HISTOGEN INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the period endedJune 30, 2022 (this "Quarterly Report"). This information should also be read in conjunction with our audited historical consolidated financial statements which are included in our Form 10-K for the fiscal year endedDecember 31, 2021 ("Form 10-K"). References to the Company's operating results prior to the Merger will refer to the operating results of Private Histogen. Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report on Form 10-Q to "Histogen" "the Company," "we," "us" and "our" refer toHistogen Inc. , aDelaware corporation, on a post-Merger basis, and the term "Private Histogen" refers to the business of privately-heldHistogen Inc. prior to completion of the Merger.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts contained in
this Quarterly Report are forward-looking statements, including statements
regarding:
• the sufficiency of our cash and cash equivalents and our ability to
obtain funding for our operations, including funding necessary to
complete further development and any commercialization of our product
candidates;
• our expectations regarding the potential benefits of our strategy and
technology;
• our expectations regarding the arbitration proceeding related to
emricasan and the joint development agreement with Amerimmune for
COVID-19 and other infectious and inflammatory diseases at our
discretion;
• our expectations regarding the operation of our product candidates,
collaborations and related benefits;
• our beliefs regarding the success, cost and timing of our product
candidate development and collaboration activities and current and future
clinical trials and studies;
• our beliefs regarding the potential markets for our product candidates,
collaborations and our collaborators' ability to serve those markets;
• any impact of the COVID-19 pandemic, or responses to the pandemic, on our
business, collaborations, clinical trials or personnel;
• our beliefs regarding our industry;
• our ability to attract and retain key personnel;
• regulatory developments in
respect to our product candidates; and
• the expected impact of any arbitration and litigation proceedings on our
business, cash resources and the time required by management to address
such proceedings.
These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, and achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue," or
the negative of these terms or other comparable terminology. These
forward-looking statements are only predictions. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our
business, financial condition, and results of operations. These forward-looking
statements speak only as of the date of this Quarterly Report and are subject to
a number of risks, uncertainties, and assumptions, including those described in
Part II, Item 1A, "Risk Factors." The events and circumstances reflected in our
forward-looking statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements.
Moreover, we operate in an evolving environment. New risk factors and
uncertainties may emerge from time to time, and it is not possible for
management to predict all risk factors and uncertainties. Except as required by
applicable law, we do not plan to publicly update or revise any forward-looking
statements contained herein, whether as a result of any new information, future
events, changed circumstances or otherwise.
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We have common law trademark rights in the unregistered marks "Histogen Inc. ,"
"Histogen Therapeutics Inc. ," "Histogen," and the Histogen logo in certain
jurisdictions. Solely for convenience, trademarks and tradenames referred to in
this Quarterly Report appear without the ® and ™ symbols, but those references
are not intended to indicate, in any way, that we will not assert, to the
fullest extent under applicable law, our rights or that the applicable owner
will not assert its rights, to these trademarks and tradenames.
Overview
We are a clinical-stage therapeutics company focused on developing our proprietary hypoxia-generated growth factor technology platform and stem cell-free biologic products as potential first-in-class restorative therapeutics that ignite the body's natural process to repair and maintain healthy biological function. Our proprietary hypoxia-generated growth factor technology is based on the discovery that growing fibroblast cells under simulated embryonic conditions induces them to become multipotent with stem cell-like properties. The environment created by our proprietary process mimics the conditions within the womb - very low oxygen and suspension culture. When incubated under these conditions, the fibroblast cells generate biological materials, growth factors and proteins, that have the potential to stimulate a person's own stem cells to activate and replace/regenerate damaged cells and tissue. Our proprietary manufacturing process provides targeted solutions that harness the body's inherent regenerative power across a broad range of therapeutic indications including joint cartilage regeneration and spinal disc repair.
Our manufacturing process yields multiple biologic products from a single bioreactor, including cell conditioned medium (CCM) and human extracellular matrix (hECM), creating a spectrum of product candidates for a variety of markets from one core technology.
• Human Multipotent Cell Conditioned Media, or CCM: A soluble
multipotent CCM that is the starting material for products for skin
care and other applications. The liquid complex produced through
Histogen's manufacturing process contains soluble biologicals with a
diverse range of embryonic-like proteins. Because the cells produce
and secrete these factors while developing the extracellular matrix,
or ECM, these proteins are naturally secreted into the liquid media.
The CCM contains a diverse mixture of cell-signaling materials,
including human growth factors such as Keratinocyte Growth Factor,
soluble human ECM proteins such as collagen, proteaseinhibitors to
prevent the turn-over of ECM, and other vital proteins which support
the stem cells that renew cells throughout life.
• Human Extracellular Matrix, or hECM: An insoluble hECM for
applications such as orthopedics and soft tissue augmentation,which
can be fabricated into a variety of structural or functional forms for
tissue engineering and clinical applications. The hECM produced
through our proprietary process is a novel, all-human, naturally
secreted and crosslinked material. It is most ECM present in similar
to early embryonic structural tissue which provides theframework and
signals necessary for cell in-growth and tissue development. By
producing similar ECM materials to those that aided in the original
formation of these tissues in the embryo, regenerative cells are
supported in this structural microenvironment and have shown potential
as therapeutics in vivo.
Under our biologics technology platform, our product candidates in development
are HST-003, a treatment for joint cartilage repair, and HST-004, a treatment
for spinal disc repair. In addition, within our small molecule pipeline, our
product candidates include emricasan, CTS-2090 and CTS-2096. Emricasan is being
developed both jointly with our collaboration partner, Amerimmune, for the
treatment of COVID-19, and we are evaluating the use of emricasan for other
infectious diseases, including for the treatment of methicillin-resistant
staphylococcus aureus ("MRSA"). We also have preclinical product candidates,
CTS-2090 and CTS-2096, novel, potent, orally bioavailable, and highly selective
small molecule inhibitors of caspase-1 designed for the treatment of certain
inflammatory diseases.
Biologics Technology Platform
• HST 003 is a human extracellular matrix, or hECM, intended for
regenerating hyaline cartilage for the treatment of articular
cartilage defects in the knee, with a novel, malleable scaffold that
stimulates the body's own stem cells. In September 2020 , we were
awarded a $2.0 million grant by the Peer Reviewed Orthopaedic Research
Program ("PRORP") of the U.S. Department of Defense ("DoD") to
partially fund a Phase 1/2 clinical trial of HST-003 forregeneration
of cartilage in the knee. The U.S. Army Medical Research Acquisition
Activity, 820 Chandler Street , Fort Detrick MD , 21702, is the awarding
and administering acquisition office. The views expressed in this
filing are ours and may not reflect the official policy orposition of
the Department of the Army , DoD , or the U.S. Government . In December
2020, we filed an investigational new drug application ("IND") for the
initiation of a Phase 1/2 clinical trial to evaluate the safety and
efficacy of HST-003, implanted within microfracture interstices and
the cartilage defect in the knee to regenerate hyalinecartilage in
combination with a microfracture procedure. In January 2021 , we
announced that the FDA had notified the company that the IND for the
planned Phase 1/2 clinical trial of HST-003 was placed on clinical
hold. The hold was due to additional chemistry, manufacturing, and
controls ("CMC") information required for the FDA to complete their
review. Following the receipt of the written clinical hold letter on
February 3, 2021 , we submitted a complete response letter to the FDA
on February 19, 2021 . In March
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2021, the FDA confirmed that Histogen had satisfactorilyaddressed all
clinical hold questions and could proceed with initiation of the
planned Phase 1/2 clinical trial of HST-003. In June 2021 , we
initiated the trial and to date have had significant challenges with
patient recruitment due to the specific nature of the study inclusion
criteria and the impact of COVID-19 on the elective surgery
environment. We have added additional qualified clinical sites to help
supplement recruitment. We are currently evaluating the overall
feasibility of the ongoing HST-003 trial including,implementing
protocol modifications and adding more sites and other study
resources. We expect to complete our feasibility evaluation in the
fourth quarter of 2022.
• HST 004 is a CCM solution intended to be administered through an
intradiscal injection for spinal disc repair. Initialpreclinical
research has shown that the growth- and repair-factor enriched HST-004
stimulates stem cells from the spinal disc to proliferate and secrete
aggrecan and collagen II, regenerate normal matrix and cell tissue
structure, and restore disc height. HST-004 was also shown to both
reduce inflammation and protease activity and upregulate aggrecan
production in an ex vivo spinal disc model. In the secondquarter of
2021, we initiated IND enabling activities for HST-004.However, due
to pipeline program prioritization, the earliest we would anticipate
filing an IND for HST-004 is the second half of 2023.
CCM Skin Care Ingredient
• We have also developed a non-prescription topical skin care ingredient
utilizing CCM that we believe harnesses the power of growth factors
and other cell signaling molecules to support our epidermal stem
cells, which renew skin throughout life. The CCM ingredient for skin
care is licensed to Allergan PLC ("Allergan"), who formulates the
ingredient into their skin care product lines.
Small Molecule Pipeline
• Emricasan is an orally available pan-caspase inhibitor currently being
developed both in collaboration with Amerimmune, for thetreatment of
COVID-19, and we are evaluating the use of emricasan for other
infectious diseases, including for the treatment of MRSA. In October
2020, we entered into the Collaborative Agreement with Amerimmune.
Under the Collaborative Agreement, during the agreed upon research
term, Amerimmune, at its own expense and in collaboration with us, is
required to use commercially reasonable efforts to lead the
development activities for emricasan, limited to the treatment of
COVID-19. We believe that, for numerous reasons set forth in our
demand for arbitration ("Arbitration Demand"), Amerimmune has failed
to undertake commercially reasonable efforts towards thedevelopment
of emricasan as required by the Collaborative Agreement.Therefore, we
are currently seeking, amongst other remedies, a declaratory judgment
that Amerimmune has materially breached the Collaborative
Agreement. In which case, we would be entitled to terminate the
Collaborative Agreement thereby terminating all rights and licenses
granted to Amerimmune by us, and we would then have the rights to
independently proceed with the development of emricasan for the
treatment of COVID-19 and other infectious and inflammatory diseases
at our discretion. At this time, we continue to operate under the
terms of the existing Collaborative Agreement for the joint
development of emricasan for the treatment of COVID-19.
Prior to initiating the Arbitration Demand, we filed and received permission
from the FDA for an IND to initiate a Phase 1 study of emricasan in mild
COVID-19 patients to assess safety and tolerability. In June 2021 , we along with
our partner, Amerimmune, announced top line results from the Phase 1 study of
emricasan in mild symptomatic COVID-19 patients to assess safety, tolerability,
and preliminary efficacy. The study demonstrated that emricasan was safe and
well-tolerated during the 14 days of dosing and at the day 45 follow-up, as
compared to placebo with no reports of serious adverse events. Patients who
completed treatment with emricasan had a complete resolution of the symptoms
most commonly associated with mild COVID-19, such as cough, headache, and
fatigue at day 7 and continued through day 45. No patients in the placebo arm
who completed the study experienced COVID-19 associated symptom resolution at
any time point out to day 14. Some of the placebo patients did have COVID-19
symptom resolution at day 30 while others experienced symptoms that persisted at
day 45. A total of 13 subjects were consented and randomized to receive either
placebo or 25 mg emricasan orally, BID for 14 days. PK samples, taken at day 14
of the study to check for compliance, revealed that one patient in the treatment
arm did not show any indications of emricasan or its known metabolites in
plasma, leading to a reclassification of the patient for the subsequent analysis
shown in Figure 1. Additionally, there were no serious adverse events reported,
and the emricasan group had fewer adverse events compared to placebo; 33 vs 66%,
respectively. As compared with placebo, the proportional odds of having a worse
score on an eight-level ordinal scale (persistence of a score of 3) with
emricasan was 0.1 (95% CI, 0.006 to 1.544) at day 14 and 0.12 (95% CI, 0 to
3.41) at days 30 and 45. The time to complete resolution of symptoms was shorter
in the emricasan group compared to placebo (hazard ratio, 5.3, 95% CI, 1.005 to
27.9) (Figure 1).
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Figure 1. Per-protocol analysis of time to complete resolution of symptoms. Symptoms were defined by the 14-point questionnaire recommended by the FDA for outpatient COVID-19 studies. For the first 14 days, patients had daily tele-visits. In-person follow up visits were conducted on days 14, 30 and 45. The Kaplan-Meier plots for time-to-recovery show faster recovery in patients treated with emricasan, with a median of 5 (interquartile range 4-6 days) vs 37 days (interquartile range of 30-45) for participants randomized to the placebo group. The mean number of days to recovery for patients was 4.8 days with a SD=0.83 in the emricasan arm and 37.5 days, SD=8.2 in the placebo arm (p=0.001). We believe that Amerimmune has failed to undertake commercially reasonable efforts toward conducting and completing the Phase 2 study as required by the Collaborative Agreement. As part of our Arbitration Demand, we have asked the arbitrator to terminate the Collaborative Agreement so that we can choose to conduct and complete the Phase 2 study independently. There can be no assurances that the Arbitration Demand will result in our favor and terminate the Collaborative Agreement. The ultimate outcome of this Arbitration is unknown at this time. Independently, we are exploring the feasibility of testing emricasan in animal studies of other infectious diseases, initially focused on MRSA. We anticipate completing the feasibility assessment in the third quarter of 2022.
• CTS-2090 and CTS-2096 are selective caspase-1 inhibitors targeting
inflammasome activation and have potential to intervene in a variety
of inflammation mediated diseases. In our internal smallmolecule
program, we have assembled a proprietary portfolio of orally active
molecules that inhibit inflammasome pathways and thus theactivation
of the potent inflammatory cytokine interleukin-1?, or IL-1?.
Inhibition of IL-1? is a clinically validated approach to treating
inflammatory diseases, with injectable biologic products using that
mechanism of action already on the market. The NLRP3inflammasome
pathway, for example, is dependent upon caspase-1, which activates
IL-1?. As such, caspase-1 occupies a uniquely central position in the
inflammasome pathway, and we have leveraged our scientific expertise
in caspase research and development to design potent, selective and
orally bioavailable inhibitors of caspase-1. Excess IL-1? has been
linked to a variety of diseases including rare geneticinflammatory
diseases, cancer, liver and other gastrointestinal diseases, and
cardiovascular diseases.
Our caspase-1 pipeline include preclinical product candidates CTS-2090 and
CTS-2096. The selection of product candidate, CTS-2090, as a lead compound is
based on its preclinical profile, including high selectivity for caspase-1, and
drug-like properties showing a high degree of drug exposure in the intestinal
track after oral administration. Similarly, we intend to evaluate CTS-2096, as
an additional caspase-1 inhibitor drug candidate, and are in the process of
exploring its drug like properties.
Merger
OnJanuary 28, 2020 , the Company, then operating as Conatus, entered into an Agreement and Plan of Merger and Reorganization, as amended (the "Merger Agreement"), with privately-heldHistogen Inc. ("Private Histogen") andChinook Merger Sub, Inc. , a wholly-owned subsidiary of Conatus ("Merger Sub"). Under the Merger Agreement, Merger Sub merged with and into Private Histogen, with 31 -------------------------------------------------------------------------------- Private Histogen surviving as a wholly-owned subsidiary of the Company (the "Merger"). OnMay 26, 2020 , the Merger was completed. Conatus changed its name toHistogen Inc. , and Private Histogen, which remains as a wholly-owned subsidiary of the Company, changed its name toHistogen Therapeutics Inc. OnMay 27, 2020 , the combined company's common stock began trading on The Nasdaq Capital Market under the ticker symbol "HSTO."
Coronavirus (COVID-19)
OnJanuary 30, 2020 , theWorld Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus originating inWuhan, China (the "COVID-19 outbreak") and the risks to the international community as the virus spreads globally beyond its point of origin. InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The cumulative effect the associated disruptions have had, and may continue to have, an adverse impact on the Company's business, clinical trials, and its results of operations. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report and will depend on future developments that are highly uncertain and unpredictable, including efficacy and adoption of vaccines, future resurgences of the virus and its variants, the imposition of governmental lockdowns, and quarantine and physical distancing requirements. Moreover, as a result of COVID-19, there is a general unease of conducting certain non-critical activities in medical centers. For example, our HST-003 study has been delayed due to COVID-19. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company's financial condition, ability to raise capital, liquidity, and future results of operations. Management is actively monitoring the impact of the COVID-19 pandemic on its clinical trials, financial condition, liquidity, operations, customers, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the response to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its clinical trials, results of operations, financial condition, or liquidity. For example, global supply chain disruptions related to the COVID-19 pandemic and recent geopolitical events may contribute to manufacturing and supply delays. The Company expects that current arrangements will meet foreseeable needs for clinical trial materials or, generally, that alternative supply sources will be readily available. However, the Company may experience manufacturing and supply delays and disruptions in connection with production to meet our clinical supply requirements for clinical studies. OnMarch 27, 2020 ,President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impact that the CARES Act may have on its business. Currently, the Company is unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity. The CARES Act also appropriated funds for theU.S. Small Business Administration Paycheck Protection Program ("PPP") loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. See Note 5 - Paycheck Protection Program Loan for further information. OnMarch 8, 2021 the Company applied for PPP loan forgiveness with its lender and subsequently received approval from its lender onApril 2, 2021 . The Company believes it maintained compliance with the PPP program requirements. OnMay 21, 2021 , theSmall Business Administration granted its forgiveness of 100% of the loan, or$0.5 million . Climate Change
The Company's opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
License Agreement
Allergan License and Supply Agreements
InJuly 2017 , the Company and Allergan entered into a letter agreement to transferSuneva Medical, Inc.'s Amended and Restated License and Supply Agreements (collectively the "Allergan Agreements") to Allergan, which grants exclusive rights to commercialize our CCM skin care ingredient worldwide, excludingSouth Korea ,China , andIndia , in exchange for royalty payments to us based on Allergan's sales of product including the licensed ingredient. ThroughDecember 31, 2020 , we entered into several amendments to the Allergan Agreements to, among other things, expand Allergan's license rights, identify exclusive and non-exclusive fields of use, and clarify responsibilities related to regulatory filings. For these amendments to the Allergan Agreements, we have received cash payments of$19.5 million throughJune 30, 2022 . The Allergan Agreements also include a potential future milestone payment of 32 --------------------------------------------------------------------------------
From time to time, we may improve our CCM skin care ingredient, and to the extent that these are within the field of use in the Allergan Agreements, we will provide the improvements to Allergan. The remaining performance obligations related to the Allergan Agreements from 2017 were our obligations to supply CCM and provide potential future improvements to Allergan, for which our obligation to supply CCM was satisfied during the fourth quarter of 2019. OnJanuary 17, 2020 , the Company and Allergan amended the Allergan Agreements, further clarifying the fields of use, the product definition, and rights to certain improvements, as well as us agreeing to supply additional CCM in 2020 and provide further technical assistance to Allergan (the cost of which was reimbursed to the Company), for a one-time payment of$1.0 million . Our obligation to supply additional CCM to Allergan was satisfied during the first quarter of 2021. Pursuant to the 2017 Allergan Amendment, Histogen had the right to a potential milestone payment of$5.5 million if Allergan's net sales of products containing the Company's CCM skin care ingredient exceeds$60.0 million in any calendar year throughDecember 31, 2027 . In lieu of the potential payment of$5.5 million , the Company entered into a Letter Agreement onMarch 18, 2022 with Allegan. In consideration for the execution of the Letter Agreement, Histogen received a one-time payment equal to$3.8 million inMarch 2022 . In exchange, among other things, the Company agreed that the final payment represents a full and final satisfaction of all money due to the Company pursuant to the Letter Agreement. Under the Amended and Restated License Agreement, as amended, Allergan will indemnify the Company for third party claims arising from Allergan's breach of the agreement, negligence or willful misconduct, or the exploitation of products by Allergan or its sublicensees. We will indemnify Allergan for third party claims arising from our breach of the agreement, negligence or willful misconduct, or the exploitation of products by us prior to the effective date. Allergan may terminate the agreement for convenience upon one business days' notice to us.
InOctober 2020 , the Company entered into aCollaborative Development and Commercialization Agreement ("the Collaborative Agreement") with Amerimmune to jointly develop emricasan for the potential treatment of COVID-19. The FDA approved an investigational new drug application (IND) to initiate a Phase 1 study of emricasan in mild COVID-19 patients to assess safety and tolerability in 2020. Under the Collaborative Agreement, during the agreed upon research term, Amerimmune, at its own expense and in collaboration with the Company, is required to use commercially reasonable efforts to lead the development activities for emricasan, limited to the treatment of COVID-19. Pursuant to the terms of the Collaborative Agreement, each party shall retain ownership of their legacy intellectual property and responsibility for ongoing patent application prosecution and maintenance costs and will jointly own any intellectual property developed during the term of the agreement. In addition, the Company granted Amerimmune an exclusive option, subject to terms and conditions including completion of a Phase 2 clinical trial by Amerimmune during the research term, to obtain an exclusive license that, if granted by the Company, allows Amerimmune alone, or in conjunction with one or more strategic partners, to use its commercially reasonable efforts to develop, manufacture, and commercialize emricasan and other caspase modulators, including CTS-2090 and CTS-2096, and the Company will share the profits equally with Amerimmune. No consideration will be transferred to the Company until profits, as defined in the Amerimmune Agreement, are generated by Amerimmune from developing or commercializing products. The Company identified multiple promises to deliver goods and services, which include at the inception of the agreement: (i) a license to technology and patents, information, and know-how; (ii) supply of emricasan and (iii) collaboration, including the Company's participation in aJoint Development Committee andJoint Partnering Committee . At inception and throughJune 30, 2022 , the Company identified one performance obligation for all the deliverables under the Amerimmune Agreement since the delivered elements are either not capable of being distinct or are not distinct within the context of the contract. No upfront consideration was exchanged between the parties and any consideration received will be dependent on the successful execution of a qualifying strategic partnership, as defined, on the successful commercialization of emricasan, or upon a change in control of Amerimmune, as defined. Although the Company will recognize revenue upon the occurrence of one of these events, no such events have occurred as ofJune 30, 2022 . OnJanuary 19, 2022 , we provided a notice of material breach in connection with Amerimmune's non-performance under the Collaborative Agreement and, onMarch 3, 2022 , we filed the Arbitration Demand. OnMarch 8, 2022 , Amerimmune provided written notice to exercise an option for additional license rights to develop additional products, provided, however, the Company has rejected Amerimmune's election of the option and believes that Amerimmune no longer has the right to exercise the option based on, among 33 -------------------------------------------------------------------------------- other reasons, our belief that the Collaborative Agreement is properly terminated as set forth in our Arbitration Demand. OnMarch 11, 2022 ,Judicial Arbitration and Mediation Services, Inc. ("JAMS") issued a Notice of Commencement of Arbitration letter, confirming the commencement of the arbitration as of that date. OnApril 14, 2022 , Amerimmune filed its answer to Histogen's Demand for Arbitration, and also asserted five counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional interference with prospective economic relations, negligent interference with prospective economic relations, and declaratory relief that Amerimmune has the right to exclusive option. OnApril 21, 2022 , Histogen filed its answer to Amerimmune's counterclaims. The parties are currently engaged in discovery, and the final hearing in the arbitration has been set forOctober 5-7, 2022 . OnJuly 13, 2022 , Amerimmune filed a complaint (the "Federal Complaint") against the Company in theUnited States District Court for the Southern District of California . Amerimmune filed a two-count complaint seeking injunctive and declaratory relief relating to the purported exercise of the option as discussed above. OnJuly 18, 2022 , Amerimmune filed a second, separate complaint against the Company alleging the same facts and causes of action as the Federal Complaint, also seeking injunctive and declaratory relief relating to the purported exercise of the option, in theSuperior Court for the County of San Diego (the "State Complaint"). The Company was served with the State Complaint onAugust 8, 2022 , but has not yet been served with the Federal Complaint. The Company believes any claims related to the Collaborative Agreement are subject to the Arbitration proceeding and therefore, that both the Federal Complaint and the State Complaint were filed improperly and are subject to dismissal for this and additional reasons. Moreover, the Company denies the allegations set forth therein, and intends to vigorously defend against the litigations. As part of our Arbitration Demand, we have requested that the Collaborative Agreement be terminated. We further brought the Arbitration Demand for breach of contract, seeking an award of specific performance requiring Amerimmune to comply with the terms of the Agreement, which provide that, in the event of termination for material breach, all rights and licenses granted to Amerimmune by us shall terminate, and any and all rights granted by us to Amerimmune revert to Histogen. If we are successful, we would regain full rights to emricasan and other caspase modulators, including CTS-2090 and CTS-2096. In that case, we intend to develop emricasan for COVID-19 and other infectious and inflammatory diseases independently at our discretion. There can be no assurances that the Arbitration Demand will result in our favor and terminate the Collaborative Agreement. See also Part II, Item 1 "Legal Proceedings".
Components of Results of Operations
Revenue
Our revenues to date have been generated primarily from the sale of cosmetic
ingredient products ("CCM"), license fees, and a National Science Foundation
grant award.
License and Product Revenue
Our license and product revenue to date has been generated primarily from
payments received under the Allergan Agreements. As of
Grant Revenue
InMarch 2017 , theNational Science Foundation ("NSF"), a government agency, awarded us a research and development grant to develop a novel wound dressing for infection control and tissue regeneration. As ofMarch 31, 2021 , we completed all obligations under the NSF grant and, as such, no longer generate any revenue in connection with the research and development grant.
Operating Expenses
Cost of Revenues
Cost of product revenue represents direct and indirect costs incurred to bring the product to saleable condition, including write-offs of inventory.
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Research and development expenses consist primarily of costs incurred for the preclinical and clinical development of our product candidates, which include:
• expenses under agreements with third-party contract organizations,
investigative clinical trial sites that conduct research and
development activities on our behalf, and consultants;
• costs related to develop and manufacture preclinical study and
clinical trial material;
• salaries and employee-related costs, including stock-based compensation;
• costs incurred and reimbursed under our grant awarded by the U.S.
Department of Defense ("DoD") to partially fund our planned Phase 1/2
clinical trial of HST-003 for regeneration of cartilage in the knee;
• costs incurred for IND enabling activities for HST-004 for spinal disc
repair;
• costs incurred under our collaboration and third-party licensing
agreements; and
• laboratory and vendor expenses related to the execution of preclinical
and clinical trials.
We accrue all research and development costs in the period for which they are
incurred. Costs for certain development activities are recognized based on an
evaluation of the progress to completion of specific tasks using information and
data provided to us by our vendors, collaborators, and third-party service
providers. Advance payments for goods or services to be received in future
periods for use in research and development activities are deferred and then
expensed as the related goods are delivered and as services are performed.
We expect our research and development expenses to increase substantially for
the foreseeable future as we: (i) invest in additional operational personnel to
support our planned product development efforts, and (ii) continue to invest in
developing our product candidates as they advance into later stages of
development, and as we begin to conduct larger clinical trials. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
Our direct research and development expenses are tracked by product candidate
and consist primarily of external costs, such as fees paid under third-party
license agreements and to outside consultants, contract research organizations
("CROs"), contract manufacturing organizations, and research laboratories in
connection with our preclinical development, process development, manufacturing,
and clinical development activities. We do not allocate employee costs and costs
associated with our discovery efforts, laboratory supplies and facilities,
including other indirect costs, to specific product candidates because these
costs are deployed across multiple programs and, as such, are not separately
classified. We use internal resources primarily to conduct our research as well
as for managing our preclinical development, process development, manufacturing,
and clinical development activities. These employees work across multiple
programs and, therefore, we do not track our costs by product candidate unless
such costs are includable as subaward costs. The following table shows our
research and development expenses by type of activity (in thousands):
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Pre-clinical and clinical $ 257 $ 688 $ 640 $ 1,405
Salaries and benefits 496 1,217 1,432 2,361
Facilities and other costs 340 471 953 762
Total research and development expenses
We cannot determine with certainty the timing of initiation, the duration, or
the completion costs of current or future preclinical studies and clinical
trials of our product candidates due to the inherently unpredictable nature of
preclinical and clinical development, including any potential expanded dosing
beyond the original protocols based, in part, on ongoing clinical success.
Clinical and preclinical development timelines, the probability of success and
development costs can differ materially from expectations. We anticipate that we
will make determinations as to which product candidates to pursue and how much
funding to direct to each product candidate on an ongoing basis in response to
the results of ongoing and future preclinical studies and clinical trials,
regulatory developments, and our ongoing assessments of each product candidate's
commercial potential. We will need to raise substantial additional capital in
the future. In addition, we cannot forecast which product candidates may be
subject to future collaborations, when such arrangements will be secured, if at
all, and to what degree such arrangements would affect our development plans and
capital requirements.
35
--------------------------------------------------------------------------------General and Administrative
General and administrative expenses consist primarily of personnel-related costs, insurance costs, facility costs, and professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. Personnel-related costs consist of salaries, benefits, and stock-based compensation. We expect our general and administrative expenses to increase substantially as we: (i) incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums, and investor relations costs, (ii) hire additional personnel, and (iii) protect our intellectual property.
Other Income (Expense)
Interest Income
Interest income consists of interest earned on our cash equivalents, which consist of money market funds. Our interest income has not been significant due to low interest earned on invested balances.
Results of Operations
Comparison of three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
2022 2021 Change
Revenues
License revenue $ 5 $ 5 $ -
Total revenues 5 5 -
Operating expenses
Research and development 1,093 2,376 (1,283 )
General and administrative 2,306 1,822 484
Total operating expenses 3,399 4,198 (799 )
Loss from operations (3,394 ) (4,193 ) 799
Total other income (expense), net - 473 (473 )
Net loss $ (3,394 ) $ (3,720 ) $ 326
Revenues
For both the three months ended June 30, 2022 and 2021, no product revenue was
recognized. As of June 30, 2022 , all obligations of the Company related to the
additional supply of CCM to Allergan under the Allergan Agreements have been
completed.
For the three months ended
Total Operating Expenses
Research and Development Expenses
Research and development expenses for the three months endedJune 30, 2022 and 2021 were$1.1 million and$2.4 million , respectively. The decrease of$1.3 million was primarily due to decreases in development costs of our clinical and pre-clinical product candidates and personnel related expenses, partially offset by facility rent increases.
General and Administrative Expenses
General and administrative expenses for the three months endedJune 30, 2022 and 2021 were$2.3 million and$1.8 million , respectively. The increase of$0.5 million was primarily due to increases in legal fees, outside services and rent increase, partially offset by reductions in personnel related expenses. 36 --------------------------------------------------------------------------------
Results of Operations
Comparison of six months ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30,
2022 2021 Change
Revenues
Product revenue $ - $ 306 $ (306 )
License revenue 3,760 17 3,743
Grant revenue - 113 (113 )
Total revenues 3,760 436 3,324
Operating expenses
Cost of product revenue - 220 (220 )
Research and development 3,025 4,528 (1,503 )
General and administrative 4,812 4,154 658
Total operating expenses 7,837 8,902 (1,065 )
Loss from operations (4,077 ) (8,466 ) 4,389
Total other income (expense), net (1 ) 468 (469 )
Net loss $ (4,078 ) $ (7,998 ) $ 3,920
Revenues
For the six months ended June 30, 2022 and 2021, we recognized product revenues
of $0 and $0.3 million , respectively. The revenue for the first six months of
2021 was related to the additional supply of CCM to Allergan. As of March 31,
2021 , all obligations of the Company related to the additional supply of CCM to
Allergan under the Allergan Agreements have been completed.
For the six months ended June 30, 2022 and 2021, we recognized license revenue
of $3.8 million and $17 thousand , respectively. The increase in the current
period is due to a one-time payment of $3.8 million received in March 2022 as
consideration for execution of the Allergan Letter Agreement.
For the six months ended June 30, 2022 and 2021, we recognized grant revenue of
$0 and $0.1 million , respectively. The related revenue is associated with a
research and development grant awarded to the Company from the NSF. As of March
31, 2021 , all work required by the Company under the grant has been completed.
Total Operating Expenses
Cost of Revenues
For the six months ended
Research and Development Expenses
Research and development expenses for the six months endedJune 30, 2022 and 2021 were$3.0 million and$4.5 million , respectively. The decrease of$1.5 million was primarily due to decreases in development costs of our clinical and pre-clinical product candidates and personnel related expenses, partially offset by facility rent increases.
General and Administrative Expenses
General and administrative expenses for the six months ended
37
--------------------------------------------------------------------------------Liquidity and Capital Resources
From inception throughJune 30, 2022 , we had an accumulated deficit of$81.7 million and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future. As ofJune 30, 2022 , we had$12.6 million in cash and cash equivalents which excludes gross proceeds of approximately$5.0 million from a private placement financing closed inJuly 2022 . We have not yet established ongoing sources of revenues sufficient to cover our operating costs and will need to continue to raise additional capital to support our future operating activities, including progression of our development programs, preparation for potential commercialization, and other operating costs. Our plans with regard to these matters include entering into a combination of additional debt or equity financing arrangements, strategic partnerships, collaboration and licensing arrangements, or other similar arrangements. There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, on a timely basis or at all. Based on the Company's current operating plan, management believes that existing cash and cash equivalents, including net proceeds from aJuly 2022 financing, will be sufficient to fund the Company's obligations for at least 12 months after these condensed consolidated financial statements are issued. The condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Redeemable Convertible Preferred Stock
As described in Note 6 to the condensed consolidated financial statements, inMarch 2022 , the Company completed a private placement offering (the "March 2022 Offering") of Series A Preferred Stock and Series B Preferred Stock The proceeds of$4.76 million were held in escrow and were only permitted to be disbursed to the Company upon conversion of the Series A and Series B Preferred Stock. BetweenJune 2, 2022 , andJune 29, 2022 , the Company redeemed for cash proceeds totaling$5,250,500 , 2,500 outstanding shares of Series A Preferred Stock and 2,500 outstanding shares of Series B Preferred Stock based on the receipt of the Redemption Notices (the "Preferred Redemption") at a price equal to 105% of the$1,000 stated value per share.
As of
Common Stock
InJanuary 2021 , the Company completed an S-1 offering (the "January 2021 Offering") of an aggregate of 580,00 shares of common stock, pre-funded warrants to purchase up to 120,00 shares of its common stock, and common stock warrants to purchase up to an aggregate of 700,000 shares of common stock. To the extent that an investor determines, at their sole discretion, that they would beneficially own in excess of the Beneficial Ownership Limitations (or as such investor may otherwise choose), in lieu of purchasing shares of Common Stock and Common Warrants, such investor could have elected to purchase Pre-Funded Warrants and Common Warrants at the Pre-Funded Purchase Price in lieu of the shares of Common Stock and Common Warrants in such a manner to result in the same aggregate purchase price being paid by such investor to the Company. The combined purchase price of one share of common stock and the accompanying common stock warrant was$20.00 , and the combined purchase price of one pre-funded warrant and accompanying common stock warrant was$19.998 . The common stock warrants are exercisable for five (5) years at an exercise price of$20.00 per share. The pre-funded warrants are immediately exercisable at an exercise price of$0.002 per share and may be exercised at any time until all of the pre-funded warrants are exercised in full. Placement agent warrants were issued to purchase up to 35,000 shares of common stock, are immediately exercisable for an exercise price of$25.00 , and are exercisable for five (5) years following the date of issuance. The Company received gross proceeds of$14.0 million and incurred placement agent's fees and other offering expenses of approximately$1.9 million . As ofJune 30, 2022 , a total of 336,060 warrants issued in theJanuary 2021 Offering to purchase shares of common stock have been exercised and the Company issued 336,060 shares of its common stock. The Company received gross proceeds of approximately$6.8 million . As ofJune 30, 2022 , the Company had 387,565 shares and 11,375 shares of common stock reserved for issuance pursuant to the warrants and placement agent's warrants, respectively, issued by the Company in theJanuary 2021 Offering, at an exercise price of$20.00 per share and$25.00 per share, respectively. 38 --------------------------------------------------------------------------------
InJune 2021 , the Company completed a registered direct offering (the "June 2021 Offering") of an aggregate of 298,865 shares of common stock, together with accompanying warrants to purchase up to an aggregate of 239,093 shares of common stock, at a public offering price of$22.00 per share. The accompanying warrants permit the investor to purchase additional shares equal to 80% of the number of shares of the Company's common stock purchased by the investor. The warrants have an exercise price of$20.00 per share, are immediately exercisable, and expire five and a half (5.5) years following the date of issuance. In addition, the Company's placement agent was issued compensatory warrants equal to 5.0%, or 14,946 shares, of the aggregate number of common stock sold in the offering, which are immediately exercisable for an exercise price of$27.50 and expire five (5) years following the date of issuance onJune 7, 2026 . The Company received gross proceeds of$6.6 million and incurred cash-based placement agent fees and other offering expenses of approximately$0.9 million .
As of
As ofJune 30, 2022 , the Company had 239,093 shares and 14,946 shares of common stock reserved for issuance pursuant to the warrants and placement agent's warrants, respectively, issued by the Company in theJune 2021 Offering, at an exercise price of$20.00 per share and$27.50 per share, respectively.
InDecember 2021 , the Company completed a registered direct offering (the "December 2021 Offering") of an aggregate of 411,764 shares of common stock and 411,766 warrants to purchase up to 411,766 shares of common stock, at a public offering price of$8.50 per share. The accompanying warrants permit the investor to purchase additional shares equal to the same number of shares of the Company's common stock purchased by the investor. The warrants have an exercise price of$8.50 per share, may be exercised any time on or after 6 months and one (1) day after the issuance date, and expire five and a half (5.5) years following the date of issuance. In addition, the Company's placement agent was issued compensatory warrants equal to 5.0%, or 20,590 shares, of the aggregate number of shares of common stock sold in the offering, which are immediately exercisable for an exercise price of$10.626 and expire five and a half (5.5) years following the date of issuance onJune 21, 2027 . The Company received gross proceeds of$3.5 million and incurred cash-based placement agent fees and other offering expenses of approximately$0.5 million .
As of
As ofJune 30, 2022 , the Company had 411,766 shares and 20,590 shares of common stock reserved for issuance pursuant to the warrants and placement agent's warrants, respectively, issued by the Company in theDecember 2021 Offering, at an exercise price of$8.50 per share and$10.626 per share, respectively.
Additional Common Stock Warrants
In addition, atJune 30, 2022 , warrants to purchase 68 shares of common stock with an exercise price of$1,486.00 per share remain outstanding that were issued by Conatus in connection with obtaining financing in 2016. These warrants expire onJuly 3, 2023 .
Cash Flow Summary for the six months ended
The following table shows a summary of our cash flows for the six months ended
Six Months
Ended
2022 2021
Net cash provided by (used in) Operating activities$ (4,794 ) $ (7,927 ) Investing activities (206 ) (45 ) Financing activities (1,087 ) 24,349 Net increase (decrease) in cash, cash equivalents and restricted cash$ (6,087 ) $ 16,377 39
--------------------------------------------------------------------------------
Operating activities
Net cash used in operating activities was$4.8 million for the six months endedJune 30, 2022 , resulting from our net loss of$4.1 million , which included total non-cash charges of$0.3 million related to stock-based compensation, and depreciation and amortization, coupled with a$1.0 million change in our operating assets and liabilities. Net cash used in operating activities was$7.9 million for the six months endedJune 30, 2021 , resulting from our net loss of$8.0 million , which included non-cash charges of$0.6 million related to stock-based compensation and PPP loan forgiveness of$0.5 million .
Investing activities
Net cash used by investing activities was
Net cash used by investing activities was
Financing activities
Net cash used by financing activities was$1.1 million for the six months endedJune 30, 2022 , primarily related to$0.6 million of issuance costs resulting from the issuance and sale of our redeemable convertible preferred stock in a private placement offering, and$0.5 million related to the redemption premium paid to repurchase the redeemable convertible preferred stock. Net cash provided by financing activities was$24.3 million for the six months endedJune 30, 2021 , resulting primarily from the sales of our common stock through S-1 and S-3 offerings coupled with the exercise of warrants issued in connection with the S-1 offering. The$24.5 million in net proceeds from the offerings were offset by$0.2 million in payments made on financed insurance premiums. Net cash used in financing activities was$4 thousand for the six months endedJune 30, 2020 . Funding Requirements We are subject to a number of risks similar to those of clinical stage companies, including dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with clinical trials of products, dependence on third-party collaborators for research operations, need for marketing authorization of products, risks associated with protection of intellectual property, and competition with larger, better-capitalized companies. We are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which has resulted in disruptions to clinical trials and may negatively impact our ability to raise capital. To fully execute our business plan, we will need, among other things, to complete our research and development efforts and clinical and regulatory activities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. We believe our existing cash and cash equivalents, including net proceeds from aJuly 2022 financing, will be sufficient to meet our anticipated cash requirements throughDecember 31, 2023 . However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.
Our future capital requirements will depend on many factors, including:
• the type, number, scope, progress, expansions, results, costs, and
timing of our preclinical studies and clinical trials of our product
candidates which we are pursuing or may choose to pursue in the
future;
• the costs and timing of manufacturing for our product candidates,
including commercial manufacturing if any product candidate is
approved;
• the costs, timing, and outcome of regulatory review of our product
candidates;
• the costs of obtaining, maintaining, and enforcing our patents and
other intellectual property rights;
• our efforts to enhance operational systems and hire additional
personnel to satisfy our obligations as a public company,including
enhanced internal controls over financial reporting;
• the costs associated with hiring additional personnel and consultants
as our preclinical and clinical activities increase;
40
--------------------------------------------------------------------------------
• the costs and timing of establishing or securing sales and marketing
capabilities if any product candidate is approved;
• our ability to achieve sufficient market acceptance, adequate coverage
and reimbursement from third-party payors, and adequate market share
and revenue for any approved products;
• the terms and timing of establishing and maintaining collaborations,
licenses, and other similar arrangements;
• the impact of any natural disasters or public health crises, such as
the COVID-19 pandemic, on our operations (including clinical trials
and product candidate development); and
• costs associated with any products or technologies that it may
in-license or acquire.
Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, we expect to finance our losses from operations and
capital funding needs through a combination of equity offerings, debt
financings, and other sources, including potentially collaborations, licenses
and other similar arrangements. To the extent we raise additional capital
through the sale of convertible debt or equity securities, the ownership
interest of our stockholders will be or could be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
funds through collaborations, licenses and other similar 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 and/or may reduce the value of our common
stock. If we are unable to raise additional funds through debt or equity
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 our product candidates even if we would otherwise prefer to
develop and market such product candidates by ourselves. There can be no
assurance that we will be able to obtain any sources of financing on acceptable
terms, or at all.
We may be unable to raise additional funds on acceptable terms or at all. As a
result of the COVID-19 pandemic and actions taken to slow its spread, the global
credit and financial markets have recently experienced extreme volatility and
disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, increases in
unemployment rates and uncertainty about economic stability. If the equity and
credit markets deteriorate, it may make any necessary debt or equity financing
more difficult, more costly and more dilutive. If we are unable to raise
additional funds, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant rights to
develop and market our product candidates even if we would otherwise prefer to
develop and market such product candidates ourselves.
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience, trends, 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates. We consider our critical accounting policies and estimates to be related to accrued research and development expenses and revenue recognition. There have been no material changes to our critical accounting policies and estimates during the six months endedJune 30, 2022 from those disclosed in "Histogen's Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies," included in the 2021 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under
41
--------------------------------------------------------------------------------Contractual Obligations and Commitments
There have been no material changes during the six months endedJune 30, 2022 to our contractual obligations disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2021 Annual Report on Form 10-K. 42
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