KIORA PHARMACEUTICALS, INC. The following section of this Quarterly Report on Form 10-Q entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in "Item 1A. Risk Factors" beginning on page 23 of our Annual Report on Form 10-K/A as filed with theSecurities and Exchange Commission onJuly 7, 2022 . You should carefully review all of these factors, as well as the comprehensive discussion of forward-looking statements on page 1 of this Quarterly Report on Form 10-Q.
Executive Summary
We are a specialty clinical-stage pharmaceutical company developing and commercializing products for the treatment of ophthalmic diseases.
Our lead product is KIO-301 with an initial focus on patients with later stages of disease progression due to Retinitis Pigmentosa (any and all sub-forms). KIO-301 is a potential vision-restoring small molecule that acts as a "photoswitch" specifically designed to restore vision in patients with inherited and age-related degenerative retinal diseases. We expect to initiate a Phase 1b clinical trial in the third quarter of 2022. OnMarch 17, 2022 , we were granted Orphan Drug Designation bythe United States ("U.S.")Food and Drug Administration ("FDA") for the Active Pharmaceutical Ingredient ("API") in KIO-301. KIO-301 (formerly known as B-203) was acquired through the Bayon transaction which closedOctober 21, 2021 . KIO-101 is a product that focuses on patients with Ocular Presentation of Rheumatoid Arthritis ("OPRA"). KIO-101 is a next generation, non-steroidal, immuno-modulatory, small-molecule inhibitor of Dihydroorotate Dehydrogenase ("DHODH") with what we believe to be best-in-class picomolar potency and a validated immune modulating mechanism designed to overcome the off-target side effects and safety issues associated with commercially available DHODH inhibitors. We expect to initiate a Phase 2 clinical trial in the second half of 2022. KIO-101 (formerly known as PP-001) was acquired through the acquisition of Panoptes in the fourth quarter of 2020. In addition, we are developing KIO-201 for patients with corneal wounds to accelerate healing, including patience undergoing laser vision correction surgery. KIO-201 is a modified form of the natural polymer hyaluronic acid, designed to protect the ocular surface to permit re-epithelialization of the cornea and improve and maintain ocular surface integrity. KIO-201 has unique properties that help hydrate and protect the ocular surface. Throughout our history, we have not generated significant revenue. We have never been profitable and from inception throughMarch 31, 2022 , our losses from operations have aggregated$124.4 million . Our Net Loss was$3.565 million and$2.011 million for the three months endedMarch 31, 2022 and 2021, respectively. We expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue the development and clinical trials of and seek regulatory approval for our product candidates. If we obtain regulatory approval for our product candidates, we expect to incur significant expenses in order to create an infrastructure to support their commercialization including sales, marketing, and distribution functions. We will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity, debt financings, license and development agreements, or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. These conditions raise substantial doubt about our ability to continue as a going concern. We will need to generate significant revenue to achieve profitability, and we may never do so. 17 Table of Contents COVID-19 pandemic impact Our business, results of operations and financial condition have been and may continue to be impacted by the COVID-19 pandemic and could be further impacted by supply chain interruptions, extended "shelter-in-place" orders or advisories, facility closures or other reasons related to the pandemic. As of the date of this Quarterly Report on Form 10-Q, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain. To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products, consolidation in the healthcare industry, and maintenance of our contractual relationships.
Recent Developments
OnFebruary 23, 2022 , we received a written notification (the "Notice Letter") from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), as the closing bid price for our common stock was below the$1.00 per share requirement for the last 30 consecutive business days. The Notice Letter stated that we have 180 calendar days, or untilAugust 22, 2022 (the "Initial Compliance Period"), to regain compliance with the minimum bid price requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we can regain compliance if the closing bid price of our common stock is at least$1.00 for a minimum of 10 consecutive business days. In the event that we do not regain compliance with Listing Rule 5450(a)(1) prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. A delisting of our common stock would have an adverse effect on the market liquidity of our common stock and, as a result, the market price for our common stock could become more volatile. Further, a delisting also could make it more difficult for us to raise additional capital. We intend to monitor the closing bid price of our common stock and may conduct a reverse stock split, if necessary, to regain compliance with the Nasdaq bid price rule. OnMay 25, 2022 , we received a notice fromThe Nasdaq Stock Market LLC ("Nasdaq") stating that because we had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter endedMarch 31, 2022 , we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with theSecurities and Exchange Commission . The Notice stated that we had 60 calendar days fromMay 25, 2022 , or untilJuly 25, 2022 , to regain compliance by filing the late Form 10-Q or to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. As a result of the filing of this Quarterly Report on Form 10-Q, we have regained compliance with Nasdaq Listing Rule 5250(c)(1).
Results of Operations
Comparison of Three Months ended,
The following table summarizes the results of our operations for the three
months ended
Three Months Ended March 31,
2022 2021 Change
Operating Expenses:
General and Administrative $ 1,664,791 $ 1,300,143 $ 364,648
Research and Development 707,928 1,280,242 (572,314)
Executive Severance 962,833 - 962,833Change in Fair Value in Contingent Consideration 233,890
(570,203) 804,093
Total Operating Expenses 3,569,442 2,010,182 1,559,260
Other Expense, Net 4,428 (436) 4,864
Net Loss $ (3,565,014) $ (2,010,618) $ 1,554,396
General and Administrative Expenses. The increase of $0.365 million was
primarily due to increases in professional fees of $0.151 million for consulting
and audit, personnel related expenses of $0.156 million , travel and other office
expenses of $0.123 million offset by a decrease in legal related costs of $0.058
million .
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Research and Development Expenses. The decrease of $0.572 million was primarily
development costs for KIO-101 of $0.501 million and personnel related costs of
$0.149 million .
Executive Severance. The increase was due primarily to an accrual for the severance agreement with the Company's former Chief Executive Officer.
Change in Fair Value of Contingent Consideration. Contingent consideration increased by$0.804 million . The change in contingent consideration is primarily due to a change in the probability of success primarily due to the designation of orphan drug status for KIO-301 which occurred in March of 2022, and discount rate for the calculation of fair value of the contingent consideration.
Other Expense, Net. The increase was due to a sale of office furniture in
connection with the closure of the
Liquidity and Capital Resources
Our principal liquidity needs have historically been for acquisitions, working
capital, research and development, and capital expenditures. We expect these
needs to continue as we develop and work toward commercialize new products. We
will need additional financing to support our continuing operations. We will
seek to fund our operations through public or private equity, debt financings,
license and development agreements, or other sources, which may include
collaborations with third parties.
If we raise additional funds by issuing equity securities or convertible debt,
our stockholders will experience dilution. Debt financing, if available, would
result in increased fixed payment obligations and may involve agreements that
include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, or making capital expenditures. If we raise
additional funds through collaboration and licensing arrangements with third
parties, it may be necessary to relinquish valuable rights to our products,
future revenue streams or product candidates, or to grant licenses on terms that
may not be favorable to us. Adequate additional financing may not be available
to us on acceptable terms, or at all. Our failure to raise capital as and when
needed would have a negative impact on our financial condition and our ability
to pursue our business strategy. These conditions raise substantial doubt about
our ability to continue as a going concern. We will need to generate significant
revenue to achieve profitability, and we may never do so.
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Information regarding cash flows
As ofMarch 31, 2022 , we had unrestricted cash and cash equivalents totaling$5.067 million and restricted cash totaling$0.045 million for a total of$5.112 million compared to$7.900 million atDecember 31, 2021 . The following table sets forth the primary uses of cash for the three months endedMarch 31 ,: 2022
2021
Net Cash Used in Operating Activities$ (2,832,386) $
(2,570,051)
Net Cash Provided By (Used in) Investing Activities
(58,119)
Net Cash Provided by Financing Activities $ - $
8,038,862
Operating Activities. Net cash used in operating activities increased
Investing Activities. There was a nominal change in net cash provided by (used in) investing activities.
Financing Activities. During the three months ended
Funding Requirements and Other Liquidity Matters
Our KIO-301, KIO-101 and KIO-201 product pipeline is still in various stages of preclinical and clinical development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
? seek marketing approval for our KIO-301, KIO-101 or KIO-201 products or any
other products that we successfully develop;
? establish a sales and marketing infrastructure to commercialize our KIO-301,
KIO-101 or KIO-201 products in
add operational, financial and management information systems and personnel,
? including personnel to support our product development and future
commercialization efforts.
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Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances and licensing arrangements. We
do not have any committed external source of funds. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely
affect the rights of holders of common stock. Debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds through
collaborations, strategic alliances or licensing arrangements with
pharmaceutical partners, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates,
including our KIO-301, KIO-101 and KIO-201 products, on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or
debt financings when needed, we may be required to delay, limit, reduce or
terminate our product development or future commercialization efforts or grant
rights to develop and market KIO-301, KIO-101 and KIO-201 products, or any other
products that we would otherwise prefer to develop and market ourselves.
Based on our cash on hand at March 31, 2022 , we believe we will have sufficient
cash to fund planned operations through July 2022 . However, the acceleration or
reduction of cash outflows by management can significantly impact the timing for
raising additional capital to complete development of its products. To continue
development, we will need to raise additional capital through debt and/or equity
financing, or access additional funding through grants. Although we successfully
completed our IPO and several subsequent registered offerings and private
placements of our securities, additional capital may not be available on terms
favorable to us, if at all. We do not know if our future offerings will succeed.
Accordingly, no assurances can be given that management will be successful in
these endeavors. Our recurring losses from operations have caused management to
determine there is substantial doubt about our ability to continue as a going
concern. Our Condensed Consolidated Financial Statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities or any
other adjustments that might be necessary should we be unable to continue as a
going concern.
Other
For information regarding Commitments and Contingencies, refer to Note 9. Commitments and contingencies and Note 3. Acquisitions to the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q.
Critical Accounting Estimates
Our discussion of operating results is based upon the unaudited condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are detailed in Item 7 of our 2021 10-K/A and we have no material changes from such disclosures.
Recently Issued Accounting Pronouncements
Refer to Note 1. Business, Presentation and Recent Accounting Pronouncements, in the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q for detailed information regarding the status of recently issued accounting pronouncements.
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