This discussion and analysis should be read in conjunction with our unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q and the audited financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2021. Operating results are not necessarily indicative of results
that may occur in future periods.
Overview and Recent Developments
We are a biotechnology company that is focused primarily in the field of
regenerative medicine. Our MultiStem® (invimestrocel) cell therapy, a patented
and proprietary allogeneic stem cell product candidate, is our lead platform
product and is currently in clinical development. Our most advanced program is
an ongoing Phase 3 clinical trial for the treatment of ischemic stroke. Our
clinical development programs are focused on treating neurological conditions,
inflammatory and immune disorders, certain pulmonary conditions and other
conditions where the current standard of care is limited or inadequate for many
patients, particularly in the critical care segment.
Restructuring and Financial
In June 2022, we announced a restructuring of our organization, including an
approximate 70% reduction in workforce. As part of the restructuring plan, we
also announced changes to our executive team. Mr. William (B.J.) Lehmann, former
President and Chief Operating Officer, left the Company on May 31, 2022. Dr.
John Harrington, former Executive Vice President and Chief Scientific Officer,
and Mr. Ivor Macleod, former Chief Financial Officer, left the Company on June
30, 2022.
In addition to the workforce reductions, in an effort to conserve cash and
maintain adequate liquidity, we suspended operations in a number of areas
including the reduction of our internal research function, plans for
decommissioning certain equipment and suspending our manufacturing and process
development efforts toward commercializing our MultiStem product candidate, if
approved, as discussed below. We are currently unable to predict the duration of
the suspension, and we plan to continue limited operations until we obtain
additional funding. Our current development activities are limited to
progressing our pivotal Phase 3 clinical trial of MultiStem cell therapy for the
treatment of ischemic stroke, referred to as MASTERS-2 and supporting the Phase
2 clinical trial evaluating MultiStem cell therapy for the early treatment of
traumatic injuries and the subsequent complications that result following severe
trauma being conducted by The University of Texas Health Science Center at
Houston, or UTHealth.
During the nine months ended September 30, 2022, we incurred charges in
connection with the restructuring of $2.8 million which consisted primarily of
employee severance and benefit costs. In addition to the restructuring charges,
we also recorded a $5.4 million impairment of certain property and equipment.
As of November 11, 2022, we had accounts payable of $26.3 million, of which over
80% is owed to our primary contract manufacturer, that is currently due and we
only had cash and cash equivalents of $13.8 million. We are actively working
with our primary contract manufacturer to reach an agreement to address the
outstanding accounts payable and continue our partnership going forward. The
terms of any such agreement may entail our issuance of a convertible promissory
note in exchange for a substantial reduction in the outstanding accounts
payable, although there can be no assurance that we will be able to reach an
agreement on terms acceptable to us or at all. To conserve cash, we have been
managing our disbursements and working with our suppliers and service providers
to address the outstanding accounts payable. In the near term, we will need to
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obtain significant capital through public or private equity offerings, debt
financings, collaborations and licensing arrangements or other sources to
continue to fund our operations. However, there can be no assurance that we will
be able to obtain such funding on terms acceptable to us, on a timely basis or
at all, particularly in light of our current stock price and liquidity. If we
are unable to obtain adequate funding, we may be required to further delay,
reduce or eliminate our MultiStem product candidate approval efforts, which
could adversely affect our business prospects, and we may be unable to continue
operations.
On October 14, 2022, we received a written notice from the Listing
Qualifications Department of the Nasdaq Stock Market LLC that we are not in
compliance with the requirement to maintain a minimum market value of our Common
Stock of $35 million, as set forth in Nasdaq Listing Rule 5550(b)(2), because
the market value of our Common Stock was below $35 million for 30 consecutive
business days. We have a period of 180 calendar days from the date of the
notice, or until April 12, 2023, to regain compliance under this standard.
Current Programs
Our MultiStem cell therapy product development programs in the clinical
development stage include the following:
•Ischemic Stroke: Our MASTERS-2 clinical trial is a randomized, double-blind,
placebo-controlled clinical trial designed to enroll 300 patients in the United
States and certain other international locations. The study is evaluating
efficacy and safety of MultiStem cell therapy in patients who have suffered
moderate to moderate-severe ischemic stroke. We initiated the study with a
limited number of high-enrolling sites and have been bringing on additional
sites over time in line with clinical product supply and clinical operations
objectives.
The MASTERS-2 study has received several regulatory designations and regulatory
agreements including Special Protocol Assessment agreement, or SPA, Fast Track
designation, Regenerative Medicine Advanced Therapy, or RMAT, designation and
initial pediatric study plan, or iPSP agreement, from the United States Food and
Drug Administration, or FDA, as well as a Final Scientific Advice positive
opinion, Advanced Therapy Medicinal Product, or ATMP quality certification and
pediatric investigation plan, or PIP, agreement from the European Medicines
Agency, or EMA.
In addition, HEALIOS K.K., or Healios, our collaborator in Japan, conducted a
clinical trial, TREASURE, evaluating the safety and efficacy of administration
of MultiStem cell therapy for the treatment of ischemic stroke. In May 2022,
Healios reported topline results for the TREASURE study. While the TREASURE
trial did not reach statistical significance on its primary endpoint, Excellent
Outcome at 90 days, it did demonstrate improvement in pre-specified measures of
functional "independence" and good outcomes, such as mRS < 2, Bartherl Index >
95 and Global Recovery.
We continue to analyze the TREASURE study results closely to evaluate whether
any MASTERS-2 trial adjustments may be appropriate. Any adjustments to our
MASTERS-2 trial will impact the timing of enrollment completion. In addition,
given our liquidity issues, we have postponed initiating new clinical sites. To
complete enrollment of our MASTERS-2 trial, we are dependent on our primary
contract manufacturer to release clinical product, which is currently on hold
because of our past due invoices owed to it. We are currently in discussions
with our primary contract manufacturer regarding outstanding invoices as well as
the supply of sufficient clinical product to complete the MASTERS-2 study. Due
to these uncertainties, at this time, we are unable to predict when we will
complete enrollment in our MASTERS-2 study, if at all. We will need to raise
additional funding in order to complete our MASTERS-2 trial.
•ARDS: In January 2019 and January 2020, we announced summary results and
one-year follow up results, respectively, from our exploratory clinical study of
the intravenous administration of MultiStem cell therapy to treat patients who
are suffering from acute respiratory distress syndrome, or ARDS, which is
referred to as the MUST-ARDS study. The study results demonstrated a predictable
and favorable tolerability profile. Importantly, there were lower mortality and
greater ventilator-free days (VFD), and ICU-free days in the MultiStem-treated
patient group compared to the placebo group. Average quality-of-life outcomes
were higher in the MultiStem group compared to placebo through one year. In
April 2019, the MultiStem cell therapy received Fast Track designation for the
treatment of ARDS, and in September 2020, RMAT designation was received for the
same program. In April 2020, in response to the COVID-19 pandemic, the FDA
authorized the initiation of a Phase 2/3 pivotal study to assess the safety and
efficacy of MultiStem therapy in subjects with moderate to severe ARDS, or the
MACOVIA study. The MACOVIA study features an open-label lead-in dose escalation
portion of the study, followed by double-blinded, randomized, placebo-controlled
study cohorts, and the study is designed to enroll up to approximately 400
patients at leading pulmonary critical care centers throughout the United
States. During 2021, we amended the protocol with the FDA to adjust the scope of
the MACOVIA study to include subjects with ARDS induced by pathogens other than
COVID-19. We received approval from the FDA to use MultiStem product
manufactured with our bioreactor-based technology in the study, an important
product development milestone. We have suspended initiating new sites and
enrolling patients in the Phase 2 part of the MACOVIA trial prior to enrolling
patients using our bioreactor-based technology. We now
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have data evaluating two different dosing levels of MultiStem. Analysis of this
data will help inform the design of the next phase of the trial once we are
ready to restart utilizing bioreactor manufactured MultiStem product. However,
we are currently focusing resources on our MASTERS-2 study. Until we receive
additional financing or establish a partnership to move forward with the next
phase of the study, the MACOVIA trial has been suspended.
Further, in 2019, Healios initiated the ONE-BRIDGE study in Japan for patients
with pneumonia-induced and COVID-induced ARDS and, in August 2021, Healios
reported top-line data from the ONE-BRIDGE study. We and Healios have conducted
thorough analyses of the data from the MUST-ARDS and ONE-BRIDGE studies. The
studies had comparable patient populations receiving the same MultiStem dose
amount shortly following an ARDS diagnosis. Between the studies, excluding the
COVID-ARDS cohort in the ONE-BRIDGE study, 60 ARDS subjects were enrolled in the
studies, 40 receiving MultiStem treatment and the remaining 20 receiving placebo
or standard of care. On a pooled basis, strong trends were observed in VFD
survival, improved quality-of-life and reduction of key inflammatory biomarkers.
For example, MultiStem-treated subjects had, on average, 5.5 more VFD in the
first 28 days following diagnosis than non-treated subjects (p=0.07) and, on a
median basis, 10.5 more VFD. In April 2022, Healios announced that, while the
PMDA did not disagree with the efficacy and safety conclusions of the ONE-BRIDGE
study, the PMDA advised Healios that additional supporting data is necessary for
application for approval of MultiStem treatment for the ARDS indication in
Japan. As a result of the guidance from the PMDA, Healios disclosed that it will
continue discussions with PMDA.
•Trauma: In April 2020, the FDA authorized the initiation of a Phase 2 clinical
trial evaluating MultiStem cell therapy for the early treatment of traumatic
injuries and the subsequent complications that result following severe trauma.
The trial is being conducted by The University of Texas Health Science Center at
Houston, or UTHealth, at the Memorial Hermann-Texas Medical Center in Houston,
Texas, one of the busiest Level 1 trauma centers in the United States. This
study is being supported under a grant awarded to the McGovern Medical School at
UTHealth from the Medical Technology Enterprise Consortium, and the Memorial
Hermann Foundation is providing additional funding. We are providing the
investigational clinical product manufactured with our bioreactor-based
technology for the trial as well as regulatory and operational support. We will
need to resolve our outstanding invoices with our primary contract manufacturing
organization to receive sufficient clinical product to complete enrollment in
this study.
Although some of our collaborators continue to engage in preclinical development
and evaluation of MultiStem cell therapy in other indications for human health,
we have suspended all of our own internal research efforts at this time to
conserve cash and decrease expenses.
In connection with our restructuring plan, in the second quarter of 2022, we
paused work performed at our Belgian subsidiary, ReGenesys BV, or ReGenesys,
which was evaluating our cell therapy for use in treating disease and conditions
in the animal health segment. We are exploring opportunities to out-license this
program. We are in the process of winding down the ReGenesys operations, which
we expect to complete by December 31, 2022.
We have agreements with our primary contract manufacturing organization for the
manufacture of our MultiStem product candidate to supply our planned and ongoing
clinical trials. In June 2022, we suspended these agreements and are attempting
to negotiate payment terms. There can be no guarantee, however, that we will be
successful in such negotiations. Under the terms of these agreements, we
currently owe this contract manufacturing organization approximately $21.8
million and have significant future financial commitments to support our
bioreactor manufacturing initiatives. We also were engaged in process
development initiatives intended to increase manufacturing scale, reduce
production costs and enhance process controls and product quality. These
initiatives and the related investments were meant to enable us to meet
potential commercial demand in the event of eventual regulatory approval. We
have also paused these initiatives as we work to obtain additional funding. In
addition, as part of our restructuring plan, we have undertaken efforts to
sublet our leased facility at Stow, Ohio that was intended to potentially
support our future manufacturing needs. Unless we are successful in subletting
our facility at Stow, we will be obligated to continue to pay our lease
payments, which are approximately $1.3 million annually, through June 2031.
Additionally, as part of our cost cutting initiatives, we have scaled back all
activities intended to enable MultiStem commercialization, e.g., product
branding, product reimbursement and marketing strategies.
Financial
On August 15, 2022, the Company entered into a placement agency agreement with
A.G.P./Alliance Global Partners, or A.G.P., pursuant to which A.G.P. agreed to
serve as exclusive placement agent for the issuance and sale of common stock and
warrants. A.G.P received a placement fee of approximately $0.8 million and
approximately $0.1 million for the reimbursement of expenses.
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On August 15, 2022, the Company entered into a securities purchase agreement, or
the Purchase Agreement, with an investor, pursuant to which the Company agreed
to issue and sell, in a registered direct offering, (i) an aggregate of
1,200,000 shares of the Company's common stock, or Common Stock, par value
$0.001 per share, (ii) pre-funded warrants, or Pre-Funded Warrants, exercisable
for an aggregate of 720,000 shares of Common Stock and (iii) warrants, or Common
Warrants, exercisable for an aggregate of 1,920,000 shares of Common Stock, in
combinations of one share of Common Stock or one Pre-Funded Warrant and one
Common Warrant for a combined purchase price of $6.250 (less $0.0025 for any
Pre-Funded Warrant). Subject to certain ownership limitations, under the terms
of the Purchase Agreement, the Pre-Funded Warrants were exercisable upon
issuance, and the Common Warrants were exercisable upon the six-month
anniversary of issuance for a five- year period. Under the Purchase Agreement,
each Pre-Funded Warrant was exercisable for one share of Common Stock at a price
per share of $0.0025 and each Common Warrant is exercisable into one share of
Common Stock at a price per share of $6.385. The offering closed on August 17,
2022, or the Closing Date, and the Company received net proceeds of
approximately $11.0 million, after giving effect to the payment of placement
fees and reimbursed expenses. On August 29, 2022, the Pre-Funded Warrants were
exercised in full.
The Purchase Agreement contains certain restrictions that prohibit the Company
from issuing its Common Stock in certain transactions for a period of 180 days
following the Closing Date, or the Standstill Period. Additionally, in the event
the Company proposes a future offering to sell shares of Common Stock during the
twelve months following the Closing Date, the investor has the right to
participate in each offering in an amount up to 30.0 percent, or the
Participation Right.
On September 22, 2022, the Company entered into an amendment to the Purchase
Agreement, or the Purchase Agreement Amendment, with the investor to, among
other things, (i) amend the Common Warrants to be exercisable for a seven-year
period after the six-month anniversary of the Closing Date, (ii) reduce the
Standstill Period to 150 days following the Closing Date, (iii) reduce the term
and the amount of the Participation Right to six months following the Closing
Date and 20.0 percent in the aggregate of certain offered securities, and (iv)
require the investor, subject to certain conditions, to participate in future
offerings to sell certain securities to investors primarily for capital raising
purposes during the six months following the Closing Date.
On September 22, 2022, in consideration of the Purchase Agreement Amendment, and
without receiving any cash proceeds, the Company issued to the investor
additional warrants exercisable for 2,000,000 shares of Common Stock, or the New
Warrants, at a price of $6.385 for a seven-year period after the six-month
anniversary of the date of issuance thereof.
In August 2021, we entered into a Comprehensive Framework Agreement for
Commercial Manufacturing and Ongoing Support, or the Framework Agreement, with
Healios, which provides for resolution of certain issues under the existing
agreements between the parties. It also provides Healios with the deferral of
certain milestone payments during the expensive initial commercial launch
period. Under the Framework Agreement, we were entitled to a milestone payment
in the amount of $3.0 million. Additionally, under the terms of the Framework
Agreement, we were obligated to pay Healios $1.1 million by December 31, 2022.
In September 2022, we received $1.9 million from Healios, which represents the
milestone payment net of amounts owed to Healios. Additionally, to assist
Healios with the advancement of its ischemic stroke and ARDS programs in Japan,
in September 2022, we granted to Healios, subject to the terms of the licensing
agreement, a non-exclusive license to make and have made MultiStem for the
treatment of ischemic stroke and ARDS worldwide solely for import into Japan for
use in Japan.
Healios recently alleged that we are in material breach of our Framework
Agreement for, among other things, not meeting our supply obligations and
cooperation and assistance obligations. We strongly disagree with Healios'
allegations and will continue to work with Healios to try to resolve this
dispute. However, there can be no assurance that we will be able to resolve this
dispute without legal proceedings.
We have had equity purchase agreements in place since 2011 with Aspire Capital
Fund, LLC, or Aspire Capital, that provided us the ability to sell shares to
Aspire Capital from time to time. In May 2022, we entered into a new equity
facility with Aspire Capital, or the 2022 Equity Facility, which provides us
with the ability to sell up to $100.0 million of shares of our common stock over
a two-year period. The terms of the 2022 Equity Facility are similar to the
previous equity facilities. Our prior equity facility that was entered into in
June 2021, or the 2021 Equity Facility, was fully utilized and terminated during
the second quarter of 2022. On July 6, 2022, Aspire Capital terminated the 2022
Equity Facility. Aspire Capital had the right to terminate the 2022 Equity
Facility at the time or any time after any of the Company's then-current
executive officers ceased to be an executive officer or full time employee of
the Company, which right was triggered in connection with the departures of Mr.
Lehmann, Dr. Harrington and Mr. MacLeod. During the quarter ended September 30,
2022, we sold no shares of our common stock to Aspire Capital. During the
quarter ended September 30, 2021, we sold 354,000 shares of our common stock to
Aspire Capital at an average price of $37.19 per share.
On November 10, 2022, the Company completed a public offering of 5,004,545
shares of common sock and warrants to purchase 10,009,090 shares of common stock
at a combined price of $1.10 per share and accompanying warrants for gross
proceeds of approximately $5.5 million, before deducting placement agent fees
and other offering expenses. The warrants have
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an exercise price of $1.10 per share, are exercisable immediately following the
date of issuance and will expire five years from the date of issuance.
Results of Operations
Since our inception, our revenues have consisted of license fees, contract
revenues, royalties and milestone payments from our collaborators, and grant
proceeds. We have not derived revenue from our commercial sale of therapeutic
products to date since we are in clinical development. In prior periods,
research and development expenses consisted primarily of external clinical and
preclinical study fees, manufacturing and process development costs, salaries
and related personnel costs, legal expenses resulting from intellectual property
prosecution processes, facility costs, restructuring charges and laboratory
supply and reagent costs. We expense research and development costs as they are
incurred. General and administrative expenses consist primarily of salaries and
related personnel costs, professional fees, restructuring charges and other
corporate expenses. We expect to continue to incur substantial losses through at
least the next several years.
Three Months Ended September 30, 2022 and 2021
Revenues. Revenues for the three months ended September 30, 2022 were $0.1
million compared to $4.8 million for the three months ended September 30, 2021.
The revenues are primarily associated with services provided to Healios under
the Framework Agreement. At September 30, 2022, the services under the Framework
Agreement are largely complete, and are limited to minimal close-out activities.
Our collaboration revenues will fluctuate from period-to-period based on the
services provided under our arrangement with Healios.
Research and Development Expenses. Research and development expenses decreased
to$12.4 million for the three months ended September 30, 2022 from $17.2 million
for the comparable period in 2021. The $4.8 million decrease is due to our
restructuring plan which resulted in reduced salaries and benefits of
$2.0 million, internal research supplies of $1.6 million, manufacturing costs of
$0.2 million, outside services of $0.6 million and decreases in other research
and development costs of $0.4 million. Our clinical development, clinical
manufacturing and manufacturing process development expenses vary over time
based on the timing and stage of clinical trials underway, manufacturing
campaigns for clinical trials and manufacturing process development projects.
These variations in activity level may also impact our accounts payable, accrued
expenses, prepaid expenses and deposits balances from period to period. Other
than external expenses for our clinical and preclinical programs, we generally
do not track our research expenses by project; rather, we track such expenses by
the type of cost incurred.
General and Administrative Expenses. General and administrative expenses were
$3.7 million for the three months ended September 30, 2022, which was slightly
higher than the $3.6 million for the comparable period in 2021. The increase is
primarily related to restructuring costs. We expect our general and
administrative expenses to decrease in connection with our restructuring plan.
Depreciation. Depreciation expense was $0.6 million for the three months ended
September 30, 2022 and $0.2 million for the comparable period in 2021. The
increase is due to the acceleration of depreciation associated with the
decommissioning of certain equipment as a result of our restructuring plan.
Other Income, net. Other income, net, was $3.0 million for the three months
ended September 30, 2022 compared to $0.1 million for the three months ended
September 2021. The increase is due to a $2.8 million net gain on the fair value
adjustment of our warrant liabilities and a net foreign currency gain of $0.2
million..
Nine Months Ended September 30, 2022 and 2021
Revenues. Revenues for the nine months ended September 30, 2022 were
$5.3 million compared to $4.8 million revenues for the nine months ended
September 30, 2021. These revenues were generated from our collaboration with
Healios. Our collaboration revenues fluctuate from period to period based on new
licenses conferred and the delivery of goods and services under our arrangement
with Healios.
Research and Development Expenses. Research and development expenses increased
to $54.2 million for the nine months ended September 30, 2022 from $52.4 million
in the comparable period in 2021. The $1.8 million net increase is associated
with an impairment charge of $5.4 million which is offset by decreases in
internal research supplies of $2.0 million, consulting costs of $0.9 million,
legal costs of $0.5 million and $0.2 million of other research and development
expenses. Other than external expenses for our clinical and preclinical
programs, we do not track our research expenses by project; rather, we track
such expenses by the type of cost incurred. We expect these expenses to decrease
in connection with our restructuring plan.
General and Administrative Expenses. General and administrative expenses
decreased to $13.0 million for the nine months ended September 30, 2022 from
$16.6 million in the comparable period in 2021. The $3.6 million decrease was
primarily
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related to legal expenses incurred in the prior year in connection with the
complaint filed by Dr. Kagimoto against the Company, its settlement and the
expenses associated with Dr.Van Bokkelen's resignation and his separation letter
agreement, including $2.3 million of non-cash stock compensation expense. We
expect our annual 2022 general and administrative expenses to decrease compared
to 2021 in connection with our restructuring plan.
Depreciation. Depreciation expense of $1.5 million for the nine months ended
September 30, 2022 was higher compared to $1.2 million for the comparable period
in 2021 due to the accelerated depreciation for certain manufacturing equipment
resulting from our restructuring plan.
Other Income, net. Other income, net, was $3.8 million for the nine-month period
ended September 30, 2022 and $0.1 million for the comparable 2021 period. The
$3.7 million increase was due to a net gain of $2.8 million on the fair value
adjustment of our warrant liabilities, insurance proceeds of $0.6 million that
the Company received related to the complaint filed by Dr. Kagimoto against the
Company which were not in the comparable period and an increase of foreign
currency gains of $0.3 million.
Liquidity and Capital Resources
Our primary source of liquidity is our cash balance. At September 30, 2022, we
had $13.8 million in cash and cash equivalents. We have primarily financed our
operations through business collaborations, grant funding and equity financings,
including through the equity facility we had with Aspire Capital. We conduct all
of our operations through our subsidiary, ABT Holding Company. Consequently, our
ability to fund our operations depends on ABT Holding Company's financial
condition and its ability to make dividend payments or other cash distributions
to us. There are no restrictions such as government regulations or material
contractual arrangements that restrict the ability of ABT Holding Company to
make dividend and other payments to us.
Our current capital requirements depend on a number of factors, including
progress in our MASTERS-2 trial, additional external costs, such as payments to
contract research organizations and contract manufacturing organizations,
personnel costs and the costs of filing and prosecuting patent applications and
enforcing patent claims. Furthermore, continued delays in product supply caused
by nonpayment to our primary contract manufacturer for our clinical trials may
impact the timing and cost of such studies.
We are entitled to receive potential milestones payments, subject to certain
credits, and royalties from Healios under our licensed programs. Under the
Framework Agreement, in September 2022, we received $1.9 million from Healios
which represents a milestone payment in the amount of $3.0 million, net of
amounts payable to Healios. We invoice Healios for certain manufacturing support
services. Payments from Healios may be used by Healios to offset milestone
payments that may become due in the future.
As of November 11, 2022, we had accounts payable of $26.3 million that is
currently due, and we only had cash and cash equivalents of $13.8 million. To
conserve cash, we have been delaying payments to most of our suppliers and
service providers. In the near term, we will need to obtain significant capital
through public or private equity offerings, debt financings, collaborations and
licensing arrangements or other sources to continue to fund our operations.
However, there can be no assurance that we will be able to obtain such funding
on terms acceptable to us, on a timely basis or at all, particularly in light of
our current stock price and liquidity. If we are unable to obtain funding, we
may be required to further delay, reduce or eliminate our MultiStem product
candidate approval and commercialization efforts, which would adversely affect
our business prospects, and we likely will be unable to continue operations. If
we are unable to obtain adequate financing, we likely would have to file for
protection under the bankruptcy laws to continue to pursue potential
transactions and conduct a wind down of our Company. If we decide to dissolve
and liquidate our assets or to seek protection under the bankruptcy laws, it is
unclear to what extent we will be able to pay our obligations, and, accordingly,
it is further unclear whether and to what extent any resources will be available
for distributions to stockholders.
We have prepared our unaudited condensed consolidated financial statements on a
going concern basis, which assumes that we will realize our assets and satisfy
our liabilities in the normal course of business. However, we have incurred
losses since inception of our operations in 1995, have negative operating cash
flows, including in each of the last three years, and had an accumulated deficit
of $642.9 million at September 30, 2022. Our losses have resulted principally
from costs incurred in research and development, clinical and preclinical
product development, manufacturing and process development, acquisition and
licensing costs, and general and administrative costs associated with our
operations. These circumstances raise substantial doubt about our ability to
continue as a going concern. The accompanying unaudited condensed financial
statements do not include any adjustments to reflect the possible future effect
on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of the
uncertainty concerning our ability to continue as a going concern.
While we believe our restructuring plan will reduce costs and alleviate to some
extent the conditions that raise substantial doubt, these plans are not entirely
within our control and cannot be assessed as being probable of occurring. For
the foreseeable
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future, our ability to continue our operations is dependent upon our ability to
obtain additional capital, which may not be available to us on acceptable terms,
on a timely basis or at all.
We expect to continue to incur substantial losses through at least the next
several years and may incur losses in subsequent periods. The amount and timing
of our future losses are highly uncertain. Our ability to achieve and thereafter
sustain profitability will be dependent upon, among other things, successfully
developing, commercializing and obtaining regulatory approval or clearances for
our technologies and products resulting from these technologies.
We had equity purchase agreements in place with Aspire Capital since 2011 that
provided us the ability to sell shares to Aspire Capital from time to time. The
2021 Equity Facility was fully utilized and terminated during the second quarter
of 2022, and, on July 6, 2022, Aspire Capital terminated the 2022 Equity
Facility. During the quarter ended September 30, 2022, we sold no shares of our
common stock to Aspire Capital. During the quarter ended September 30, 2021, we
sold 354,000 shares of our common stock to Aspire Capital at an average price of
$37.19.
Cash Flow Analysis
Net cash used in operating activities was $47.0 million for the nine months
ended September 30, 2022 compared to $56.9 million for the nine months ended
September 30, 2021. Net cash used in operating activities may fluctuate
significantly on a quarter-to-quarter basis, as it has over the past several
years, primarily due to the receipt of fees from our collaborators and payment
of clinical trial costs, such as clinical manufacturing campaigns, contract
research organization costs and manufacturing process development projects.
These variations in activity level may also impact our accounts receivable,
accounts payable, accrued expenses, prepaid expenses and deposits balances from
period to period.
Net cash used in investing activities was $2.0 million and $1.2 million for the
nine months ended September 2022 and 2021, respectively. The fluctuations over
the periods were due to the timing of additions to property and equipment
primarily for our manufacturing process development activities.
Financing activities provided cash of $25.4 million and $56.1 million for the
nine months ended September 30, 2022 and 2021, respectively. The decrease from
the comparable period is primarily related to the termination of our equity
purchase agreement with Aspire Capital in July 2022. Financing activities in
2022 include net proceeds of approximately $11.0 million from the issuance and
sale of our common stock and warrants in a registered direct offering. Also
included in financing activities for the nine months ended September 30, 2022
and September 30, 2021 are shares retained for withholding tax payments on
stock-based awards.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Management Estimates
The Securities and Exchange Commission, or the SEC, defines critical accounting
policies as those that are, in management's view, important to the portrayal of
our financial condition and results of operations and demanding of management's
judgment. Our discussion and analysis of financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates on
experience and on various assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from those estimates. A description of
these accounting policies and estimates is included in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2021. There have been
no material changes in our accounting policies and estimates as described in our
Annual Report on Form 10-K for the year ended December 31, 2021.
For additional information regarding our accounting policies, see Note C to the
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2021.
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties. These forward-looking statements relate to, among other
things, the expected timetable for development of our product candidates, our
growth strategy, and our future financial performance, including our operations,
economic performance, financial condition, prospects, and other future events.
We have
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attempted to identify forward-looking statements by using such words as
"anticipates," "believes," "can," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "potential," "should," "suggest," "will," or other
similar expressions. These forward-looking statements are only predictions and
are largely based on our current expectations. These forward-looking statements
appear in a number of places in this Quarterly Report on Form 10-Q.
In addition, a number of known and unknown risks, uncertainties, and other
factors could affect the accuracy of these statements. Some of the more
significant known risks that we face are the risk that we will be unable to
raise capital to fund our operations in the near term and long term, including
our ability to obtain funding through public or private equity offerings, debt
financings, collaborations and licensing arrangements or other sources, on terms
acceptable to us or at all, and to continue as a going concern and our ability
to successfully resolve the payment issues with our primary contract
manufacturer and gain access to our clinical product. The following risks and
uncertainties may cause our actual results, levels of activity, performance, or
achievements to differ materially from any future results, levels of activity,
performance, or achievements expressed or implied by these forward-looking
statements:
•our ability to raise capital to fund our operations in the near term and long
term, including our ability to obtain funding through public or private equity
offerings, debt financings, collaborations and licensing arrangements or other
sources, on terms acceptable to us or at all, and to continue as a going
concern;
•our ability to successfully resolve the payment issues with our primary
contract manufacturer and gain access to our clinical product;
•our collaborators' ability and willingness to continue to fulfill their
obligations under the terms of our collaboration agreements and generate sales
related to our technologies;
•the possibility of unfavorable results from ongoing and additional clinical
trials involving MultiStem;
•the risk that positive results in a clinical trial may not be replicated in
subsequent or confirmatory trials or success in an early stage clinical trial
may not be predictive of results in later stage or large scale clinical trials;
•our ability to regain compliance with the requirement to maintain a minimum
market value of listed securities of $35 million as set forth in Nasdaq Listing
Rule 5550(b)(2);
•the timing and nature of results from MultiStem clinical trials, including the
MASTERS-2 Phase 3 clinical trial evaluating the administration of MultiStem for
the treatment of ischemic stroke;
•our ability to meet milestones and earn royalties under our collaboration
agreements, including the success of our collaboration with Healios;
•the success of our MACOVIA clinical trial evaluating the administration of
MultiStem for the treatment of ARDS induced by COVID-19 and other pathogens, and
the MATRICS-1 clinical trial being conducted with The University of Texas Health
Science Center at Houston evaluating the treatment of patients with serious
traumatic injuries;
•the availability of product sufficient to meet our clinical needs and potential
commercial demand following any approval;
•the possibility of delays in, adverse results of, and excessive costs of the
development process;
•our ability to successfully initiate and complete clinical trials of our
product candidates;
•the possibility of delays, work stoppages or interruptions in manufacturing by
third parties or us, such as due to material supply constraints, contamination,
operational restrictions due to COVID-19 or other public health emergencies,
labor constraints, regulatory issues or other factors that could negatively
impact our trials and the trials of our collaborators;
•uncertainty regarding market acceptance of our product candidates and our
ability to generate revenues, including MultiStem cell therapy for neurological,
inflammatory and immune, cardiovascular and other critical care indications;
•changes in external market factors;
•changes in our industry's overall performance;
•changes in our business strategy;
•our ability to protect and defend our intellectual property and related
business operations, including the successful prosecution of our patent
applications and enforcement of our patent rights, and operate our business in
an environment of rapid technology and intellectual property development;
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•our possible inability to realize commercially valuable discoveries in our
collaborations with pharmaceutical and other biotechnology companies;
•the success of our efforts to enter into new strategic partnerships and advance
our programs;
•our possible inability to execute our strategy due to changes in our industry
or the economy generally;
•changes in productivity and reliability of suppliers;
•the success of our competitors and the emergence of new competitors; and
•the risks described in our Annual Report on Form 10-K for the year ended
December 31, 2021 under Item 1A, "Risk Factors." and our other filings with the
SEC.
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our
current views with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to our operations, operating
results, growth strategy and liquidity. Although we currently believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee our future results, levels of activity or performance. You
should not place undue reliance on these forward-looking statements because such
statements speak only as of the date when made.We undertake no obligation to
publicly update forward-looking statements, whether as a result of new
information, future events or otherwise, except as otherwise required by law.
You are advised, however, to consult any further disclosures we make on related
subjects in our reports on Forms 10-Q, 8-K and 10-K furnished to the SEC. You
should understand that it is not possible to predict or identify all risk
factors. Consequently, you should not consider any such list to be a complete
set of all potential risks or uncertainties.
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