You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes included in this Quarterly Report on Form 10-Q. The following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed below and elsewhere in this Quarterly Report.
This discussion should be read in conjunction with the accompanying unaudited
consolidated financial statements and the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2021 filed with the Securities and Exchange
Commission on March 11, 2022 (the "2021 Annual Report"). This discussion may
contain forward-looking statements that involve risks and uncertainties. See
"Forward-Looking Statements." You should review the disclosure under the heading
"Risk Factors" in this Quarterly Report on Form 10-Q and the 2021 Annual Report
for a discussion of important factors that could cause our actual results to
differ materially from those anticipated in these forward-looking statements.
OVERVIEW
We are a fully integrated biopharmaceutical company specializing in the
end-to-end development and commercialization of therapies that arm the immune
system against a wide range of diseases including cancer and infectious disease.
Our discovery sciences subsidiary Skunkworx Bio enhances our ability to support
in-house nomination of biologics for our preclinical and clinical development.
Our acquisition of Elusys Therapeutics, Inc. ("Elusys") supports our ability to
develop critical therapeutic innovations such as RapidVax® for the biodefense
sector. Finally, our Scorpion Biological Services, Inc. ("Scorpion") subsidiary
enables us to enhance efficiency and decrease our dependence on third-party
contract research and development biomanufacturing organizations ("CDMO") as we
advance into early and late-stage clinical trials to progress the development of
novel immune activating therapies as well as support the production of our
commercial anthrax antitoxin Anthim® (oxbiltoxaximab). With this consideration,
we have developed multiple immune stimulatory platforms (highlighted below) that
are designed to harness the body's natural immune activation and tolerance
mechanisms to combat disease.
Our proprietary gp96 platform leverages the adjuvant (immune stimulatory)
properties of the heat shock protein gp96 to induce the immune system's own
response against cancer and infectious disease. Gp96 naturally chaperones
activation peptides (antigens) to professional antigen-presenting cells
("APCs"), such as dendritic cells, under stress conditions such as infection and
cell death. Extracellular gp96 can stimulate innate immune toll-like receptors 2
and 4 on APCs to promote activation and subsequent processing and presentation
of chaperoned antigens to T-cells. Our platform is designed to exploit the
chaperoning activity of gp96 to constitutively transport predefined antigens of
interest to APCs that in turn stimulate an antigen-specific immune response that
includes B cells, CD4+ T-cells, and cytotoxic CD8+ T-cells. We believe this is a
highly differentiated approach as our platform can deliver a broad range of
tumor antigens that are previously unrecognized by the patient's immune system
and that have the potential to generate a multivalent response to address tumor
heterogeneity.
We believe the effective management of cancer will involve multiple agents and
that our gp96 platform has the potential to work synergistically with approved
immunotherapies, such as checkpoint inhibitors, to re-stimulate or enhance the
immune system's own anti-tumor response. With this consideration, we are
evaluating the potential of the gp96 platform immunotherapy HS-110
(viagenpumatucel-L) in a Phase 2 trial of patients with advanced non-small cell
lung cancer ("NSCLC"). HS 110 is an allogenic "off-the-shelf" cellular vaccine
derived from a lung adenocarcinoma cancer cell line and genetically modified to
secrete a wide range of cancer-associated antigens bound to the
immunostimulatory chaperone gp96. We have completed the enrollment of our Phase
2 trial evaluating the safety and efficacy of HS 110 in combination with either
nivolumab (Opdivo®), a Bristol-Myers Squibb anti-PD 1 checkpoint inhibitor, or
Merck's anti-PD1 checkpoint inhibitor, pembrolizumab (KEYTRUDA®), for the
treatment of patients with advanced NSCLC. Eligible patient populations included
individuals in a second line or greater setting, or with pembrolizumab in a
front-line maintenance setting. HS-130, another gp96 platform asset, is
engineered to express the extracellular domain of OX40 ligand as a fusion
protein (OX40L-Ig) to enhance T-cell expansion and memory cell formation. The
safety of HS-130 is being evaluated in a Phase 1 solid tumor trial with findings
to support the development of our RapidVax platform.
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The TNF receptor superfamily member 25 ("TNFRSF25") platform is focused on the
development of agents targeting this cellular receptor. TNFRSF25 recognizes the
cytokine TNF-like ligand 1A ("TL1A") secreted by several immune cell types
including dendritic cells, monocytes, macrophages, and plasma cells. In the
absence of a danger or activating signal, co-stimulation of TNFRSF25 on T-cells
results in the selective expansion of immunosuppressive Tregs that can reduce
inflammation. Conversely, co-stimulation of TNFRSF25 on T-cells in the presence
of a danger or activating signal (arising from injury, infection, or cancer)
promotes the expansion of inflammatory effector T-cells that play a critical
role in mediating anti-tumor and anti-pathogen responses. We believe
therapeutic targeting of this pathway has the potential to shift the balance
between immunosuppression and inflammation and therefore restore stability and
balance to the immune system.
PTX-35 is a potential first-in-class selective agonist of TNFRSF25. Preclinical
studies demonstrate that when combined with HS-110 and HS-130 immunotherapies or
anti-PD-1 checkpoint inhibitor (activating signals), PTX-35 has the potential to
enhance CD8+ T-cell activation to eliminate tumor cells. We are enrolling an
open-label, single arm, Phase 1 clinical trial evaluating the safety and
tolerability of PTX-35 intravenous administration in patients with advanced
solid tumors refractory to, or ineligible for, or who refuse available standard
of care.
PTX-35 has also been reported as a potent regulatory T-cell (Treg) expander in
the absence of a danger or activating signal. Mouse surrogate of PTX-35 (i.e.,
human CDRs 1-3, but mouse Ig backbone), has shown activity in mouse models of
corneal allograft, beta-islet transplantation, bone marrow transplantation,
auto/inflammatory models of experimental autoimmune encephalitis (EAE), colitis
and asthma. We are evaluating the clinical application for using PTX-35 to
expand regulatory T-cell subsets for the treatment of various inflammatory
diseases and/or conditions where regulatory T-cells are defective or required to
restore immune stability.
The RapidVax® platform is a flexible "plug-and-play" vaccine system designed to
enable an accelerated response to a wide variety of biological threats and is
built on the foundation of our learnings from our various gp96 programs.
RapidVax leverages our vast experience developing gp96-based vaccines and
couples the immune-activating properties of heat shock protein gp96 and the
T-cell co-stimulator OX40L with a flexible antigen expression system to promote
antigen-specific T-cell activation, the generation of long-lasting memory cells,
and neutralizing antibody production via the interaction of T-follicular helper
cells with B cells. RapidVax is designed to utilize a common unprogrammed
vaccine base that can be manufactured in bulk, stockpiled, and rapidly
customized upon identification of a biological threat to enable an accelerated
time to clinic and to harness shared development, clinical safety, and
manufacturing synergies.
Anthim® (obiltoxaximab) is a best-in-class monoclonal antibody antitoxin for
anthrax. Anthim received FDA approval and orphan drug exclusivity in 2016 for
the treatment of inhalational anthrax, in combination with antibiotics, and as a
prophylaxis when alternative therapies are not available or are not appropriate.
Additionally, Anthim was approved in 2020 as the only licensed anthrax antitoxin
treatment in the European Union, United Kingdom, and Canada. Working closely
with Biomedical Advanced Research and Development Authority ("BARDA"), the
National Institute of Allergy and Infectious Disease ("NIAID"), and the
Department of Defense ("DoD"), our medical countermeasures subsidiary Elusys has
been able to advance Anthim to the commercial stage providing a therapeutic for
inclusion in the SNS to strengthen US biosecurity against a potential anthrax
attack. Notably, Anthim will also be delivered to Canada's National Emergency
Strategic Stockpile under a recently announced procurement contract.
On an ongoing basis, we are also providing preclinical, CMC development, and
administrative support for these programs, while constantly focusing on
protecting and expanding our intellectual property in areas of strategic
interest. Additionally, we plan to launch Scorpion Biologics as a contract
research and development biomanufacturing organization ("CDMO") focused on
developing bioanalytic, process development and biomanufacturing capabilities to
support our biotherapeutics and discovery pipeline. We will be opportunistic in
offering biomanufacturing capacity to third parties as a fee-for-service model
as we expand from clinical scale to commercial scale manufacturing capabilities
over the coming years.
We expect to continue to incur significant expenses and to incur increasing
operating losses for at least the next several years.
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We anticipate that our expenses will increase substantially as we:
? complete the ongoing clinical trials of our product candidates;
? maintain, expand and protect our intellectual property portfolio;
? seek to obtain regulatory approvals for our product candidates;
? continue our research and development efforts;
add operational, financial and management information systems and personnel,
? including personnel to support our product development and commercialization
efforts;
? manufacture and commercialize Anthim;
? continue construction of the facility in San Antonio, Texas;
further the development partnership to support the development of a new
? biodefense-focused large molecule and biologics biomanufacturing facility in
Manhattan, Kansas; and
? operate as a public company.
Recent Developments
On January 12, 2022, we announced that promising new preclinical data regarding
PTX-35 has been accepted for publication in the American Journal of
Transplantation. The following are the PTX-35 key findings:
A single dose of the preclinical version of PTX-35 (mPTX-35), was able to
? expand regulatory T-cells (Tregs) and significantly improve disease and graft
survival outcomes.
Chemically induced pancreatic failure (a model for type-1 diabetes) could be
? partially reversed when mice were transplanted with beta-cell islet allografts
and treated with mPTX-35.
Disease protection in preclinical models was correlated with a significant
? expansion of Tregs and protection of the allograft, resulting in euglycemia and
a graft survival benefit.
? Long-term surviving grafts showed a marked increase in Treg infiltration which
directly correlated with mPTX-35 agonist activity.
On January 12, 2022, we also announced that we expect to file for an End of
Phase 2 meeting with the FDA this quarter with the goal of discussing potential
Phase 3 registration pathways for HS-110.
On February 2, 2022, we determined to voluntarily withdraw the listing of our
common stock from The Nasdaq Capital Market ("Nasdaq") and transfer such listing
to the NYSE American stock exchange (the "NYSE American"). Trading began on the
NYSE American at market open on February 14, 2022.
On April 18, 2022 (the "Closing Date"), we closed the merger contemplated by the
Merger Agreement (the "Merger Agreement") that we entered into with Merger Sub,
Elusys and Fortis Advisors LLC, pursuant to which we acquired Elusys through the
Merger of Merger Sub with Elusys. Pursuant to the Merger Agreement, as merger
consideration ("Merger Consideration") we paid at the closing an upfront cash
payment of $3,000,000 to certain equity holders of Elusys (the "Sellers") and
contributed $867,646 to the payment of 50% of certain Elusys lease termination
and employee severance payments. We will also pay to the Sellers (i) cash of
$2,000,000 (ii) Milestone Payments, as defined in the Merger Agreement, related
to revenues under an existing contract held by Elusys, and (iii) earn out
payments for a period of 12 years from the Closing Date equal to 10% of the
gross dollar amount of payments received during each one-year period during such
twelve year period with respect to any sale, license or commercialization
anywhere in the world of Anthim that either: (a) occurs during the first nine
years after the Closing Date in any respect; or (b) occurs thereafter pursuant
to any contract, agreement, commitment or order that is placed, granted, awarded
or entered into during the first nine years after the Closing Date.
Elusys is expected to receive additional revenue from the future fulfillment of
an existing U.S. Government contract and NightHawk has agreed to fulfill the
future obligations of Elusys under such contract and pass through and distribute
to the Sellers the payments received under such contract minus the costs
associated with such fulfillment obligations, subject to certain adjustments to
the Merger Consideration specified in the Merger Agreement, including income
taxes payable with respect to such payments (the "Milestone Payments"). The
Merger Agreement further provides that eighty percent of any amounts paid to and
received by Elusys ("Additional Earn Out") after the Closing and prior to June
30, 2023 with respect
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to the sale of 1,500 pre-filled vials of Anthim shall be paid to the Sellers,
subject to certain adjustments specified in the Merger Agreement.
On April 18, 2022, we announced a planned development partnership of Scorpion
with a private developer, the State of Kansas and local and university
affiliates to support the development of a new biodefense-focused large molecule
and biologics biomanufacturing facility in Manhattan, Kansas to be developed by
a third-party developer and leased to Scorpion. Scorpion intends to utilize the
new 500,000+ square foot facility for large molecule and biologics
manufacturing, with a particular focus on biodefense. In addition to servicing
our own pipeline, Scorpion plans to operate and utilize the facility as a
full-service CDMO to provide third-party manufacturing services on a
fee-for-service basis. Scorpion and the developer have applied for over $300
million in funding, incentives, and tax relief to support the development of the
facility.
CRITICAL ACCOUNTING ESTIMATES
We believe that several accounting policies are important to understanding our
historical and future performance. We refer to these policies as "critical"
because these specific areas generally require us to make judgments and
estimates about matters that are uncertain at the time we make the estimate, and
different estimates-which also would have been reasonable-could have been used,
which would have resulted in different financial results.
Our management's discussion and analysis of financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of our consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses and related
disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates based on historical experience and make various
assumptions, which management believes to be reasonable under the circumstances,
which form the basis for judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We have disclosed our critical accounting policies and estimates in our 2021
Form 10K, and that disclosure should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in our critical
accounting policies and estimates during the first three months of Fiscal 2022
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2022 and 2021
Grants Receivable and Revenues. For the three months ended March 31, 2022, we
recognized $0.2 million of grant revenue for qualified expenditures under the
CPRIT grant. For the three months ended March 31, 2021, we recognized $0.5
million of grant revenue for qualified expenditures under the CPRIT grant. The
decrease in grant revenue in the current-year period primarily reflects the
expected timing of completion of deliveries under the current phase of the
contracts. As of March 31, 2022, we had a grants receivable balance of $1.5
million for CPRIT proceeds not yet received, but for which the costs had been
incurred or the conditions of the award had been met. We continue our efforts to
secure future non-dilutive grant funding to subsidize ongoing research and
development costs.
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Research and development expense. Research and development expenses increased
approximately 15.5% to $3.9 million for the three months ended March 31, 2022
compared to $3.4 million for the three months ended March 31, 2021. The
components of R&D expense are as follows, in millions:
For the Three Months Ended
March 31,
2022 2021
Programs
HS-130 $ 0.5 $ 0.1
PTX-35 0.5 0.6
HS-110 0.2 0.3
Other programs 0.1 0.6
Unallocated research and development expenses 2.6 1.8
$ 1.3 $ 1.6 ? HS-130 expense was $0.5 million and included regulatory consulting and
investigator site payments for the ongoing Phase 1 clinical trial.
PTX-35 expense decreased to $0.5 million and primarily consists of patient
? dosing costs, third-party regulatory consulting and investigator site payments
for the ongoing Phase 1 clinical trial.
HS-110 expense was $0.2 million, reflecting the current-period mix of
? development activities, primarily due to ongoing costs associated with our
Phase 2 trial.
Other programs expense was $0.1 million related to Skunkworx Bio drug
? development program, RapidVax consulting and licensing fees related to vaccine
platform development, and laboratory supplies.
? Unallocated research expenses of $2.6 million primarily reflects personnel
costs, including stock-based compensation from stock awards.
General and administrative expense. General and administrative expense was $3.8
million and $4.8 million for the three months ended March 31, 2022 and 2021. The
decrease was due to a decrease in stock-based compensation expense of $2.0
million primarily due to our directors being granted immediately vesting stock
options in the first quarter of 2021 that did not recur in 2022, partially
offset by increased personnel costs of $0.2 million, and increases of $0.3
million for consulting and other professional expenses to manage the business.
Change in fair value of contingent consideration. The change in fair value of
contingent consideration was $(0.02) million for the three months ended March
31, 2022, compared to $6,000 for the three months ended March 31, 2021. The
change in the 2022 period primarily reflects the increased timeline of the Phase
1a trial and the remeasurement of discounted cash flows for the passage of time
and milestone achievement.
Total non-operating (loss) income. Total non-operating income (loss) was ($0.7)
million for the three months ended March 31, 2022 which primarily consisted of
$0.8 million of unrealized losses on short-term investment balances partially
offset by $0.1 million of interest income. Total non-operating income was
$18,108 for the three months ended March 31, 2021 which primarily consisted of
interest income on cash and short-term investments.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Since our inception in June 2008, we have incurred significant losses and we
have financed our operations with net proceeds from the private placement of our
preferred stock, common stock, and debt, as well as net proceeds from the public
offering of our securities, and to a lesser extent, the proceeds from the
exercise of warrants. During May 2018, we closed a public offering of shares of
our common stock and warrants to purchase shares of our common stock in which we
received net proceeds of approximately $18.8 million and after the closing of
the offering, an additional $4.8 million from the exercise of 436,381 warrants
issued in this offering. During November 2018, we closed a public offering of
shares of our common stock and warrants to purchase shares of our common stock
in which we received net proceeds of
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approximately $12.7 million. For the year ended December 31, 2018 and 2019, we
received net proceeds of approximately $3.8 million from sales of our common
stock in at-the-market offerings. On January 21, 2020, we closed an underwritten
public offering of shares of our common stock and warrants to purchase shares of
our common stock pursuant to which we received net proceeds of approximately
$6.4 million. For the year ended December 31, 2021, we received net proceeds of
$25.6 million from the sale of 2,106,027 shares of our common stock in
at-the-market offerings. As of December 31, 2021, we had an accumulated deficit
of approximately $165.7 million. We had net losses of $8.2 million and $7.6
million for the three months ended March 31, 2022 and 2021, respectively.
In order to promote efficiency and reduce our reliance on third-party vendors,
we plan to enhance our in-house development of bioanalytic, process development
and manufacturing capabilities and offer such services to third parties for
fees. We have entered into a lease for a 20,144 square foot facility in San
Antonio, TX to conduct such services and are currently building the facility.
Our proposed expansion in Texas is part of a company-wide growth strategy to
enhance efficiency and decrease our dependence on third-party vendors as we
advance our clinical trials and general research and development. The future
forecasted investment to build out the facility with labs, equipment, and staff
will be approximately $30.5 million, without taking into account federal new
market tax credits based on the location in San Antonio, federal and state
historical tax credits based on the historical designation of the facility, as
well as city and county tax abatement incentives with the City of San Antonio
and Bexar County. Scorpion reimbursements to Merchants Ice, who is purchasing
the equipment for the CDMO facility, has paid $17.0 million for equipment
through the first quarter of 2022 and is included in the $30.5 million. We
intend to fund this initiative with current working capital. The potential value
of tax credits and tax incentives to Scorpion are estimated to be up to
approximately $4.5 million based on the total cost of the build out, employees
hired, real property, and other factors. Operations at the facility are
projected to commence by third quarter of 2022, and we expect to fill production
capacity by transitioning our outsourced manufacturing and development to
in-house immediately and followed by contracting with external customers.
However, there can be no assurance that we will be successful in these new
operations. As of May 16, 2022 we have spent $20.6 million on laboratory-related
manufacturing equipment for the San Antonio facility. We intend to meet our
financing needs through multiple alternatives, including, but not limited to,
cash on hand, additional equity financings, debt financings and/or funding from
partnerships or collaborations and potential revenue, if any, from our planned
development and manufacturing facility.
On April 18, 2022 (the "Closing Date"), we closed the merger contemplated by the
Merger Agreement (the "Merger Agreement") that we entered into with Merger Sub,
Elusys and Fortis Advisors LLC, pursuant to which we acquired Elusys through the
Merger of Merger Sub with Elusys. Pursuant to the Merger Agreement, as merger
consideration ("Merger Consideration") we paid at the closing an upfront cash
payment of $3,000,000 to certain equity holders of Elusys (the "Sellers") and
contributed $867,646 to the payment of 50% of certain Elusys lease termination
and employee severance payments. We will also pay to the Sellers (i) cash of
$2,000,000 (ii) Milestone Payments, as defined in the Merger Agreement, related
to revenues under an existing contract held by Elusys, and (iii) earn out
payments for a period of 12 years from the Closing Date equal to 10% of the
gross dollar amount of payments received during each one-year period during such
twelve year period with respect to any sale, license or commercialization
anywhere in the world of Anthim that either: (a) occurs during the first nine
years after the Closing Date in any respect; or (b) occurs thereafter pursuant
to any contract, agreement, commitment or order that is placed, granted, awarded
or entered into during the first nine years after the Closing Date.
Elusys is expected to receive additional revenue from the future fulfillment of
an existing U.S. Government contract and NightHawk has agreed to fulfill the
future obligations of Elusys under such contract and pass through and distribute
to the Sellers the payments received under such contract minus the costs
associated with such fulfillment obligations, subject to certain adjustments to
the Merger Consideration specified in the Merger Agreement, including income
taxes payable with respect to such payments (the "Milestone Payments"). The
Merger Agreement further provides that eighty percent of any amounts paid to and
received by Elusys ("Additional Earn Out") after the Closing and prior to June
30, 2023 with respect to the sale of 1,500 pre-filled vials of Anthim shall be
paid to the Sellers, subject to certain adjustments specified in the Merger
Agreement.
In addition, if we obtain marketing approval for any of our product candidates,
we expect to incur significant commercialization expenses related to product
sales, marketing, manufacturing, and distribution. Although we currently have
sufficient funds to complete our Phase 2 clinical trials, as currently planned,
and expect that we will have sufficient
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funds to fund our operations into 2024, we will need to obtain substantial
additional future funding in connection with our future planned clinical trials,
manufacture of Anthim, and our manufacturing facility construction and set up.
However, the actual amount of funds we will need to operate is subject to many
factors, some of which are beyond our control. These factors include the
following:
? the progress of our research activities;
? the number and scope of our research programs;
? the progress of our preclinical and clinical development activities;
? the progress of the development efforts of parties with whom we have entered
into research and development agreements;
? our expansion plans and cash needs of any new projects;
? our ability to maintain current research and development licensing arrangements
and to establish new research and development and licensing arrangements;
? our ability to achieve our milestones under licensing arrangements;
? the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights;
? the costs and timing of regulatory approvals;
? the receipt of grant funding if any;
? clinical laboratory development and testing;
? manufacturing facility construction costs and equipment costs; and
? manufacturing costs of Anthim.
We have based our estimate on assumptions that may prove to be wrong. We may
need to obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our equity or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due to
our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at all. If
we raise funds by selling additional shares of common stock, such as through the
Amended and Restated Common Stock Sales Agreement with B. Riley FBR, Inc. and
Cantor Fitzgerald & Co., or other securities convertible into common stock, the
ownership interest of our existing stockholders will be diluted. If we are not
able to obtain financing when needed, we may be unable to carry out our business
plan. As a result, we may have to significantly limit our operations and our
business, financial condition and results of operations would be materially
harmed. While we are experiencing limited financial impacts at this time, given
the global economic slowdown, the overall disruption of global healthcare
systems and the other risks and uncertainties associated with the pandemic, our
business, financial condition, results of operations and growth prospects could
be materially adversely affected.
Adequate additional financing may not be available to us on acceptable terms, or
at all. If we are unable to raise capital when needed or on attractive terms, we
would be forced to delay, reduce or eliminate our research and development
programs or any future commercialization efforts. To meet our capital needs, we
are considering multiple alternatives, including, but not limited to, additional
equity financings, which include sales of our common stock under at-the-market
offerings, if available, debt financings, partnerships, collaborations and other
funding transactions. This is based on our current estimates, and we could use
our available capital resources sooner than we currently expect. We will need to
generate significant revenues to achieve profitability, and we may never do so.
As of March 31, 2022, we had approximately $84.1 million in cash and cash
equivalents and short-term investments.
Cash Flows
Operating activities. The use of cash during the three months ended March 31,
2022 and 2021 resulted primarily from our net losses adjusted for non-cash
charges and changes in components of working capital. Net cash used in operating
activities during the three months ended March 31, 2022 was $10.2 million
compared to $4.8 million during the same period in 2021. The increase was
primarily due to an increased net loss of $0.6 million, a decrease in
stock-based compensation of $2.0 million, a decrease in deferred revenue of $0.5
million, an increase in other assets of $4.8 million and an increase in accounts
payable and accrued expenses of $0.4 million. The increase in other assets
relates to
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reimbursements made to Merchants Ice II, LLC for equipment in our new San
Antonio facility that will be classified as a right of use asset upon lease
commencement.
Investing activities. Net cash provided by investing activities was $16.8
million during the three months ended March 31, 2022 compared to $0.6 million
during the same period in 2021. The increase is from the increase in net sale of
short-term investments of $18.1 million from 2021 to 2022 partially offset by
the increase in purchases of property and equipment of $0.7 million.
Financing activities. Net cash provided by financing activities was $0.06
million during the three months ended March 31, 2022 compared to $25.6 million
during the three months ended March 31, 2021. The decrease of $25.7 million was
primarily due to a $26.3 million net decrease of sales of our common stock
through an at-the-market Common Stock Sales Agreement with B. Riley FBR, Inc.
and Cantor Fitzgerald & Co., net of the decrease in related stock issuance costs
of $0.7 million.
Current and Future Financing Needs
We have incurred an accumulated deficit of $173.8 million through March 31,
2022. We have incurred negative cash flows from operations since we started our
business. We have spent, and expect to continue to spend, substantial amounts in
connection with implementing our business strategy, including our planned
product development efforts, our clinical trials, and our research and discovery
efforts.
We expect to incur significant expenses and continued losses from operations for
the foreseeable future. We expect our expenses to increase in connection with
our ongoing activities, particularly as we continue research and development and
advance our clinical trials of, and seek marketing approval for, our product
candidates and as we add to our product candidate pipeline including expansion
of our infectious disease/biothreat programs.
Our expenses will also increase due to our recent new lease obligations for the
manufacturing facility in San Antonio and related equipment expenses. In order
to promote efficiency and reduce our reliance on third-party vendors, we plan to
enhance our in-house development of bioanalytic, process development and
manufacturing capabilities and offer such services to third parties for fees. We
have entered into a lease for a 20,144 square foot facility in San Antonio, TX
to conduct such services and are currently building the facility. Our proposed
expansion in Texas is part of a company-wide growth strategy to enhance
efficiency and decrease our dependence on third-party vendors as we advance our
clinical trials and general research and development. The future forecasted
investment to build out the facility with labs, equipment, and staff will be
approximately $30.5 million, without taking into account federal new market tax
credits based on the location in San Antonio, federal and state historical tax
credits based on the historical designation of the facility, as well as city and
county tax abatement incentives with the City of San Antonio and Bexar County.
Scorpion reimbursements to Merchants Ice II, LLC, who is purchasing the
equipment for the CDMO facility, total $17.0 million for equipment through the
first quarter of 2022 and is included in the $30.5 million. We intend to fund
this initiative with current working capital. The potential value of tax credits
and tax incentives to Scorpion are estimated to be up to approximately $4.5
million based on the total cost of the build out, employees hired, real
property, and other factors. Operations at the facility are projected to
commence by the third quarter of 2022, and we expect to fill production capacity
by transitioning our outsourced manufacturing and development to in-house
immediately and followed by contracting with external customers. However, there
can be no assurance that we will be successful in these new operations. As of
May 13, 2022 we have spent $20.6 million on laboratory related manufacturing
equipment for the San Antonio facility.
In addition, we expect to incur additional expenses in connection with the
planned development partnership of Scorpion with a private developer, the State
of Kansas and local and university affiliates and the facility to be developed
by a third-party developer and leased to Scorpion.
Furthermore, we anticipate increased costs associated with the manufacture of
Anthim and the increase in headcount due to the acquisition of Elusys. Pursuant
to the terms of the Merger Agreement, we are obligated to pay an additional $2
million after having paid $3 million in cash consideration at closing, plus
additional expenses of $1.6 million, and subject to adjustment upon attainment
of certain milestones.
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In addition, if we obtain marketing approval for any of our product candidates,
we expect to incur significant commercialization expenses related to product
sales, marketing, manufacturing, and distribution. Although we currently have
sufficient funds to complete our clinical trials, as currently planned, and
expect that we will have sufficient funds to fund our operations into 2024, we
will need to obtain substantial additional future funding in connection with our
future planned clinical trials, the manufacturing facility that we are building
out in San Antonio, Texas and any new programs or ventures we pursue. While we
are currently funding vaccine development and preclinical studies, we do not
expect to use significant corporate resources to advance our COVID-19 program.
We are applying for several large grants to support clinical development of this
program and are engaged in collaboration discussions, which we believe may
provide attractive and non-dilutive pathways to help accelerate development of
our COVID-19 program; however, to date we have not received any grant funding
for such program and there can be no assurance that we will receive such grant
funding or if received, the amount of such grant funding. Adequate additional
financing may not be available to us on acceptable terms, or at all. If we are
unable to raise capital when needed or on attractive terms, we would be forced
to delay, reduce or eliminate our research and development programs or any
future commercialization efforts. To meet our capital needs, we are considering
multiple alternatives, including, but not limited to, additional equity
financings, which include sales of our common stock under at-the-market
offerings, if available, debt financings, partnerships, collaborations and other
funding transactions. This is based on our current estimates, and we could use
our available capital resources sooner than we currently expect. We will need to
generate significant revenues to achieve profitability, and we may never do so.
As of March 31, 2022, we had approximately $84.1 million in cash and cash
equivalents and short-term investments.
We intend to meet our financing needs through multiple alternatives, including,
but not limited to, cash on hand, additional equity financings, debt financings
and/or funding from partnerships or collaborations and potential revenue, if
any, from our planned development and manufacturing facility.
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 Securities and Exchange
Commission rules.
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SCORPIUS HOLDINGS, INC. 
