IMMUNIC, INC. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements and notes thereto included in Item 1 "Financial
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Statements" in this Quarterly Report and audited Consolidated Financial
Statements for the years ended December 31, 2020 and 2019 of Immunic, Inc. filed
with the Securities and Exchange Commission ("SEC"), on our Annual Report on
Form 10-K on February 26, 2021 . As used in this report, unless the context
suggests otherwise, "we," "us," "our," "the Company" or "Immunic" refer to
Immunic, Inc. and its subsidiaries.
Forward-Looking Statements
In addition to historical information, this Quarterly Report includes
forward-looking statements within the meaning of federal securities laws.
Forward-looking statements are subject to certain risks and uncertainties, many
of which are beyond our control. Such statements include, but are not limited
to, statements preceded by, followed by or that otherwise include the words,
"believe," "may," "might," "can," "could," "will," "would," "should,"
"estimate," "continue," "anticipate," "intend," "seek," "plan," "project,"
"expect," "potential," "predicts," or similar expressions and the negatives of
those terms.
Forward-looking statements discuss matters that are not historical facts. Our
forward-looking statements involve assumptions that, if they never materialize
or prove correct, could cause our results to differ materially from those
expressed or implied by such forward-looking statements. In this Quarterly
Report, for example, we make forward-looking statements, among others, regarding
potential strategic options; financial estimates and projections; and the
sufficiency of our capital resources to fund our operations.
The inclusion of any forward-looking statements in this Quarterly Report should
not be regarded as a representation that any of our plans will be achieved. Our
actual results may differ from those anticipated in our forward-looking
statements as a result of various factors, including those noted below under the
caption "Part II, Item 1A-Risk Factors," and the differences may be material.
These risk factors include, but are not limited to statements relating to our
three development programs and the targeted diseases; the potential for IMU-838,
IMU-935 and IMU-856 to safely and effectively target diseases; the nature,
strategy and focus of the Company; the development and commercial potential of
any product candidates of the Company; and our ability to retain certain
personnel important to our ongoing operations and to maintain effective internal
control over financial reporting.
Although our forward-looking statements reflect the good faith judgment of our
management, these statements are based only on facts and factors currently known
by us. As a result, stockholders are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. All
forward-looking statements are qualified in their entirety by this cautionary
statement, and we undertake no obligation to revise or update such statements to
reflect events or circumstances after the date hereof, except as required by
law.
Overview
We are a clinical-stage biopharmaceutical company developing a pipeline of
selective oral immunology therapies aimed at treating chronic inflammatory and
autoimmune diseases. We are headquartered in New York with our main operations
in Gräfelfing, Germany . We currently have 40 employees.
We are currently pursuing three development programs, all orally available small
molecule inhibitors in the clinical development phase. These include the IMU-838
program, which is focused on the development of oral formulations of small
molecule inhibitors of the enzyme dihydroorotate dehydrogenase ("DHODH"); the
IMU-935 program, which is focused on an inverse agonist of ROR?t, an immune
cell-specific isoform of retinoic acid receptor-related orphan nuclear receptor
gamma ("ROR?"), and the IMU-856 program, which involves the development of a
drug targeting the restoration of intestinal barrier function. These product
candidates are being developed to address diseases such as relapsing-remitting
multiple sclerosis ("RRMS"), ulcerative colitis ("UC"), Crohn's disease ("CD")
and psoriasis. In addition to these large markets, these products are also being
developed to address certain rare diseases with high unmet medical needs, such
as primary sclerosing cholangitis ("PSC"), and Guillain-Barré syndrome ("GBS").
The following table summarizes the potential indications, clinical targets and
clinical development status of our three product candidates:
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Our business, operating results, financial condition and growth prospects are
subject to significant risks and uncertainties, including the failure of our
clinical trials to meet their endpoints, failure to obtain regulatory approval
and needing additional funding to complete the development and commercialization
of our three development programs.
Liquidity and Financial Condition
We have no products approved for commercial sale and have not generated any
revenue from product sales. We have never been profitable and have incurred
operating losses in each year since our inception in 2016. We have an
accumulated deficit of approximately $138.5 million as of March 31, 2021 and
$103.9 million as of December 31, 2020 . Substantially all of our operating
losses resulted from expenses incurred in connection with our research and
development programs and from general and administrative costs associated with
our operations.
We expect to incur significant expenses and increasing operating losses for the
foreseeable future as we initiate and continue the preclinical and clinical
development of our product candidates and add personnel necessary to advance our
clinical pipeline of product candidates. We expect that our operating losses
will fluctuate significantly from quarter-to-quarter and year-to-year due to
timing of clinical development programs.
From inception through March 31, 2021 , we have raised net cash of approximately
$216.8 million from private and public offerings of preferred and common stock.
As of March 31, 2021 , we had cash and cash equivalents of approximately $114.8 .
With these funds, we expect to be able to fund our operations beyond twelve
months from the date of the issuance of the accompanying unaudited condensed
consolidated financial statements.
Recent Events
Settlement Agreement with 4SC AG
On March 31, 2021 , Immunic AG , a wholly-owned subsidiary of the Company, and 4SC
AG entered into a Settlement Agreement, pursuant to which Immunic AG will
settled its remaining obligation of the 4.4% royalty on net sales for
$17.25 million . The payment was made 50% in cash and 50% in shares of Immunic's
common stock (the "Shares"). Pursuant to the Agreement, the Company filed a
resale shelf registration statement on Form S-3 covering the resale of the
Shares. With the execution of the Agreement, no further payment obligations
remain between Immunic AG and 4SC AG.
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Phase 2 Trial of IMU-838 in RRMS (EMPhASIS)
Our Phase 2 EMPhASIS trial of IMU-838 in RRMS consists of two cohorts: The full
data set of Cohort 1, which evaluated efficacy and safety of 30 mg or 45 mg once
daily IMU-838 compared to placebo, was published by the Company in August and
September 2020 , respectively. Cohort 2, which evaluates efficacy and safety of
10 mg once daily IMU-838 compared to placebo, is currently ongoing. On April 15,
2021 , we announced interim data from Cohort 2 after 59 randomized patients
completed week 12 magnetic resonance imaging ("MRI") assessments. We concluded
from this data, along with previously published data from Cohort 1, that 30 mg
once daily IMU-838 is the most appropriate dose for future Phase 3 trials in
patients with RRMS.
As previously announced, we remain in discussions with regulatory authorities,
including the U.S. Food and Drug Administration ("FDA") and the European
Medicines Agency , regarding our planned Phase 3 program in RRMS. At the FDA's
request, we plan to proceed directly to submitting an Investigational New Drug
("IND") application, instead of holding an end-of-Phase 2 meeting. Feasibility
and other preparatory activities for the Phase 3 program are ongoing and
initiation is expected in the second half of 2021.
Phase 2 Trial of IMU-838 in PSC
On February 18, 2021 , Immunic announced positive top-line data from its
investigator-sponsored proof-of-concept clinical trial of IMU-838 in PSC, which
was conducted at Mayo Clinic in Arizona and Minnesota , both of which are
tertiary referral centers for PSC patients. As previously announced, due to the
COVID-19 pandemic, only 18 of the targeted 30 patients were enrolled in the
study (intent-to-treat population, "ITT"), of whom only 11 patients completed
the full IMU-838 treatment course and were evaluable over the 24-week treatment
period (per-protocol population, "PP").
The PP population experienced a statistically significant decrease in serum
alkaline phosphatase ("ALP") levels (p=0.041) after 24 weeks of treatment using
30 mg IMU-838 once daily, as compared to baseline. A consistent individual
pattern of a stable decrease in ALP values was observed in the PP population
between baseline and week 24, without any single patient showing an increase of
more than 20% of ALP. As per definition of the primary objective of the study,
27.3% of the patients in the PP population had a clinically relevant reduction
of serum ALP higher than 25% at week 24, without an increase in liver
biochemistry of more than 33%, as compared to baseline. Regarding the secondary
objectives of the study, no changes in aspartate aminotransferase ("AST"),
alanine aminotransferase ("ALT"), or total, direct or indirect bilirubin were
observed in the ITT or PP populations, as compared to baseline. In addition,
despite the limited scope of the data, encouraging results were observed
regarding symptoms of inflammatory bowel disease ("IBD"), a common comorbidity
for PSC patients, and patient assessments of health-related quality of life. The
study also found that IMU-838 is a safe and well-tolerated oral drug for PSC
patients and treatment-emergent adverse events were rare and generally mild.
During the COVID-19 pandemic, recruitment for this study was hampered, as
patients with PSC are at a high risk of COVID-19 infections and were advised to
avoid travel and unnecessary social contacts such as those required to
participate in a clinical trial. Together with the investigators, Immunic
determined to readout data of the 18 patients who were enrolled prior to the
COVID-19 pandemic. The ongoing pandemic situation also triggered the principal
investigator's decision to terminate the study in late 2020, before the intended
recruitment goal of 30 patients was reached.
As next step,
Phase 2 Trial of IMU-838 in UC (CALDOSE-1)
We are continuing to make good progress in the recruitment of our Phase 2 CALDOSE-1 trial of IMU-838 in UC. Measures implemented byImmunic to further accelerate recruitment in this trial have shown beneficial effects despite the current pandemic situation. In addition, the positive Phase 2 data of IMU-838 in moderate COVID-19 and in RRMS have increased the confidence of CALDOSE-1 investigators and we believe that this is one of the main reasons of the continued strong enrollment seen in this trial. Recruitment is expected to be completed in the second half of 2021 and top-line data of the induction phase is expected to be available in the first half of 2022, as previously announced. Phase 2 Trial of IMU-838 in Moderate COVID-19 (CALVID-1) OnFebruary 17, 2021 , we announced that IMU-838 has shown evidence of clinical activity in hospitalized patients with moderate COVID-19. This planned main analysis of our Phase 2 CALVID-1 trial was based on data from 204 randomized patients and included top-line clinical efficacy, safety, disease marker, and virology data. Although the trial found very low 24 -------------------------------------------------------------------------------- rates of serious complications (e.g., mortality, rate of ICU submissions and rate of invasive ventilations) in the population of hospitalized patients with moderate COVID-19, the data did show clinical activity of IMU-838 based on multiple secondary endpoints, including clinically meaningful improvements in time to clinical recovery, time to clinical improvement, and disease markers. In addition, high-risk patients and patients over 65 years of age experienced a more substantial treatment effect of IMU-838. IMU-838 also prevented many COVID-19-related adverse events of higher severity. Finally, IMU-838 was found to be safe and well-tolerated in this patient population. Meanwhile, additional data from the full analysis of all 223 randomized patients is also available. In general, the full analysis data supports the conclusions made for the main analysis. However, the full analysis also provided data on a few additional endpoints that were not assessed in the main analysis. The rate and timing of anti-SARS-CoV-2 antibodies patients are developing in response to the infection was found to be identical between the IMU-838 and placebo treatment arms. We believe that this is an important confirmation of the mechanism of action of IMU-838 that targets highly metabolically activated cells involved in the disease process, but leaves antibody production relatively unaffected. Although no specific data are available at this point, we also believe that this data may support that vaccinations, including those for SARS-CoV-2, may be effectively given during IMU-838 therapy. Many immunomodulatory therapies are known to interfere with vaccinations, however several studies with another DHODH inhibitor (teriflunomide) had shown that this is not the case for these class of drugs. The CALVID-1 antibody data are supportive of this finding as well. The full analysis was also able to detect a relationship between drug trough levels in blood plasma and the clinical recovery endpoint. Higher drug levels correlate with shorter clinical recovery periods. We believe that this is another important finding to provide evidence of clinical activity in moderate COVID-19 patients. Based on the outcome of our Phase 2 CALVID-1 trial, we engaged with regulatory authorities about the design of a potential Phase 3 clinical trial and potential pathways to approval of IMU-838 as a COVID-19 monotherapy. However, with the progressing vaccination status in many countries, we believe that the opportunity to execute a Phase 3 program as a monotherapy and to benefit from any potential commercialization in this indication within a reasonable time frame is no longer a viable option. The CALVID-1 trial was able to highlight important differentiators of IMU-838 as compared to existing medications in multiple sclerosis and ulcerative colitis. Many other immunomodulatory drugs commercially used provide a beneficial effect on the disease but are also known to have a higher rate of virus reactivations as adverse drug reactions. For example, some drugs used in ulcerative colitis are known for elevated rates of zoster virus reactivation (shingles). Drugs approved for multiple sclerosis have shown the rare but clinically very important side effect of progressive multifocal leukoencephalopathy ("PML") which is highly lethal and caused by a virus reactivation and infection of the brain tissue. IMU-838 has not shown an increased rate of infections and infestations, as compared to placebo, in the CALVID-1 trial. The same finding was already observed in other controlled clinical trials of IMU-838, including the Phase 2 EMPhASIS trial in RRMS. We believe that both the underlying selectivity of DHODH inhibition on the immune system and the broad antiviral properties of IMU-838 contribute to these findings. The results of the CALVID-1 trial also corroborate the broad antiviral activity of IMU-838, already known from previous in vitro testing in a range of different virus families. We believe that these results support the ability of a host-cell directed antiviral mechanism of IMU-838 to provide antiviral activities largely independent of mutational variants. We will continue to explore the broad antiviral properties of IMU-838, including testing its combination potential with other drugs in further in vitro and in vivo preclinical studies. In other clinically important virus diseases, such as hepatitis or AIDS, combination treatments are already the mainstay of therapy, whereas monotherapy was found to be inferior to such combinations. This additional research will enable us to explore the potential of IMU-838 to target preparedness for potential future pandemics and for clinically important and underserved viral diseases.
Phase 1 Programs of IMU-935 and IMU-856
A clinical Phase 1 trial exploring safety, pharmacodynamics and pharmacokinetics
of IMU-935 is currently ongoing and progressing. Subsequent to the ongoing
single and multiple ascending dose parts of the trial in healthy volunteers, we
plan to extend this trial to assess safety and exploratory disease endpoints in
patients with psoriasis. Based on a positive outcome of our
single-ascending-dose ("SAD") cohorts, we received approval from the Ethics
Committee in Australia during first quarter of 2021 to proceed to the
multiple-ascending-dose ("MAD") part of the trial. The first cohort of MAD
subjects is already being dosed. This will enable us to start initial testing in
patients, which is expected in the third quarter of 2021.
A clinical Phase 1 trial of IMU-856 is ongoing and progressing. The trial includes SAD and MAD parts in healthy volunteers to assess safety, pharmacodynamics and pharmacokinetics of IMU-856. Subsequently, we plan to extend this trial to assess biomarkers, disease symptoms, safety and drug trough levels in patients with several conditions involving an impaired
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bowel barrier function. The last SAD cohort has been completed. Based on the
favorable data available so far, we expect to receive clearance from the Ethics
Committee in Australia to proceed to the MAD part in the near future as well.
Executive Chairman Agreement with Duane Nash
On April 15, 2020 , the compensation committee of the board of directors of
Immunic independently reviewed and approved entering into an employment
agreement with the current Chairman of the Board, Duane Nash , MD, JD, MBA and
pursuant to such approval, on April 17, 2020 , the Company and Dr. Nash entered
into the Executive Chairman Agreement. The Executive Chairman Agreement
establishes an "at will" employment relationship pursuant to which Dr. Nash
serves as Executive Chairman and contemplated a term that ends on October 15,
2020 , which was subsequently extended to April 15, 2021 . On April 15, 2021 , the
Company and Dr. Nash entered into an addendum to extend the term of the
Executive Chairman Agreement to April 15, 2022 . In connection with the
Agreement, the Company made a one-time award to Dr. Nash of an option to
purchase 90,000 shares of Company common stock, which will vest monthly
commencing on May 15, 2021 , and to increase Dr. Nash's monthly base salary to
$27,960 from $25,417 .
Components of Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products in the foreseeable future. If
our development efforts for our product candidates are successful and result in
regulatory approval, we may generate revenue in the future from product sales.
We cannot predict if, when, or to what extent we will generate revenue from the
commercialization and sale of our product candidates. We may never succeed in
obtaining regulatory approval for any of our product candidates.
Research and Development Expenses
Research and development expenses consist of costs associated with our research
activities, including our product discovery efforts and the development of our
product candidates. Our research and development expenses include:
•external research and development expenses and milestone payments incurred
under arrangements with third parties, such as CROs, contract manufacturing
organizations, collaborations with partners, consultants, and our scientific
advisors; and
•internal personnel expenses.
We expense research and development costs as incurred. Non-refundable advance
payments for goods and services that will be used in future research and
development activities are capitalized as prepaid expenses and expensed when the
service has been performed or when the goods have been received.
Since our inception in March 2016 , we have spent a total of approximately $94.0
million in research and development expenses through March 31, 2021 .
These costs primarily include external development expenses and internal
personnel expenses for the three development programs, IMU-838, IMU-935 and
IMU-856. We have spent the majority of our research and development resources on
IMU-838, our lead development program for clinical trials in RRMS, UC, COVID-19
and PSC.
In August 2019 , Immunic AG received a grant of up to approximately $730,000 from
the German Federal Ministry of Education and Research , in support of the
InnoMuNiCH (Innovations through Munich-Nippon Cooperation in Healthcare)
project. The grant funds will be used to fund a three-year research project
relating to autoimmune diseases by us and our three project partners. Since the
inception of the grant, we have recorded $206,000 which was recorded in Other
income in the accompanying consolidated statement of operations.
We expect our research and development expenses to increase for the foreseeable
future as we continue to conduct ongoing regulatory and development activities,
initiate new preclinical and clinical trials and build our pipeline. The process
of commercialization, conducting clinical trials and preclinical studies
necessary to obtain regulatory approval is costly and time consuming. We may
never succeed in achieving regulatory approval for any of our product
candidates.
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Successful development of product candidates is highly uncertain and may not
result in approved products. Completion dates and completion costs can vary
significantly for each product candidate and are difficult to predict. We
anticipate that we will make determinations as to which programs to pursue and
how much funding to direct to each program on an ongoing basis in response to
the development and regulatory success of each product candidate, and ongoing
assessments as to each product candidate's commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses,
professional fees for legal, accounting, tax and business consulting services,
insurance premiums and stock-based compensation.
Other Income (Expense), Net
Interest Income
Interest income consists of interest earned on our money market funds, which are
a portion of our cash and cash equivalents balance. Our interest income has not
been significant due to low interest rates earned on invested balances.
Other Income (Expense), Net
Other income (expense) consists primarily of a research and development tax
incentive related to clinical trials performed in Australia , foreign currency
transaction gains and losses related to long-term intercompany loans that are
payable in the foreseeable future and the recognition of deferred revenue
related to research and development expenses in connection with our option and
licensing agreement with Daiichi Sankyo Co., Ltd..
Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020
The following table summarizes our operating expenses for the three months ended
March 31, 2021 and 2020:
Three Months Ended March 31, Change
2021 2020 $ %
(dollars in thousands) (unaudited)
Operating expenses:
Research and development $ 11,519 $ 6,434 $ 5,085 79 %
General and administrative 20,868 2,580 18,288 709 %
Total operating expenses 32,387 9,014 23,373 259 %
Loss from operations (32,387) (9,014) (23,373) 259 %
Total other income (expense) (2,147) 527 (2,674) (507) %
Net loss $ (34,534) $ (8,487) $ (26,047) 307 %
Research and development expenses increased by $5.1 million during the three
months ended March 31, 2021 , as compared to the three months ended March 31,
2020 . The increase reflects (i) a $1.7 million increase in external development
costs related to the Phase 2 clinical trial in patients with COVID-19 as trials
did not start until the second quarter of 2020, (ii) a $1.4 million increase in
drug supply costs related to IMU-838 to support our ongoing and future clinical
trials, (iii) a $0.9 million increase in preparation costs related to the Phase
3 program of IMU-838 in multiple sclerosis, (iv) $0.4 million related to
increased cost for our ulcerative colitis trial, and (v) $0.7 million related to
increased costs across numerous categories.
General and administrative expenses increased by $18.3 million during the three
months ended March 31, 2021 , as compared to the three months ended March 31,
2020 . The increase is primarily due to (i) a $17.3 million settlement of royalty
obligations to 4SC AG and, (ii) a $1.3 million increase in personnel expenses of
which $1.2 million is related to non-cash stock compensation expense, partially
offset by a $0.3 million decrease in travel related costs.
Other income decreased by $2.7 million during the three months ended March 31,
2021 , as compared to the three months ended March 31, 2020 . The decrease is
primarily attributable to (i) a $2.5 million foreign exchange loss on a $52.0
million
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intercompany loan between Immunic, Inc. and Immunic AG , and (ii) a $0.4 million
decrease in recognized deferred income attributable to reimbursements of
research and development expenses in connection with the Daiichi Sankyo
Agreement realized in the first quarter of 2020. The decrease was partially
offset by a $0.2 million increase in research and development tax incentives for
clinical trials in Australia as a result of increased spending on clinical
trials in Australia .
Liquidity and Capital Resources
Financial Condition
We have no products approved for commercial sale and have not generated any
revenue from product sales. We have never been profitable and have incurred
operating losses in each year since our inception in 2016. We have an
accumulated deficit of approximately $138.5 million at March 31, 2021 and $103.9
million as of December 31, 2020 . Substantially all of our operating losses
resulted from expenses incurred in connection with our research and development
programs and from general and administrative costs associated with our
operations.
We expect to incur significant expenses and increasing operating losses for the
foreseeable future as we initiate and continue the pre-clinical and clinical
development of our product candidates and add personnel necessary to operate as
a company with an advanced clinical pipeline of product candidates. To the
extent additional funds are necessary to meet long-term liquidity needs as we
continue to execute our business strategy, we anticipate that they will be
obtained through the incurrence of indebtedness, additional equity financings or
a combination of these potential sources of funds, although we can provide no
assurance that these sources of funding will be available on reasonable terms.
From inception through March 31, 2021 , we have raised net cash of approximately
$216.8 million from private and public offerings of preferred and common stock.
As of March 31, 2021 , we had cash and cash equivalents of approximately $114.8
million . With these funds, we expect to be able to fund our operations beyond
twelve months from the date of the issuance of the accompanying condensed
consolidated financial statements.
We currently have an effective shelf registration statement on Form S-3 on file
with the SEC which expires in June 2021 . The shelf registration statement
currently permits the offering, issuance and sale by us of up to an aggregate
offering price of $200.0 million of common stock, preferred stock, warrants,
debt securities or units in one or more offerings and in any combination, of
which $40.0 million may be offered, issued and sold under an at-the-market sales
agreement with SVB Leerink . We may use the net proceeds from the offering to
continue to fund the ongoing clinical development of our product candidates and
for other general corporate purposes, including funding existing and potential
new clinical programs and product candidates. In the three months ended March
31, 2021 we did not raise any money under the ATM. In the three months ended
March 31, 2020 we raised net proceeds of $568,000 . As of March 31, 2021 , there
was $23.3 million available under the July 2019 ATM.
In November 2020 , we filed a shelf registration statement on Form S-3 (the "2020
Shelf Registration Statement"). The 2020 Shelf Registration Statement permits
the offering, issuance and sale of up to $250.0 million of common stock,
preferred stock, warrants, debt securities, and/or units in one or more
offerings and in any combination of the foregoing.
In December 2020 , we filed a Prospectus Supplement for the offering, issuance
and sale of up to a maximum aggregate offering price of $50.0 million of common
stock that may be issued and sold under an additional at-the-market sales
agreement with SVB Leerink as agent. We intend to use the net proceeds from the
offering to continue to fund the ongoing clinical development of our product
candidates and for other general corporate purposes, including funding existing
and potential new clinical programs and product candidates. The December 2020
ATM will terminate upon the earlier of (i) the issuance and sale of all of the
shares through SVB Leerink on the terms and subject to the conditions set forth
in the December 2020 ATM or (ii) termination of the December 2020 ATM as
otherwise permitted thereby. The December 2020 ATM may be terminated at any time
by either party upon ten days' prior notice, or by SVB Leerink at any time in
certain circumstances, including the occurrence of a material adverse effect on
us. As of March 31, 2021 , $50.0 million in capacity remains under the December
2020 ATM.
Debt Financing
On October 19, 2020 , we and Immunic AG entered into the Loan Agreement with EIB,
pursuant to which EIB agreed to provide Immunic AG with a term loan in an
aggregate amount of up to €24.5 million to support the development of our lead
asset, IMU-838, in moderate COVID-19, to be made available to be drawn in three
tranches, with the second and third tranches
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subject to the completion of certain pre-defined milestones. We have the right
to defer payment of principal and interest on the first and second tranches
until five years after the respective borrowing dates, at which point such
tranches must be repaid in full. The third tranche is repayable in annual
installments commencing one year after its respective borrowing date and must be
repaid in full no later than five years after such date. Any outstanding
borrowings under the Loan Agreement will accrue interest as provided in the Loan
Agreement.
From January 1, 2021 until December 31, 2030 , we and Immunic AG are also
obligated to pay EIB a very low single digit percentage of our revenue, as set
forth in the Loan Agreement, subject to certain conditions and limitations tied
to the total amount drawn under the Loan Agreement and subject to a cap of €8.6
million if only the first tranche is drawn and subject to a cap of €30 million
if the full loan amount is drawn. The Loan Agreement also includes certain
prepayment penalties that may be triggered by certain prepayments prior to the
maturity date.
We will guarantee Immunic AG's obligations to EIB pursuant to a Guarantee
Agreement to be executed by Immunic, Inc. , Immunic AG and EIB. As of March 31,
2021 , no funds have been drawn down under the Loan Agreement.
Future Capital Requirements
As noted above, we have not generated any revenue from product sales and we do
not know when, or if, we will generate any revenue from product sales. We do not
expect to generate any revenue from product sales unless and until we obtain
regulatory approval for and commercialize any of our product candidates. At the
same time, we expect our expenses to increase as we continue the ongoing
research, development, manufacture and clinical trials of, and seek regulatory
approval for, our product candidates. We expect to incur additional costs
associated with operating as a public company. In addition, subject to obtaining
regulatory approval of any of our product candidates, we anticipate that we will
need substantial additional funding in connection with our continuing
operations.
Our future capital requirements are difficult to forecast and will depend on
many factors, including but not limited to:
•the terms and timing of any strategic alliance, licensing and other arrangements that we may establish;
•the initiation and progress of our ongoing preclinical studies and clinical trials for our product candidates;
•the number of programs we pursue;
•the outcome, timing and cost of regulatory approvals;
•the cost and timing of hiring new employees to support our continued growth;
•the costs involved in patent filing, prosecution, and enforcement; and
•the costs and timing of having clinical supplies of our product candidates manufactured. Until we can generate a sufficient amount of product revenue to finance cash requirements, we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowings and strategic alliances with third parties. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves. As ofMarch 31, 2021 , we had approximately$114.8 million in cash and cash equivalents. 29 -------------------------------------------------------------------------------- Cash Flows The following table shows a summary of our cash flows for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 (in thousands) (unaudited) Cash (used in) provided by: Operating activities$ (12,948) $ (11,029) Investing activities (10) (4) Financing activities - 568 Operating activities During the three months endedMarch 31, 2021 , operating activities used$12.9 million of cash. The use of cash primarily resulted from (i) our net loss of$34.5 million adjusted for non-cash charges of$8.6 million related to common stock issued for the 4SC AG transaction,$2.5 million for an unrealized foreign currency loss,$1.6 million related to stock-based compensation and depreciation and amortization as well as a$8.9 million net increase in our operating assets and liabilities. Changes in our operating assets and liabilities during the three months endedMarch 31, 2021 consisted primarily of (i) an increase of$8.5 million in our other current liabilities as a result of an$8.6 million payable due to 4SC AG partially offset by an increase of$0.4 million in other current assets and prepaid expenses. During the three months endedMarch 31, 2020 , operating activities used$11.0 million of cash. The use of cash primarily resulted from (i) our net loss of$8.5 million adjusted for non-cash charges of$367,000 related to stock-based compensation and depreciation and amortization and (ii) a$2.9 million net increase in our operating assets and liabilities. Changes in our operating assets and liabilities during the three months endedMarch 31, 2020 consisted primarily of (i) an increase of$2.2 million in other current assets and prepaid expenses primarily due to prepayments related to certain clinical trial and drug supply contracts and (ii)$0.7 million related to a decrease in our current liabilities. Investing activities Net cash used in investing activities was$10,000 and$4,000 during the three months endedMarch 31, 2021 , and 2020, respectively, which was related to the purchase of property and equipment. Financing Activities There were no cash based financing activities during the three months endedMarch 31, 2021 . Net cash provided by financing activities was$0.6 million during the three months endedMarch 31, 2020 consisting of net cash proceeds from the sale of common stock under the ATM. Off-Balance Sheet Arrangements ThroughMarch 31, 2021 , we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose. Contractual Obligations Maturities of the operating lease obligation are as follows as ofMarch 31, 2021 : 30 --------------------------------------------------------------------------------
2021 $ 350,000
2022 467,000
2023 317,000
2024 243,000
2025 121,000
Total 1,498,000
Interest 153,000
PV of obligation $ 1,345,000
As of March 31, 2021 , we have non-cancelable contractual obligations under
certain agreements related to our development programs IMU-838, IMU-935 and
IMU-856 totaling approximately $0.5 million , all of which is expected to be paid
in 2021.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in
conformity with U.S. GAAP. The preparation of our unaudited condensed
consolidated financial statements and related disclosures requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
costs and expenses, and the disclosure of contingent assets and liabilities in
our financial statements. We base our estimates on historical experience, known
trends and events and various other factors that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. We evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these estimates under
different assumptions or conditions. We have reviewed these critical accounting
policies and related disclosures with the Audit Committee of our Board.
During the first three months of 2021, there were no significant changes in our
critical accounting policies or in the methodology used for estimates. Our
significant accounting policies are described in more detail in (i) Note 2 to
our unaudited condensed consolidated financial statements included elsewhere in
this Quarterly Report and (ii) our audited consolidated financial statements for
the years ended December 31, 2020 and 2019 filed in our Annual Report on Form
10-K on February 26, 2021 .
Recently Issued Accounting Standards
There are no new applicable accounting standards identified in this Quarterly
Report. Note 2 to the audited consolidated financial statements for the years
ended December 31, 2020 and 2019 included in our Annual Report on Form 10-K
filed with the SEC on February 26, 2020 also does not contain any new applicable
accounting standards but does contain information on recently adopted accounting
standards.
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