CYTODYN INC. Refer to information previously reported under Part I, Item 1 of the 2021 Form 10-K.
Certain information included in this Quarterly Report on Form 10-Q contains, or incorporates by reference, forward-looking statements within the meaning of Section 21E of the Exchange Act. The words "anticipate," "believe," "hope," "expect," "intend," "predict," "plan," "seek," "estimate," "project," "continue," "could," "may," and similar terms and expressions, or the use of future tense, are intended to identify forward-looking statements. These statements include, among others, statements about leronlimab, its ability to have positive health outcomes, the Company's ability to resolve the clinical holds recently imposed by the FDA, and information regarding future operations, future capital expenditures and future net cash flows. Such statements reflect current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, (i) the regulatory determinations of leronlimab's safety and effectiveness by theU.S. Food and Drug Administration and various drug regulatory agencies in other countries; (ii) the Company's ability to raise additional capital to fund its operations; (iii) the Company's ability to meet its debt and other payment obligations; (iv) the Company's ability to enter into or maintain partnership or licensing arrangements with third-parties; (v) the Company's ability to recruit a permanent CEO and retain other key employees; (vi) the timely and sufficient development, through internal resources or third-party consultants, of analyses of the data generated from the Company's clinical trials required by the FDA or other regulatory agencies in connection with the Company's BLA resubmission or other applications for approval of the Company's drug product, (vii) the Company's ability to achieve approval of a marketable product; (viii) the design, implementation and conduct of the Company's clinical trials; (ix) the results of the Company's clinical trials, including the possibility of unfavorable clinical trial results; (x) the market for, and marketability of, any product that is approved; (xi) the existence or development of vaccines, drugs, or other treatments that are viewed by medical professionals or patients as superior to the Company's products; (xii) regulatory initiatives, compliance with governmental regulations and the regulatory approval process; (xiii) legal proceedings, investigations or inquiries affecting the Company or its products; (xiv) general economic and business conditions; (xv) changes in foreign, political, and social conditions; (xvi) stockholder actions or proposals with regard to the Company, its management, or its Board of Directors; and (xvii) various other matters, many of which are beyond the Company's control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated, or otherwise indicated. Consequently, the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments. For a discussion of the risks and uncertainties that could materially and adversely affect the Company's financial condition and results of operations, see "Risk Factors" set forth in our Annual Report on Form 10-K for the year endedMay 31, 2021 , as amended by Amendment No. 1 filed with theSEC onSeptember 28, 2021 (the "2021 Form 10-K"), as well as those risks and uncertainties identified in Part II, Item 1A of this Form 10-Q. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 2021 Form 10-K and the other sections of this Form 10-Q, including our consolidated financial statements and related notes set forth in Part I, Item 1. This discussion and analysis contain forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.
Overview
The Company is a late-stage biotechnology company focused on the clinical
development and potential commercialization of its product candidate, leronlimab
(PRO 140), which is being studied for the treatment of HIV infection, and other
therapeutic indications including oncology and nonalcoholic steatohepatitis
("NASH"). Our current business strategy is to seek the removal of the partial
and full clinical holds recently imposed by the US FDA , continue the
resubmission process for our Biologics License Application ("BLA") for
leronlimab as a combination therapy for highly treatment-experienced HIV
patients , and to seek to further develop leronlimab for other HIV-related
indications. We also seek to advance our clinical development of leronlimab for
various forms of cancer, including metastatic triple-negative breast cancer
("mTNBC") and other solid tumors as well as plan to continue to evaluate NAFLD
and NASH, and concurrently explore other potential immunologic indications
for
leronlimab.
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The target of leronlimab is the immunologic receptor CCR5. The CCR5 receptor is
a protein located on the surface of white blood cells that serves as a receptor
for chemical attractants called chemokines. The CCR5 receptor may also be
present on cells that undergo malignant transformation and may also be present
in the tumor microenvironment. Chemokines are the key orchestrators of leukocyte
trafficking by attracting immune cells to the sites of inflammation. At the site
of an inflammatory reaction, chemokines are released. These chemokines are
specific for CCR5 and cause the migration of cells to these sites, promoting
further inflammation. The Company believes the mechanism of action of leronlimab
has the potential to decrease the movement of cells to inflammatory sites, which
could be instrumental in diminishing or eliminating inflammatory responses. Some
disease processes that could possibly benefit from CCR5 blockade include
transplantation rejection, autoimmunity, and chronic inflammation.
As further discussed in Part I, Note 2, Summary of Significant Accounting
Policies, Inventories, Note 3, Inventories, net, and Note 10, Commitments and
Contingencies, the Company capitalized procured or produced pre-launch
inventories in preparation for product launches sufficient to support estimated
initial market demand. The Company considers anticipated future sales,
shelf-lives, and expected approval date when evaluating realizability of
pre-launch inventories. The shelf-life of a product is determined as part of the
regulatory approval process; however, in assessing whether to capitalize
pre-launch inventory, the Company considers the stability data of all
inventories. As inventories approach their shelf-life expiration, the Company
may perform additional stability testing to determine if the inventory is still
viable, which can result in an extension of its shelf-life. Further, in addition
to performing additional stability testing, certain raw materials inventory may
be sold in its then current condition prior to reaching expiration. The Company
also considers potential delays associated with regulatory approval in
determining whether pre-approval inventory remains salable. Although we believe
our product will receive market acceptance, the introduction of a competing
product could negatively impact the demand for our product and affect the
realizability of our inventories. In addition, if physicians are unwilling or
unable to prescribe leronlimab to their patients, or the target patient
population was reluctant to try leronlimab as a new therapy, the salability of
our pre-launch inventory would be adversely affected.
Third Quarter Overview
COVID-19 Clinical Developments
InMarch 2022 , the United States FDA notified the Company it had placed a full clinical hold on its COVID-19 program. The Company was not conducting any COVID-19 trials inthe United States at the time the hold was placed, and elected to withdraw the respective IND. The Company will need to resolve the clinical hold and submit another IND to initiate any future COVID-19 trials inthe United States . Further, the Company had elected to pause its Brazil COVID-19 trials pending results from its previously scheduled data safety monitoring board ("DSMB") meeting in earlyApril 2022 . InApril 2022 , the DSMB for the Brazilian COVID-19 clinical trials met and recommended that the Brazilian COVID-19 trials, previously paused by the Company, may continue based on the review of the interim patient safety data from the clinical trials. The Company is in the process of providing this information to ANVISA for their subsequent review of the information prior to commencing the enrollment of new patients in the Brazilian trials.
For business updates related to previous periods refer to Part I, Item 2 of the
Form 10-Q for the period ended
HIV BLA & Clinical Developments
The remaining BLA section to be completed and submitted remains in progress as
of the date of this filing. The Company is in a dispute with its former contract
research organization ("CRO"), and the Company obtained an order requiring the
CRO to release the Company's clinical data related to the BLA, which the CRO had
been withholding. Further, the order granted the Company the right to perform an
audit of the CRO's services. Additionally, the FDA recently placed the HIV
program on a partial clinical hold, which may affect the ability to resubmit the
BLA. As of March 2022 , the FDA had commenced their review of the CMC section.
The Company is in the process of evaluating the data, results of the audit, and
implications of the partial clinical hold. The Company will update the status of
its anticipated resubmission of the clinical section of the BLA once it
completes its evaluation.
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In March 2022 , the United States FDA notified the Company it had place a partial
clinical hold on its HIV programs. The Company was not enrolling any new
patients in the trials placed on hold. The partial clinical hold on the HIV
program impacts patients currently enrolled in HIV extension trials. The
impacted patients will be transitioned to other available therapeutics. No
clinical studies can be initiated or resumed until the partial clinical hold is
resolved. The Company intends to work with the FDA to resolve the partial
clinical hold as soon as possible.
For business updates related to previous periods refer to Part I, Item 2 of the
Form 10-Q for the period ended
Cancer Clinical Developments
During 2021, the Company stopped and reported results from metastatic
Triple-Negative Breast Cancer ("mTNBC") patients who had failed at least two
lines of previous therapy in the Compassionate Use program, our Phase 1b/2
clinical trial, and our Basket trial. The data were insufficient to support
resubmission of a Breakthrough Therapy designation request without additional
data. The Company is identifying the next steps in clinical development and
potential business opportunities to continue the development of this indication,
including potentially facilitating research in leronlimab's role in oncology at
various academic institutions.
For business updates related to previous periods refer to Part I, Item 2 of the
Form 10-Q for the period ended
NASH Clinical Developments
The Company is in the process of completing its final analysis of the data from its Phase 2 NASH trial and plans to release the updated and final results in the near future. There is currently no approved drug for NASH, and liver disease is one of the leading causes of non-AIDS-related death in HIV patients. The Company is identifying the next steps in clinical development and is exploring potential business opportunities to continue the investigation of leronlimab in the NASH indication.
For business updates related to previous periods refer to Part I, Item 2 of the
Form 10-Q for the period ended
Corporate Developments
OnJanuary 24, 2022 , the Board of Directors terminated the employment ofNader Z. Pourhassan , Ph.D., as President and CEO of the Company and he is no longer a member of the Board of Directors. A committee of three Board members has been appointed to initiate the search for a new permanent CEO, with a focus on identifying a candidate possessing the requisite pharmaceutical industry experience to enhance the Company's efforts to achieve regulatory approval and commercialization of leronlimab.Antonio Migliarese , the Company's Chief Financial Officer, was also appointed interim President. DuringFebruary 2022 , the Board approved the continued appointments to theScientific Advisory Board ("SAB") of Dr.Hope Rugo (oncology), Dr.Mazen Noureddin (hepatology), Dr.Jonah Sacha (HIV), Dr.Norman Gaylis (rheumatology), and Dr.Eric Mininberg (oncology), as well as newSAB members Dr.Otto Yang (infectious diseases/immunology), Dr.Kabir Mody (oncology), and Dr.Paul Edison (neuroscience/neuroinflammation). OnMarch 27, 2022 , the Board of Directors appointedKaren J. Brunke , Ph.D., as a director of the Company.Dr. Brunke has over 30 years of scientific, operational, clinical, senior executive, and corporate development managerial experience with large and small biotechnology companies.
For business updates related to previous periods refer to Part I, Item 2 of the
Form 10-Q for the period ended
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Results of Operations
The Company's operating results may fluctuate significantly depending on the
outcomes of clinical trials, patient enrollment and/or completion rates in
various trials, entering into new or potential amendments to existing clinical
trial protocols, and their related effect on research and development expenses,
regulatory and compliance activities, activities related to resubmission and
preparation of our HIV BLA, general and administrative expenses, professional
fees, and legal proceedings and the related outcomes. Additionally, our
operating results are significantly affected by manufacturing activities,
specifically by the timing of product manufacturing activities, as well as
estimates related to shelf lives of pre-launch inventories, and reclassification
of inventory from pre-launch to clinical use.
We also require a significant amount of additional capital and our ability to
continue to fund operations will continue to depend on our ability to raise such
capital. The type of agreements we utilize to raise capital may create various
forms of expense such as non-cash interest expense, inducement expense, or
expense related to amortization of issuance costs. Further, we negotiate
settlement of debt payment obligations in exchange for equity securities of the
Company, which may create a non-cash charge upon extinguishment of debt.
Refer to Risk Factors previously reported under Part 1, Item 1A of the 2021 Form
10-K, to Going Concern section below and to Part II, Item 1A of this report.
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2022 2021 $ % 2022 2021 $ %
(Revised) (1) (Revised) (1)
Total revenue $ - $ - $ - - % $ 266 $ - $ 266 100 %
Total cost of goods sold - - - - % 53 - 53 100 %
Gross margin - - - - % 213 - 213 100 %
Operating expenses:
General and
administrative 10,140 7,902 2,238 28 % 33,960 25,328 8,632 34 %
Research and development 9,128 12,323 (3,195) (26) % 31,952 44,061 (12,109) (27) %
Amortization and
depreciation 129 511 (382) (75) % 657 1,522 (865) (57) %
Intangible asset
impairment charge - 10,049 (10,049) (1) % - 10,049 (10,049) (100) %
Total operating expenses 19,397 30,785 (11,388) (37) % 66,569 80,960 (14,391) (18) %
Operating loss (19,397) (30,785) 11,388 37 % (66,356) (80,960) 14,604 18 %
Other income (expense):
Interest and other
expense:
Interest on convertible
notes (1,187) (1,257) 70 6 % (4,299) (2,870) (1,429) (50) %
Amortization of discount
on convertible notes (637) (157) (480) (306) % (2,382) (2,739) 357 13 %
Amortization of debt
issuance costs (19) (21) 2 10 % (70) (40) (30) (75) %
Loss on extinguishment
of convertible notes (3,109) (7,625) 4,516 59 % (11,072) (11,794) 722 6 %
Finance charges (7,025) (1) (7,024) (702,400) % (8,084) (138) (7,946) (5,758) %
Inducement interest
expense (954) (5,360) 4,406 82 % (6,186) (12,922) 6,736 52 %
Legal settlement - - - - % (1,941) - (1,941) (100) %
Interest and other
expense (12,931) (14,421) 1,490 10 % (34,034) (30,503) (3,531) (12) %
Loss before income taxes (32,328) (45,206) 12,878 28 % (100,390) (111,463) 11,073 10 %
Income tax benefit - - - - - - - -
Net loss $ (32,328) $ (45,206) $ 12,878 28 % $ (100,390) $ (111,463) $ 11,073 10 %
Basic and diluted loss
per share $ (0.05) $ (0.08) $ 0.03 36 % $ (0.15) $ (0.19) $ 0.04 20 %
Basic and diluted
weighted average common
shares outstanding 695,614 577,854 117,760 20 % 663,373 595,226 68,147 11 %
(1) See Note 2, Correction of Immaterial Misstatements in Prior Period Financial
Statements in Form 10-Q for the period ended
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Product revenue
For the nine months ended February 28, 2022 , we recognized revenue of
approximately $0.3 million ; none in the three months ended February 28, 2022 and
the three and nine months of the comparable periods of fiscal 2021. Revenue was
related to the fulfillment of orders under a Compassionate Special Permit
("CSP") in the Philippines for the treatment of COVID-19 patients. As discussed
in the previous filings, sales were made under the April 2021 exclusive supply
and distribution agreement granting Chiral the right to distribute and sell up
to 200,000 vials of leronlimab through April 15, 2022 .
For additional information about the revenue recognition policy, refer to Item
1, Note 2, Summary of Significant Accounting Policies, Revenue Recognition, of
this Form 10-Q.
Cost of goods sold ("COGS") and Gross margin
For the nine months endedFebruary 28, 2022 , we recognized cost of goods sold of approximately$53.0 thousand ; none in the three months endedFebruary 28, 2022 . We did not have revenue or associated costs in the comparable periods of 2021. At the time of the sales, FDA approval had not yet been received for leronlimab and the product sold was previously expensed as research and development expense due to its being manufactured prior to the commencement of the manufacturing of commercial grade pre-launch inventories. Therefore, COGS consists only of the costs of packaging and shipping of the vials, including related customs and duties. When product manufactured prior to the manufacturing of pre-launch inventories is fully depleted and commercial grade pre-launch inventories for which manufacturing costs have been capitalized are sold, it is expected that COGS will significantly increase and gross margin will significantly decrease.
For additional information about the inventories policies, refer to Note 2, Summary of Significant Accounting Policies, Inventories, of the 2021 Form 10-K and this Form 10-Q.
General and administrative ("G&A") expenses
G&A expenses consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2022 2021 $ % 2022 2021 $ %
(Revised) (1) (Revised) (1)
Salaries, benefits, and
other compensation $ 3,227 $ 2,436 $ 791 32 % $ 5,463 $ 7,417 $ (1,954) (26) %
Stock-based compensation (438) 1,937 (2,375) (123) 4,219 9,053 (4,834) (53)
Legal fees 5,161 2,520 2,641 105 16,718 5,100 11,618 228
Other 2,190 1,009 1,181 117 7,560 3,758 3,802 101
Total general and
administrative $ 10,140 $ 7,902 $ 2,238 28 % $ 33,960 $ 25,328 $ 8,632 34 %
G&A expenses increased approximately $2.2 million , or 28%, for the three months
ended February 28, 2022 compared to the same period in the prior year. The
increase was primarily driven by increased other compensation, legal fees, and
other. The increase in other compensation was related to the accrual of expenses
related to severance due to the Company's former CEO, which was partially
settled in stock in March 2022 . Refer to the further discussion regarding the
separation of the former CEO provided in Item 1, Note 7, Equity Awards and
Warrants, Former CEO Severance in Common Stock, of this Form 10-Q. The increase
in legal fees was primarily related to legal fees associated with the SEC and
DOJ investigations, the Pestell employment dispute, and the Amarex dispute. The
decrease in stock-based compensation was primarily related to the forfeiture of
unvested equity grants of the former CEO upon separation. Additionally, the
increase in other G&A expense was primarily due to increased insurance premiums
and outsourced consulting and recruiting services.
G&A expenses increased approximately $8.6 million , or 34%, for the nine months
ended February 28, 2022 compared to the same period in the prior year. The
increase was primarily driven by increased legal fees and other G&A expense,
which were partially offset by decreased employee-related costs. The increase in
legal fees was primarily
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related to the proxy contest and related lawsuits, SEC and DOJ investigations,
the Pestell employment dispute, and the Amarex dispute. The increase in other
was primarily due to increased insurance premiums, costs associated with the
2021 annual meeting of stockholders, and outsourced consulting and recruiting
services. The reduction in salaries, benefits and other compensation was
attributable to a reduction in bonuses and the reclassification of previously
accrued incentive compensation to stock-based compensation due to the
compensation being issued in stock, offset by an increase in severance costs
related to the termination of employees and salaries and benefits. The decrease
in stock-based compensation was primarily related to the forfeiture of unvested
equity grants of the former CEO upon separation, partially offset by the
issuance of common stock for bonus compensation instead of cash.
Research and development ("R&D") expenses
R&D expenses consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2022 2021 $ % 2022 2021 $ %
(Revised) (1) (Revised) (1)
Clinical $ 2,612 $ 10,194 $ (7,582) (74) % $ 17,273 $ 26,650 $ (9,377) (35) %
Non-clinical 203 52 151 290 878 1,090 (212) (19)
CMC 6,067 1,804 4,263 236 13,086 15,618 (2,532) (16)
License and patent fees 246 273 (27) (10) 715 703 12 2
Total research and
development $ 9,128 $ 12,323 $ (3,195) (26) % $ 31,952 $ 44,061 $ (12,109) (27) %
For the nine months ended
For the three months endedFebruary 28, 2022 , R&D expenses decreased approximately$3.2 million , or 26%, compared to the same period in the prior year. The decrease was primarily due to decreased clinical expenses, offset by CMC related activities and a slight increases in non-clinical expenses. The reduction in clinical expenses was primarily attributable to decreased expenses associated with the various clinical trials related to COVID-19, HIV extension studies, NASH, oncology, costs related to resubmission of our HIV BLA, and the packaging and shipping of leronlimab. The driver of the increase in the CMC expense was related to the increase of the inventory reserve for the estimated obsolescence of raw materials, and the expensing of vialed drug product used for clinical purposes and inventory rendered defective for commercial purposes due to manufacturing errors committed by the contract manufacturer during the manufacturing process. The increase in non-clinical expenses was attributable to increased activity associated with pre-clinical studies. For the nine months endedFebruary 28, 2022 , R&D expenses decreased approximately$12.1 million , or 27%, compared to the same period from 2021. The decrease was primarily due to lower clinical, CMC, and non-clinical expenses. The decrease in clinical expenses was primarily attributable to reduced expenses associated with the various clinical trials related to COVID-19, HIV extension studies, and oncology, and the packaging and shipping of leronlimab. The reduction in CMC expense was due to decreased manufacturing activity tied to the commercialization of leronlimab, partially offset by the increase of inventory reserves for estimated obsolescence of raw materials, and the expensing of vialed drug product used for clinical purposes and inventory rendered defective for commercial purposes due to manufacturing errors committed by the contract manufacturer during the manufacturing process. The reduction in non-clinical expenses was attributable to decreased activity associated with pre-clinical studies.
Amortization and depreciation expenses, and intangible asset impairment charge
In the three and nine months endedFebruary 28, 2022 and 2021, amortization and depreciation expense was approximately$0.1 million and$0.5 million , and approximately$0.7 million and$1.5 million , respectively. The decrease of approximately$0.4 million , or 75%, and approximately$0.8 million , or 57% is primarily attributable to the 35
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non-cash impairment charge related to the ProstaGene asset recorded in the third quarter of fiscal year 2021, in addition to some intangible assets becoming fully amortized.
Interest and other expense
Interest and other expense consisted of the following:
Three months ended February 28, Change Nine months ended February 28, Change
(in thousands) 2022 2021 $ % 2022 2021 $ %
(Revised) (1) (Revised) (1)
Interest on convertible
notes payable $ 1,187 $ 1,257 $ (70) (6) % $ 4,299 $ 2,870 $ 1,429 50 %
Amortization of
discount on convertible
notes 637 157 480 306 2,382 2,739 (357) (13)
Amortization of debt
issuance costs 19 21 (2) (10) 70 40 30 75
Loss on extinguishment
of convertible notes 3,109 7,625 (4,516) (59) 11,072 11,794 (722) (6)
Finance charges 7,025 1 7,024 702,400 8,084 138 7,946 5,758
Inducement interest
expense 954 5,360 (4,406) (82) 6,186 12,922 (6,736) (52)
Legal settlement - - - - 1,941 - 1,941 100
Total interest and
other expense $ 12,931 $ 14,421 $ (1,490) (10) % $ 34,034 $ 30,503 $ 3,531 12 %
(1) See Note 2, Correction of Immaterial Misstatements in Prior Period Financial
Statements in Form 10-Q for the period ended
In the three and nine months endedFebruary 28, 2022 and 2021, we recognized a non-cash loss on the extinguishment of convertible notes of approximately$3.1 million and$7.6 million , and approximately$11.1 million and$11.8 million , respectively. The losses resulted from separate and independently negotiated note payment settlements in which certain debt was agreed to be settled in exchange for shares issued at a price less than the closing price at the date of the respective transactions. The original underlying convertible notes were entered into onNovember 10, 2020 andApril 2, 2021 . TheNovember 10, 2020 note was fully retired during the three months endedNovember 30, 2022 . Refer to Item I, Note 6, Convertible Instruments and Accrued Interest, for further information. The increase in finance charges in the three and nine months endedFebruary 28, 2022 as compared to the same periods in the prior year, was primarily attributable to a non-cash expense related to the issuance of 15.0 million warrants pursuant to the Backstop Agreement in addition to interest charges assessed on amounts due to vendors. Refer to Part I, Note 7, Equity Awards and Warrants, Private Placement of Warrants under Surety Bond Backstop Agreement for additional information. For the three months endedFebruary 28, 2022 as compared to the same period in the prior year, interest on convertible notes did not change significantly. In the nine months endedFebruary 28, 2022 as compared to the same period in the prior year, the increase is attributable to the larger amount of debt carried by the Company at the beginning of the fiscal year. For the nine months endedFebruary 28, 2022 , we incurred approximately$1.9 million as legal settlement expense; none in the three months endedFebruary 28, 2022 and three and nine months of the comparable periods of fiscal 2021. The legal settlement expense consisted of a$0.2 million cash payment and approximately$1.7 million of non-cash expense related to the issuance of warrants in connection with a negotiated settlement of a dispute with a placement agent.
Liquidity and Capital Resources
Cash
The Company's cash and restricted cash position of approximately$2.4 million as ofFebruary 28, 2022 decreased by approximately$31.6 million , when compared to the balance of$33.9 million atMay 31, 2021 . This decrease was 36
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primarily the result of approximately$71.7 million in cash used in our operating activities offset by approximately$40.1 million in cash provided by financing activities. Refer to Item 1, Note 2, Summary of Significant Accounting Policies, Going Concern, and Going Concern discussion below to obtain an understanding of the Company's ability to continue to fund its operations and satisfy its payment obligations and commitments. Nine months ended February 28, Change (in thousands) 2022 2021 $ (Revised) (1) Net cash (used in) provided by: Net cash used in operating activities$ (71,679) $ (84,767) $ 13,088 Net cash used in investing activities$ (30) $ (100) $ 70 Net cash provided by financing activities$ 40,129 $ 84,866 $
(44,737)
Cash used in operating activities
During the nine months endedFebruary 28, 2022 , we used$71.7 million for operating activities, an improvement of$13.1 million as compared to the same period in the prior year. The decrease in the net amount of cash used in operating activities was due primarily to the change in our net loss, working capital fluctuations, and changes in our non-cash expenses, all of which are highly variable.
Cash used in investing activities
Net cash used in investing activities was insignificant in the nine months ended
Cash provided by financing activities
During the nine months endedFebruary 28, 2022 , net cash provided by financing activities was$40.1 million , a decrease of$44.7 million as compared to the same period in the prior year. The decrease was primarily attributable to a decrease in proceeds received from convertible notes of$50.0 million , and from stock option and warrant exercises.
Inventories
The Company's pre-launch inventories consist of raw materials purchased for commercial production and work-in-progress inventory related to the substantially completed commercial production of pre-launch inventories of leronlimab in light of the Company's expectation regarding approval of the product as a combination therapy for HIV patients inthe United States . Work-in-progress consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials. See Item 1, Note 2, Summary of Significant Accounting Policies - Inventories, and Note 3, Inventories, net, for further discussion of the capitalization of pre-launch inventories. The Company's inventory position as ofFebruary 28, 2022 was approximately$82.7 million , net of an approximate$5.8 million reserve, a decrease of approximately$10.8 million when compared to a balance of approximately$93.5 million as ofMay 31, 2021 , net of an approximate$0.7 million reserve. During the nine months endedFebruary 28, 2022 , the decrease in inventory was primarily related to$5.1 million reserved for current and future estimated obsolescence of raw materials, approximately$3.6 million related to the write-off of expired raw materials not previously reserved for and vialed drug product used for clinical purposes,$3.3 million of inventories returned or credits received from vendors, offset by inventory purchases of approximately$2.0 million . As ofFebruary 28, 2022 the raw materials balance was approximately$19.5 million , net of an approximate$5.8 million reserve, and the total work-in-progress was approximately$63.2 million . Work-in-progress consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials. Bulk drug substance and drug product comprised approximately$1.7 million and$61.5 million , respectively, of work-in-progress inventory. 37 Table of Contents Convertible debt
A summary of our convertible debt arrangements is included in Note 6, Convertible Instruments and Accrued Interest, of the Notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
OnApril 2, 2021 , we issued a convertible note with a principal amount of$28.5 million resulting in net cash proceeds of$25.0 million , after$3.4 million of debt discount and$0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of$10.00 per share, and matures inApril 2023 . TheApril 2, 2021 Note required monthly debt reduction payments of$7.5 million for the six months beginning inMay 2021 , which could also be satisfied by payments on other notes held by the noteholder or its affiliates. Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to$3.5 million . The outstanding balance of theApril 2, 2021 Note, including accrued interest, was$11.4 million as ofFebruary 28, 2022 .
OnApril 23, 2021 , we issued a convertible note with a principal amount of$28.5 million resulting in net cash proceeds of$25.0 million , after$3.4 million of debt discount and$0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of$10.00 per share, and matures inApril 2023 . Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to$7.0 million . The outstanding balance of theApril 23, 2021 Note, including accrued interest, was$29.1 million as ofFebruary 28, 2022 .
Common stock
We have 1,000.0 million authorized shares of common stock. As ofFebruary 28, 2022 , we had approximately 713.3 million shares of common stock outstanding, approximately 79.3 million shares of common stock issuable upon the exercise of warrants, approximately 32.2 million shares of common stock issuable upon conversion of convertible preferred stock and undeclared dividends, approximately 19.0 million shares of common stock issuable upon the exercise of outstanding stock options or the vesting of outstanding restricted stock units, approximately 10.2 million shares of common stock reserved for issuance pursuant to future stock-based awards under our equity incentive plan, and approximately 12.0 million shares of common stock reserved and issuable upon conversion of outstanding convertible notes. As a result, as ofFebruary 28, 2022 , we had approximately 134.0 million unreserved authorized shares of common stock available for issuance. Our ability to continue to fund our operations depends on our ability to raise such capital. The funding necessary for our operations may not be available on acceptable terms or at all. If we may need to scale back operations and/or slow CMC-related activities, delay, reduce the scope of, or eliminate one or more of our clinical trials or postpone our regulatory submissions and commercialization initiatives or our ability to adequately fund legal proceedings, which would adversely affect our business, financial condition, and stock price. If we deplete our cash reserves, we may have to discontinue our operations and liquidate our assets, in extreme cases, we could be forced to file for bankruptcy protection, discontinue operations or liquidate assets.
Off-Balance Sheet Arrangements
As of
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Contractual Obligations
Refer to Note 5, Accounts Payable and Accrued Liabilities, Note 6, Convertible
Instruments and Accrued Interest, and Note 10, Commitments and Contingencies
included in Part I, Item 1 of this Form 10-Q, and in Item 7 of the 2021 Form
10-K.
Legal Proceedings
The Company is a party to various legal proceedings. As of February 28, 2022 , we
were not party to any material pending legal proceedings, other than those
described in Note 10, Commitments and Contingencies, to the Consolidated
Financial Statements included in Part I, Item 1 of this Form 10-Q. The Company
recognizes accruals for such proceedings to the extent a loss is determined to
be both probable and reasonably estimable. The best estimate of a loss within a
possible range is accrued; however, if no estimate in the range is more probable
than another, then the minimum amount in the range is accrued. If it is
determined that a material loss is not probable but reasonably possible and the
loss or range of loss can be estimated, the possible loss is disclosed. It is
not possible to determine the outcome of these proceedings, including the
defense and other litigation-related costs and expenses that may be incurred by
the Company, as the outcomes of legal proceedings are inherently uncertain, and
the outcomes could differ significantly from recognized accruals. Therefore, it
is possible that the ultimate outcome of any proceeding, if in excess of a
recognized accrual or if an accrual has not been made, could be material to the
Company's consolidated financial statements. As of February 28, 2022 , the
Company had not recorded any accruals related to the outcome of the matters
described in Note 10, Commitments and Contingencies, Legal Proceedings.
Regulatory Matters
FDA Refusal to File Letter re HIV BLA Submission
InJuly 2020 , the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients. The FDA informed the Company the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company is working with consultants to cure the BLA deficiencies noted and will resubmit the BLA as soon as practical. InNovember 2021 , the Company resubmitted the non-clinical and CMC sections of the BLA and is currently reevaluating when it expects to complete the clinical section. As ofMarch 2022 , the FDA had commenced its review of the CMC section. The Company is in dispute with its former contract research organization ("CRO"), as described in Note 10, Commitments and Contingencies - Legal Proceedings. Recently, in the context of the litigation, the Company obtained an order requiring the CRO to release the Company's clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO's services. Additionally, the FDA recently placed the HIV program on a partial clinical hold, which may affect the ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will provide an updated timeline anticipated resubmission date once it completes its evaluation, the impact those results may have on the BLA and the estimated resubmission timeline.
FDA Warning Letter re COVID-19 Misbranding of Investigational Drug
InJanuary 2022 , the Company received a Warning Letter fromthe United States FDA alleging that its former CEO and President, Dr.Nader Pourhassan , had made references in a video interview to COVID-19 and leronlimab in a promotional context to the effect that leronlimab, an investigational new drug, is safe and effective for the purpose for which it is being investigated or otherwise promoted the drug. The FDA warned the Company that leronlimab has not been approved or authorized by the FDA, its safety and effectiveness has not yet been established, and that the related clinical trial data was mischaracterized in the video. The FDA further alleged the video misbrands leronlimab under section 502(f)(1) of the FD&C Act and in violation of section 301(a) of the FD&C Act, as the claims in the video make representations in a promotional context regarding the safety and efficacy of an investigational new drug that has not 39
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been approved or authorized by the FDA. The Company is working closely with the FDA to resolve this matter and take the proper corrective actions.
FDA Partial Clinical Hold re HIV and Full Clinical Hold re COVID-19 Letters InMarch 2022 , the United States FDA placed a partial clinical hold on the Company's HIV program and a full clinical hold on its COVID-19 program inthe United States . The Company was not enrolling any new patients in the trials placed on hold inthe United States . The partial clinical hold on the HIV program impacts patients currently enrolled in extension trials. These patients will be transitioned to other available therapeutics and no clinical studies can be initiated or resumed until the partial clinical hold is resolved.CytoDyn is working closely with the FDA to resolve the partial clinical hold as soon as possible. Under the full clinical hold on the COVID-19 program, no new clinical studies may be initiated until the clinical hold is resolved. The Company is not currently conducting any COVID-19 trials inthe United States , as it is evaluating the most optimal programs on which to focus its resources and attention. The Company is working closely with the FDA to resolve the partial clinical hold as soon as possible.
Going Concern
As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of$100.4 million for the nine months endedFebruary 28, 2022 and has an accumulated deficit of$636.1 million as ofFebruary 28, 2022 . The Company has had limited to no activities that produced revenue in the periods presented and has sustained operating losses since inception. We currently require and will continue to require a significant amount of additional capital to fund operations and pay our liabilities and commitments, and our ability to continue as a going concern is dependent on our ability to raise such additional capital, commercialize our product and achieve profitability. If the Company is not able to raise such additional capital on a timely basis or on favorable terms, it may need to scale back operations and/or slow CMC-related activities, delay or reduce the scope of, or eliminate one or more of our clinical trials or postpone our regulatory submissions and commercialization initiatives, or ability to adequately fund legal proceedings, which could materially delay commercialization initiatives and its ability to achieve profitability. The Company's failure to raise additional capital could also affect its relationships with key vendors, including Samsung, disrupting its ability to timely execute its business plan. In extreme cases, the Company could be forced to file for bankruptcy protection, discontinue operations or liquidate assets. Since inception, the Company has financed its activities principally from the public and private sale of equity securities and proceeds from convertible notes payable and related party notes payable. The Company intends to finance its future operating activities and its working capital needs largely from the sale of equity and debt securities, combined with additional potential funding from other traditional and non-traditional financing sources. As of the date of this filing, the Company has approximately 134.0 million shares of common stock unreserved, authorized and available for issuance under its certificate of incorporation, as amended. The sale of equity and convertible debt securities to raise additional capital may result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises funds through the issuance of additional preferred stock, convertible debt securities or other debt or equity financing, the related transaction documents could contain covenants restricting its operations. OnApril 2 andApril 23, 2021 , the Company entered into long-term convertible notes that are secured by all of our assets (excluding our intellectual property), and include certain restrictive provisions, including limitations on incurring additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms and conditions. OnFebruary 14, 2022 , in exchange for warrants the Company entered into a Backstop Arrangement with an accredited investor whereby the Company pledged its patents and the investor agreed to indemnify the issuer of the Surety Bond in the Amarex dispute with respect to the Company's obligations under the Surety Bond. Any other third-party funding arrangements could require the Company to relinquish valuable rights. The Company expects to require additional capital beyond currently anticipated needs. Additional capital, if available, may not be available on reasonable or non-dilutive terms. Refer to Item 1A in the 2021 Form 10-K and Item 1A in Part II of this Form 10-Q for additional information. 40
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New Accounting Pronouncements
There have been no material changes in recently issued or adopted accounting standards from those disclosed in the 2021 Form 10-K. Also refer to Item 1, Note 2, Summary of Significant Accounting Policies, Revenue Recognition, and Note 3, Inventories, net of this Form 10-Q for additional discussion.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. The Company capitalizes inventories procured or produced in preparation for product launches sufficient to support estimated initial market demand subject to regulatory approval for commercial sale. The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from its Phase 2b/3 clinical trial for leronlimab as a combination therapy with highly active antiretroviral therapy ("HAART") for highly treatment-experienced HIV patients, as well as information gathered from meetings with theU.S. Food and Drug Administration ("FDA") related to its Biologic License Application ("BLA") for this indication. InJuly 2020 , the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients. The FDA informed the Company the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company is working with consultants to cure the BLA deficiencies noted and will resubmit the BLA as soon as practical. InNovember 2021 , the Company resubmitted the non-clinical and chemistry, manufacturing, and controls ("CMC") sections of the BLA and is currently reevaluating when it expects to complete the clinical section. As ofMarch 2022 , the FDA had commenced its review of the CMC section. The Company is in dispute with its former contract research organization ("CRO"), as described in Note 10, Commitments and Contingencies, Legal Proceedings. Recently, in the context of the litigation, the Company obtained an order requiring the CRO to release the Company's clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO's services. Additionally, the FDA recently placed the HIV program on a partial clinical hold, which may affect the ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will update the status of its anticipated resubmission of the clinical section of the BLA once it completes its evaluation. The Company anticipates that when the FDA completes its review of the BLA following completion of the resubmission, leronlimab will be approved, and market acceptance of leronlimab as a treatment for HIV will be forthcoming, enabling the Company to sell the amount of pre-launch inventory on-hand prior to its expiration. Refer to Note 2, Summary of Significant Accounting Policies, Inventories, Note 3, Inventories, net, and Note 10, Commitments and Contingencies, and Part II, Item 2. Regulatory Matters, and Item 1A. Risk factors for additional discussions.
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