withU.S. GAAP. Our financials and results of operations for the three-month period endedMarch 31, 2020 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year endingDecember 31, 2020 . The interim financial statements presented in this Quarterly Report as well as other information relating to our Company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with theSEC . Our Management's Discussion and Analysis of Financial Condition and Results of Operations or MD&A is provided, in addition to the accompanying condensed consolidated financial statements and notes, to assist you in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:
· Executive Overview - Discussion of our business and overall analysis of
financial and other items affecting the Company in order to provide context for
the remainder of MD&A.
· Trends & Outlook - Discussion of what we view as the overall trends affecting
our business and overall strategy.
· Critical Accounting Policies - Accounting policies that we believe are
important to understanding the assumptions and judgments incorporated in our
reported financial results and forecasts.
· Results of Operations - Analysis of our financial results comparing the
three-month periods ended
· Liquidity and Capital Resources - An analysis of cash flows and discussion of
our financial condition and future liquidity needs.
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Executive Overview
Historically, we have been primarily focused on the research and development of
nervous system therapies based on our proprietary human neural stem cells and
our small molecule compounds with the ultimate goal of gaining approval from the
United States Food and Drug Administration ("FDA"), and its international
counterparts, to market and commercialize such therapies. In early 2019, we also
began an in-licensing and acquisition strategy by which we are evaluating novel
therapeutics that could benefit from our development experience with the goal of
developing such technologies for commercialization.
Our patented technology platform has three core components:
1. Over 300 lines of human, regionally specific neural stem cells, some of which
have the potential to be used to treat serious or life-threatening diseases
through direct transplantation into the central nervous system;
2. Proprietary screening capability - our ability to generate human neural stem
cell lines provides a platform for chemical screening and discovery of novel
compounds against nervous system disorders; and
3. Small molecules that resulted from Seneca's neurogenesis screening platform
that may have the potential to treat wide variety of nervous system
conditions.
To date, our technology platform has produced two lead assets in clinical development: our NSI-566 stem cell therapy program and our NSI-189 small molecule program. A component of our current strategy is out-licensing and we have recently initiated a formal out-licensing initiative aimed at securing partners to advance the clinical development of these two programs.
We believe this technology, in partnership with an established biopharmaceutical company with the appropriate development expertise and financial resources, could facilitate the development and commercialization of products for use in the treatment of a wide array of nervous system disorders including neurodegenerative conditions and regenerative repair of acute and chronic disease. We intend to maintain these programs with the goal of finding suitable development partners.
In-licensing and Acquisition Strategy
In addition to the development of our current product candidates, we have
initiated an in-licensing and/or acquisition strategy to further expand our
product pipeline. Our in-licensing strategy consists of evaluating novel
therapeutics that could benefit from our development experience with the goal of
developing such candidates for commercialization. We believe that this element
of our corporate strategy could provide new opportunities for product
development and diversify risks inherent in focusing on a limited product
portfolio and therapeutic areas, thus potentially increasing our probability of
commercial success.
Existing Clinical Programs
Historically, we have devoted our efforts and financial resources primarily to
the pre-clinical and clinical development of our small molecule compounds and
our stem cell therapeutics.
Based on our cash position, we have refocused our development efforts primarily
on our exploratory Phase 2 study of NSI-566 for the treatment of Ischemic Stroke
(the results of which we do not believe will be able to be used in connection
with any regulatory submission in any territory), development of a regulatory
plan for NSI-566 in ALS and studies that are being funded by grants. At this
time, we anticipate that additional funds for these programs will be focused on
maintaining the cell lines, patents, clinical material and data, and relevant
licenses associated with these clinical programs as we seek partners for further
development.
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Below is a description of our clinical programs, their intended indication and current stage of development:
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NSI - 566 (Stem Cells)
The human central nervous system (CNS) has limited capacity for regeneration
following injury or the onset of disease. Traditional therapies have mainly
focused on minimizing the progression or symptoms of CNS disease or injury but
have not been effective at repairing the underlying cause of such disease. The
goal of our cell therapy initiatives is the regeneration of neural function
which has been lost to disease or injury. We believe that neuroprotection,
neuroregeneration, and/or bridging of damaged neural circuitry may be
accomplished by implantation of NSI-566 at the injury site.
Our proprietary technology enables the isolation and large-scale expansion of
regionally specific neural stem cells from all areas of the developing human
brain and spinal cord and enables the generation of commercially useful
quantities of highly characterized allogeneic human neural stem cells that can
be transplanted into patients to mitigate the consequences of CNS diseases or
injury. We have developed and optimized processes that allow us to manufacture
these cells under current Good Manufacturing Practices (cGMP) compliant
conditions as required by the FDA for use in clinical trials and have generated
cell banks which we believe are sufficient to provide material to meet our
requirements through completion of Phase 3 studies. We have exclusive licenses
for the manufacturing and use of the surgical platform and cannula that enable
administration of the cells to the spinal cord for treatment. Based on our
preclinical data we believe that our human neural stem cells will differentiate
into neurons and glia after grafting into the patient and will provide
neuroprotection and stimulate neuroregeneration.
Our lead stem cell program is the spinal cord-derived neural stem cell line,
NSI-566, which is being tested for treatment of paralysis due to amyotrophic
lateral sclerosis (ALS, or Lou Gehrig's disease), ischemic stroke, and spinal
cord injury (SCI). To date we have completed Phase 1 and Phase 2 safety and dose
escalation studies in subjects with ALS and a Phase 1 safety and dose escalation
study in subjects with motor deficits due to ischemic stroke. Each of these
studies are currently in their long-term follow-up stage. In August 2018 , we
initiated a non-GCP (Good Clinical Practice) compliant randomized, double-blind,
placebo-controlled Phase 2 trial in subjects with chronic ischemic stroke. We
are also conducting a Phase 1 open label study to evaluate the safety of
implanting NSI-566 in subjects with chronic SCI.
Motor Deficits Due to Ischemic Stroke
Over 700,000 individuals suffer stroke each year in the US, the majority of whom experience long-term functional deficits. Ischemic stroke, which accounts for about 75% of all strokes, occurs as a result of an obstruction within a vessel supplying blood to the brain. Post-stroke motor deficits include paralysis or weakness in arms and legs and speech impairment and can be permanent. In the US, approximately 1.8 million people live with paralysis due to stroke. We believe that NSI-566 may provide an effective treatment for restoring motor deficits resulting from ischemic stroke by creating new circuitry in the area of injury and promoting regeneration of neural tissue damaged by the ischemic event.
Amyotrophic Lateral Sclerosis
Amyotrophic lateral sclerosis ("ALS") is a disease of the nerve cells in the
brain and spinal cord that control voluntary muscle movement. In 2018 the United
States Centers for Disease Control and Prevention reported that between 16,000
and 17,000 Americans have ALS, a prevalence of 5.2 cases per 100,000 people. In
ALS, nerve cells (motor neurons) waste away or die and can no longer send
messages to muscles. This eventually leads to muscle weakening, twitching, and
an inability to move the arms, legs, and body. As the condition progresses,
muscles in the chest area stop working, making it difficult or impossible to
breathe. NSI-566 is under development as a potential treatment for ALS by
providing cells designed to nurture and protect the patient's remaining motor
neurons. We received orphan designation by the FDA for NSI-566 in ALS.
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Chronic Spinal Cord Injury
SCI may result from trauma or disease affecting the spinal cord, and is in many cases a long term, chronic and disabling neurological condition. In the US it is estimated that there are 17,000 new cases of SCI per year, with a prevalence of 249,000-363,000 people. Chronic spinal cord injury (cSCI) refers to the window after recovery has plateaued, beginning approximately 6-12 months after injury. We believe that NSI-566 may provide an effective treatment for cSCI by "bridging the gap" in the spinal cord circuitry created following traumatic spinal cord injury and providing new cells to help transmit the signal from the brain to points at or below the point of injury.
Clinical Experience with NSI-566
Ischemic Stroke In 2013, we commenced an open label, non-GCP compliant, Phase I safety and dose escalation study to test transplantation of NSI-566 in human subjects for the treatment of motor deficits due to ischemic stroke. The trial was conducted atBaYi Brain Hospital inBeijing, China and sponsored by Suzhou Neuralstem, a wholly-owned subsidiary of Seneca inChina . This study was intended to evaluate the safety of direct injections of NSI-566 into the brain and to determine the maximum safe tolerated dose. We completed dosing the final cohort, for a total of nine subjects, inMarch 2016 . Subjects were monitored through a 24-month observational follow-up period. Delivery of NSI-566 cells in this population appeared to be safe and well tolerated at all doses. There were no deaths or serious adverse events related to the treatment (Zhang et al., Stem Cells Transl Med 2019, 8(10):999-1007). InAugust 2018 , we initiated a non-GCP compliant Phase 2 trial which is designed as a randomized, double-blind, placebo-controlled study. A total of 22 subjects were randomized to receive NSI-566 stem cells (72 million cells) or sham-surgery at a 1:1 ratio. All operations were conducted atBaYi Brain Hospital , the site of the Phase 1 study, and all follow-up assessments are being conducted by blinded, independent neurologists atBeijing Rehabilitation Hospital . The final subject was enrolled in this study inAugust 2019 .
Amyotrophic Lateral Sclerosis
InJanuary 2010 , we commenced a Phase 1 trial of NSI-566 in ALS atEmory University inAtlanta, Georgia . The purpose of the trial was to evaluate the safety of our proposed treatment and procedure in a total of 15 subjects. The dosing of subjects in the Phase 1 trial, as designed, was completed in August of 2012. We commenced a Phase 2 multisite clinical trial in subjects suffering from ALS in September of 2013 to further test the feasibility and safety of the treatment and procedure, and maximum tolerated dose of cells. The Phase 2 dose escalation trial enrolled 15 ambulatory subjects in five different dosing cohorts. InJune 2017 , 24-month Phase 2 results and combined Phase 1 and Phase 2 data from our ALS trials were presented at theInternational Society for Stem Cell Research (ISSCR) Annual Meeting, Approaches to Treating ALS,Boston, Massachusetts , by principal investigatorEva Feldman , MD, PhD,Russell N. DeJong Professor of Neurology and Director of Research of theALS Clinic at theUniversity of Michigan Health . The data showed that the intraspinal transplantation of the cells was safe and well tolerated. Subjects from both the Phase 1 and Phase 2 continue to be monitored for long-term follow-up evaluations. Chronic Spinal Cord Injury In 2013, we received authorization from the FDA to commence a Phase 1 clinical trial to treat chronic spinal cord injury. The trial, which is taking place at TheUniversity of California, San Diego orUCSD , commenced in 2014 and the first subject was treated inOctober 2014 . The study enrolled four AIS A classification thoracic spinal cord injury subjects (motor and sensory complete), one to two years' post-injury at the time of stem cell treatment. In January of 2016, we reported six-month follow-up data on all four subjects. The stem cell treatment was found to be safe and well-tolerated by the subjects enrolled and there were no serious adverse events. In April of 2018, we enrolled the first subject in the second cohort of the trial, which included patients with AIS-A complete, quadriplegic, cervical injuries involving C5-C7 of their spinal cord. The final patient of this cohort was enrolled inMarch 2019 . InJune 2018 , the study investigators published the results of the first cohort in the journal Cell Stem Cell. The results support the potential of transplanted NSI-566 to benefit patients with cSCI. At 18 months to 27 months after surgery, the analysis of motor and sensory function and electrophysiology showed changes in three of the four patients after NSI-566 transplantation. There was no evidence of serious adverse events, suggesting the procedure is well-tolerated.
Pre-Clinical Experience with NSI-566 and other candidates in our stem cell pipeline
Our preclinical studies with NSI-566 have served to provide the foundation for our ongoing clinical trials by demonstrating performance and efficacy of this cell line in animal models for ALS (Hefferan et al., PLoS One 2012, 7(8):e42614; Xu et al., Transplantation 2006, 82(7):865-875; Xu et al., J Comp Neurol 2009, 514(4):297-309; Xu et al., Neurosci Lett 2011, 494(3):222-226; Yan et al., Stem Cells 2006, 24(8):1976-1985), spinal cord injury (Cizkova et al., Neuroscience 2007, 147(2):546-560; Lu et al., Cell 2012, 150(6):1264-1273;van Gorp et al., Stem Cell Res Ther 2013, 4(3):57), and ischemic stroke (Tajiri et al., PLoS One 2014, 9(3):e91408), and demonstrated safety in large animals (Raore et al., Spine 2011, 36(3):E164-E171; Usvald et al., Cell Transplant 2010, 19(9):1103-1122). Additional studies involving NSI-566 or other proprietary cell lines are directed at identifying new therapeutic candidates. These include: 1) an ongoing collaboration with investigators at theMiami Project to Cure Paralysis to evaluate the application of NSI-566 in preclinical animal models for traumatic brain injury (Spurlock et al., J Neurotrauma 2017, 34(11):1981-1995), and 2) evaluation of the ability of NSI-532.IGF1, a human neural stem cell line engineered to express the trophic factor IGF1, to reverse the cognitive impact of neurodegeneration in a mouse model of Alzheimer's Disease (McGinley et al., Sci Rep 2018, 8(1):14776). 18
NSI-189 (Small Molecule Pharmaceutical Compound)
NSI-189 represents a new chemical entity that works through what appears to be a novel mechanism of action to stimulate neurogenesis of stem cells in the hippocampus, as well as generation of new synapses. Because impaired hippocampal neurogenesis has been linked with depression, we conducted clinical trials to evaluate the safety and effectiveness of NSI-189 in patients suffering from Major Depressive Disorder or MDD.
Major Depressive Disorder (MDD)
Major depressive disorder (also known as recurrent depressive disorder, clinical depression, major depression, unipolar depression, or unipolar disorder) is a mental disorder characterized by episodes of all-encompassing low mood accompanied by low self-esteem and loss of interest or pleasure in normally enjoyable activities. According to theWorld Health Organization , MDD is the leading cause of disability in theU.S. for persons age 15 to 44. In 2017, an estimated 17.3 million adults inthe United States had at least one major depressive episode in the prior year. This number represented 7.1% of all adults in the US. (https://www.nimh.nih.gov/health/statistics/prevalence/major-depression-among-adults.shtml). Treatment of MDD is characterized by a high level of patient turnover due to low efficacy and high side effects. It is estimated that 67% of patients will fail their first line therapy, 75% will then fail their second line prescription and 80% will then fail their third line prescription (Rush et al., Control Clin Trials 2004, 25(1):119-142).
Clinical Experience with NSI-189
In 2011, we commenced a Phase 1A clinical trial to evaluate the safety and pharmacokinetics of NSI-189 in healthy volunteers. The study enrolled 41 healthy male and female subjects into a single ascending dose phase. No dose-limiting toxicity was observed, and no serious adverse events (AE) were noted. This study was followed in 2012 with a Phase 1B randomized, double-blind, placebo-controlled, multiple-dose escalation study to evaluate safety, tolerability, pharmacokinetic (PK), and pharmacodynamic (PD) effects of NSI-189 phosphate in subjects with MDD. Trial data were presented inJune 2014 at theAmerican Society of Clinical Psychopharmacology Annual Meeting (ASCP) and published in the journal Molecular Psychiatry (Fava et al., Mol Psychiatry 2016, 21(10):1372-1380). NSI-189 was well tolerated and there were no serious adverse events. In May of 2016, we initiated an exploratory Phase 2 randomized, placebo-controlled, double-blind clinical trial for the treatment of MDD in an outpatient setting. The study randomized 220 subjects into three cohorts: NSI-189 40 mg twice daily (BID), NSI-189 40 mg once daily (QD), or placebo, and was conducted under the direction of study principal investigator (PI)Maurizio Fava , MD, Executive Vice Chair,Department of Psychiatry and Executive Director ,Clinical Trials Network and Institute ,Massachusetts General Hospital . The study did not meet its primary efficacy endpoint of a statistically significant reduction in depression symptoms on the Montgomery-Asberg Depression Rating Scale (MADRS), compared to placebo. Both doses were well-tolerated with no serious adverse events reported. OnDecember 5, 2017 , we presented an updated analysis - including reports on all secondary scales - from the Phase 2 study of NSI-189 in MDD at the 56thAmerican College of Neuropsychopharmacology (ACNP) Annual Meeting. Three additional patient reported outcomes showed statistically significant improvements in depressive and cognitive symptoms; all three patient reported outcome scales (SDQ, CPFQ, and QIDS-SR) NSI-189 reached statistical significance over placebo. In addition, we presented data on NSI-189's effect on cognition as measured by computer-administered objective tests of cognition in the MDD patients. Two different test methods were used: Cogstate® and CogScreen®. Cogstate did not yield statistically significant results. In CogScreen® test, NSI-189 40 mg showed statistically significant improvement (p<0.05) on objective measures of executive functioning, attention, working memory, and memory. NSI-189 appeared to be safe and well tolerated with no serious adverse events. There were no clinically meaningful changes in body weight or BMI, or in sexual function inventory. The study results have been published (Papakostas et al., Mol Psychiatry 2019, doi: 10.1038/s41380-018-0334-8). 19
Preclinical Experience with NSI-189
NSI-189 has shown promise in preclinical studies evaluating its impact in animal models for a number of different disease indications, including:
1. Ischemic stroke-in 2017 Tajiri and colleagues published a manuscript
reporting that NSI-189 ameliorated motor and neurological deficits in a
rodent model of ischemic stroke (Tajiri et al., J Cell Physiol 2017,
232(10):2731-2740)
2. Radiation-induced cognitive dysfunction-in 2018 Allen and colleagues
published a manuscript reporting that NSI-189 treatment could reverse
cognitive deficits in rats caused by cranial irradiation, a model of cranial
radiotherapy in the treatment of brain tumors (Allen et al., Radiat Res 2018,
189(4):345-353).
3. Angelman syndrome-in 2019 Liu and colleagues published a manuscript reporting
that NSI-189 reversed impairments in cognitive and motor deficits in a rodent
model of Angelman syndrome and increased synaptic strength in sections of
brains taken from these animals (Liu et al., Neuropharmacology 2019,
144:337-344). Angelman syndrome (AS) is a rare congenital genetic disorder
caused by a lack of function in the UBE3A gene on the maternal 15th
chromosome. It affects approximately one in 15,000 people - about 500,000
individuals globally. Symptoms of AS include developmental delay, lack of
speech, seizures, and walking and balance disorders.
4. Diabetes-associated peripheral neuropathy-in 2019 Jolivalt and colleagues
published a manuscript reporting that NSI-189 mitigated or reversed
disease-associated central and peripheral neuropathy in two rodent models of
diabetes (Jolivalt et al., Diabetes 2019, (11):2143-2154). Improvements
resulting from NSI-189 treatment were seen on multiple sensory and cognitive
indices.
A common theme emerging from these and other preclinical studies has been the
ability of NSI-189 to promote synaptogenesis as well as hippocampal
neurogenesis, along with its neuroprotective properties. Due to the favorable
safety profile seen in the Phase I and II clinical studies of NSI-189 and the
impact on cognitive measures observed in the Phase II trial in MDD patients, we
feel that this asset may have potential in treatment of one or more diseases
including those described above. On August 9, 2018 , NSI-189 received orphan
designation for the treatment of Angelman syndrome.
Our Technologies
Stem Cells
From a therapeutic perspective, our stem cell-based technology enables the
isolation and large-scale expansion of regionally specific, human neural stem
cells from all areas of the developing human brain and spinal cord thus enabling
the generation of physiologically relevant human neurons of different types. We
believe that our stem cell technology will enable the replacement or
supplementation of malfunctioning or dead cells thereby creating a neurotrophic
environment that offers protection to neural tissue as a way to treat disease
and injury. Many significant and currently untreatable human diseases arise from
the loss or malfunction of specific cell types in the body. Our focus is the
development of effective methods to generate replacement cells from neural stem
cells. We believe that creating a neurotrophic environment by replacing damaged,
malfunctioning or dead neural cells with fully functional ones may be a useful
therapeutic strategy in treating many diseases and conditions of the central
nervous system.
Our Proprietary and Novel Screening Platform
Our human neural stem cell lines form the foundation for functional cell-based assays used to screen for small molecule compounds that can impact biologically relevant outcomes such as neurogenesis, synapse formation, and protection against toxic insults. We have developed over 300 unique stem cell lines representing multiple different regions of the developing brain and spinal cord at multiple different time points in development, enabling the generation of physiologically relevant human neural cells for screening, target validation, and mechanism-of-action studies. This platform provides us with a unique and powerful tool to identify new chemical entities to treat a broad range of nervous system conditions.
Small Molecule Pharmaceutical Compounds.
Utilizing our proprietary stem cell-based screening capability, we have
discovered and patented a series of small molecule compounds that includes
NSI-189. We believe our low molecular weight organic compounds can efficiently
cross the blood/brain barrier. In mice, research indicated that the small
molecule compounds both stimulate neurogenesis of the hippocampus and increase
its volume. We believe the small molecule compounds may promote synaptogenesis
and neurogenesis in the human hippocampus thereby potentially providing
therapeutic benefits in indications such as MDD and may also provide clinical
benefit in indications such as Angelman Syndrome, Diabetic Neuropathy,
Cognition, Stroke and Radiation Induced Cognitive Deficit.
Research and Development
Substantial resources have been and will be devoted to our research and
development programs. Our efforts are directed at developing therapies utilizing
our stem cells and small molecule regenerative drug candidates. This research is
conducted internally, through the use of third-party laboratories, consulting
companies under our direct supervision, and through collaboration with academic
institutions.
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Manufacturing
We currently manufacture our cells both in-house and on an outsourced basis. We
outsource the manufacturing of our pharmaceutical compounds and our clinical
supply of stem cells to cGMP compliant third-party manufacturers. We manufacture
neural stem cells in-house for use in our research and collaborative programs.
Intellectual Property
We have developed and maintain a portfolio of patents and patent applications
that form the proprietary base for our research and development efforts. We own
or exclusively license 17 United States issued and pending patents and over 77
foreign issued and pending patents in the field of regenerative medicine,
related to our stem cell technologies as well as our small molecule compounds.
Our issued patents have expiration dates ranging from 2023 through 2038.
When appropriate, we seek patent protection for inventions in our core
technologies and in ancillary technologies that support our core technologies or
which we otherwise believe will provide us with a competitive advantage. We
accomplish this by filing patent applications for discoveries we make, either
alone or in collaboration with scientific collaborators and strategic partners.
Typically, although not always, we file patent applications both in the United
States and in select international markets. In addition, we plan to obtain
licenses or options to acquire licenses to patent filings from other individuals
and organizations that we anticipate could be useful in advancing our research,
development and commercialization initiatives and our strategic business
interests.
In addition to patenting our technologies, we also rely on confidential and proprietary information and take active measures to control access to that information, including the use of confidentiality agreements with our employees, consultants and certain of our contractors.
Our policy is to require our employees, consultants and significant scientific collaborators and sponsored researchers to execute confidentiality and assignment of invention agreements upon the commencement of an employment or consulting relationship with us. These agreements generally provide that all confidential information developed or made known to the individual by us during the course of the individual's or entity's relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and consultants, the agreements generally provide that all inventions conceived by the individual or entity in the course of rendering services to us shall be our exclusive property. Employees
As of
Our Corporate Information We were incorporated inDelaware in 2001. OnOctober 28, 2019 , we changed our name fromNeuralstem, Inc. toSeneca Biopharma, Inc. Our principal executive offices are located at20271 Goldenrod Lane ,Germantown, Maryland 20876, and our telephone number is (301) 366-4841. Our website is located at www.senecabio.com. We have not incorporated by reference into this report the information in, or that can be accessed through, our website and you should not consider it to be a part of this report. Trends & Outlook Revenue
We generated no revenues from the sale of our proposed therapies for any of the periods presented.
We have historically generated minimal revenue from the licensing of our intellectual property to third parties as well as payments under a settlement agreement.
On a long-term basis, we anticipate that our revenue will be derived primarily
from licensing fees and sales of our products. Because we are at such an early
stage in the clinical trials process, we are not yet able to accurately predict
when we will have a product ready for commercialization, if ever.
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Research and Development Expenses
Our research and development expenses consist primarily of clinical trial expenses, including payments to clinical trial sites that perform our clinical trials and clinical research organizations (CROs) that help us manage our clinical trials, manufacturing of small molecule drugs and stem cells for both human clinical trials and for pre-clinical studies and research, personnel costs for research and clinical personnel, and other costs including research supplies and facilities. Our 2019 research and development expenses reflect the costs of the technical evaluation of our internal programs as well as the evaluation of certain potential assets we considered for acquisition. We focus on the development of therapies with potential uses in multiple indications and use employee and infrastructure resources across several projects. Accordingly, many of our costs are not attributable to a specifically identified product and we do not account for internal research and development costs on a project-by-project basis. We expect that research and development expenses, which include expenses related to our ongoing ischemic stroke clinical trial, will decrease in the future as we seek partners to further the clinical development of our therapeutic programs. This could change if we are successful in our in-licensing and acquisition strategy in which we are evaluating novel therapeutics, our research and development expenditures will be primarily devoted to advancing the acquired programs towards or through later stage clinical trials.
We have a wholly-owned subsidiary in
InAugust 2017 , we were awarded aSmall Business Innovation Research ("SBIR") grant by theNational Institutes of Health ("NIH") to evaluate in preclinical studies the potential of NSI-189, a novel small molecule compound, for the prevention and treatment of diabetic neuropathy. The award of approximately$1 million will be paid over a two-year period, if certain conditions are met at mid-term. The award performance period was extended throughJuly 31, 2020 to complete the data collection and report writing. The grant balance was approximately$57,000 atMarch 31, 2020 , we anticipate receiving this amount over the extended performance period. InJune 2018 , we were awarded aDepartment of Defense grant related to our efforts involving stem cell therapy for severe traumatic brain injury. The award of approximately$150,000 was received in 2019. The proceeds from the awards are recorded as a reduction of our gross research and development expenses, based on the terms and conditions of the grants.
General and Administrative Expenses
General and administrative expenses are primarily comprised of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations and costs associated with maintaining a public company listing, legal, audit and compliance fees, facilities and other external general and administrative services. Going Concern Our auditors' report issued in connection with ourDecember 31, 2019 financial statements expressed an opinion that due to recurring losses from operations and accumulated deficit, there is substantial doubt about our ability to continue as a going concern. Our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2021. If we do not obtain additional capital by such time, we may no longer be able to continue as a going concern and may cease operation or seek bankruptcy protection. COVID-19 The COVID-19 pandemic has resulted in quarantines, restrictions on travel and other business and economic disruptions. We have evaluated the impact of the pandemic on our business operations and plans, including but not limited to the impact on access to capital, planned and ongoing clinical trials, cash management and our investment policies regarding cash as well as the long term effects in the medical and drug development fields. Given our present level of operations and liquidity, along with our planned and ongoing clinical trials, we believe it is still too early to predict whether COVID-19 will have a material impact on our short-term operations. From a medium to long term perspective, if we were to initiate additional clinical trials or complete an in-licensing transaction, we may be required to raise additional capital and engagement with third party vendors, CROs and CMOs. If the present business shutdowns continue, we may find it difficult to engage such vendor and the cost of such trials, as well as the time to conduct them, may greatly increase as a result of the inefficiencies inherent in virtual meetings, increases in general costs and a decrease in the number of qualified vendors. Additionally, the pandemic has had a negative impact on the capital markets and accordingly, will likely impact our ability to raise additional capital with which to fund our operations. Although still too early to predict, we believe the mid and long-term effects of COVID-19 may materially impact our business. 22 Critical Accounting Policies Our unaudited consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation of our condensed consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our condensed consolidated financial statements are fairly stated in accordance withU.S. GAAP and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: Use of Estimates - The preparation of financial statements in accordance withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The condensed consolidated financial statements include significant estimates for the expected economic life and value of our licensed technology and related patents, our net operating loss and related valuation allowance for tax purposes, the fair value of our liability classified warrants and our share-based compensation related to employees and directors, consultants and advisors, among other things. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates. Long Lived Intangible Assets - Our long-lived intangible assets consist of our intellectual property patents including primarily legal fees associated with the filings and in defense of our patents. The assets are amortized on a straight-line basis over the expected useful life which we define as ending on the expiration of the patent group. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We assess this recoverability by comparing the carrying amount of the asset to the estimated undiscounted future cash flows to be generated by the asset. If an asset is deemed to be impaired, we estimate the impairment loss by determining the excess of the asset's carrying amount over the estimated fair value. These determinations use assumptions that are highly subjective and include a high degree of uncertainty. During the three-month periods endedMarch 31, 2020 and 2019, no significant impairment losses were recognized. Fair Value Measurements -The fair value of our short-term financial instruments, which primarily include cash and cash equivalents, accounts payable and accrued expenses, approximate their carrying values due to their short maturities. The fair values of our liability classified warrants are estimated using Level 3 unobservable inputs. Share-Based Compensation- We account for share-based compensation at fair value; accordingly, we expense the estimated fair value of share-based awards over the requisite service period. Share-based compensation cost for stock options and warrants is generally determined at the grant date using an option pricing model. Option pricing models require us to make assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the model were to significantly change, share-based compensation expense may be materially different. Share-based compensation cost for restricted stock and restricted stock units is generally determined at the grant date based on the closing price of our common stock on that date. The value of the award is generally recognized as expense on a straight-line basis over the requisite service period. RESULTS OF OPERATIONS
Comparison of Three Months Ended
Revenue
During each of the three months endedMarch 31, 2020 and 2019 we recognized revenue of$2,500 related to ongoing fees pursuant to certain licenses of our intellectual property to third parties. In addition, during the three months endedMarch 31, 2020 we recognized$3,500 of royalty revenue related to a settlement of a prior patent infringement case. 23 Operating Expenses
Operating expenses for the three months ended
Three Months Ended March 31, Increase (Decrease)
2020 2019 $ %
Operating Expenses
Research and development expenses $ 696,889 $ 1,514,463 $ (817,574 ) (54 %)
General and administrative expenses 1,299,595 944,602 354,993 38 %
Total operating expenses $ 1,996,484 $ 2,459,065 $ (462,581 ) (19 %)
Research and Development Expenses
The decrease of approximately$818,000 or 54% in research and development expenses was primarily attributable to the continued wind down of clinical activities for our stem cell and small molecule programs in 2020. In 2019, we incurred expenses related to external consulting services engaged in the technical evaluation of our internal programs as well as the evaluation of certain potential assets we considered for acquisition. We expect that research and development expenses, which include expenses related to our ongoing stroke clinical trial, will decrease in the future as we seek partners to further the clinical development. This could change if we are successful in our in-licensing and acquisition strategy in which we are evaluating novel therapeutics, our research and development expenditures will be primarily devoted to advancing the acquired programs towards or through later stage clinical trials.
General and Administrative Expenses
G&A expenses increased approximately$355,000 or 38%. As noted above we have shifted the Company strategy and focus from the development of the stem cell assets and initiated an out-licensing effort to partner these programs while seeking to in license or acquire novel therapeutics with the potential to be complimentary to our current technologies or that could benefit from our development experience with the goal of developing such technologies for commercialization. Associated with this shift in strategic focus our G&A expenses in the 2020 period reflect an enhanced internal management structure including individual consultants in key roles.
Other income (expense)
Other expense, net totaled approximately (
Other income, net in 2020 consisted primarily of a non-cash warrant inducement charge of approximately$5,620,000 partially offset by$25,000 of non-cash gains related to the fair value adjustment of our liability classified warrants. Other expense, net in 2019 consisted primarily of approximately a$368,000 loss related to the write-off of a related party receivable,$340,000 of non-cash losses related to the fair value adjustment of our liability classified stock purchase warrants partially offset by$29,000 of interest income and$24,000 of sublease income. Liquidity and Capital Resources Financial Condition Since our inception, we have financed our operations through the sales of our securities, issuance of long-term debt, the exercise of investor warrants, and to a lesser degree from grants and research contracts as well as the licensing of our intellectual property to third parties. We had cash and cash equivalents of approximately$10 million atMarch 31, 2020 . InJanuary 2020 , we raised approximately$6.7 million of net proceeds from the exercise of certain common stock purchase warrants pursuant to an inducement offer. Based on our expected operating cash requirements, we anticipate our current cash and investments on hand will be sufficient to fund our operations, for more than 12 months after this filing. Accordingly, we will require additional capital to further develop current or acquired product candidates, conduct our pre-clinical and clinical development programs and to fund our operations. Despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us when needed or that we may be able to secure funding from any other sources. Consequently, as explained in Note 1 to our condensed consolidated financial statements, management has determined that there is substantial doubt about our ability to continue as a going concern. 24 We will require additional capital to pursue our acquisition and in-licensing strategy and continue our pre-clinical and clinical development plans. To continue to fund our operations and the development of our product candidates we anticipate raising additional cash through the private and public sales of equity or debt securities, collaborative arrangements, licensing agreements, asset sales or a combination thereof. Although management believes that such funding sources will be available, there can be no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source. We cannot assure you that we will be able to secure additional capital or that the expected income will materialize. Several factors will affect our ability to raise additional funding, including, but not limited to market conditions, interest rates and, more specifically, our progress in our exploratory, preclinical and future clinical development programs.
Cash Flows - 2020 compared to 2019
Three Months ended March 31, Favorable (Unfavorable)
2020 2019 $ %
Net cash used in operating activities
(1 %)
Net cash provided by investing activities $ - $ - $ - - %
Net cash provided by financing activities
5734 %
Cash used in operating activities for the three months endedMarch 31, 2020 , of approximately$1,678,000 reflects our$7,575,000 loss for the period adjusted for certain non-cash items including: (a)$5,620,000 of expense related to our warrant inducement transaction, (ii)$197,000 of net cash inflows related to changes in operating assets and liabilities, (iii)$76,000 of share-based compensation.
There were no investing activities in either of the three months ended
For the three months endedMarch 31, 2020 , cash provided by financing activities consisted of$6.7 million of net proceeds generated from the exercise of warrants pursuant to an inducement offer partially offset by payments under our short-term debt used to finance insurance premiums. For the three months endedMarch 31, 2019 , cash used in financing activities consisted solely of payments on our short-term debt used to finance insurance premiums. Future Liquidity and Needs We have incurred significant operating losses and negative cash flows since inception. We have not been able to generate significant revenues nor achieved profitability and may not be able to do so in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for general and administrative expenses and other working capital requirements. We have relied on cash balances and the proceeds from the offering of our securities, exercise of outstanding warrants and grants to fund our operations. We intend to pursue opportunities to obtain additional funds through the out-license or sale of our existing clinical programs in addition to financing in the future through the sale of our securities and additional research grants. OnJune 23, 2017 , our shelf registration statement (Registration No. 333-218608), which replaced our prior expiring shelf registration statement, was declared effective by theSEC . Under such replacement shelf registration statement, we can offer and sell up to$100 million of our securities. ThroughMarch 31, 2020 we have sold approximately$12.6 million of securities under our shelf registration statement. Based on our current market capitalization, we are limited to the use of our shelf registration statement by Item I.B.6 of Form S-3. OnJuly 30, 2019 , we completed a firm commitment underwritten public offering of our securities. The offering resulted in net proceeds of approximately$6.6 million , after deducting underwriting discounts and commissions and offering expenses. The securities in this offering were sold pursuant to a registration statement on Form S-1 (file no. 333- 232273). 25 InJanuary 2020 , pursuant to the terms of an inducement offer, certain holders of 5,555,554 of our common stock purchase warrants exercised their warrants at an exercise price of$1.36 per share generating approximately$6.7 million of net proceeds. As explained in the notes to our condensed consolidated financial statements, if we are not able to raise additional funds when needed, there would continue to be substantial doubt as to our ability to continue as a going concern. The source, timing and availability of any future financing will depend principally upon market conditions, interest rates and, more specifically, current and future progress in our exploratory, preclinical and clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties.
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