CENTREXION THERAPEUTICS CORPORATION You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, and the potential impacts of the ongoing COVID-19 pandemic, contains forward-looking statements that involve risks and uncertainties. You should review the section titled "Risk Factors" in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below. Please also see the section entitled "Note Regarding Forward-Looking Statements." OnApril 23, 2021 , we completed a reverse triangular merger, resulting inContext Therapeutics Inc. becoming the sole holder of 100% of the membership interests inContext Therapeutics LLC . In connection with the merger, all of the common units, preferred units and all options, warrants or other rights to purchase common or preferred units ofContext Therapeutics LLC converted into common stock, preferred stock and all options, warrants or other rights to purchase common or preferred stock ofContext Therapeutics Inc. Prior to the reorganization we operated asContext Therapeutics LLC . Based on this being a transaction between entities under common control, the carryover basis of accounting was used to record the assets, liabilities, and equity ofContext Therapeutics LLC . Further, as a common control transaction, the consolidated financial statements of the Company reflect the merger transaction as if it had occurred as of the earliest period presented herein.
Overview
We are a clinical-stage biopharmaceutical company dedicated to improving the lives of women living with cancer. Our development team is advancing a pipeline of innovative therapies with a primary focus on treating female cancers, including breast, ovarian, and endometrial (uterine) cancer. Our first program and lead product candidate, ONA-XR, builds upon a foundation of successful drug development by our management team and advisors in the field of female hormone-dependent cancers. ONA-XR is a potent and selective antagonist of the progesterone receptor, which has been linked to resistance to multiple classes of cancer therapeutics, including anti-estrogen therapies, across female hormone-dependent cancers. We were incorporated inApril 2015 under the laws of theState of Delaware . Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We operate as one business segment and have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. We have funded our operations primarily through the sale of convertible debt, convertible preferred stock and common stock. Our net loss was$10.5 million for the year endedDecember 31, 2021 . As ofDecember 31, 2021 , we had an accumulated deficit of$29.3 million . InOctober 2021 , we closed an initial public offering ("IPO") on theNasdaq Stock Market , in which we issued and sold 5,750,000 shares at a public offering price of$5.00 per share. We received gross proceeds of approximately$28.8 million as a result of the offering. InDecember 2021 , we sold 5,000,000 shares of common stock together with warrants to purchase 5,000,000 shares of common stock in a private placement for gross proceeds of approximately$31.3 million . We expect our existing cash and cash equivalents will be sufficient to fund our operations into 2024. Currently, our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, in connection with the closing of our initial public offering, we have incurred and continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenses on other research and development activities. 72 -------------------------------------------------------------------------------- We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:
•continue our ongoing and planned research and development of our first program and lead product candidate ONA-XR;
•continue nonclinical studies and initiate clinical trials for our anti-claudin 6 ("CLDN6") bispecific monoclonal antibody ("BsMAb") product and for any additional product candidates that we may pursue;
•continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization; •establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
•develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how;
•acquire or in-license other product candidates and technologies;
•attract, hire and retain additional executive officers, clinical, scientific, quality control, and manufacturing management and administrative personnel;
•add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts;
•expand our operations in
•incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.
We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings and/or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
The COVID-19 Pandemic and its Impacts on Our Business
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. The spread of COVID-19 has caused worldwide economic instability and significant volatility in the financial markets. There is significant uncertainty as to the likely effects of this disease which may, among other things, materially impact the Company's ongoing or planned clinical trials. This pandemic or outbreak could result in difficulty securing clinical trial site locations, contract research organizations ("CROs"), and/or trial monitors and other critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact the Company's ability to enroll patients. These situations, or others associated with COVID-19, could cause delays in the Company's clinical trial plans and could increase expected costs, all of which could have a material adverse effect on the Company's business and its financial condition. At the current time, the Company is unable to quantify the potential effects of this pandemic on its future consolidated financial statements. 73 --------------------------------------------------------------------------------
Components of Our Results of Operations
Operating Expenses
Acquired in-process research and development expense consists of initial up-front payments incurred in connection with the acquisition or licensing of products or technologies that do not meet the definition of a business under Accounting Standards Codification Topic 805, Business Combinations. Acquired in-process research and development expense reflects the cash paid and/or the estimated fair value of the equity consideration given.
Research and Development Expenses
Research and development expenses have consisted primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred, including:
•expenses incurred to conduct the necessary discovery-stage laboratory work, preclinical studies and clinical trials required to obtain regulatory approval;
•personnel expenses, including salaries, benefits and share-based compensation expense for our employees and consultants engaged in research and development functions;
•costs of funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, that conduct our clinical trials, as well as investigative sites, consultants and CROs that conduct our preclinical and clinical studies;
•expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses, milestone-based payments, and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
•fees paid to consultants
•expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
•allocated expenses for facility costs, including rent, utilities and maintenance.
We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.
General and Administrative Expenses
General and administrative expenses have consisted primarily of personnel
expenses, including salaries, benefits and share-based compensation expense, for
employees and consultants in executive, finance and accounting, legal,
operations support, information technology and business development functions.
General and administrative expense also includes corporate facility costs not
otherwise included in research and development expense, including rent,
utilities and insurance, as well as legal fees related to intellectual property
and corporate matters and fees for accounting and consulting services.
74
--------------------------------------------------------------------------------
We expect that our general and administrative expenses will increase in the
future to support our continued research and development activities, potential
commercialization efforts and increased costs of operating as a public company.
These increases will likely include increased costs related to the hiring of
additional personnel and fees to outside consultants, legal support and
accountants, among other expenses. Additionally, we anticipate increased costs
associated with being a public company, including expenses related to services
associated with maintaining compliance with the requirements of Nasdaq and the
Securities and Exchange Commission , or SEC , insurance and investor relations
costs. If any of our current or future product candidates obtain U.S. regulatory
approval, we expect that we would incur significantly increased expenses
associated with building a sales and marketing team.
Interest Expense
Interest expense has consisted primarily of interest related to our convertible promissory notes that converted to Series A stock in 2020 and 2021. All of the outstanding Convertible Promissory Notes were converted as ofFebruary 2021 .
Other Income
Other income is primarily due to the recognition of a gain on extinguishment of
debt as a result of the forgiveness of our outstanding Paycheck Protection
Program loan in
Results of Operations
Comparison of the Years Ended
The following table sets forth our results of operations for the years ended
Year ended December 31,
2021 2020 $ Change % Change
Operating expenses:
Acquired in-process research and
development $ 3,087,832 $ - 3,087,832 100 %
Research and development 3,805,067 1,641,501 2,163,566 132 %
General and administrative 3,632,920 930,667 2,702,253 290 %
Loss from operations (10,525,819) (2,572,168) (7,953,651) 309 %
Interest expense (64,240) (661,224) 596,984 (90) %
Change in fair value of convertible
promissory notes 9,317 9,877,857 (9,868,540) (100) %
Other income 123,872 - 123,872 100 %
Net income (loss) $ (10,456,870) $ 6,644,465 $ (17,101,335) (257) %
Acquired in-process research and development expense of$3.1 million for the year endedDecember 31, 2021 reflects the fair value of consideration paid/issued under the collaboration and licensing agreement withIntegral Molecular, Inc. ("Integral") for the development of an anti-claudin 6 ("CLDN6") bispecific monoclonal antibody ("BsMAb") for gynecologic cancer therapy. There was no such consideration paid/issued under collaboration arrangements in 2020.
Research and Development Expenses
Research and development expenses increased by$2.2 million from$1.6 million for the year endedDecember 31, 2020 to$3.8 million for the year endedDecember 31, 2021 . The increase was mainly due to an increase of$0.6 million in clinical trial costs related to our Phase 2 trials evaluating ONA-XR,$0.6 million in preclinical costs associated with conducting research for the development of a CLDN6 BsMAb for gynecologic cancer therapy, and an increase in contract manufacturing costs of$0.5 million for ONA-XR. Additionally, 75 --------------------------------------------------------------------------------
consulting services increased by approximately
General and Administrative Expenses
General and administrative expenses increased by$2.7 million from$0.9 million for the year endedDecember 31, 2020 to$3.6 million for the year endedDecember 31, 2021 . The increase was mainly due to an increase of$1.1 million in compensation and share-based compensation as a result of an increase in our general and administrative headcount and changes to compensation arrangements. Additionally, expenses increased by$1.6 million due to higher insurance costs of$0.3 million , professional fees and consulting services of$1.0 million , and other costs associated with operating as a public company.
Interest Expense
Interest expense decreased by$0.6 million from$0.7 million for the year endedDecember 31, 2020 to$0.1 million for the year endedDecember 31, 2021 due to the conversion of all previously outstanding convertible promissory notes.
Change in Fair Value of Convertible Promissory Notes
The change in fair value of convertible promissory notes was$9.9 million for the year endedDecember 31, 2020 and$9,000 for the year endedDecember 31, 2021 . This change was attributable to a decrease in the fair value of our common stock as well as the conversion of all previously outstanding convertible promissory notes.
Other Income
Other income of$0.1 million for the year endedDecember 31, 2021 is primarily due to the recognition of a gain on extinguishment of debt as a result of the forgiveness of our outstanding Paycheck Protection Program loan inJuly 2021 .
Liquidity and Capital Resources
Overview
Since our inception, we have not recognized any revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. Since our inception throughDecember 31, 2021 , we have funded our operations through the sale of convertible debt, convertible preferred stock and common stock. As ofDecember 31, 2021 , we had$49.6 million in cash and cash equivalents and had an accumulated deficit of$29.3 million . InOctober 2021 , we closed an initial public offering ("IPO") on theNasdaq Stock Market and received gross proceeds of approximately$28.8 million as a result of the offering. Additionally, inDecember 2021 , we sold 5,000,000 shares of our common stock together with warrants to purchase 5,000,000 shares of our common stock in a private placement and received gross proceeds of approximately$31.3 million . We expect our existing cash and cash equivalents will be sufficient to fund our operations into 2024. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Funding Requirements
Our primary use of cash is to fund operating expenses, which consist of research
and development expenditures and various general and administrative expenses.
Cash used to fund operating expenses is impacted by the timing of when we pay
these expenses, as reflected in the change in our outstanding accounts payable,
accrued expenses and prepaid expenses.
76
--------------------------------------------------------------------------------Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
•the costs of manufacturing our product candidates for clinical trials and in preparation for regulatory approval and commercialization;
•the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
•expenses needed to attract and retain skilled personnel;
•costs associated with being a public company;
•the costs required to scale up our clinical, regulatory and manufacturing capabilities;
•the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive regulatory approval; and
•revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive regulatory approval.
We will need additional funds to meet our operational needs and capital
requirements for clinical trials, other research and development expenditures,
and general and administrative expenses. We currently have no credit facility or
committed sources of capital.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and/or marketing, distribution
or licensing arrangements. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, your ownership
interest will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect your rights as a common
stockholder. 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 acquisitions or
capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or
licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product
candidates, or grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings or other
arrangements when needed, we may be required to delay, limit, reduce or
terminate our research, product development or future commercialization efforts,
or grant rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.
77
--------------------------------------------------------------------------------Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
2021 2020
Cash used in operating activities $ (8,799,487) $ (1,034,620)
Cash used in investing activities (250,000) -
Cash provided by financing activities 58,394,036 1,149,054
Net increase in cash and cash equivalents
Comparison of the Years Ended
Operating Activities
During the year endedDecember 31, 2021 , we used$8.8 million of cash in operating activities. Cash used in operating activities reflected our net loss of$10.5 million , a gain of$0.1 million from the extinguishment of debt and a net change in our operating assets and liabilities of$2.2 million . This was primarily offset by non-cash in-process research and development charges of$3.1 million , the non-cash fair value measurement of warrants for services of$0.4 million and share-based compensation of$0.5 million . The primary uses of cash were to fund our operations related to the development of our product candidates. During the year endedDecember 31, 2020 , we used$1.0 million of cash in operating activities. Cash used in operating activities reflected the noncash change in fair value of convertible promissory notes of$9.9 million , offset by our net income of$6.6 million , noncash interest expense of$0.7 million , share-based compensation of$0.2 million and a$1.3 million net change in our operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates.
Investing Activities
During the year endedDecember 31, 2021 , cash used in investing activities was attributable to the initial upfront license fee of$0.3 million related to the Company's acquired in-process research and development.
We did not have cash flows from investing activities during the year ended
Financing Activities
During the year endedDecember 31, 2021 , financing activities provided$58.4 million , consisting of net proceeds of$5.0 million from the sale of Series A Stock and warrants for common stock, net proceeds of$24.4 million from the sale of common stock in connection with our IPO and net proceeds of$29.0 million from the sale of common stock and warrants in connection with our private placement. During the year endedDecember 31, 2020 , financing activities provided$1.1 million , consisting of$1.0 million of proceeds from the sale of Series A Stock and warrants for common stock,$25,000 from the issuance of convertible bridge notes,$50,000 from the sale of Series Seed Stock and$0.1 million of proceeds from the Paycheck Protection Program loan.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
relationships with unconsolidated entities or financial partnerships, including
entities sometimes referred to as structured finance or special purpose entities
that were established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. We do not engage
in off-balance sheet financing arrangements. In addition, we do not engage in
trading activities involving non-exchange traded contracts. We therefore believe
that we are not materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in these relationships.
78
--------------------------------------------------------------------------------Critical Accounting Policies
This management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to prepaid/accrued research and development expenses, share-based compensation and fair value of convertible promissory notes. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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 these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 3 to our audited consolidated financial statements included elsewhere in this Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.
We accrue an expense for preclinical studies and clinical trial activities performed by our vendors based upon estimates of the proportion of work completed. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. We make estimates of our prepaid/accrued expenses as of each balance sheet date in our consolidated financial statements based upon facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the prepaid/accrual accordingly. Nonrefundable advance payments for goods and services, including fees for clinical trial expenses, process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed, or services are performed.
Share-Based Compensation
We measure compensation expense for all share-based awards based on the estimated fair value of the share-based awards on the grant date. We use the Black-Scholes option pricing model to value our share-based awards. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. We have not issued awards for which vesting is subject to market or performance conditions. The Black-Scholes option-pricing model requires the use of subjective assumptions that include the expected stock price volatility and the fair value of the underlying common stock on the date of grant. See Note 8 to our audited consolidated financial statements included elsewhere in this Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our awards granted.
Recent Accounting Pronouncements
See Note 3 to our audited consolidated financial statements found elsewhere in
this Form 10-K for a description of recent accounting pronouncements applicable
to our consolidated financial statements.
79--------------------------------------------------------------------------------
© Edgar Online, source
