ANEBULO PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed financial
statements and related notes included in this Quarterly Report and the audited
financial statements and notes thereto as of and for the year ended
Overview
We are a clinical-stage biotechnology company developing novel solutions for
people suffering from acute cannabinoid intoxication ("ACI") and substance
addiction. Our lead product candidate, ANEB-001, is intended to rapidly reverse
the negative effects of ACI within 1 hour of administration. The signs and
symptoms of ACI range from profound sedation to anxiety and panic to psychosis
with hallucinations. There is no approved medical treatment currently available
to specifically alleviate the symptoms of ACI. If approved by the FDA, we
believe ANEB-001 has the potential to be the first FDA approved treatment of its
kind on the market for reversing the effects of THC, the principal psychoactive
constituent of cannabis. Clinical trials completed to date have shown that
ANEB-001 is rapidly absorbed, well tolerated and when administered to obese
subjects leads to weight loss, an effect that is consistent with central CB1
antagonism. We initiated a Phase 2 proof-of-concept clinical trial in
ACI episodes have become a widespread health issue in
In
Our objective is to develop and commercialize new treatment options for patients suffering from ACI and substance addiction. Our lead product candidate is ANEB-001, a potent, small molecule cannabinoid receptor antagonist, to address the unmet medical need for a specific antidote for ACI. ANEB-001 is an orally bioavailable, rapidly absorbed treatment that we anticipate will reverse the symptoms of ACI, in most cases within 1 hour of administration. Our proprietary position in the treatment of ACI is protected by rights to two patent applications covering various methods of use of the compound and delivery systems.
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We were incorporated in
On
On
Components of Results of Operations
Revenue
We have not generated any revenue since inception. If our development efforts for our current lead product candidate, ANEB-001, or other additional product candidates that we may develop in the future, are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We have incurred operating losses since inception and expect to continue to incur significant operating losses and negative cash flows from operations in the future.
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Research and Development Expenses
We expect to continue incurring significant research and development costs
related to ANEB-001. Our research and development expenses for the three months
ended
We anticipate that our research and development activities will account for a significant portion of our operating expenses and these costs are expensed as incurred. We expect to significantly increase our research and development efforts as we continue to develop ANEB-001 and conduct clinical trials with patients suffering from symptoms of ACI, as well as continue to expand our product-candidate pipeline. Research and development expenses include:
? employee-related expenses, such as salaries, share-based compensation,
benefits and travel expense for research and development personnel that we
plan to hire;
? direct third-party costs such as expenses incurred under agreements with
contract research organizations ("CROs") and contract manufacturing
organizations ("CMOs");
? costs associated with research and development activities of consultants;
? manufacturing costs in connection with producing materials for use in
conducting preclinical studies and clinical trials;
? other third-party expenses directly attributable to the development of our
product candidates; and
? amortization expense for future asset purchases used in research and
development activities.
We currently have one lead product candidate; therefore, we do not track our internal research and development expenses on an indication-by-indication basis.
Research and development activities will continue to be central to our business model. We expect our research and development expenses to be significant over the next several years as we advance our current clinical development program and prepare to seek regulatory approval.
General and Administrative Expenses
General and administrative expenses for the three months ended
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations:
Three Months Ended
September 30, Period to Period
2022 2021 Change
Research and development $ 1,223,776 $ 715,098 $ 508,678
General and administrative 1,388,271 839,826 548,445
Total operating expenses 2,612,047 1,554,924 1,057,123
Loss from operations (2,612,047 ) (1,554,924 ) (1,057,123 )
Other income, net 212 1,529 (1,317 )
Net loss $ (2,611,835 ) $ (1,553,395 ) $ (1,058,440 )
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Research and Development Expenses
Research and development expenses consisted of the following:
Three Months Ended
September 31,
2022 2021 Change
Pre-clinical and clinical studies
186,167 250,950 (64,783 )
Compensation and related benefits 44,681 21,530 23,151
Stock-based compensation expense - 9,880 (9,880 )
Other research and development 261,643 141,626 120,017
Total research and development expenses
The overall increase in research and development expenses was primarily attributable to an increase in activities related to pre-clinical and clinical studies, and direct third-party costs incurred under agreements with CROs for ANEB-001. The increase in pre-clinical and clinical studies was related to Phase 2 clinical studies for ANEB-001. The decrease in contract manufacturing was due to timing of contract manufacturing requirements during the year.
General and Administrative Expenses
General and administrative expenses consisted of the following:
Three Months Ended
September 30,
2022 2021 Change
Compensation and related benefits $ 355,631 $ 90,521 $ 265,110
Professional and consultant fees 465,358 328,531 136,827
Stock-based compensation expense 211,900 24,293 187,607
Directors' and officers' insurance 241,877 327,818 (85,941 )
Facilities and other costs 113,505 68,663 44,842
Total general and administrative expenses
The overall increase in general and administrative expenses was primarily attributable to compensation and related benefits and stock-based compensation for additional executives and employees, professional and consultant fees, including legal and accounting fees, and facilities and other costs to support our continuous growth in operations. This was partially offset by a decrease in directors' and officers' insurance resulting from a decrease in yearly premium amount.
Liquidity and Capital Resources
Overview
Since our inception in
13 Cash Flows
The following table sets forth a summary of our cash flows:
Three Months Ended September 30,
2022 2021
Net cash used in operating activities
6,699,148 -
Net increase (decrease) in cash $ 4,665,226 $ (777,902 ) During the three months ended
Funding and Material Cash Requirements
We expect that our cash at
Until such time, if ever, as we can generate substantial product revenue from sales of any of our current or future product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. We have no current agreements or understandings with investors to provide such capital.
Our present and future funding and cash requirements will depend on many factors, including, among other things:
? the progress, timing and completion of our ongoing and planned clinical trials
and nonclinical studies;
? our ability to receive, and the timing of receipt of, future regulatory
approvals for our product candidates and the costs related thereto;
? the scope, progress, results and costs of our ongoing and planned operations;
? the costs associated with expanding our operations and building our sales and
marketing capabilities;
? our ability to establish strategic collaborations;
? the cost and timing of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending any
intellectual property-related claims;
? the revenue, if any, received from commercial sales of our products, if
approved; and
? potential new product candidates we identify and attempt to develop.
Until such time, if ever, as we can generate substantial product revenue from sales of any of our current or future product candidates, we will need to seek additional equity or debt financing or potential collaboration, license or development agreements to provide the capital required to maintain or expand our operations, continue the development of our product candidate, build our sales and marketing capabilities, promote brand identity, develop or acquire complementary technologies, products or businesses, or provide for our working capital requirements and other operating and general corporate purposes. If we raise additional capital by issuing equity securities and/or equity-linked securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities and/or equity-linked securities that provide rights, preferences and privileges senior to those of our common stock. Debt financing, if obtained, may involve agreements that include liens on our assets and covenants limiting or restricting our ability to take specific actions such as incurring additional debt. Debt financing could also be required to be repaid regardless of our operating results. If we raise funds through collaborations, license or development agreements, we may be required to relinquish some rights to our current or future products or revenue streams or grant licenses on terms that are not favorable to us. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back or eliminate the development of our current or future product candidates and other business.
Contractual Obligations and Commitments
License Agreement with
On
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Under the License Agreement, we purchased the API for ANEB-001 from Vernalis on
an "as is" basis for
Office Lease, Manufacturing Contract and CRO Contract
We manage our business operations from our principal executive office in
In
In
We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturers and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and therefore, are cancellable contracts.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed financial statements are prepared in accordance with accounting
principles generally accepted in
While our significant accounting policies are disclosed in the audited financial
statements as of and for the year ended
As part of the process of preparing our condensed financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed and some require advanced payments. We make estimates of our accrued expenses of each balance sheet date in our condensed financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
? CROs in connection with performing research services on our behalf and any
clinical trials;
? Investigative sites or other providers in connection with studies and any
clinical trials;
? Vendors in connection with the preparation of our NDA filing, market and
patient awareness programs, market research and analysis and medical
education; and
? Vendors related to product manufacturing, development and distribution of
clinical supplies.
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We base our expenses for services rendered on our estimates of the services received and efforts expended pursuant to quotes, contracts and communicating with our vendors. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payments. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid or accrued expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
Stock-Based Compensation Expense
The 2020 Stock Incentive Plan provides for the grant of qualified incentive stock options and nonqualified stock options or other awards to our employees, officers, directors, advisors, and outside consultants for the purchase of up to 3,650,000 shares of our common stock. Other awards include restricted stock, restricted stock units, stock appreciation rights and other stock-based awards. Other stock-based awards are awards valued in whole or in part by reference to, or are otherwise based on, shares of common stock. Stock options generally vest over a four-year period or at achievement of a performance requirement. The awards expire five years from the date of grant.
We estimate the fair value of each stock option grant using the Black-Scholes option pricing model, which uses inputs such as the fair value of our common stock, assumptions we make for the volatility of our common stock the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term, and our expected dividend yield. The fair value of our common stock is used to determine the fair value of restricted stock.
Prior to our IPO, the fair value of our common stock was estimated on each grant
date by our Board of Directors. In order to determine the fair value of our
common stock, our Board of Directors considered, among other things, timely
valuations of our common stock prepared by an unrelated third-party valuation
firm in accordance with the guidance provided by the
There are significant judgments and estimates inherent in these valuations. The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.
After the closing of the IPO, our Board of Directors now determines the fair value of our shares of common stock underlying stock-based awards based on the closing price of our common stock as reported by Nasdaq on the date of grant.
JOBS Act Accounting Election
The Jumpstart Our Business Startups ("JOBS") Act, enacted in
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