PLX PHARMA WINDDOWN CORP. Statements in this Quarterly Report on Form 10-Q (the "Quarterly Report") that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our ability to conduct and obtain successful results from ongoing clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our development efforts. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law. We urge you to read this entire Quarterly Report, including the "Risk Factors" referenced under Part II. Item 1A, the financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words "we," "us," "our," "the Company" and "PLx Pharma" refers toPLx Pharma Inc. and its subsidiaries. The information contained herein is current as of the date of this Quarterly Report (September 30, 2020 ), unless another date is specified. We prepare our interim financial statements in accordance withU.S. Generally Accepted Accounting Principles ("U.S. GAAP"). Our financials and results of operations for the three and nine months endedSeptember 30, 2020 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year endingDecember 31, 2020 . The interim financial statements presented in this Quarterly Report as well as other information relating to the Company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with theUnited States Securities and Exchange Commission (the "SEC"). Our Management's Discussion and Analysis of Financial Condition and Results of Operations is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Overview We are a late-stage specialty pharmaceutical company focused on our clinically-validated and patent-protected PLxGuard drug delivery platform to provide more effective and safer products. Our PLxGuard drug delivery platform works by targeting the release of active pharmaceutical ingredients to various portions of the gastrointestinal ("GI") tract. We believe this has the potential to improve the absorption of many drugs currently on the market or in development, and reduce the risk of stomach erosions and ulcers associated with aspirin and ibuprofen, and potentially other drugs. TheU.S. Food and Drug Administration (the "FDA") approved our lead product, VAZALORE 325 mg, which is a novel formulation of aspirin using the PLxGuard drug delivery platform intended to provide faster, reliable and more predictable platelet inhibition for the treatment of vascular disease as compared to the current standard of care, enteric-coated aspirin, and significantly reduce the risk of stomach erosions and ulcers as compared with immediate-release aspirin common in an acute setting. VAZALORE 325 mg (formerly PL2200 Aspirin 325 mg and Aspertec 325 mg) was originally approved under the drug name aspirin, and the proprietary name 'VAZALORE' was granted subsequent to the FDA approval. A companion 81 mg dose of the same novel formulation, VAZALORE 81 mg, is in late-stage development and will be the subject of a supplemental New Drug Application ("sNDA"), leveraging the already approved status of VAZALORE 325 mg. Our commercialization strategy will target both the over-the-counter ("OTC") and prescription markets, taking advantage of the existing OTC distribution channels for aspirin while leveraging the FDA approval of VAZALORE 325 mg and anticipated approval for VAZALORE 81 mg for use when recommended by physicians for treatment of vascular disease. Given our clinical demonstration of faster, reliable and more predictable platelet inhibition (as compared with enteric-coated aspirin) and fewer stomach erosions and ulcers (as compared with immediate-release aspirin) common in an acute setting. We intend to market VAZALORE to the healthcare professional and the consumer through several marketing channels including a physician-directed sales force. Our product pipeline also includes other oral nonsteroidal anti-inflammatory drugs ("NSAIDs") using the PLxGuard delivery system that may be developed, including PL1200 Ibuprofen 200 mg, for pain and inflammation currently in clinical stage. We are focused on collecting the data required for post-approval manufacturing changes which will be included in the sNDA filing for VAZALORE 325 mg and to support approval of low dose VAZALORE 81 mg. 19
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Table of Contents Critical Accounting Policies Our consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 3 of the Notes to Unaudited Consolidated Financial Statements included elsewhere herein describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance withU.S. GAAP and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: Use of Estimates The preparation of consolidated financial statements in conformity withU.S. GAAP requires management 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 consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, determining the fair value of tangible and intangible assets and liabilities acquired in business combinations, the fair value of warrant liability the fair value of stock-based compensation, allowance for inventory obsolescence, contingent liabilities, fair value and depreciable lives of long-lived assets, and deferred taxes and associated valuation allowance. Actual results could differ from those estimates. Fair Value Measurements Fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value. The Company's financial instruments (cash and cash equivalents, receivables, accounts payable and accrued liabilities) are carried in the consolidated balance sheet at cost, which reasonably approximates fair value based on their short-term nature. The Company's warrants are recorded at fair value, with changes in fair value being reflected in the statements of operations for the period of change. The fair value of the Company's term loan (the "Term Loan") pursuant to its Loan and Security Agreement withSilicon Valley Bank ('SVB"), datedAugust 9, 2017 , that provides for the Term Loan facility approximates its face value of$1.6 million based on the Company's current financial condition and on the variable nature of the Term Loan's interest feature as compared to current rates. 20
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Research and Development Expenses
Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses consist of direct and indirect costs associated with specific projects, manufacturing and regulatory activities, and include fees paid to various entities that perform research related services for the Company combined with reimbursable costs related to the federal grant with theNational Institutes of Health ("NIH"). Stock-Based Compensation The Company recognizes expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options and stock awards. The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options on the grant date. Compensation cost is amortized on a straight-line basis over the vesting period for each respective award. The Company accounts for forfeitures as they occur. Adopted Accounting Guidance
For a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant, see Note 3 of the Notes to Unaudited Consolidated Financial Statements included elsewhere herein.
RESULTS OF OPERATIONS
Comparison of Three Months Ended
Revenue Total revenues were$0 for the three months endedSeptember 30, 2020 , compared to revenues of$41,106 for the three months endedSeptember 30, 2019 . Revenue in the 2019 period is attributable to work performed under a federal grant from theNIH which came to an end in the second quarter of 2020. Operating Expenses Total operating expenses were$3.2 million during the three months endedSeptember 30, 2020 , a 14% decrease from operating expenses of$3.7 million in the comparable period in 2019. Operating expenses for the three months endedSeptember 30, 2020 and 2019 were as follows: Three Months Ended September 30, Increase (Decrease) 2020 2019 % Operating Expenses Research and development expenses$ 1,207,302 $ 1,214,029 $ (6,727 ) (1 )% General and administrative expenses 1,981,037 2,503,314 (522,277 ) (21 )% Total operating expenses$ 3,188,339 $ 3,717,343 $ (529,004 ) (14 )%
Research and Development Expenses
Research and development expenses totaled
General and Administrative Expenses
General and administrative expenses totaled$2.0 million in the three months endedSeptember 30, 2020 , compared to$2.5 million in the prior year period. The decrease primarily reflects lower compensation related expenses combined with reduced spending on conferences and related travel due to COVID-19 restrictions. 21
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Table of Contents Other income (expense), net Other income (expense), net totaled$61,847 and$5.4 million of net other income in the three months endedSeptember 30, 2020 and 2019, respectively. The decrease is largely attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the Company's common stock combined with lower net interest which was impacted by a lower principal debt balance and lower interest rates.
Comparison of Nine Months Ended
Revenue Total revenues were$30,430 for the nine months endedSeptember 30, 2020 , compared to revenues of$541,571 for the nine months endedSeptember 30, 2019 . All revenue in both the 2020 and 2019 periods is attributable to work performed under an award of aNIH grant which came to an end in the second quarter of 2020. Operating Expenses Total operating expenses were approximately$9.8 million during the nine months endedSeptember 30, 2020 , a 11% decrease from operating expenses of approximately$11.0 million in the comparable period in 2019. Operating expenses for the nine months endedSeptember 30, 2020 and 2019 were as follows: Nine Months Ended September 30, Increase (Decrease) 2020 2019 % Operating Expenses Research and development expenses$ 3,116,097 $ 3,805,617 $ (689,520 ) (18 )% General and administrative expenses 6,681,452 7,180,674 (499,222 ) (7 )% Total operating expenses$ 9,797,549 $ 10,986,291 $ (1,188,742 ) (11 )%
Research and Development Expenses
Research and development expenses totaled approximately$3.1 million in the nine months endedSeptember 30, 2020 , compared to$3.8 million in the prior year period. The decrease is due to lower manufacturing-related activities for VAZALORE, as the prior year period included the manufacture and packaging of the registration batches. The decrease also reflected lower reimbursable grant expenses as the grant from theNIH came to an end in the second quarter of 2020. Higher clinical-related spending primarily for the bioequivalence study partially offset this decrease.
General and Administrative Expenses
General and administrative expenses totaled approximately$6.7 million in the nine months endedSeptember 30, 2020 , compared to$7.2 million in the prior year period. The decrease was due to compensation-related expense and reduced spending on conferences and related travel due to COVID-19 restrictions, which were offset somewhat by higher spending on pre-launch marketing activities and higher stock compensation. Other income (expense), net Other income (expense), net totaled approximately$2.5 million of net other income in the nine months endedSeptember 30, 2020 , compared to$8.1 million of net other expense in the prior year period. The difference is largely attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the Company's common stock combined with lower net interest expense due to lower interest rates and lower principal debt balance. 22
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LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
The following table summarizes the primary uses and sources of cash for the
periods indicated:
Nine Months Ended
September 30,
2020 2019
Net cash used in operating activities
Net cash used in operating activities of$9.7 million and$9.0 million for the nine months endedSeptember 30, 2020 and 2019, respectively, is higher in 2020 due to the increase in the settlement of year-end liabilities primarily for manufacturing, pre-commercial marketing and patent related costs combined with higher purchases of raw material related inventory.
Net cash used in investing activities totaled
Net Cash Provided by Financing Activities
Net cash provided by financing activities totaled$4.9 million and$13.4 million in the nine months endedSeptember 30, 2020 and 2019, respectively, and reflects proceeds from the private placement of our Series B convertible preferred stock in the 2020 year, which was lower than the proceeds from the private placement of Series A Preferred Stock and proceeds from the sale of common stock in the prior year. The current year period also includes higher payments of the Term Loan as the prior year period reflected two less payments due to the start of the payment amortization period.
Future Liquidity and Capital Needs
As ofSeptember 30, 2020 , we had working capital of$5.8 million , including cash and cash equivalents of$9.1 million . InMarch 2019 , we entered into an equity distribution agreement (the "Equity Distribution Agreement") withJMP Securities, Inc ("JMP") to issue and sell shares of our common stock, having an aggregate offering price of up to$12.5 million , from time to time during the term of the Equity Distribution Agreement, through an "at-the-market" equity offering program at our sole discretion, under which JMP acts as our agent. AtSeptember 30, 2020 , we had$10.2 million available under this "at -the-market" program. We have not generated any revenue from the sale of products and have incurred operating losses in each year since we commenced operations. As ofSeptember 30, 2020 , we had an accumulated deficit of$94.2 million . We expect to continue to incur significant operating expenses and operating losses for the foreseeable future as we continue the development and commercialization of VAZALORE. These expenses include pre-commercial marketing spend which is discretionary and controllable as to the timing of the spending and for the sNDA for VAZALORE. Even if we do generate revenues, we may never achieve profitability, and even if we do achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline. Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or when, if ever, we will become profitable. We will need to obtain significant additional financing in the future, in addition to the proceeds from the "at-the-market" program, to execute our commercialization plan. We may obtain additional financing through public or private equity offerings, debt financings (including related-party financings), a credit facility or strategic collaborations. Additional financing may not be available to us when we need it or it may not be available to us on favorable terms, if at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We currently have no understandings, commitments or agreements relating to any of these types of transactions. If we are unable to raise additional funds when needed, we may be required to sell or license our technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves. The Company believes its cash on hand atSeptember 30, 2020 combined with the available funding under the "at-the-market" program and the latitude for the timing of spending of certain expenses is adequate to fund its obligations for at least twelve months from the date that these financial statements were issued and mitigate the substantial doubt consideration. 23
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