ARCH THERAPEUTICS, INC. References in this Quarterly Report on Form 10-Q (this "Quarterly Report", or
this "Report") to "
Forward Looking Statements
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated condensed
financial statements and the related notes included elsewhere in this Report.
Our consolidated condensed financial statements have been prepared in accordance
with accounting principles generally accepted in
Corporate Overview
ABS was incorporated under the laws of the
In the first quarter of 2021, the Company commenced commercial sales of our
first product, AC5® Advanced Wound System, and has devoted substantially all of
our operational effort to the research, development and regulatory programs
necessary to turn our core technology into commercial products. To date, the
Company has principally raised capital through debt borrowings, the issuance of
convertible debt, and the issuance of units consisting of the Company's common
stock,
The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of its potential products. However, there can be no assurance that the Company will be successful in securing additional resources when needed, on terms acceptable to the Company, if at all. Therefore, there exists substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.
Business Overview
We are a biotechnology company marketing and developing a number of products based on our innovative AC5® self-assembling technology platform. We believe these products can be important advances in the field of stasis and barrier applications, which includes stopping bleeding ("hemostasis"), controlling leaking ("sealant") and managing wounds created during surgery, trauma or interventional care or from disease. We have only recently commenced commercial sales of our first product, AC5® Advanced Wound System, and have devoted substantially all of our operational effort to the research, development and regulatory programs necessary to turn our core technology into commercial products. Our goal is to make care faster and safer for patients with products for use in external wounds, which we refer to as Dermal Sciences applications, and products for use inside the body, which we refer to as Biosurgery applications.
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Table of Contents Core Technology
Our flagship products and product candidates are derived from our
AC5® self-assembling peptide ("SAP") technology platform and are sometimes
referred to as AC5® or the "AC5® Devices." These include AC5® Advanced Wound
System and AC5 Topical Hemostat, which have received marketing authorization as
medical devices in
Products based on the AC5® platform contain a biocompatible peptide that is synthesized from proteogenic, naturally occurring L-amino acids. Unlike products that contain traditional peptide sequences, when applied to a wound, AC5®-based products intercalate into the interstices of the connective tissue and self-assemble into a protective physical-mechanical nanoscale structure that can provide a barrier to leaking substances, such as blood, while also acting as a biodegradable scaffold that enables healing. Self-assembly is a central component of the mechanism of action of our technology. Individual AC5® peptide units readily build themselves, or self-assemble, into an ordered network of nanofibrils when in aqueous solution by the following process:
? Peptide strands line up with
neighboring peptide strands,
interacting via hydrogen bonds
(non-covalent bonds) to form a
ribbon-like structure called a beta
sheet.
? This process continues such that
hundreds of strands organize with
charged and polar side chains oriented
on one face and non-polar side chains
oriented on the opposite face of the
beta sheets.
? Interactions of the resulting
structure with water molecules and
ions results in formation nanofibrils,
which extend in length and can join
together to form larger nanofibers.
? This network of AC5® peptide
nanofibers form the
physical-mechanical barrier that is
responsible for sealant, hemostatic
and other properties, regardless of
the presence of antithrombotic agents,
and which subsequently becomes the
scaffold that supports the repair and
regeneration of damaged tissue.
Based on the intended application, we believe that the underlying AC5® SAP technology can impart important features and benefits to our products that may include, for instance, stopping bleeding (hemostasis), mitigating contamination, modulating inflammation, donating moisture, and enabling an appropriate wound microenvironment conducive to healing. For instance, AC5® Advanced Wound System, which is indicated for the management of partial and full-thickness wounds, such as pressure sores, leg ulcers, diabetic ulcers, and surgical wounds, is shipped and stored at room temperature, is applied directly as a liquid, can conform to irregular wound geometry, and does not possess sticky or glue-like handling characteristics. We believe these properties enhance its utility in several settings and contribute to its user-friendly profile.
We believe that our technology lends itself to a range of potential applications in which there is a wound inside or on the body, and in which there is need for a hemostatic agent or sealant. For instance, the results of certain preclinical and clinical investigations that either we have conducted, or others have conducted on our behalf, have shown quick and effective hemostasis with the use of AC5® SAP technology, and that time to hemostasis ("TTH") is comparable among test subjects regardless of whether such test subject had or had not been treated with therapeutic doses of anticoagulant or antiplatelet medications, commonly called "blood thinners." Furthermore, the transparency and physical properties of certain AC5® Devices may enable a surgeon to operate through it in order to maintain a clearer field of vision and prophylactically stop or lessen bleeding as surgery starts, a concept that we call Crystal Clear Surgery™. An example of a product that contains related features and benefits is AC5® Topical Hemostat, which is indicated for use as a dressing and to control mild to moderate bleeding, each during the management of injured skin and the micro-environment of an acute surgical wound.
Operations
Much of our operational efforts to date, which we often perform in collaboration
with partners, have included selecting compositions and formulations for our
initial products; conducting preclinical studies, including safety and other
tests; conducting a human trial for safety and performance of AC5®; developing
and conducting a human safety study to assess for irritation and sensitization
potential; securing marketing authorization for our first product in
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Table of Contents
Our long-term business plan includes the following goals:
? conducting biocompatibility, pre-clinical, and clinical studies on our
products and product candidates;
? obtaining additional marketing authorization for products in the United
States , Europe , and other jurisdictions as we may determine;
? continuing to develop third party relationships to manufacture, distribute,
market and otherwise commercialize our products;
? continuing to develop academic, scientific and institutional relationships
to collaborate on product research and development;
? expanding and maintaining protection of our intellectual property portfolio; and
? developing additional product candidates in Dermal Sciences, Biosurgery, and
other areas.
In furtherance of our long-term business goals, we expect to continue to focus on the following activities during the next twelve months:
? seek additional funding as required to support the milestones described
previously and our operations generally;
? work with our manufacturing partners to scale up production of product
compliant with current good manufacturing practices ("cGMP"), which
activities will be ongoing and tied to our development and commercialization
needs;
? further clinical development of our product platform;
? assess our technology platform in order to identify and select product
candidates for potential advancement into development;
? seek regulatory input to guide activities related to expanded and new
product marketing authorizations;
? continue to expand and enhance our financial and operational reporting and
controls;
? pursue commercial partnerships; and
? expand and enhance our intellectual property portfolio by filing new patent
applications, obtaining allowances on currently filed patent applications,
and/or adding to our trade secrets in self-assembly, manufacturing,
analytical methods and formulation, which activities will be ongoing as we
seek to expand our product candidate portfolio.
In addition to capital required for operating expenses, depending upon additional input from EU and US regulatory authorities, as well as the potential for additional regulatory filings and approvals during the next two years, additional capital will be required.
We have no commitments for any future capital. As indicated above, we will require significant additional financing to fund our planned operations, including further research and development relating to AC5®, seeking regulatory approval of that or any other product we may choose to develop, commercializing any product for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or business, and maintaining our intellectual property rights, pursuing new technologies and for financing the investor relations and incremental administrative costs associated with being a public corporation. We do not presently have, nor do we expect in the near future to have, sufficient revenue to fund our business from operations, and we will need to obtain substantially all of our necessary funding from external sources for the foreseeable future. We may not be able to obtain additional financing on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail, and our stockholders could lose all of their investment.
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Table of Contents
Since inception, we have funded our operations primarily through debt borrowings, the issuance of convertible debt and the issuance of units consisting of Common Stock and warrants, and we may continue to seek to do so in the future. If we obtain additional financing by issuing equity securities, our existing stockholders' ownership will be diluted. The terms of securities we may issue in future capital-raising transactions may be more favorable for our new investors. Further, newly issued securities may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have additional dilutive effects. If we obtain additional financing by incurring debt, we may become subject to significant limitations and restrictions on our operations pursuant to the terms of any loan or credit agreement governing the debt. Further, obtaining any loan, assuming a loan on acceptable terms would be available when needed, would increase our liabilities and future cash commitments. We may also seek funding from additional collaboration or licensing arrangements in the future, which may require that we relinquish potentially valuable rights to our product candidates or proprietary technologies or grant licenses on terms that are not favorable to us. Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits, including investment-banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs.
Merger with ABS and Related Activities
On
Recent Developments
On
On
On
Results of Operations
The following discussion of our results of operations should be read together with the unaudited interim consolidated financial statements included in this Report. The period-to-period comparisons of our interim results of operations that follow are not necessarily indicative of future results.
Three Months Ended
June 30, June 30, Increase
2022 2021 (Decrease)
($) ($) ($)
Revenue 6,261 - 6,261
Operating Expense:
Cost of revenues 17,140 - 17,140
Selling, general and administrative 836,215 1,370,395 (534,180 )
Research and development 159,846 297,553 (137,707 )
Loss from Operations (1,006,940 ) (1,667,948 ) (661,008 )
Other Income (Expense) (39,890 ) 138,043 (177,933 )
Net loss (1,046,830 ) (1,529,905 ) 483,075
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Table of Contents Revenue
Revenue for the three months ended
Cost of Revenue
Cost of revenue during the three months ended
Selling, General and Administrative Expense
Selling, general and administrative expense during the three months ended
Research and Development Expense
Research and development expense during the three months ended
Other Income (Expense)
Other expense during the three months ended
Nine Months Ended
June 30, June 30, Increase
2022 2021 (Decrease)
($) ($) ($)
Revenue 14,086 10,000 4,086
Operating Expenses
Cost of revenues 51,363 10,102 41,261
Selling, general and administrative 3,308,227 3,600,419 (292,192 )
Research and development 922,120 1,051,755 (129,635 )
Loss from Operations (4,291,710 ) (4,652,276 ) (380,566 )
Other Income (Expense) 880,329 176,971 703,358
Net Loss (3,387,295 ) (4,475,305 ) 1,088,010
Revenue
Revenue for the nine months ended
Cost of Revenues
Cost of revenue during the nine months ended
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Table of Contents
Selling, General and Administrative Expense
Selling, general and administrative expense during the nine months ended
Research and Development Expense
Research and development expense during the nine months ended
Other Income (Expense)
Other income during the nine months ended
Liquidity and Capital Resources
We have only recently completed the first sale of our first product, AC5® Advanced Wound System. We devote a significant amount of our efforts on fundraising as well as planning and conducting product research and development and activities in connection with obtaining regulatory marketing authorization. We have principally raised capital through borrowings and the issuance of convertible debt and units consisting of Common Stock and warrants to fund our operations.
Working Capital
At
June 30 ,September 30, 2022 2021
Total Current Assets
1,727,547
Working Capital $ (352,559 ) $ 1,940,198 Total current assets as of
Total current liabilities as of
Cash Flow for the Nine Months EndedJune 30, 2022 Compared to the Three Months EndedJune 30, 2021 June 30 ,June 30, 2022 2021
Cash Used in Operating Activities
- (3,275 )
Cash Provided by Financing Activities 575,000 7,269,233
Net Increase (decrease) in Cash
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Table of Contents
Cash Used in Operating Activities
Cash used in operating activities decreased by
Cash Used in Investing Activities
Cash used in investing activities decreased by
Cash Provided by Financing Activities
Cash provided by financing activities decreased by
Cash Requirements
We anticipate that our operating and other expense will increase significantly
as we continue to implement our business plan and pursue our operational goals.
As of
In the first quarter of 2021, the Company commenced commercial sales of our first product, AC5® Advanced Wound System. That revenue will not be sufficient to fund our business operations and we will need to obtain additional funding from external sources for the foreseeable future. We do not have any commitments for future capital. Significant additional financing will be required to fund our planned operations in the near term and in future periods, including research and development activities relating to our principal product candidate, seeking regulatory approval of that or any other product candidate we may choose to develop, commercializing any product candidate for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or businesses, and maintaining our intellectual property rights and pursuing rights to new technologies. We may not be able to obtain additional financing on commercially reasonable or acceptable terms when needed, or at all. We are bound by certain contractual terms and obligations that may limit or otherwise impact our ability to raise additional funding in the near-term including, but not limited to, provisions in the 2018 SPA (see Note 6) restricting our ability to effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (or a combination of units thereof) involving a Variable Rate Transaction (as defined in the 2018 SPA) including, but not limited to, an equity line of credit or "At-the-Market" financing facility until the three lead investors in the 2018 Financing collectively own less than 20% of the Series G Warrants purchased by them pursuant to the 2018 SPA. These restrictions and provisions could make it more challenging for us to raise capital through the incurrence of debt or through equity issuances. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail, and our stockholders could lose all of their investments.
As previously noted, since inception we have funded our operations primarily through equity and debt financings and we expect to continue to seek to do so in the future. If we obtain additional financing by issuing equity securities, our existing stockholders' ownership will be diluted. Additionally, the terms of securities we may issue in future capital-raising transactions may be more favorable for our new investors, and in particular may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have additional dilutive effects. If we obtain additional financing by incurring debt, we may become subject to significant limitations and restrictions on our operations pursuant to the terms of any loan or credit agreement governing the debt. Further, obtaining any loan, assuming a loan would be available when needed on acceptable terms, would increase our liabilities and future cash commitments. We may also seek funding from collaboration or licensing arrangements in the future, which may require that we relinquish potentially valuable rights to our product candidates or proprietary technologies or grant licenses on terms that are not favorable to us. Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs.
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Table of Contents Going Concern
We have commenced commercial sales of our first product, AC5® Advanced Wound
System. From inception, we have had recurring losses from operations. While the
Company anticipates that it will have cash on hand into the second quarter of
fiscal 2023, the continuation of our business as a going concern is dependent
upon raising additional capital and eventually attaining and maintaining
profitable operations. As of
Critical Accounting Policies and Significant Judgments and Estimates
Pursuant to certain disclosure guidance issued by the
Derivative Liabilities
The Company accounts for its warrants and other derivative financial instruments as either equity or liabilities based upon the characteristics and provisions of each instrument, in accordance with the Financial Accounting Standards Board Accounting Standards Code Topic 815, Derivatives and Hedging. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company's consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company's consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories comprises expenditures incurred in acquiring the inventories, the cost of conversion and other costs incurred in bringing them to their existing location and condition. The cost of raw materials, work-in-progress and finished goods and other products are determined on a First in First out (FiFo) basis. When determining net realizable value, appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
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