CONTRAFECT CORPORATION You should read the following discussion and analysis of our financial condition in conjunction with the information set forth in our financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed by us with theSecurities and Exchange Commission ("SEC") onMarch 25, 2022 .
Overview
We are a late clinical-stage biotechnology company focused on the discovery and
development of direct lytic agents ("DLAs"), including lysins and amurin
peptides, as new medical modalities for the treatment of life-threatening,
antibiotic-resistant infections. We believe DLAs are fundamentally different
than antibiotics and offer a potential paradigm shift in the treatment of
antibiotic-resistant infections. According to one of the most recent and
comprehensive reports on the global burden of bacterial antimicrobial resistance
("AMR"), there were an estimated 4.95 million deaths associated with bacterial
AMR in 2019, including 1.27 million deaths directly attributable to bacterial
AMR. The six leading pathogens for deaths associated with resistance
(Escherichia coli ("E. coli"), Staphylococcus aureus ("S. aureus"), Klebsiella
pneumoniae ("K. pneumoniae"), Streptococcus pneumoniae, Acinetobacter baumannii
("A. baumannii"), and Pseudomonas aeruginosa ("P. aeruginosa")) were responsible
for 929,000 deaths. Only one pathogen-drug combination, methicillin-resistant S.
aureus ("MRSA"), caused more than 100,000 deaths in 2019.
Lysins are recombinantly-produced enzymes, that when applied to bacteria cleave
a key component of the target bacteria's peptidoglycan cell wall, resulting in
rapid bacterial cell death. In addition to the speed of action and potent
cidality, we believe lysins are differentiated by their other hallmark features,
which include the demonstrated ability to eradicate biofilms and synergistically
boost the efficacy of conventional antibiotics in animal models. Amurin peptides
are a new class of DLAs, discovered in our laboratories, which disrupt the outer
membrane of gram-negative bacteria, resulting in rapid bacterial cell death,
offering a distinct mechanism of action from lysins. Amurins have shown a
potent, broad spectrum of in vitro activity against a wide range of
gram-negative pathogens, including deadly, drug-resistant P. aeruginosa, K.
pneumoniae, E. coli, A. baumannii and Enterobacter cloacae bacteria species as
well as difficult to treat pathogens such as Stenotrophomonas, Achromobacter and
some Burkholderia species. The highly differentiated properties of DLAs
underscore their potential use in addition to antibiotics with the goal of
improving clinical outcomes compared to antibiotics alone. The development of
DLAs involves a novel clinical and regulatory strategy, using superiority design
clinical trials with the goal of delivering significantly improved clinical
outcomes for patients with serious, antibiotic-resistant bacterial infections,
including biofilm-associated infections. We believe this approach affords
potential clinical benefits to patients as well as the potential ability to
mitigate against further development of antibiotic resistance.
We have not generated any revenues and, to date, have funded our operations
primarily through our initial public offering ("IPO"), our follow-on public
offerings, private placements of securities, and grant funding received. On
March 22, 2021 , we completed an underwritten public offering of 11,500,000
shares of our common stock, including shares sold pursuant to the fully
exercised overallotment option granted to the underwriters in connection with
the offering, at a public offering price of $5.00 per share of common stock,
resulting in estimated net proceeds of approximately $53.8 million after
underwriting discounts and commissions and offering expenses payable by us.
On March 10, 2021 , we executed a cost-share contract (together with any exercise
of BARDA's options to extend such contract, the "BARDA Contract") with the
Biomedical Advanced Research and Development Authority ("BARDA"), part of the
Office of the Assistant Secretary for Preparedness and Response at the U.S.
Department of Health and Human Services . Under the terms of the BARDA Contract,
the Company will receive $9.8 million in initial funding. The initial funding
was used to support the pivotal Phase 3 DISRUPT superiority trial of exebacase.
Following the interim futility analysis and the stopping of patient enrollment,
on August 24, 2022 , the BARDA Contract was modified to provide for and exercise
an option by BARDA to provide up to $6.6 million in funding to support a
futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT
study of exebacase. The BARDA Contract contains terms and conditions that are
customary for contracts with BARDA of this nature, including provisions giving
the government the right to terminate the contract at any time for its
convenience. As a government contractor, we are subject to complex and
wide-ranging federal and agency-specific regulations and contractual
requirements. The costs of compliance with these requirements may be
significant. Failure to comply with government contracting requirements could
result in termination of our contract or the imposition of penalties.
On July 29, 2022 , we implemented a restructuring plan resulting in a reduction
to our workforce of 16 employees, or approximately 37% of our headcount prior to
the reduction. This reduction included the resignation of Cara Cassino , M.D. as
Chief Medical Officer and Executive Vice President of Research and Development
of the Company. We recognized a restructuring charge in the third quarter of
2022 of approximately $7.7 million , including $1.6 million related to employee
termination costs, and $6.1 million from the write-off of prepaid manufacturing
costs which, as of September 30, 2022 , will result in future cash expenditures
of up to $7.4 million .
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We have never been profitable and our operating losses were$55.3 million ,$47.3 million and$34.2 million for the nine months endedSeptember 30, 2022 and the years endedDecember 31, 2021 and 2020, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$315.9 million and we had approximately$17.6 million in cash, cash equivalents and marketable securities. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect the expenses for each program to increase as candidates advance through preclinical activities and clinical trials to seek regulatory approval and, if approved, commercialization. Accordingly, we will need additional financing to support our continuing operations and to continue as a going concern. We expect to seek to fund our operations through public or private equity, debt financings, equity-linked financings, collaborations, strategic alliances, licensing arrangements, research grants or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all, particularly in light of the Trial Closure (as defined below) and the substantial decline in the price of our common stock. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. Without additional funding, the Company believes it will not have sufficient funds to meet its obligations within the next twelve months from the date of issuance of the consolidated financial statements included in this Quarterly Report on Form 10-Q. These factors raise substantial doubt about the Company's ability to continue as a going concern. The recent substantial decline in the price per share of our common stock will likely make it more difficult for us to obtain financing. Moreover, if we are delisted from theNasdaq Stock Market LLC , it may become more difficult for us to obtain equity financing. For additional information regarding risks associated with potential delisting, see Part II, Item 1A, "We are required to meet theNasdaq Capital Market's continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock." If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited. We will need to generate significant revenues to achieve profitability, and we may never do so.
Financial Operations Overview
Revenue
We have not generated any revenues to date. In the future, we may generate revenues from product sales. In addition, to the extent we enter into licensing or collaboration arrangements, we may have additional sources of revenue. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing of payments that we may recognize upon the sale of our products, to the extent that any products are successfully commercialized, and the amount and timing of fees, reimbursements, milestone and other payments received under any future licensing or collaboration arrangements. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our
research activities, including our drug discovery efforts, and the development
of our product candidates, which include:
• employee-related expenses, including salaries, performance bonuses,
benefits, travel and non-cash stock-based compensation expense;
• external research and development expenses incurred under arrangements
with third parties such as contract research organizations, or CROs,
contract manufacturers, consultants and academic institutions; and
• facilities and laboratory and other supplies.
We expense research and development costs to operations as incurred. We account
for non-refundable advance payments for goods and services that will be used in
future research and development activities as expenses when the service has been
performed or when the goods have been received, rather than when the payment is
made.
The following summarizes our most advanced current research and development programs.
Exebacase
Our lead DLA product candidate, exebacase, was granted Breakthrough Therapy
designation for development as a treatment for MRSA bloodstream infections
(-bacteremia), including right-sided endocarditis, when used in addition to
standard-of-care ("SOC") anti-staphylococcal antibiotics in adult patients, by
the U.S. Food and Drug Administration ("FDA") in February 2020 . In addition to
bacteremia, S. aureus is also a common cause of pneumonia and osteomyelitis as
well as biofilm-associated infections of heart valves (endocarditis), prosthetic
joints, indwelling devices and catheters. These infections result in significant
morbidity and mortality despite currently available antibiotic therapies.
In December 2019 , we initiated the Phase 3 DISRUPT (Direct Lysis of S. aureus
Resistant Pathogen Trial) superiority design study of exebacase. The DISRUPT
study is a randomized, double-blind, placebo-controlled Phase 3 clinical trial
conducted in the U.S. alone to assess the efficacy and safety of exebacase in
adult and adolescent patients with complicated S. aureus bacteremia, including
right-sided endocarditis. Patients entering the study were randomized 2:1 to
either exebacase or placebo, with all patients receiving SOC antistaphylococcal
antibiotics. The primary efficacy endpoint of the study is clinical response at
Day 14 in patients with MRSA bacteremia, including right-sided endocarditis.
Secondary endpoints include clinical response at Day 14 in the All S. aureus
patient group (MRSA and methicillin-sensitive S. aureus ("MSSA")), 30-day
all-cause mortality in MRSA patients, and clinical response at later timepoints.
We will also evaluate the impact of treatment with exebacase on health resource
utilization, including hospital length of stay, ICU length of stay and 30-day
readmission rates.
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OnJuly 7, 2022 , the Data Safety Monitoring Board ("DSMB") of the Company's Phase 3 DISRUPT (Direct Lysis of Staph aureus Resistant Pathogen Trial) study completed a pre-specified, interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the pre-specified threshold for futility in the DSMB charter. The recommendation was based on an analysis of the clinical response rate at day 14 (the primary efficacy endpoint of the study) in 84 patients, or approximately 60% of the total planned MRSA population with bacteremia, including right-sided endocarditis. Based on the DSMB's recommendation, patient enrollment in the Phase 3 trial was stopped ("Trial Closure"). We continue to monitor <20 already enrolled patients as they complete their follow-up visits and to perform ongoing data review. We also expect to complete all clinical study reports as required by the FDA. We expect that conclusions drawn from the ongoing data review will inform next steps for any potential further development of exebacase. OnSeptember 30, 2022 , we submitted a Clinical Trial Authorization ("CTA") with theFrench National Agency for the Safety of Medicines andHealth Products ("ANSM") for the study of intra-articular exebacase in patients with chronic prosthetic joint infections of the knee due to S. aureus or coagulase-negative Staphylococci, which was subsequently accepted for review. If the CTA is approved by ANSM, we expect to initiate dosing patients in the study in the first quarter of 2023 and to report early clinical data from the first cohort of patients in the second half of 2023.
Other Programs
Our next product candidate, CF-370, is designed to target a range of
gram-negative bacteria including P. aeruginosa and has demonstrated potent in
vivo activity against extensively drug-resistant ("XDR") strains. P. aeruginosa
is a major cause of morbidity and mortality in patients with hospital-acquired
or ventilator-associated pneumonia and a major medical challenge for cystic
fibrosis patients with chronic lung infections. CF-370 has also shown promising
activity against E. coli, K. pneumoniae and A. baumannii in in vitro studies. We
expect CF-370 to be our next DLA to enter clinical studies. We plan to submit an
Investigational New Drug ("IND") application with the FDA for CF-370 in the
first quarter of 2023 and, if approved, to initiate phase 1 clinical studies of
CF-370 in healthy volunteers in the second quarter of 2023.
We have entered into two funding agreements with the Cystic Fibrosis Foundation
to investigate the potential utility of DLAs against resistant gram-negative
pathogens which afflict Cystic Fibrosis ("CF") patients. The first agreement
provided funding for the assessment of the in vitro activity of CF-370 and
amurin peptides against bacterial specimens obtained from CF patients at
different stages of disease. The second agreement will provide funding for
assessing the in vitro and in vivo activity of exebacase against S. aureus
isolates obtained from CF patients. If we obtain supportive data, we plan to
evaluate potential future clinical development of DLA product candidates for the
treatment of exacerbations in CF lung disease.
We have developed a novel, engineered variant of exebacase, known as CF-296,
which we believe provides an additional opportunity to advance a potential
targeted therapy for deep-seated, invasive biofilm-associated S. aureus
infections. We are conducting further in vitro and in vivo characterization of
CF-296 to evaluate the full profile of this compound. In June 2019 , we were
awarded up to $7.2 million of funding from the Military Infectious Diseases
Research Program, United States Army Medical Research and Development Command
("USAMRDC") over the course of three years to advance CF-296 through
IND-enabling studies.
Beyond our lysin programs, we continue our research to advance potential product
candidates from our amurin peptide platform. We are evaluating our most
promising amurins in preclinical animal studies with the goals of determining
our next product candidate and moving this program towards clinical studies as
soon as possible.
To date, a large portion of our research and development work has related to the
establishment of our platform technologies, the advancement of our research
projects to discovery of clinical candidates, manufacturing and preclinical
testing of our clinical candidates and clinical testing of exebacase. As our
pipeline progresses, we are able to further leverage our employee and
infrastructure resources across multiple development programs as well as
research projects. We recorded approximately $10.8 million and $8.7 million of
research and development expenses for the three months ended September 30, 2022
and 2021 and $40.3 million and $24.5 million , respectively, for the nine months
ended. A breakdown of our research and development expenses by category is shown
below. We do not currently utilize a formal time or laboratory project expense
allocation system to allocate employee-related expenses, laboratory costs or
depreciation to any particular project. Accordingly, we do not allocate these
expenses to individual projects or product candidates. However, we do allocate
some portions of our research and development expenses in the product
development, external research and licensing and professional fees categories to
exebacase and CF-370 as shown below.
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The following table summarizes our research and development expenses by category for the three and nine months endedSeptember 30, 2022 and 2021 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Product development$ 8,634 $ 7,842 $ 33,650 $ 19,970 Personnel related 1,472 2,357 6,282 6,270 Professional fees 760 879 2,895 2,701 Laboratory costs 470 433 1,559 1,132 Stock-based compensation 258 264 788 710 External research and licensing costs 78 599 325 1,357 Expenses reimbursed by grants (858 ) (3,710 )
(5,200 ) (7,678 )
Total research and development expense
The following table summarizes our research and development expenses by program for the three and nine months endedSeptember 30, 2022 and 2021 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Exebacase$ 7,601 $ 6,321 $ 30,085 $ 15,862 CF-370 1,670 1,164 5,935 3,307 Other research and development 671 2,268 2,408 5,991 Personnel related and stock-based compensation 1,730 2,621 7,071 6,980 Expenses reimbursed by grants (858 ) (3,710 )
(5,200 ) (7,678 )
Total research and development expense$ 10,814 $ 8,664
We anticipate that our research and development expenses will decrease substantially after the final patients in the DISRUPT study complete their follow-up visits and all study sites are closed, resulting in rapidly decreasing expenditures on the DISRUPT study and the exebacase program more generally. The workforce reduction and suspension of IV exebacase manufacturing activities discussed above will also contribute to this decrease. Research and development expenses could increase in the future in connection with the commencement of any new clinical trials for our product candidates. However, the successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
• the scope, rate of progress and expense of our research and development
activities;
• third-party manufacturing of our product candidates and the active
pharmaceutical ingredients for our product candidates;
• clinical trial results;
• the terms and timing of regulatory approvals;
• our ability to market, commercialize and achieve market acceptance for
our product candidates in the future; and
• the expense, filing, prosecuting, defending and enforcing of patent
claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of such product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including non-cash stock-based compensation expense, in our executive, finance, legal, human resource and business development functions. Other general and administrative expenses include facility costs, insurance expenses and professional fees for legal, consulting and accounting services.
We anticipate that our general and administrative expenses will decrease modestly in future periods as a result of decreased headcount, however, legal, accounting, compliance, investor and public relations, and other expenses associated with being a public company continue to increase, particularly insurance premiums.
Restructuring
In connection with our decision to stop the Phase 3 DISRUPT trial, suspend CMC activities related to the potential commercialization of IV exebacase and our restructuring plan, we expect that our future operating expenses will be substantially reduced. We currently expect our research and development and general and administrative expenses to be lower for the remainder of 2022 as we operate pursuant to our restructuring plan. In connection with our restructuring, approximately$7.7 million , including$1.6 million related to employee termination costs, including severance, health benefits and other related expenses from the workforce reduction, and$6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase activities. 21
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Other Income and Expenses
Other income and expenses consist primarily of interest income and changes in the fair value measurement of our warrant liabilities. Interest income includes interest earned on our cash and cash equivalents and available-for-sale securities. The changes in the fair value of our warrant liabilities are derived using the Black-Scholes option pricing model. The key inputs into the model are the current per-share value and the expected volatility of the Company's common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company's warrant liabilities, resulting in a non-cash gain or charge in each reporting period.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance withU.S. generally accepted accounting principles. The preparation of these 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 financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our limited historical experience, known trends and events and various other factors 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 these estimates under different assumptions or conditions. During the nine-months endedSeptember 30, 2022 , there have been no material changes to our critical accounting policies and significant judgments and estimates from the information provided in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed by us with theSEC onMarch 25, 2022 . Results of Operations
The following table summarizes key components of our results of operations for the periods indicated (in thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 DollarChange 2022 2021 Dollar Change Operating expenses: Research and development
$ 10,814 $ 8,664 $
2,150
$ 3,366 $ 3,022 $ 344$ 9,886 $ 8,722 $ 1,164 Restructuring$ 7,719 $ - $ 7,719$ 7,719 $ - $ 7,719 Other income, net$ 4,832 $ 6,394 $ (1,562 ) $ 2,591 $ 17,301 $ (14,710 )
Comparison of Three Months Ended
Research and Development Expenses
Research and development expenses were$10.8 million for the three months endedSeptember 30, 2022 compared with$8.7 million for the three months endedSeptember 30, 2021 , an increase of$2.1 million . This increase was primarily attributable to a$1.8 million increase in spending on clinical activities as we stopped enrollment of patients in the Phase 3 DISRUPT study of exebacase and continued patient follow-up procedures and monitoring and a$0.5 million increase in spending on non-clinical studies of CF-370 to support a potential IND application and the completion of ongoing non-clinical studies of exebacase. A$2.8 million decrease in the reimbursable expenditures under our grants and BARDA contract contributed to the increase. These increases were partially offset by a$1.5 million decrease in manufacturing expenses due to the suspension of CMC activities related to the potential commercialization of exebacase, a$0.9 million decrease in spending on our development personnel as a result of our restructuring plan and a$0.5 million decrease in external research expenditures on our other discovery programs.
General and Administrative Expenses
General and administrative expenses were$3.4 million for the three months endedSeptember 30, 2022 , compared with$3.0 million for the three months endedSeptember 30, 2021 , an increase of$0.4 million . This was due primarily to a$0.3 million increase in legal fees and$0.1 million increase in stock-based compensation expense. Restructuring Charges During the three months endedSeptember 30, 2022 , we incurred restructuring expenses of$7.7 million related to our restructuring plan. Restructuring expenses for the period were primarily comprised of$1.6 million of severance and other employee costs and a$6.1 million write-off of prepaid manufacturing costs. For further information, refer to Note 8, "Restructuring" to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 22
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Other Income, Net
Other income, net was$4.8 million for the three months endedSeptember 30, 2022 , compared with$6.4 million for the three months endedSeptember 30, 2021 , a decrease in of$1.6 million . The decrease in other income was due to the non-cash gain resulting from the change in fair value of our warrant liabilities in each reporting period.
Comparison of Nine Months Ended
Research and Development Expenses
Research and development expenses were$40.3 million for the nine months endedSeptember 30, 2022 compared with$24.5 million for the nine months endedSeptember 30, 2021 , an increase of$15.8 million . This increase was primarily attributable to a$8.3 million increase in spending on manufacturing costs for both exebacase and CF-370 and a$4.9 million increase in spending on clinical activities related to the Phase 3 DISRUPT study of exebacase. A$2.5 million decrease in the reimbursable expenditures under our grants and BARDA contract contributed to the increase.
General and Administrative Expenses
General and administrative expense was$9.9 million for the nine months endedSeptember 30, 2022 , compared with$8.7 million for the nine months endedSeptember 30, 2021 , an increase of$1.2 million . This increase was primarily attributable to increases of$0.6 million in administrative personnel costs, including$0.5 million of stock-based compensation expense, a$0.5 million in legal fees, and$0.1 million in insurance costs.
Restructuring Charges
During the nine months endedSeptember 30, 2022 , we incurred restructuring expenses of$7.7 million related to our restructuring plan in the third quarter of 2022. Restructuring expenses for the period were primarily comprised of$1.6 million of severance and other employee costs and a$6.1 million write-off of prepaid manufacturing costs. For further information, refer to Note 8, "Restructuring" to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Other Income, Net
Other income, net was$2.6 million for the nine months endedSeptember 30, 2022 , compared with$17.3 million for the nine months endedSeptember 30, 2021 , a decrease of$14.7 million . The decrease in other income relates primarily to the non-cash gain resulting from the change in fair value of our warrant liabilities in each reporting period.
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations to date primarily through proceeds from sales of common stock, common stock and warrants, convertible preferred stock and convertible debt and, to a lesser extent, funding received from government contracts and granting organizations. To date, we have not generated any revenue from the sale of products. We have incurred losses and generated negative cash flows from operations since inception. Since the date of our IPO, we have funded our operations through the sale of registered securities for gross proceeds of$257.8 million ,$9.6 million from the exercise of the ClassB Warrants issued in our IPO,$26.0 million from the sale of securities in private placements and the receipt of$25.6 million of funding from grant agreements and government contracts. OnAugust 14, 2020 , we filed a shelf registration statement on Form S-3 (the "Form S-3") with theSEC . The Form S-3 was declared effective by theSEC onAugust 31, 2020 . The Form S-3 allows us to offer and sell from time-to-time up to$150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. OnMarch 22, 2021 , we completed an underwritten public offering of 11,500,000 shares of our common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of$5.00 per share of common stock, resulting in estimated net proceeds of approximately$53.8 million after underwriting discounts and commissions and offering expenses payable by us. The terms of any future offerings under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with theSEC prior to the completion of any such offering. As ofSeptember 30, 2022 , we had approximately$17.6 million in cash, cash equivalents and marketable securities which we do not believe will be sufficient to meet our obligations within the next twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. Combined with our accumulated deficit and our forecasted cash expenditures, these factors raise substantial doubt about our ability to continue as a going concern. 23
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As such, under the requirements of Accounting Standard Codification ("ASC")
205-40, we may not consider the potential for future capital raises in our
assessment of our ability to meet our obligations for the next twelve months. We
plan to continue to fund our operations through public or private debt and
equity financings, but there can be no assurances that such financing will
continue to be available to us on acceptable terms, or at all, particularly in
light of the Trial Closure and the recent substantial decline in the price of
our common stock, and the terms of any public or private offerings of stock
could be significantly dilutive to existing stockholders. We recently
implemented a restructuring plan to reduce costs and align resources with our
anticipated product development milestones for exebacase and CF-370 and to help
preserve the value of our drug discovery operations, resulting in a reduction to
our workforce of 16 employees, or approximately 37% of the Company's headcount
prior to the reduction and the suspension of CMC activities related to the
potential commercialization of exebacase. If we are unable to obtain funding, we
would be forced to delay, further reduce our workforce or reduce or eliminate
our research and development programs, which could adversely affect our business
prospects, or we may be unable to continue operations or continue as a going
concern. In accordance with the requirements of ASC 205-40, we have concluded
that substantial doubt exists about our ability to continue as a going concern
for twelve months from the date of issuance of our consolidated financial
statements that are included elsewhere in this Quarterly Report on Form 10-Q.
In the past, we have obtained grants to supplement our financings with
non-dilutive funding, including grants from CARB-X, USAMRDC and our cost-sharing
contract with BARDA. Our grant programs under CARB-X have ended. We may continue
to pursue further non-dilutive funding opportunities and have initiated proposal
processes with government agencies for potential non-dilutive funding for the
advancement of lysins as biodefense agents. However, there can be no assurances
that we will be successful in obtaining new non-dilutive funding or receive the
maximum potential funding to the Company under any of our ongoing agreements.
Cash Flows
The following table provides information regarding our cash flows for the nine
months ended
Nine Months Ended September 30,
2022 2021
Net cash (used in) provided by:
Operating activities $ (36,006 ) $ (32,557 )
Investing activities $ 24,016 $ (16,610 )
Financing activities $ - $ 53,907 Net cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. Net cash used in operating activities for the nine months endedSeptember 30, 2022 increased by$3.4 million compared to the same period in 2021, due primarily to increased payments to our contract research organizations in support of our Phase 3 DISRUPT trial of exebacase and to our contract manufacturing organizations for completion of the exebacase process transfer and ongoing analytical and process validation activities in the first nine months of 2022. In connection with our decision to stop the Phase 3 DISRUPT trial, suspend CMC activities related to the potential commercialization of exebacase and our restructuring plan, we expect that our operating expenses for the remainder of 2022 will be substantially reduced.
Net Cash Provided by Investing Activities
Net cash provided by investing activities for the nine months endedSeptember 30, 2022 were from the proceeds received from the sales and maturities of marketable securities. Net cash used in investing activities for the nine months endedSeptember 30, 2021 was from the purchases of marketable securities less the proceeds received from the maturities of marketable securities.
Net Cash Provided by Financing Activities
There was no net cash provided by or used in financing activities for the nine months endedSeptember 30, 2022 . Net cash provided by financing activities for the nine months endedSeptember 30, 2021 resulted from the$53.8 million of net proceeds from ourMarch 22, 2021 offering of securities and$0.1 million of proceeds from the exercise of warrants.
Funding Requirements
All of our product candidates are in clinical or preclinical development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we: • initiate the planned clinical trials of our product candidates;
• continue our ongoing preclinical studies, and initiate additional
preclinical studies, of our product candidates;
• continue the research and development of our other product candidates and
our platform technology;
• add operational, financial and management information systems and
personnel, including personnel to support our product development and
future commercialization efforts;
• seek marketing approvals for our product candidates that successfully
complete clinical trials;
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• establish, either on our own or with strategic partners, a sales,
marketing and distribution infrastructure to commercialize any products
for which we may obtain marketing approval;
• seek to identify additional product candidates;
• acquire or in-license other products and technologies; and
• maintain, leverage and expand our intellectual property portfolio.
For a description of our contractual obligations, see Note 7, "Commitments and
Contingencies" to the notes to our consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q.
Without additional funding, we believe we will not have sufficient funds to meet
our obligations within the next twelve months from the date of issuance of our
consolidated financial statements that are included elsewhere in this Quarterly
Report on Form 10-Q. We plan to continue to fund our operations through public
or private debt and equity financings, but there can be no assurances that such
financing will be available to us on satisfactory terms, or at all, particularly
in light of the Trial Closure. We recently implemented a restructuring plan to
reduce costs and align resources with our anticipated product development
milestones for exebacase and CF-370 and to help preserve the value of our drug
discovery operations, resulting in a reduction to our workforce of 16 employees,
or approximately 37% of the Company's headcount prior to the reduction and the
suspension of CMC activities related to the potential commercialization of
exebacase. If we are unable to obtain funding, we would be forced to delay,
further reduce our workforce or reduce or eliminate our research and development
programs, which could adversely affect our business prospects, or we may be
unable to continue operations or continue as a going concern. In accordance with
the requirements of ASC 205-40, we have concluded that substantial doubt exists
about our ability to continue as a going concern. Because of the numerous risks
and uncertainties associated with the development and commercialization of our
product candidates, and the extent to which we may enter into collaborations
with third parties for development and commercialization of our product
candidates, we are unable to estimate the amounts of increased capital outlays
and operating expenses associated with completing the development of our current
product candidates. We plan to continue to supplement our financings with
non-dilutive funding, including grants and our cost-sharing contract with BARDA,
but there can be no assurances that we will receive the maximum potential
funding to the Company under such arrangements.
Our future capital requirements will depend on many factors, including:
• the results of the clinical trials of our lead product candidates;
• the scope, progress, results and costs of compound discovery, preclinical
development, laboratory testing and clinical trials for our product
candidates;
• the extent to which we acquire or in-license other products and
technologies;
• costs associated with manufacturing of our product candidates and the
active pharmaceutical ingredients for our product candidates;
• the timing and amount of actual reimbursements under the BARDA Contract;
• the costs, timing and outcome of regulatory review of our product
candidates;
• the costs of future commercialization activities, including product
sales, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval;
• revenue, if any, received from commercial sales of our productcandidates, should any of our product candidates receive marketing
approval;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims; and
• our ability to establish any future collaboration arrangements on
favorable terms, if at all.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity and debt
offerings, collaborations, grants, government contracts, strategic alliances and
licensing arrangements. We do not have any committed external source of funds.
To the extent that we raise additional capital through the sale of equity or
other securities, the ownership interest of our stockholders 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, if
available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances 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 when needed, we may be required to
delay, limit, reduce or terminate our 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.
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We incur significant costs as a public company, including, but not limited to, increased personnel costs, increased directors fees, increased directors and officers insurance premiums, audit and legal fees, investor relations and external communications fees, expenses for compliance with the Sarbanes-Oxley Act and rules implemented by theSEC and Nasdaq and various other costs and expenses.
Effects of Inflation
We do not believe that inflation or changing prices had a significant impact on our results of operations for any periods presented herein. We continue to monitor the impact of inflationary pressures on purchases and new contractual commitments.
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